Peugeot to Renew Iran Ties With $435 Million Factory Upgrade

Peugeot Citroen to Renew Iran Ties With Factory Revamp
  • Company returns to country where its market share exceeds 30%
  • Deal called Iran's first post-sanctions industrial accord

PSA Peugeot Citroen and its long-time Iranian partner will invest 400 million euros ($435 million) in the next five years upgrading their auto plant near Tehran in what the French carmaker says is the first industrial accord signed by a western company since economic sanctions on Iran were lifted this month.

The venture with Iran Khodro will produce 100,000 vehicles a year starting in late 2017, with output eventually doubling. The revamped factory, which opened about 50 years ago, will make Peugeot’s 208 hatchback, 301 sedan and 2008 crossover.

“This strategic agreement turns the page on the period of international sanctions and enables PSA and Iran Khodro to start a new chapter in their 30-year history of cooperation,” Peugeot Chief Executive Officer Carlos Tavares said Thursday at a Paris press conference.

The International Atomic Energy Agency determined in mid-January that Iran had curbed its ability to develop a nuclear weapon, reopening the country’s economy to investments from abroad. Peugeot announced the car-plant accord during a visit by Iranian President Hassan Rouhani to Paris, where he’s also expected to sign contracts to buy airplanes and upgrade his country’s airports.

The French manufacturer’s shares rose 1.5 percent to 14.35 euros as of 10:55 a.m. in Paris. That pared the decline this year to 11 percent, valuing Peugeot at 11.6 billion euros.

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Peugeot withdrew from Iran in 2012 as a result of sanctions over Iran’s nuclear program, though Khodro continued to produce cars under the French partner’s name, mostly older models such as the 206 and 405. Khodro, which was founded in 1962, built about 350,000 Peugeot-branded cars in 2014, accounting for about a third of Iran’s automobile market.

The Iranian market reached 1.6 million cars in 2011, and then fell below 1 million vehicles as sanctions cut into consumer spending and a lack of important components crippled local producers. Demand could recover to 1.6 million autos in two years and reach 2 million annually by 2022, according to the Paris-based company. Tavares said there are at least 3 million Peugeots on Iran’s roads, and the company’s first task is to provide their owners with the latest spare parts.

Peugeot sold 458,000 vehicles in Iran in 2011, the year before the carmaker ended ties, and the country was its second-biggest national market after France. The pullout from Iran cut 10 million euros a month from earnings in 2012, contributing to Peugeot’s full-year loss of 576 million euros. Tavares said last year that resentment in Iran from the carmaker’s departure was hampering an agreement on its return.

Peugeot executives said they had been negotiating a return to Iran for the past 18 months under the expectation that talks to end economic penalties in exchange for limits on the country’s nuclear activities would succeed.

“No one was a winner from sanctions,” Rouhani said Thursday in a speech to French business leaders. “We are ready to turn the page. French investors are welcome in Iran.”

French competitor Renault SA plans a “much more massive” presence in Iran when it returns to the country, CEO Carlos Ghosn said in an interview a week ago. Dropping out of the market in response to the sanctions cost the carmaker 514 million euros in 2013.

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