Released at the same time as DS Automobiles announces the launch of its first store in Iran, the latest IHS light-vehicle forecast for the market outlines how Iranian automotive production had been strangled at the height of the sanctions against the country during 2013 when a number of foreign OEMs left the country and two major local automakers, Iran Khodro (IKCO) and SAIPA, were bailed out by the government.

This continued to have repercussions during 2015 with production rising and falling through the year.

IHS added that despite the signing of nuclear deal between Iran and P5+1 nations in July 2015, demand has struggled as consumers await more sophisticated models leading IHS Automotive to expect a minor dip in sales and production.

While UN sanctions have now been lifted, there are still a great deal of factors that will come in to play in the short-to-medium term.

Several OEMs signed memoranda of understanding (MoUs) between late 2014 and late 2015 but are taking a wait and see attitude towards future investments. Although the political situation has eased, there is still uncertainty as some sanctions are being applied by the US government for a missile test that was conducted in September 2015. In addition, Iran is holding an election this year. The MoUs will then need to be transformed into concrete agreements or joint ventures (JV), and although some of the OEMs concerned have already had a presence in the country in the past, others have to build up their position from scratch. In addition, many of these agreements will include an expectation that some production will be exported.

The government has also put some barriers on the production of Chinese vehicles to prevent them surging into the country. However, many more Chinese OEMs are expected to arrive in Iran.

IHS Automotive also anticipates that the government will seek local automakers to work with OEMs of several different nationalities to split their dependency.

Local automakers are also facing a situation in which replacement of key current models has been pushed back due to the sanctions. However, there is an expectation that these models will be phased out during 2016 and replaced with new ones.

Looking ahead, IHS said it expects demand in the market to rise by 4.2% y/y during 2016, while its production forecast is set at around 1.18 million units. This could rise to 1.2 million units for sales during 2017 and 1.26 million for production.

In the longer term, IHS Automotive envisages light-vehicle sales from 2025 and beyond to hit an average 1.8 million units per annum.