Earlier this week, Renault signed a joint venture agreement with Iran’s IDRO and Parto Negin Naseh, under which, the French carmaker will set up a new factory south of Tehran, which will produce 150,000 vehicles per year within 18 months of opening.
The move is a significant gamble at a time when elements within Donald Trump’s US Presidential Administration are exploring the possibility of exiting the 2015 nuclear deal which lifted a raft of economic sanctions on Iran.
Nonetheless, several French companies have signed significant deals within the country, demonstrating the multilateral nature of the agreement between Iran and six world powers. In July, Total agreed to invest $1bn in Iran’s vast South Pars natural gas field, as part of a collaboration with China National Petroleum Corporation and Petropars.
Along with rival auto manufacturers Peugeot and Citroen, which have built up their own presence in the country, Renault views Iran as a significant growth opportunity. With a population of roughly 80m, and weak competition from other global automotive companies, the Iranian market has proven a significant boon to Renault’s bottom line since 2015.
The company sold 51,500 vehicles in Iran during 2015, ramping this up to 68,000 vehicles for the first half of 2017 alone. To put the significance of this expansion into perspective, Renault already sells more cars in Iran than in the UK, though it possesses a higher market share in the former.
As a result of the joint venture, in which Renault will hold a 60% stake, the company is on course to produce roughly 500,000 vehicles per year in Iran by 2022. Consequently, Renault will have to make substantial investments in its supply chain. The company has operated in Iran since 2003, when it established joint venture arrangements with local manufacturers Iran Khodro and Saipa. Unlike its competitors, Renault was able to continue operating in the country even during the peak of the economic sanctions regime.
A significant shift in the company’s Iranian operations is the establishment of its own distribution network, including sales and aftersales dealerships. Previously, these downstream operations were conducted by the company’s Iranian partners, who will continue to assemble Renault vehicles from CKD (complete knock down) kits.
The other major change is the domestic production of vehicle engines, which were previously imported into Iran in completed form. As part of this move, Renault has stated that it will attempt to source components from local suppliers as much as possible.
The news of this arrangement is likely to be welcomed by major shipping lines, such as Maersk, who recently resumed regular services to the main Iranian container port of Bandar Abbas. In addition to carrying the imported car parts to be assembled in Iran, carriers can expect to see a significant volume of finished vehicles on outbound lanes; the terms of the joint venture envisage that roughly 30% of the cars produced by Renault will be exported.
With the exception of this business however, much of the logistics operations within the country will be handled by domestic providers. Many logistics companies are cautious about establishing their own operations in the country, with the majority operating through local partners.
Source: Transport Intelligence, August 10,2017
Author: Alex Le Roy
