Analysts Predict Michelin Will Invest in Chinese Tyre Production
Referring to Michelin’s recent surprise decision to raise 1.2 billion euros of fresh capital, financial analysts at Morgan Stanley have predicted that the company is planning to expand its Chinese tyre manufacturing base, making this operation “a crucial BRIC[k]in Michelin’s future.”
When Michelin announced its plans to raise fresh capital on 28 September the tyre maker did any indications of what it planned to do with the money. This led analysts to suggest that “China will be a major focus for Michelin.” They believe Michelin is looking for “a swift increase in Chinese capacity” from their current level of around 2-3 per cent of output.
Their reasoning is seen in the fact that the company currently imports greater than 75 per cent of local sales, with current plans only indicating a 1.6 million increase in truck tyre capacity by 2012. “We expect the industrial plan in February will unveil higher expectations.”
While Michelin has not expressed interest in using its funds to grow by merger or acquisition, the company is not believed to have ruled this option out. And this is something that led market analysts to run a hypothetical screen considering all major tyre companies listed in China, Korea, and Taiwan. Morgan Stanley doesn’t provide any suggestion of which – if any – company Michelin may “Michelin has been severely under-investing in emerging markets during last decade,” adding that “investments cannot be postponed any further without risking losing crucial market share in BRIC countries.
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