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Peugeot returns to Iran

June 21, 2016

Quick to return to a familiar market, the French company has sealed a joint-venture with Iranian carmaker Khodro. Car production in the Islamic republic is expected to surge following the lifting of sanctions.

PSA Peugeot Citroën
Image: picture-alliance/dpa

The French carmaker Peugeot-Citroen (PSA) announced a joint-venture worth 400 million euro ($450 million) with its former Iranian partner Khodro in Tehran on Tuesday.

This makes PSA the first Western carmaker to enter the Iranian market since economic sanctions against Teheran were lifted in January, following an agreement over Iran's controversial nuclear program. Iran was PSA's second-largest market before sanctions forced it to pull out of the country in 2012.

The carmaker has been eager to return. An initial deal was already agreed upon with Iranian President Hassan Rouhani in Paris in January.

Iran's car market is believed to be one of the world's most promising, as the country has a relatively large middle class yet a low level of car ownership. Car production throughout Iran fell dramatically due to the sanctions, and PSA believes assembly lines are ready to be revved up again beyond their earlier capacity.

Clear road ahead

The five-year, 400 million euro investment will go towards building out manufacturing capacity as well as research and development. PSA and Khodra plan to build a plant in Tehran where cars of both companies will be produced.

The 50-50 joint-venture aims to put cars on the road early next year and roll out 200,000 per year by 2018.

PSA will produce three Peugeot models - the 208 supermini, the 301 compact and the 2008 sport utility vehicle - equipped with last generation engines.

Most parts will be made in Iran. About 30 percent of the manufactured cars are expected to be shipped elsewhere in the Middle East.

Allowing the return of the Western firms has been a subject of some controversy among conservatives in Iran, though Industry and Commerce Minister Mohamad Reza Nematzadeh was happily on hand Tuesday.

China Frankreich Wirtschaft Auto Dongfeng Peugeot Citroen Automesse in Guangzhou
Peugeot's 2008 SUV model has been introduced to the Chinese market as well - also with considerable local investmentImage: picture-alliance/AP

He expressed hope that a similar deal between Iran Khodro Diesel, a Khodro subsidiary, and a German company, likely Mercedes, would be struck soon.

jtm/uhe (AFP, Reuters)