Industry Trend Analysis - Local Supply Chain A Risk To Production Growth - OCT 2017

BMI View: The pace of development in Iran ' s supply chain will have to accelerate to meet the increased demands placed on it from 10.9% average annual growth in vehicle production over the next five years. In the meantime a softening in local content requirements might be in order to enable big investment projects to go ahead.

The underdeveloped nature of Iran's automotive supply chain will continue to pose a risk to the growth of the country's vehicle production industry, despite investment continuing to flow in from foreign carmakers such as Renault's recent EUR660mn joint venture (JV) deal. It was reported that a major sticking point to negotiations of Renault's tie-up with the Industrial Development And Renovation Organisation of Iran (IDRO) was the requirement for 40% local content in the models produced by the JV.

The domestic supply chain falls short on a number of points, not least quality and quantity. Although anecdotal, there are reports of locally made components being of poor quality and still highly priced given the lack of competition during the period of western sanctions. On the second point, the influx of investment into additional vehicle production capacity will make it difficult for local suppliers to keep up with demand. This was highlighted in April when a fire at one of the country's largest suppliers, Crouse Company, disrupted the production schedule of the biggest national carmakers Iran Khodro and SAIPA because of the heavy reliance on this company.

Stakes Are High For Production Industry
Iran - Vehicle Production & Growth
e/f = BMI estimate/forecast. Source: BMI, IVMA

This article is part of our Middle East & Africa coverage. To access this article subscribe now or sign up for free trial