As the second largest automobile market in the Middle East (annual sales of 1.2 million units), Iran's market potential has long been inhibited by international sanctions. The country has the largest population base in the Middle East (about 92 million), but the current market size is only one-third of Germany's, with local production of about 1.2 million units in 2024 and an import scale of only 50,000-70,000 units, and the supply and demand structure is abnormal. Although the local brand IKCO (Khodro) occupies 44% of the market share, its technical system and core components are highly dependent on European suppliers, which is similar to Russia's Volga Automobile, and is a deformed development model caused by supply chain breakdown under external blockade.

Although China and Iran signed the China-Iran Comprehensive Cooperation Plan in 2021, the framework agreement has not yet formed a specific implementation path. Iranian media frequently claim to have reached a 25-year strategic cooperation with Chinese car companies, but have not clarified their own obligation fulfillment mechanism. The actual situation shows that Chinese car companies have always adopted a prudent strategy: although Chery and other companies have laid out the Iran region through KD assembly plants in Central Asian countries such as Kazakhstan and Uzbekistan and Algeria, they have never established any form of production capacity (including KD assembly) in Iran. The existing cooperation is limited to asset-light operating models such as channel distribution, which is significantly misaligned with the size of the Iranian market.

Chinese car companies have a dual understanding of the strategic positioning of the Iranian market: not only recognizing its potential spending capacity (annual sales may reach 2 million units after sanctions are lifted), but also systematically avoiding heavy asset investment. This decision stems from an in-depth study of the stability of Iran's political environment, which has long faced fragmentation of internal governance, lack of policy continuity, and geomilitary pressures, resulting in a lack of a sustainable foundation for the business ecosystem. The current conflict situation further validates the forward-looking judgment of China's government and business circles on Iran's risk management.

Israel

Although there is an objective reality of cold political relations between Israel and China, the economic and trade cooperation between the two sides shows significant characteristics of "political cold and economic hot". As a highly open import-oriented market, Israel's automobile industry has voluntarily withdrawn from the manufacturing sector due to the lack of commercial competitiveness - local companies such as Israel Automobile Company (acquired by Beiqi Foton in 2003), Trest and Solta have all transformed into non-automotive industries, resulting in neither vehicle production capacity nor supporting supply chain system. This industrial vacuum has made Israel an important testing ground for Chinese auto brands to break through developed markets: the government has no targeted trade barriers (83% import tariffs on fuel vehicles and zero tariffs on electric vehicles), and there is no local protectionist policy intervention, creating a neutral environment for market-oriented competition.

Chinese brands have achieved systematic market penetration by virtue of technological adaptability and cost-effective advantages. In May 2025, Israeli car sales will reach 26,000 units (a year-on-year increase of 16%), and Chery (2,665 units) and Jietu (2,203 units) have surpassed Toyota to top the sales list, occupying the second and fourth places respectively; Toyota and Chery are the only two brands with a market share of more than 10%. In the top ten sales list of the month, Chinese brands occupied five seats (Chery, Jietu, MG, Xpeng, BYD), and more than ten brands such as Lynk & Co, Zeekr and Cialis also accelerated their layout. Although the base of some brands is small and the growth rate reference is limited, the Chinese camp as a whole has posed a substantial challenge to the dominance of the Japanese system, and it is expected to achieve market share overtake in 2026 at the current growth rate.

Chinese car companies have adopted a "asset-light globalization" strategy to avoid geopolitical risks. Although it has not invested in production facilities in Israel, it has successfully built a multi-level market coverage system through differentiated product positioning (such as BYD relying on blade battery technology to focus on electric vehicles, Chery replacing Japanese with cost-effective fuel vehicles) and precise policy arbitrage (using the rapid expansion of electric vehicle duty-free policies). It is worth noting that the business resilience of the Israeli market stems from its "Silicon Valley Thinking" governance logic: the government strictly follows market rules, corporate independent decision-making is not subject to political interference (such as rejecting the EU's request to restrict Chinese cars), and the two sides maintain efficient coordination in technical cooperation (BYD and Mobileye autonomous driving adaptation), capital flow (allowing US dollar profit remittance) and other fields.

In Israel's auto market, Chinese brands account for half of the top ten

The "bulk" characteristics of the Middle East market restrict regional economic integration. Gulf countries are difficult to form a unified market due to religious antagonism (Saudi-Iran), geopolitical conflicts (Arab-Israeli contradictions) and intervention by foreign powers (US military presence, EU technical standard barriers), resulting in high trade costs and lack of industrial synergy in the region. Compared with ASEAN's regional integration through the division of labor in the industrial chain (Thai pickup trucks, Indonesian nickel mines, Malaysian chips), the automotive industry in the Middle East countries shows a fragmented pattern: Turkey (1.3 million units) relies on the EU supply chain but is affected by exchange rate fluctuations, Iran (1.2 million units) is in technical closure due to sanctions, and the Gulf countries are completely dependent on imports. Chinese car companies have adopted a "classification penetration" strategy to respond - promoting high-end electrification in the United Arab Emirates and Saudi Arabia, entering Iran through KD assembly in Central Asia, exploring technical cooperation in Israel and Turkey, and using Southeast Asia as a springboard to radiate the Middle East to avoid regional systemic risks.

