Localization Projects to Curb IKCO Capital Flight by €133m

EghtesadOnline: Iran's largest automaker, Iran Khodro (IKCO), has implemented 125 localization projects in various fields, which are expected to reduce capital flight by €133 million per year.

News ID: ۷۸۶۳۸۶

25 April 2021

Adel Pirmohammadi, CEO of auto parts manufacturer SAPCO, said indigenization ventures would save up to €76 million in auto parts and €26 million in raw materials, IKCOPress reported.

“Optimization of the car manufacturing process will save €24 million and the localization of molds and auto mechanic equipment will save an additional €7 million,” he added.

The official noted that localization projects would require an investment of €13 million, adding that IKCO intends to raise a portion of the funds by selling unproductive properties and assets, and procuring bank loans and private sector investment.

Pirmohammadi said the imported component of production for each vehicle is €1,715, of which 67% are spent on importing raw materials and electronic components.

“The remaining 33% are spent on parts and vehicle frames, which can be reduced in cooperation with other industries, such as petrochemical and steel manufacturing sectors,” he added.

He urged local producers and industrial units to make their best efforts in projects that bring the auto sector closer to self-sufficiency.

In line with the automaker’s indigenization objectives, SAPCO is planning to produce vehicle frames, parts and mechanical tool sets for 630,000 IKCO cars in the current Iranian year (started March 21).

The plan is aimed at promoting localization in the sector and reducing auto part imports by utilizing the domestic industrial, scientific and technological capacities.

In addition, SAPCO is working on 131 localization projects in collaboration with knowledge-based companies. Projects worth 1 trillion rials ($4.18 million) are expected to cut capital flight by $150 million annually.

The parts maker also has 21 joint projects with the Defense Ministry, which are projected to save up to €33 million per year.

SAPCO has signed 23 collaboration agreements worth 2 trillion rials ($8.36 million) with the Islamic Revolution Guards Corps Aerospace Division. The deals are expected to slash imports by $46 million per annum.

Money-Saving Moves

According to Farshad Moqimi, CEO of the automaker, localization of vehicle parts has saved up to $210 million for IKCO in the last two Iranian years (March 2019-21).

He said the achievement has been made, thanks to 135 auto parts localization and vehicle design projects implemented with the help of SAPCO during the time.

“The projects have gradually curbed IKCO’s dependency on foreign suppliers,” he added.

According to IKCO’s chief, the company has produced 2,000 sets of vehicle frames and mechanical tools, saving up to $22 million with the support of industrial units, affiliated with the Defense Ministry and knowledge-based companies.

“The company used to spend close to $360 million on the import of parts every year. Fortunately, indigenization efforts can raise the amount of saving to $248 million per year,” he added.

Moqimi called on banks to extend support to parts makers for upgrading their machinery and asked relevant authorities to cut their tax rates.

“Encouraging local parts makers to manufacture high-tech imported components is on IKCO’s agenda,” he said.

Car Production Surges

State-backed automotive tech localization efforts and the strong role of knowledge-based and technology firms in the past several months have boosted the production rate of domestic automakers.

The surge is evident in the sector’s 4.33% rise in output registered in the fiscal 2020-21 year-on-year.

According to a report published by Iran’s Securities and Exchange Organization on Codal.ir, Iran produced 37,451 more cars compared to the year before. No data have been released on commercial vehicle production.

Industry insiders believe that this could not be achieved in the absence of government support and the tech ecosystem.

Late August, the Industries Ministry said it is planning to invest 40 trillion rials ($167.36 million) in a research and development project for localizing key auto parts.

Mehdi Sadeqi-Niyaraki, a deputy industries minister, said several firms and state entities have joined forces to implement the project.

Major Iranian car companies are to spearhead the project by tapping into the potentials of local tech firms and knowledge-based companies, he added.

The Defense Ministry and the Islamic Revolution Guards Corps Aerospace Division will also contribute to the project. The ministry has lately launched projects to indigenize auto parts production and IRGC’s aerospace arm has become active in the field of automotive engineering and R&D over the past few years.

In June 2019, the Defense Ministry began to share its technological capabilities with local car companies. Since then, the production of homegrown substitutes for key imported car parts was placed high on the agenda.

The ministry helped produce domestic counterparts for 35 key auto parts in Iran to curb the industry’s reliance on the global supply chain.

Recently, the Iranian Army also joined the Defense Ministry in backing similar endeavors of domestic automakers.

Deputy Coordinator of Iran’s Air Force Brigadier General Mehdi Hadian told reporters that the army’s Air Force possesses high-tech equipment to support the domestic auto sector.

“The linkup can help mobilize this potential and fill the gaps on both sides,” he said.

In the face of economic constraints created by US sanctions in 2018, the auto sector focused on achieving self-sufficiency in the production of auto parts, especially high-tech components.

These efforts have resulted in slashing the import of auto parts and saving foreign currencies. However, several fiscal issues are yet to be settled in the auto sector.