Why Iran Refuses To Import Electric Cars

Despite promises in recent years by the Iranian government to import environmentally friendly cars into the country, there has been minimal to no efforts made, as the domestic car industry is mostly owned by the state.

In the last two years, for instance, not a single electric vehicle (EV) has been imported into Iran. And, since 2021, only 15,000 low-consumption cars have been imported, instead of the promised 300,000. Even fuel-efficient new vehicles or hybrid models have not been imported.

In 2017, Iran instituted a ban on car imports, citing the imperative of conserving foreign exchange reserves. The ban was allegedly implemented as a measure to reduce spending on imported vehicles and safeguard the country's currency holdings.

Iran's domestic car manufacturers, owned by the government and its affiliates, meanwhile, produced approximately 1.2 million vehicles in 2023, all of which were gasoline powered.

Iran International's calculations suggest that the cost of charging an electric vehicle (EV) in Iran would amount to only one-fourth of the price of gasoline purchased at the government-set quota prices.

This is notable, as Iran has been grappling with a gasoline deficit since mid-2022, prompting the initiation of fuel imports – pushing the country's annual gasoline subsidies to over $10 billion.

And yet, despite the rapid growth of the global electric vehicle market, the Iranian government has shown no regard or desire to import electric vehicles.

Global EV markets and energy costs

In 2023, the global electric vehicle market witnessed a staggering 37% surge, capturing nearly 15% of the total automotive market share worldwide.

By 2030, it is anticipated that two-thirds of new car sales in the market will be EVs.

Currently, there are about 27 million electric cars on the world's roads, and their electricity consumption is about 110 to 120 terawatt hours per year (TWh/yr).

Today, there are 16 million cars in Iran, mostly domestically produced, that consume 110 million liters of gasoline per day. These are based on older foreign models with inefficient engines and high pollution.

Thus, if Iran imports even one million electric cars, their electricity consumption will be about 4 TWh/yr, which is equivalent to approximately 1% of the country’s electricity generation.

Meanwhile, Iran is facing both a shortage of gasoline and severe air pollution.

A significant part of air pollution in the country is due to its domestically produced cars, consuming much higher fuel levels at 16 liters/100 km – almost two times more than global standards.

On the other hand, only less than a quarter of the domestically produced gasoline in Iran meets Euro 5 and Euro 6 standards.

Iranian cars also consume 20 million cubic meters of compressed natural gas (CNG) daily.

According to the International Energy Agency, Iran had about $50 billion hidden subsidies for oil products, $45 billion for natural gas, and $30 billion for electricity in 2022.

In a simple word, the difference between the domestic and foreign sales prices of Iran's oil products, gas and electricity was about $125 billion in 2022, which is equivalent to one third of the country's GDP.

Gasoline has a 25% share in the output of Iranian refineries. Then, Iran had about $12.5 billion hidden gasoline subsidies in 2022.

If Iran were to import 1 million cars – barring extra costs for infrastructure build-up – the hidden subsidy for their electricity demand will be only $300 million annually.

EV vs. Gasoline in Iran

On April 1, Mustafa Rajabi Mashhadi, the CEO of Iran’s state electricity company, announced that the energy ministry plans to build eight electric car charging stations in Tehran. But, the electricity price would be determined using higher commercial rates, at 5,470 rials (less than 1 cent) per kilowatt-hour.

As of now, there have been no reports published regarding the commencement of construction for these stations.

Furthermore, the rationale behind Iran's decision to calculate electricity prices for electric cars at commercial rates remains unclear, especially considering the substantial subsidy provided for gasoline.

Nonetheless, potential future electric car owners in Iran, could still expect to incur significantly lower energy costs compared to gasoline-powered vehicles.

At the current rate, an electric car consumes an average of 0.2 kilowatt-hours of electricity per kilometer – so, the cost of driving an electric car for 100 kilometers in Iran, would cost about 18 cents.

The cost of fuel for every 100 kilometers of driving with free gasoline is about 80 cents, and with quota gasoline, it is half of this figure.

Hence, using an electric car would be much more economical than a gasoline car, in Iran.

Government resistance due to state-owned monopoly

The true reason for the government's reluctance to import cars appears to stem from the fact that approximately 80% of domestic cars are manufactured by state-owned car companies.

As a result of the monopoly held by state-owned companies in the car market, Iranians are compelled to purchase low-quality, expensive vehicles with high gasoline consumption.

Saeed Tajik, CEO of Iran Quality and Standard Inspection Company, stated to the Economics Online website on April 1 that Iran's Ministry of Industry, Mines, and Trade has expressed interest in importing electric cars. However, the Ministry of Energy has raised concerns regarding this proposal due to the electricity deficit.

During the summer months, Iran faces a 14,000 MW electricity deficit, while there is no deficit during other seasons.

Furthermore, Iran boasted approximately 2.5 TWh of net electricity exports valued at around $300 million in 2023, an amount capable of meeting the energy requirements of 625,000 electric cars each year.

Iran's current electricity production stands at approximately 390 TWh, yet 13% of this (over 50 TWh) is lost due to the deterioration of the electricity transmission network. Tajik also emphasized that the reality is Iran lacks the necessary infrastructure for electric cars.

To justify the import ban on electric vehicles, he also cited the fact that the electricity produced in Iran is not environmentally friendly. Approximately 80% of Iran’s electricity generation is derived from thermal power plants, which burn large quantities of gas, mazut, and diesel.

According to official statistics from the Energy Ministry, over 94% of electricity generation in the country originated from thermal power plants in the last fiscal year, which ended on March 19. Despite government projections to add 2,500 MW of renewable energy capacity during the same period, only 75 MW of the planned capacity was realized, accounting for less than 3% of the intended target.

President Ebrahim Raisi’s government, meanwhile, claims to have projected the installation of 4,500 MW of new solar and wind farms in the current year.