Pirelli forms $550 million Saudi Arabia tyre manufacturing joint venture

The Saudi Arabian Public Investment Fund (PIF) and Pirelli Tyre S.P.A signed a joint venture (JV) agreement to build a tyre factory in Saudi Arabia. PIF will hold a 75 per cent stake in the JV with Pirelli holding the remaining 25 per cent and acting as “a strategic technology partner” offering both “technical and commercial assistance”.  The plant is expected to start production in 2026.

The JV will make Pirelli-branded car tyres and market tyres under a new local brand targeting the domestic and regional markets. The total investment in the JV will amount to around $550 million.

The plant will make 3.5 million tyres a year and is being described as “in line with [Pirelli’s local-for-local strategy”. Through the JV, Pirelli will become the first tier 1 tyre maker to directly source production in Saudi Arabia. Pirelli reports that the project will have a neutral impact on the company’s deleveraging targets to 2025.

The latest JV announcement follows reports of at least two further Saudi Arabia tyre factory projects which also seek to leverage local replacement market and OE opportunities. Likewise, Pirelli’s announcement acknowledges that “Saudi Arabia is set to become a global automotive manufacturing hub by 2030”, adding that the Saudi Arabian Public Investment Fund (PIF) has “established a world-class automobile sector in Saudi Arabia by driving transformation and boosting manufacturing capabilities, infrastructure and supply chains in Saudi Arabia and beyond”.

Among its major investments in the sector, PIF and Hyundai Motor Company recently announced a $500 million JV to establish a state-of-the-art automotive manufacturing plant in Saudi Arabia. PIF controls 70 per cent of that JV, with Hyundai holding the remaining 30 per cent.

PIF has also made other significant investments in the future of mobility, including establishing Ceer, Saudi Arabia’s first national electric vehicle brand, as well as investing in Lucid Motors, which recently officially opened its first international manufacturing plant in Saudi Arabia.

Technical and commercial assistance

As we have seen, Pirelli will offer technical support and expertise to design, develop and operate the plant: “Through this JV, PIF and Pirelli are committed to creating a national and regional champion that localizes manufacturing capabilities for an important segment in the automotive industry, while enabling upstream and downstream activities across the value chain.”

Earlier in the same statement, Pirelli wrote that the Italian-based tyremaker would offer “technical and commercial assistance”. Clearly, the offer manufacturing and tyre development support are examples of technical assistance. But at this state – other than the 25 per cent stake in the JV – it is not clear what else is meant by commercial assistance. Does it, for example, include market support, something for which Pirelli has a strong reputation.

Commenting on the news, Yazeed A. Al-Humied, Deputy Governor and Head of MENA Investments at PIF, said:

“Through this Joint Venture with Pirelli, PIF is building production capabilities in the automotive and mobility value chain and enhance opportunities for private sector contribution. This collaboration marks another pivotal milestone in our journey to diversify the economy, enhance sustainability and localize manufacturing capabilities in Saudi Arabia”.

Marco Tronchetti Provera, Executive Vice Chairman of Pirelli, said: “Accessing local production in Saudi Arabia, one of the most promising markets today, in line with our positioning in High Value and electric, represents a great opportunity for Pirelli. Capturing it alongside a partner like PIF with its plans to enable the automotive sector.”

The Public Investment Fund (PIF) is one of the largest sovereign wealth funds in the world. Since 2017, PIF has established 90 companies.

Saudi’s growing automotive sector: PIF and Hyundai Motor Company recently announced a $500 million JV to establish a state-of-the-art automotive manufacturing plant in Saudi Arabia (Photo: PIF)