IKCO Launches 175 Projects for Auto Parts Localization

EghtesadOnline: In line with efforts to deepen the localization of auto parts production, 175 projects have been launched by Iran’s major carmaker Iran Khodro (IKCO), the company’s CEO said.

News ID: ۷۵۰۳۳۰

28 June 2020

Farshad Moqimi said the projects are expected to slash demand for auto parts imports and curb capital flight by €246 million, the automaker’s website Ikcopress.ir reported.

To accelerate the projects, IKCO entered into an agreement with Iran’s Tejarat Bank during a Thursday event to support small- and medium-sized domestic auto parts producers.

The projects include the production of a large number of key parts for passenger and commercial vehicles, and would hopefully supply IKCO auto production lines.

Speaking at the event, Moqimi said continuing endeavors for localization of parts creates jobs and minimizes the country’s dependency on foreign sources, besides saving forex reserves.

Reza Dolatabadi, the head of the bank, said he is trying to strengthen the bank’s role in the auto sector.

“Tejarat Bank will help develop the industry within its boundaries but with a higher capacity than before,” he added.

The signing ceremony was also attended by representatives from the Industries Ministry, Industrial Development and Renovation Organization of Iran, Auto Part Makers Association and directors of several knowledge-based companies.

Self-Sufficiency

Elaborating on localization plans in March, the Industries Ministry told local media outlets that with the domestic development and production of 70 key auto parts since July 2019, Iran’s automotive industry has curbed capital flight amounting to €127 million.

The initiative to increase the share of domestic auto parts in local production was launched by the Industries Ministry.

Several meetings have been held in the past few months between government officials and industry insiders in this respect.

According to Saeed Zarandi, a deputy industries minister, during these meetings, deals were forged with domestic manufacturers for the production of 68 key auto parts and several high-tech items imported in the past.

Zarandi said the ultimate goal is to save up to €400 million annually through the localization of more auto parts, for which more meetings will be held soon.

The ministry’s initiative also applauded similar moves by carmakers themselves.

According to IKCO, the company has signed several agreements with domestic industrial units and small- and medium-sized enterprises to mass produce 32 key auto parts, which will save up to €16.7 million annually.

Officials hope that the efforts will yield sustainable benefits for the domestic auto industry.

Earlier in December 2019, the company announced that it will utilize the technical and engineering expertise of eight industrial companies affiliated to the ministry to curb the auto industry’s reliance on imports.

Defense Ministry’s Role

Iran's Defense Ministry had also undertaken a share in the initiative by signing a deal in December 2019 with local car manufacturing company SAIPA to curb the auto sector's reliance on foreign parts.

Iranian car companies depend on auto parts imports, especially key electronics, for producing vehicles. Following the imposition of harsh US sanctions against Tehran, the local firms’ ties to the global supply chain were disrupted and the import of parts began to trickle.

Defense Minister Amir Hatami signed an agreement with SAIPA last year to bolster collaboration in research and development, design, technical monitoring, safety standards and localization of parts.

Seyyed Javad Soleimani, CEO of SAIPA, said, “With the Defense Ministry’s help, domestic substitutes for 35 key auto parts are to be produced in Iran to curb the industry’s reliance on the global supply chain.”

Pointing to the fact that 23% of auto parts used in SAIPA cars need to be imported, Soleimani said, “If the agreement with the ministry is fully implemented, the localization of parts manufacturing will prevent the capital flight of $300 million per year.”

In early June 2019, the ministry started to share its technological capabilities with local car companies, IKCO and SAIPA. As per the move, with the ministry's support, homegrown substitutes for key imported car parts are expected to be produced in Iran to curb the industry’s reliance on the global supply chain, Alireza Badkoubeh, a deputy director at SAIPA, said.

IKCO is also strengthening ties with Defense Ministry-affiliated firms by planning 23 auto parts production projects. This is the company’s newest move to curb the sector's dependence on imports.

Sanctions' Effect

Following the reimposition of US sanctions against Tehran last summer, ties between Iranian car companies and international auto part suppliers were disrupted.

Almost all partners of local carmakers suspended their Iran operations. Some of the automotive firms that withdrew from the Iranian market are Renault, Peugeot, Citroen, Volvo, Daimler and Hyundai.

With sanctions taking a toll on Iran’s international banking relations, local car companies can hardly purchase parts from smaller market players and intermediaries.

All these have led to a sharp fall in domestic car output. Officials believe the mobilization of domestic potential and localization of the sector can put a cap on automotive shortcomings.