Mahindra and Mahindra may get hit by US sanctions over this venture

Mahindra & Mahindra’s (M&M) plan to venture into the Iranian automotive market, for which it recently partnered Azim Khodro, is facing some uncertainty after the US reimposed sanctions on the Persian Gulf country. A company spokesperson, in response to DNA Money queries, said that the implications of the sanctions are being studied and a “considered decision will be made at an appropriate time”. However, the spokesperson did not say as to how they will work around the sanctions, as the banking channels will remain affected. Even during the recent results announcement, the firm’s plans for Iran were not mentioned while managing director Pawan Goenka talked about other overseas markets including Bangladesh, Philippines, South Africa, Chile, Italy, Tunisia.

An analyst, who did not wish to be named, said that M&M will have have to wait and keep a watch on the situation as European Union members and China are still holding the Iran nuclear deal. DNA Money had on February 12 reported about M&M’s collaboration with Iran’s Azim Khodro to import and distribute Mahindra vehicles into the country. XUV500, KUV100 and Scorpio Pick-up are some of the models being considered for launch by the end of this year, subject to further testing and validation. The company already sells farm equipment, tractors and other products in the country.

Iran’s market, which recently adopted stricter automobile safety and emission norms, is dominated by French and other European companies. Also, the country warrants a high degree of indigenisation of the vehicles, or else the automakers have to pay high Custom duties.

In May last year, Mahindra Group-owned designing and engineering firm Pininfarina signed a 70 million deal with Iran Khodro to produce a new modular platform which can accommodate at least four vehicles. Pininfarina is involved in the entire process of car production - right from concept design to the final product.

After oil and gas, the Islamic Republic’s biggest sector is the automotive industry as it contributes about 10% of its gross domestic product and gives employment to over 4% of the country’s population.

According to the industry analysts, there was an explosion in lran’s car manufacturing sector during the years 2000-2013, which fizzled out after the imposition of sanctions by the US in 2013.

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However, the sector has seen some surge in recent years after Iran signed the nuclear deal in 2015, with European companies including Renault, Peugeot, Citroen trying to reestablish themselves in the market.

DNA /  Shahkar Abidi