Tyre manufacturers expanding in a down market

June and July saw a spate of factory investment and opening announcements. First there’s the news that Linglong manufactured its first tyre at its brand-new Serbia tyre production plant at the end of June. Of course, this project has been underway for some time, but the fact that it got going just before the end of the first half of 2022 is noteworthy for two reasons. Firstly, notwithstanding the inhibiting effect of general market headwinds associated with pandemic fall-out and war in Ukraine, the project is basically on-schedule. And secondly, it demonstrates that no enthusiasm for Western and specifically European tyre production has been lost since the nullification of European import tariffs against Chinese-produced truck tyres roughly a month ago.

Shortly afterwards, Toyo Europe executives also confirmed to Tyres & Accessories that the first tyres were set to roll off the production line of their European plant during July. Together with other tyre production operations such Goodyear’s Cooper factory and Group Michelin’s plant, Serbia is increasingly become a European tyre production hub. And yet Yokohama executives were open that they are primarily considering Poland and Czech Republic for their proposed European tyre manufacturing facility.

Next level tyre production investments

But these examples both represent the fruition of pre-existing projects. Significant new investments are also on the horizon. For example, Yokohama Europe re-stated the company’s desire to invest in a greenfield tyre manufacturing operation in Europe. That’s not new, but the level of detail offered and the fact that it coincides with Yokohama’s unprecedented appointment of local leadership in Europe suggests that the company is gearing up for such an investment in the next few years (see July’s magazine for complete coverage of our interview with European president Gregorio Borgo and other senior Yokohama Europe executives).

Meanwhile, as we went to press on 24 June, Sailun disclosed details of its planned 15.18 billion yuan investment to build a new tyre factory in Dongjiakou, near Qingdao in China’s Shandong Province. 15.18 billion yuan works out as roughly £1.86 billion or 2.17 billion euros. To put that into perspective, most tyre factory investments go up to about 500 million dollars, euros or pounds. Indeed, it was so large that we double- and triple- checked our figures. However, the figures are clear as was the rationale reported in Chinese media

In an interview with Chinese publication Jiemian, the representative of Sailun’s Securities Department talked about this investment’s purpose: “Although the tyre market is not particularly optimistic at the moment, (Sailun) believes that the (unoptimistic situation) is only short-term. In 2021, domestic car ownership exceeded 300 million, a year-on-year increase of 7.47 per cent. The demand for replacement (tyres) is relatively strong and has a certain scale. Meanwhile, (Sailun) company’s business mainly exports, and orders in the export market are in short supply. (Sailun) put forward a production expansion plan after comprehensively considering various environmental factors in the market.” (See Tyres & Accessories August 2022 for further coverage)

The obvious question is: how likely is it that these investments will actually take place? First of all, we have to remember that Sailun’s stock market filings are absolutely clear that the investment roadmap is a phased plan, with capital injections planned every year for five years from November 2022. Such a plan can be compressed (or expanded) during that period of time. And secondly, there are those that might suggest that there is a connection between such enormous figures and the fact that it is Sailun’s Securities Department that is speaking to the press. Whatever the case, should investments even half the size of those proposed come to fruition, the result is likely to be transformational for the company and have a knock-on effect on the market. But of course, production is one thing and sales is quite another.

What all these examples have in common is that these tyre manufacturers are taking the long view that now is the time to expand in a down market. That approach brings with it the inherent risk that no-one knows what pressures the global tyre market will face in the future. However, there are also many examples of pro-active investment paying off in the long-term. As the saying goes, rising tides raise all ships. That’s especially good news if you bought more ships when the tide was out.

As well as further coverage of some of the above examples, this month’s magazine also features the physically large and high-value agricultural and speciality tyre market as well as the growing van tyre niche.

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