Automotive Parts Localization Expected to Save €74 Million

EghtesadOnline: Iran’s major automaker Iran Khodro Company (IKCO) has helped save €69 million through the indigenization of auto parts production since the beginning of the current Iranian year (March 21).

News ID: ۷۸۷۴۲۷

14 December 2021

According to Farshad Moqimi, the company’s CEO, the achievement was made possible by technological breakthroughs in the auto industry, the government’s news website Dolat.ir reported.

“With the implementation of several projects designed to deepen indigenization efforts, the saving could optimistically rise to €74 million. We have missed this year’s early estimate of €133 million, but there is still hope for compensation in the following years,” he added.

Moqimi explained that in the last two years, IKCO has designed over 133 auto parts localization and vehicle design projects with domestic knowledge-based companies, 22 projects with the Defense Ministry and its affiliated producers, and 26 projects with the Islamic Revolution Guards Corps’ Aerospace Force.

The IKCO chief said this has resulted in the utilization of a local car platform, a large number of parts, six-speed manual transmission (gearbox) and three-cylinder piston engines.

“These projects have gradually curbed IKCO’s dependency on foreign suppliers,” he added, hoping that the use of imported complete knock-down (CKD) kits will be minimized by the time.

According to Moqimi, the company has so far localized 2,000 sets of vehicle frames and mechanical tools with the support of industrial units affiliated with the Defense Ministry and knowledge-based companies.

“The company used to spend close to €360 million for the import of parts every year. Fortunately, indigenization efforts have the potential to raise the amount of annual saving to €248 million,” he said.

Latest Move

One of the latest localization measures was taken by IKCO in mid-October, when the company launched a new auto part production line that will purportedly save €17 million in imports each year.

The production line was inaugurated with the support of the Ministry of Industries, Mines and Trade in the premises of the company’s subsidiary, Iran Khodro Machine Tools Industries Company (IKMT), in Alborz Province.

According to Moqimi, the line is specialized in manufacturing torsion beam suspension for IKCO's Tara model.

Also known as K132, Tara is a modified version of Peugeot 301, based on IKCO’s IKP1 platform that is also shared with Peugeot 2018, 2008 and Citroen C-Elysee.

"The key component was designed and manufactured with the assistance of seven industrial groups and the support of IKMT," Moqimi said.

He asserted that the quality of IKCO's torsion beam compares favorably with foreign versions, which is also being considered for export.

Ties With Banks

To boost IKCO’s localization initiatives, Iran’s Bank Tejarat decided to lend 1.5 trillion rials ($5 million) to the automaker in July.

Based on an agreement between the two entities, the bank agreed to pay the financial facility by the end of the current fiscal year (March 2022).

Moqimi said Bank Tejarat is the company's strategic financial partner, stressing that financial assistance can help localize auto parts manufacture and increase the sector's net working capital.

“The bank has also agreed to issue a specific amount of productive credit certificates to the carmaker to help oil the industry's wheels,” he added, hoping that the pact will encourage automakers and parts manufacturers to expand their operations.

Also known by its Persian acronym Gam, Productive Credit Certificates are a financial instrument newly developed by the Central Bank of Iran to help meet the funding needs of manufacturing units and businesses.

The instrument is described by the bank as a “market-oriented instrument that can be traded in money and capital markets”.

Armed Forces

To boost indigenization initiatives and thwart the negative effects of US sanctions on the auto industry, Iran’s armed forces is expected to play a stronger role in the key sector.

After the US reimposed sanctions on Iran, foreign automotive firms pulled out of the country. The armed forces, along with local tech firms, have filled up the void caused by foreign suppliers’ withdrawal from the Iranian market.

Iran’s Army, Defense Ministry and the Islamic Revolution Guards Corps’ Aerospace Force are leading the efforts.

Sharing their modern technologies, the armed forces helped IKCO and SAIPA, Iran’s major automakers, and local parts makers to boost output.

The assistance helped boost the production of high-tech components and upgrade machinery and industrial skills.

Earlier, speaking to Fars News Agency, Deputy Defense Minister for Legal and Parliamentary Affairs Brigadier General Reza Talaei-Nik said, “Our support will continue to fill the technological gaps in the domestic automotive sector and improve the quality and volume of their production.”

Backing the military's role in the auto sector, the Iranian Parliament is developing a plan to further expand their presence. The plan calls for the establishment of a new auto production facility, which would be entirely run by military forces.

The proposal is still in the early stages of development and there is no assurance that it will be approved by the Guardians Council. However, efforts are being made to incorporate military technology in the domestic automobile industry.