Peugeot Wastes No Time Returning To Iran

Peugeot Wastes No Time Returning To Iran.

FCA, Renault Also Seek Deals.

“This is the beginning of a long process but Peugeot seems to be the first car maker to sign a deal with Iran”

PSA Peugeot Citroen hit the ground running after sanctions were lifted from doing business with Iran and investors were quick to jump on the bandwagon.

The sanctions were first lifted by the E.U., which explains why Airbus was quick to announce a big order for airliners with Boeing apparently still muzzled by U.S. law.

Peugeot announced it will spend €400 million to raise investment with its long term partner Iran Khodro in a plant near Tehran. The plant will produce 100,000 vehicles a year starting late in 2017. Output, which will comprise little Peugeot 208s, 301 saloons and 2008 small SUVs may eventually double. Peugeot withdrew from Iran in 2012, but the partner continued to produce vehicles.

FCA and Renault are also believed to be close to manufacturing deals with Iran. Last year Daimler too was preparing the ground for a return to Iran to make trucks, vans and buss with Iran Khodro.

IHS Automotive said it expects sales in Iran to rise 4.2 per cent in 2016 from 1.1 million in 2015. Production is expected at around 1.18 million this year, rising to 1.2 million in 2017 and 1.26 million in 2018.

“Economic and political indicators explain our forecasts; the current low price of oil will badly affect the government’s social expenditure that supports the purchase power of consumers, as well as shrinking the financial assets of the government that could have been invested,” IHS Auto said in a report.

“In the longer term, IHS Automotive envisages light-vehicle sales from 2025 and beyond to hit an average 1.8 million units per annum. The government and (manufacturers) have previously announced more ambitious expectations, but we consider such annual volume as being quite high in comparison to other markets such as Turkey, and South Africa, where the average income is superior to Iran.”

Population growth
“Nevertheless, many indicators are favourable for demand growth. The population is expected to grow by four million between 2015 and 2020 to reach 83.0 million. Up to 70 per cent of the population is between 15 and 64 years old, with an appetite for a modern way of living with new technology,” the report said.

IHS estimated market share in Iran averaged 28 per cent over 10 years with a low of 23 per cent in 2013 and a high of 33 per cent in 2015.

Barclays Equity Research said Peugeot should be able to re-establish its leading position in Iran.

“This is a positive long-term step in terms of growth and positioning. A market share of 20 to 25 per cent on a 1.6 million market by 2018/19 would imply 360,000 to 400,000 Peugeots of which some could still not be “100% Peugeot”. A Chinese like business model would imply several streams of financial income: royalties, parts or CKDs and associates. This is the beginning of a long process but Peugeot seems to be the first car maker to sign a deal with Iran,” Barclays said in a report.

Silk curtain
The Financial Times Lex column lauded Peugeot for its alacrity, but had a warning too.

“Although E.U. sanctions have been lifted, not all U.S. sanctions have, which will make some companies cautious (Peugeot may worry less about this, since it no longer sells cars in the U.S.). Many will also want greater legal clarity before making significant investments. Memories of the last time behind the (silk) curtain – when they were hustled out the door with drinks still half full – are still fresh,” Lex said.