Iran Trade Ban Might Curb Peugeot, Renault And Daimler.
“the absence of the French automakers in the U.S. market makes them less vulnerable to penalties from any violation of U.S. sanctions still in force”
PSA Group, Renault and Daimler are the most exposed Europeans to the U.S. decision to withdraw from the 2015 Iran nuclear deal and impose a trade embargo on that country, according to analysts.
PSA and Renault have built up their presence in Iran since restrictions were lifted in 2015, while Daimler’s Mercedes-Benz has interests there too.
The U.S. trade embargo doesn’t directly affect European companies, but it’s the secondary impact that might impact them if they seek to sell cars or components in the U.S. If they contravene U.S. trade policy, curbs may be sought on deals in America.
Currently Renault doesn’t sell its cars in the U.S., although its affiliate Nissan of Japan does, often using French engines and components. That might fall foul of any ban. Peugeot withdrew from the U.S. in 1991 but has recently stated its intention to restart business there. Mercedes not only sells many vehicles in the U.S., but has factories there too.
According to BMI Research, there is much uncertainty surrounding the trade embargo.
“The autos sector was one of the biggest beneficiaries when the nuclear deal was struck in 2015, opening the door for millions of investment from the likes of PSA Group and Renault, which held considerable share of the market between them prior to sanctions. The most immediate effect of the U.S. withdrawal from the deal is likely to be a wind down of new investments until companies have more clarity. Those already operating in the country, particularly European companies, also face uncertainty as to how secondary sanctions – impacting those companies doing business with the U.S. – will impact their business,” BMI Research said in a report.
Action in August
BMI Research pointed out that there will be a 120-day preparation period before the U.S. sanctions are re-imposed, with the first batch including the autos sector, scheduled for August.
Investment researcher Jefferies said the financial impact on Peugeot and Renault, which between them have about 40 per cent of the Iranian 1.6 million annual market, won’t be all that great. Jefferies estimates Peugeot’s Iranian operation generates about €200 million in sales and profit of about €10 million or 0.3 per cent of overall profits. Renault’s business in Iran generates about €40 million in profit or 1 per cent of overall earnings.
Peugeot has said it hopes the European Union will adopt a common position on Iran.
Investment researcher Evercore ISI said the French manufacturers might be harmed if Europe doesn’t manage to retain a deal with Iran.
“President Trump’s withdrawal from the Iranian Nuclear Deal could threaten the investments made by Peugeot/Renault, unless the EU manages to retain a pact with Iran. That said, the absence of the French automakers in the U.S. market makes them less vulnerable to penalties from any violation of U.S. sanctions still in force,” Evercore ISI analyst Arndt Ellinghorst said.
Daimler has been active in Iran too, says BMI Research, investing in both truck assembly and an assembly line for its Mercedes cars.
“Given that the company also has well established North American operations, including plants in the U.S., Daimler could be more at risk than the French companies, although PSA is planning a return to the North American market as a key part of its global strategy,” BMI Research said.
In the end it is possible that Iran and the U.S. will manage a deal.
“Europe and the U.S. will continue negotiations (with Iran) on how to fix or replace the deal, which does leave the door open for the deal to survive in one form or another and would be the most positive outcome for the autos sector,” BMI said.