Renault has been active for years in Iran, where it sells kits of semi-assembled vehicles that are built up by its Iranian joint venture partner Iran Khodro. But international sanctions over Iran’s nuclear program have made doing business in the country much more challenging.
Sanctions have intensified in recent years and now include a European Union embargo on sales of oil by the Iranian regime and a U.S. ban on dealings with Tehran’s central bank.
New sanctions that went into effect on July 1 potentially ban from the U.S. any foreign bank that conducts transactions or accounts in Iran’s currency, the rial, as well as penalizing the sale of goods and services to Iran’s automotive industry.
Though European Union laws don’t forbid trade with car makers in Iran, being targeted by Washington’s sanctions could complicate access to the U.S. financial system, according those familiar with the matter.
A Renault spokeswoman said, “Due to economic factors in Iran, sales transactions are currently slowed down, in particular the supply of parts to our Iranian partners”.Although Iran’s share of Renault’s global sales has now fallen to just 2% from 4%, the impact of ceasing to do business there could be magnified because it could force the company to write down the value of kits that are either unpaid, or on which payments cannot be repatriated outside Iran.
The Obama administration’s decision in June to toughen economic sanctions on the Iranian regime and to extend them to the automobile sector has meant that Renault can’t repatriate money that it is owed, Chief Financial Officer Dominique Thormann said to a group of journalist.
Renault has no industrial activity in Iran. It has no employees and no fixed assets. It ships kits of semi-completed vehicles that are assembled in Iran, and these shipments are being halted, Mr. Thormann said. Renault is basically writing off its Iranian receivables, he said.
Still, the company reaffirmed its full-year earnings guidance for an increase in automobile sales and positive operating margin and free cash flow for its core automotive division.
A six-month operating loss of €249 million also reflected falling revenue from chronic weakness in the European automobile market, the French car maker said Friday.