China's Renewed Dominance in Iran's Automotive Industry?

Following the exit of European companies or their reduced activities in Iran, Chinese companies are becoming the main foreign players in Iran's automotive industry. Will they reclaim the market share previously held by others? In the first quarter of 2023, approximately $400 million worth of parts were imported from China for the assembly of Chinese cars in Iran. This figure is expected to exceed $1.5 billion for the year. It seems this amount will increase, as with the cessation or reduction of cooperation between Iranian companies and European automakers, Iranian car manufacturers are either forced to produce these parts in Iran or turn to Chinese companies. Previous experiences with nuclear sanctions indicate that automakers are more likely to choose the latter option. A report from the Research Center of the Iranian Parliament shows that the share of Chinese-manufactured passenger cars assembled in Iran was nearly twenty percent of total passenger car production in the first quarter of 2023. This means that one in every five cars produced in Iran is Chinese. This growth coincided with the exit of European companies from Iran due to U.S. nuclear sanctions. Chinese companies generally do not have significant markets in the U.S. and operate in Iran with less fear. European automakers are required to achieve at least fifty percent localization in Iran, while Chinese companies produce cars with much lower localization rates and are reluctant to localize parts in Iran. Among Chinese companies, Dongfeng's localization rate is between 30 to 40 percent, while other Chinese companies use a maximum of 30 percent of parts manufactured in Iran. After the JCPOA and the entry of European companies into Iran, there was increased pressure on Chinese automakers to enhance localization, but now, with the exit of European companies due to fears of U.S. sanctions, Chinese companies can more comfortably assemble their vehicles in Iran. In their assembled vehicles in Iran, the Chinese primarily use parts such as tires, batteries, and seats as Iranian components, while the rest of the parts are imported from China. The two companies, Iran Khodro and Saipa, have also moved towards greater collaboration with Chinese companies. These two companies are trying to fill the gap left by Peugeot-Citroën, which was investing to produce 200,000 vehicles in these companies, with Chinese companies. Renault's activities, although it has not exited Iran, have decreased, and therefore Iran Khodro and Saipa want to compensate for this decline with Chinese products. Iranian automakers, lacking the opportunity to collaborate with European companies for the development of new products, have turned to Chinese companies. Iran Khodro is developing a new platform with the help of German, Austrian, and Italian companies, while Saipa has developed its new platform with the help of Chinese companies like Brilliance. The first product on this platform is a vehicle named Raham. Saipa has been collaborating with several Chinese companies over the past few years within the framework of the SP 100 platform project to develop this vehicle's platform. The platform of this product is one of Toyota's older platforms in classes B and C, on which Chinese companies have designed several models, and now, with modifications, it has become the main structure of the Raham vehicle's platform. Now, it is likely that as working with European companies becomes more difficult, Iran Khodro will also choose a similar approach to develop its products and turn to Chinese companies.