The firms’ 50/50 joint venture is expected to invest up to €400m over the next five years in manufacturing and R&D capacity, which will be used to produce, launch and market Peugeot 208, 2008 and 301 models.

Included under the agreement is the creation of a joint venture on an industrial site in Tehran to produce new latest-generation Peugeot vehicles, on a platform that will also be used by Iran Khodro to develop its own vehicles.

It also covers the capacity to export joint-venture products across the region, and the restoration of contractual relations for the production of Peugeot-branded vehicles currently sold in Iran.

The first vehicles will roll off the production line at the Tehran plant in the second half of 2017.

Commenting on the agreement, Jean-Christophe Quémard, executive vice-president, Middle East & Africa at PSA, said: “Today marks a crucial milestone in our project with Iran Khodro. The two partners conducted discussions as announced during President Hassan Rouhani's visit to Paris in January 2016. I am proud to be bringing the best in PSA Group technology to our Iranian customers.”