The impact of the hot war on Chinese car companies

Although the impact of the Iran-Israel conflict on China's automotive industry is not very obvious, it also needs to be comprehensively evaluated from three dimensions: supply chain, market layout and strategic adjustment.

At the supply chain level, the shortage of raw materials caused by the conflict is particularly prominent

As a core supplier of China's azure stone (strontium carbonate raw material), Iran accounts for more than 60%, and the suspension of its Abbas Port directly impacts the production of permanent magnet motors; At the same time, Israel's production reduction of bromine (a key raw material for fireproof materials for new energy vehicle batteries) has led to a domestic gap of 3,000 tons, and prices have soared by nearly 40%. In addition, Iran's oil production lost 3.35 million barrels in a single day, coupled with the risk of the closure of the Strait of Hormuz (bearing 21% of the world's oil transportation), oil prices soared by 13%, pushing up the cost of petrochemical derivatives such as synthetic rubber, and the cost of raw material procurement for tire companies increased significantly.

Iranian Azureite is the raw material for LiDAR lenses

Blocked logistics and trade channels further exacerbated the pressure on the industry. The closure of Israel's ports of Ashdod and Hadera has led to the disruption of important trade nodes in the Middle East, and the risk of export goods being stranded has increased sharply; If the Strait of Hormuz is blocked, 45% of China's oil import channels will be restricted, and the detour route will cause sea freight costs to soar, and the "safety surcharge" imposed by carriers and the transmission effect of oil prices may increase the cost of vehicle export logistics by 20%-30%. At the same time, Iran's local market has stagnated due to the conflict, and although China's tire exports to Iran account for only 0.26% of the total, payment interruptions and order cancellations caused by the conflict still pose a threat to the cash flow of small and medium-sized parts companies.

At the market layout level, short-term shocks and long-term opportunities coexist

As a key market for China's new energy vehicles, Israel's 68.3% share of pure electric vehicles is dominated by Chinese brands, but the conflict has led to a local economic shutdown, and BYD and other car companies have completely suspended exports to Israel. On the other hand, in the Gulf countries, Saudi Arabia, the United Arab Emirates and other countries have accelerated the "Vision 2030" (Riyadh's target of 30% of electric vehicles) and the UAE's "National Electric Vehicle Policy" (10% road vehicle electrification rate by 2030) to create a window for China's new energy technology export. It is worth noting that although the Iranian market has potential (annual sales can reach 2 million units after the sanctions are lifted), Chinese car companies adhere to an asset-light strategy to avoid geopolitical risks, and companies such as Chery enter in a roundabout way through Central Asian KD assembly to avoid direct investment.

At the strategic level, Chinese car companies need to build a resilience strategy to cope with changes

In terms of supply chain management, accelerate the research and development of raw material subsistence technologies, such as promoting the purification process of Qinghai strontium ore to reduce the dependence on celestial stone imports, and exploring alternative channels for bromine in Southeast Asia; At the same time, it promotes the diversified layout of manufacturing bases, with BYD's Turkish plant (to be put into operation in 2026) and FAW's Egypt electric workshop project aiming to be close to resources and markets and reduce logistics risks. In terms of market strategy, deepening localization cooperation has become the key: Geely and Saudi Arabia's Aljomaih Group jointly build channels, and Yutong and Qatar National Transport Company jointly build a charging network to achieve risk sharing through technology licensing and industrial chain transfer (such as the localization of 65% of parts planned for the GV project in Egypt). At the policy level, it is necessary to use international multilateral frameworks to promote RMB settlement to avoid payment sanctions, and participate in green transformation infrastructure projects in Middle Eastern countries (such as Saudi Arabia's charging station planning) to transform the energy crisis into opportunities in the new energy market.

To sum up, although the conflict between Iran and Israel has exacerbated short-term costs and supply chain pressures, it has objectively accelerated the process of restructuring and technological upgrading of China's automobile industry chain. The "bulk" characteristics of the Middle East market (the coexistence of Turkey, Iran's million-level markets and the Gulf high purchasing power markets) require enterprises to differentiate their layout, and the rigid demand for electrification transformation in various countries forms a strategic coupling with China's new energy technology advantages. In the future, it is necessary to continue to pay attention to the long-tail effect of the navigability of the Strait of Hormuz and the damage to Iran's nuclear facilities on global strontium pricing, and at the same time, through the "Belt and Road" capacity cooperation mechanism, the Middle East will be built into a springboard to radiate the European and African markets, and finally achieve dynamic and balanced development under geopolitical risks.