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bne September 2022 Cover Story I 35
Russia is turning to Iran to help rescue its car industry. Extreme sanctions imposed on Russia in March have seen its car production come to a screeching halt as essential imported parts are now unavailable. Iran has been under sanctions for decades, but has managed to develop a large automotive sector that caters to its domestic demand, and it is only too happy to help.
Russia’s war has seen hundreds of foreign companies leave the country, but no sector has been harder hit than the automotive. AvtoVaz, maker of the Lada, has seen its production come
to a virtual standstill as the company, formerly run by Renault until its exit last month, set up a “spoke and wheel” model that means most of the more sophisticated parts were imported from Western Europe. Those imports have stopped now and the company has few alternative options to replace them.
Sixteen European car manufacturers (including four of the top 10 by market share) sold close to half a million units of Russia’s total sales of 1.67mn in
2021, making the country the eight- largest car market in the world in terms of global sales volumes, and Russia accounted for a fifth (18%) of market leader Renault’s total sales worldwide. Now overnight, almost all those foreign firms have packed their bags and left. Car sales were down by 84% in May and production has come to a virtual stand- still, with only 3,000 cars produced in June, according to reports.
Iran has always been on Moscow’s radar as a possible ally in a showdown with the West. Russia has been preparing
for economic warfare since at least 2014, when the sanctions regime was first introduced with the creation of the International North South Trans- port Corridor (INSTC). This long land and sea corridor traverses southern Russia, through the Caspian Sea to Iran and across the vast Iranian plateau to connect with the port of Chabahar and the Persian Gulf. This southern route was often seen as a back-up for Russia if its Western trade routes were cut off. When they came the sanctions were
more extreme than anything the Kremlin was expecting. They have been made worse by “self-sanction- ing”, as companies in sectors that
have not been sanctioned, includ-
ing automotive, pulled out anyway
for reputational reasons. The Putin administration has been forced to work extra quickly to help revive its faltering economy. As bne IntelliNews reported, sanctions remained a largely Western affair, with most of the rest of the world sitting on the fence, refusing to impose sanctions themselves and maintaining trade ties, even if they are not actively supporting Moscow.
Iran, China and a slew of other secondary countries have said they would pick up the slack where Western firms departed from. China has already seen exports to Russia recover and is Moscow’s biggest trade partner; Iranian brands are largely unknown in Russia, but Iran’s expertise in operating under sanctions has caught Russia’s attention. In particular, the Russians were surprised to see how quickly Iranian car manufacturers were able to reverse engineer parts from Peugeot, Citroen and Renault for their own auto part markets.
Iranian forays into Russia’s
auto market
In recent weeks there has been grow- ing talk of the carmaker Iran Khodro Company, branded as IKCO, and its rival SAIPA, as well as a raft of smaller play- ers, once again sending their models to the Russian market, suitably adapted to the colder climes of Moscow.
Iran Khodro and SAIPA have previously exported their vehicles to northern markets, but with varying degrees of success. According to data from Russia’s Autostat agency, as of July 1, 2022, there were 10,400 Iran Khodro cars in Russia, which are represented by the Samand
model (class C sedan), produced in 2006- 2008. However, that is a tiny number when set against the circa 100,000 car sales a month in Russia pre-war.
The Samand is set to be discontinued in the Iranian market, as it has been on the production line for over two decades, but sanctions on Iran have forced the carmaker to keep producing the old stock due to a lack of research and investment into new models and the absence of outside support.
A third (34%) of Iranian cars are registered in Russia’s Central Federal District (3,500 units). Another 26% in the Volga (2,700 units) and 18% in the Urals (1,900). Accordingly, these three districts account for 78% of Iran Khodro cars located in Russia, according to Avto Novostidnya.
Russians tend to keep their cars for longer than in western Europe, as bne IntelliNews reported in a deep dive into car ownership and age, but the car market is one of the most vibrant of those in the Former Soviet Union (FSU), supported by a large domestic industry, albeit almost exclusively run by international companies until recently. That means the longevity of the Samand bodes well for the engineers of IKCO in Tehran, who were often criticised for not making sure their models were suitable for the colder climes.
Now with new Iranian models on the verge of launching, in part due to the cannibalisation of Peugeot’s pre- sanctions joint venture with IKCO, and Iran’s penchant for ignoring intellectual property rights because of sanctions – a policy Russia has now adopted through laws allowing for parallel imports –
a tie-up between the Iranian and Russian automotive sectors is an obvious move:
a partnership with AvtoVaz is on the hori- zon to keep both domestically produced
“Iran has always been on Moscow’s radar as a possible ally in a showdown with the West”
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