During a Sunday visit to SAIPA’s production lines, Deputy Coordinator of Iran Air Force Brigadier General Mehdi Hadian and a member of SAIPA’s board of directors, Masoum Najafian, inked a collaboration deal, the automaker’s website Saipanews.com reported.
At the signing event, Hadian emphasized that the auto sector and army have a lot in common.
“Army’s Air Force has upgraded high-tech equipment, which can help flourish the domestic auto sector. The linkup can put this potential into practice and fill the gaps on both sides,” he said.
Hadian noted that the establishment of professional joint working groups can help define more projects between the automaker and the air force.
Najafian said self-sufficiency in the production of all auto parts, especially the high-tech components, is the main challenge facing the auto sector.
“The goal is certainly achievable with the army’s support. Besides maximizing the share of domestic producers in the auto part sector, this cooperation can also be extended to launch new schemes and expand the sector’s horizons,” he added.
Transferring modern technologies and capabilities of the armed forces to the domestic auto industry has been placed on the agenda of Iranian authorities.
In May, the commander of the Islamic Revolution Guards Corps’ Aerospace Force said the force can provide Iranian automakers with advanced technologies so that they can overcome their shortcomings and reduce their reliance on foreign firms.
During a visit to Iran University of Science and Technology, Brigadier General Amir Ali Hajizadeh told reporters that the IRGC Aerospace Force was ready to give consultations to Iranian carmakers to address their shortcomings in the field of technology and car parts production.
He described the reliance on local capabilities and domestic knowledge-based companies the key to success.
“IRGC has no plans to take the helm of the industrial sector and start manufacturing cars, but our goal is to extend help and [provide carmakers with] consultations,” he added.
In July 2019, the Iranian Defense Ministry unveiled plans to boost cooperation with domestic companies in producing auto parts to counter economic sanctions against the Islamic Republic’s automotive industry.
Productive Investments
The local media reported in late August that Iran’s Industries Ministry plans to invest 40 trillion rials ($160 million) in a research and development project for localizing key auto parts, Mehdi Sadeqi Niyaraki, a deputy industries minister, said.
He added that 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.
The Defense Ministry and IRGC’s Aerospace Division will also contribute to the project. The ministry has lately undertaken a number of 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.
“The project envisages the production of automotive high-tech components, including turbochargers, electronic control units and special sensors, which are currently imported. After developing and testing prototypes, we will begin mass production,” Niyaraki said.
He stressed that the indigenization of automotive technologies is high on the agenda of Iranian state authorities.
According to the deputy industries minister, there is a huge demand for auto parts in the domestic market, as devaluation of Iran’s national currency rial has made auto parts’ imports economically unviable.
He emphasized that production units should be overhauled to mass-produce high-tech auto parts.
“Manufacturers should be able to offer the parts at affordable prices to car companies,” he added.
Niyaraki noted that in the last Iranian year (ended March 19, 2020), over €330 million have been invested in localization of auto parts and the government and automotive companies plan to inject more funds into the project.
High Hopes
In a recent interview, secretary of Iranian Auto Parts Manufacturers Association said local auto industries can reduce capital flight by up to $2 billion, if the government were to support their localization efforts.
Arash Mohebbinejad added that bolstering domestic production can reduce the industry’s dependency on international supply chain, although the goal could only be attained with state support.
He also said that thanks to localization plans, major carmaker Iran Khodro (IKCO) is expected to spend €153 million less on auto parts imports in the current fiscal year that ends in March 2021.
Mohebbinejad noted that IKCO claims to have already curbed capital flight worth €137 million in the first four months of the current Iranian year [started March 20].
“This is thanks to the huge help of Industries Ministry and the constant efforts of major parts makers, plus production optimization solutions employed by the firms,” he said.
“While Iranian automakers have been able to curb reliance on foreign suppliers extensively, around 25% of key auto parts still need to be imported. Outdated technologies employed by Iranian carmakers have hindered their localization efforts.”
The business insider also noted that Iranian automotive industries have limited access to subsidized hard currencies, which have hampered production and expansion plans.
Since 2018 when the US reimposed sanctions against Iran, the rial has lost about two-thirds of its value and prices of almost all goods have soared to unprecedented highs. The greenback was trading at 250,000 rials in Tehran on Tuesday, though it hardly fetched 42,000 rials two years ago.
The government offers subsidized USD to producers, the exchange rate of which was around 190,000 rials per dollar on Monday.
Criticizing the state’s inefficient management of the ailing sector, Mohebbinejad said the sporadic money injections have so far acted more as temporary sedatives.
Borrowings cannot solve the underlying issues of auto parts manufacturers and an effective strategy is required to revive the industry,” he said.
“Adding to the problem, contracts between automotive companies and parts makers are pending updates because of the new currency rates. Auto parts are still sold at extremely low prices, which add to the parts makers’ financial woes.”
Calling on policymakers to modify their earlier deals, Mohebbinejad suggested a 65% increase in parts prices to pay off higher operating costs.