Questions hang over Turkey’s first domestically built car

(Changes to Mr. Aykan Erdemir's title, comments, paragraphs 16-18)

To much fanfare, Turkish President Recep Tayyip Erdoğan last week unveiled prototypes of the country’s first car to be domestically designed and built, but there are still many unanswered questions on the feasibility of the project.

Instead of making models of Swedish Saab cars, as was previously announce, Turkey is to launch its own line of electric vehicles that will include two jeeps, two saloon models and a people carrier.

The Automobile Joint Venture Group (TOGG), a consortium of five holding companies and a business union, is to start production in 2022 at facilities in western Turkey designed to build 175,000 units a year.

The first car to be produced will be a C-class SUV designed by Italy’s Pininfarina. Production of a sedan model is expected to start once the SUV goes into production.

The government-supported venture will require an investment of $3.7 billion and will enjoy comprehensive tax cuts, free land allocation and reduced interest rates.

Rıfat Hirsacıklıoğlu, the head of the Union of Chambers and Commodity Exchanges of Turkey, said that the joint venture would provide employment for some 20,000 people, including those in the replacement parts production jobs, adding that the Turkish car would become a global brand in the next decade.

The businessman said that Turkey had once lost the opportunity to develop its own vehicles in 1960s, when efforts to produce an indigenous car called “Devrim” (Revolution) failed.

The Devrim car project was launched in 1961 when the then president, Cemal Gürsel, gave responsibility for developing the country’s first car to the Turkish railways. A team of 20 engineers kicked off the project in the central Anatolian province of Eskişehir and developed a prototype in four-and-a-half months to showcase it in Ankara on the 38th anniversary of the foundation of the republic. The car was supposed to take Gürsel to lay a wreath at the mausoleum of the republic’s founder, Mustafa Kemal Atatürk, but stopped 100 metres after the president got in because the team forgot to refill the fuel tank. The project was abandoned afterwards.

Turkey already has a large car manufacturing sector with foreign firms based in the country like Renault, Fiat, Ford, Toyota and Hyundai making their own models.

Similar efforts followed Devrim. Most recently, in 2012, Hacettepe University in Ankara established a company called EVT Motor for research and development work to build the country’s first electric car. A team of 11 engineers developed their first prototype dubbed EVT S1 in 2015 and presented it to Erdoğan. The project was abruptly stopped the next year with an announcement on the project website saying, “EVT S1 suffered the same fate as Devrim.”

Whether private or public, none of the indigenous car projects were lucky enough to enjoy the tremendous amount of government support TOGG is to receive.

There are conflicting opinions on whether such government support is the best way to develop a car. Some say investing in the country’s own car brand makes sense, as automotive production has important spillover benefits to the economy. But some, like academic Eser Karakaş, a contributor of Ahval, object to allocating public funds to the TOGG project.

“This car has no features that can justify using public funds for its production. It does not develop a new technology. It will not provide a public service,” Karakaş said.

But Burak Durgut, the editor of the online liberal collective Daktilo 1984, said government support in early phases of such projects was common, but while Turkish government claims that the vehicles would be fully indigenous was absurd, the investment seemed rational.

Durgut said the government should in any case be careful when financing such high-profile projects. “What will the state do if the project fails? Will there be any sanctions? The state should take some precautions,” he said.

Aykan Erdemir, a former member of the Turkish parliament and senior director of the Turkey program at the Foundation for Defense of Democracies, said Turkey needs incentives for high value-added production. “The way to do it is not through the manufacture of a government-sponsored product under state control, but to strengthen the eco-system for investments, trusting the initiatives of entrepreneurs,” he said.

The government should concentrate on removing structural obstacles that prevent Turkish investors from becoming global players and growing organically, Erdemir said.

“The existing approach will empower command economy and crony capitalism, shifting Turkey further away from a rules-based market economy,” he said.

Turkey was Europe's ninth-largest car market as of November last year, according to the Automotive Distributors’ Association. Some 316,427 cars were sold in the country between January and November of 2019, a decrease of 26 percent compared to 2018. Hence, TOGG’s target of producing 175,000 units annually corresponds to nearly half of the new car sales in Turkey. Electric vehicles sales in Turkey have not even reached the level in the European Union, where they are at just over 2 percent.

TOGG’s CEO Mehmet Gürcan Karakaş said in an interview with CNN Turk this week that it was impossible to tell at what price the company would sell the new car. Meanwhile, media estimates ranged between 70,000 lira ($11,766) and 300,000 lira ($50,427).

The number of cars used by Turkey’s public institutions is 115,000 and the government pledged to purchase 30,000 of the domestically produced vehicles until the end of 2035. Finance expert Sefa Kabaalioğlu said the government planned to divert 90 million lira ($15.1 million) to domestic producers instead of foreign companies assuming that the indigenous car would be sold at 300,000 lira. 

The government will pay the venture $360 million lira ($60.5 million) for recruiting qualified personnel and TOGG will be responsible for producing robots and factory production lines, Kabaalioğlu said. “The state will try to make the company profitable as much as possible,” he said, adding that the main target of the government was to decrease imports.

Kabaalioğlu said the government would also introduce incentives for consumers once the first model of the domestic car was introduced to the market. In the 1970s, Turkey supported domestic companies through an import-substitution policy, placing restrictions and high taxes on imported goods.

Durgut said in those days Turks found themselves in a difficult situation as cars assembled inside Turkey were also very expensive. But Turkey today cannot introduce a special tax cut for the indigenous car as that would violate competition rules. “But it can remove taxes on electric vehicles. And this may even be of use for foreign companies investing in Turkey,” he said.

Turkey also lacks the infrastructure for electric cars and nationwide sales of the new electric car would necessitate rapidly developing a network of charging stations across the country, meaning more investment by the government.