Finnish tire firm aims to ring changes

With most of the world’s top tire makers on its client-list, Black Donuts now aims to bring its plant-engineering and tire development services to the next level. Patrick Raleigh reports:

Helsinki - Black Donuts Engineering (BDE) has plans to increase its business about five-fold over the next 10 years, in line with growing demand for its plant-engineering, tire-development and market-entry services for tire makers worldwide.

Started by a group of former Nokian engineers around 2011, the Tampere, Finland-based company had sales of €12.5 million and earnings (EBIT) of €1.1 million in 2016. Clients, it says, include 15 of the world’s top 20 tire makers.

Through expertise, automation and a ‘modular’ approach, BDE claims it can build a new tire plant needing 20-50% less employees, 10-20% less investment and with much lower emissions and energy-use than clients’ in-house teams could. Big efficiencies are also claimed for projects at existing plants.

BDE’s tire-development effort, meanwhile, employs advanced software, analysis, research and testing techniques. Typically, the goal is to reduce tire weight and rolling resistance and help clients – including those based in emerging Asian countries – to do very well in the world’s most respected independent tire tests.

To deliver such projects, BDE employs around 50 engineers with expertise in tire manufacture, design and testing. They mostly operate out of Tampere, though BDE is also establishing a network of satellite offices – in China, India, North America, south east Asia and Europe.

BDE carries out projects in all world regions including, up to last year, a large proportion in China. This level slumped after the US imposed tariffs on Chinese tires but is now recovering, the company boss reported.

But projects are kept under wraps as they are covered by strict non-disclosure agreements, which are extra stringent where transfer of IP to the client is involved.

So, for example, while BDE is involved in a project in Saudi Arabia that could become one of the world’s biggest tire plants, the company cannot give details of the client or location

“They are talking about 12-15 million PCRs and maybe… in steps something like 6 million TBR tires,” Hauvala did say at a recent BDE press conference near Helsinki. A feasibility study, he added, has been done and “the pre-design phases are waiting for financing.”

To explain how BDE operates, its president set out: “We help establish the most efficient tire plant with [tire] products on a turnkey basis. Clients only need money, we can take care of the rest.”

Project costs start at around €0.5-1.5 million but a plant design can be 5% of the investment cost or up to 7%, where particular technology elements are involved. They typically take two to three years, depending on how soon prototypes meet requirements and how much fine-tuning is needed, for example with compounds.

In practice, a team is sent to the customer’s facilities, making experimental moulds, tread patterns and compounds in the lab on a collaborative basis. A different BDE team then progresses things: making production-scale compound, extruded profiles and tire-building.

The goal, he said, is to ensure that “the customer gets the most effective results from us, with the lowest possible costs. We maximise the number of SKUs and minimise the number of semi-finished components to guarantee efficient production.

“We optimise the industrialisation time to get that new tire into production as fast as possible. So our team in the factory takes care of teaching and learning and new products and production.”

Further to that, BDE offers knowledge of the markets for the tires, Hauvala noting that each region has different requirements and preferences with regard to tread patterns, compounds and constructions.

Market fundamentals

As well as demand for such services, BDE also expects to benefit from strong market fundamentals: the seemingly unstoppable rise in vehicle ownership, which is helping the global tire market to grow by 5-6% per annum, in value terms. It pegs annual world production of passenger car tires at 1.5 billion units currently.

“For the tire industry, there are estimates of constant growth as far as we can see because of the increasing number of vehicles,” said Hauvala. “The average size of a tire plant is six million tires a year, and we will need 10 to 20 new tire plants to meet that new demand each year.”

However, he said, established tire manufacturers are facing tougher competition and all companies are now looking for new ways to become more effective and reduce cost.

“The tire business is not consolidating, it is fragmenting and the big brands are losing market share,” said Hauvala, pointing to figures showing that the market-share of the top five brands has fallen from 60% to 50% in less than 10 years.

“I think this is because of low-price competition and in the next 10 years it will go down [further],” forecast Hauvala. “The tire industry is changing with the business model becoming much more about the supply chain than actual manufacturing.”

“So the market is changing all the time,” continued Hauvala, noting that growth is being driven mainly by the emerging markets Asia and Middle East, while Western markets were also changing with, for example, a move to bigger tires.

According to the BDE boss, automation is key to the future as it enables tire makers to increase output and reduce staff numbers, while keeping running costs and investment at similar levels.

“It sounds strange: usually the automation costs, but you can make a more compact process with less machinery and finally you have the same investment cost,” Huavala commented.

Future targets

Going forward, BDE has drawn up an “aggressive” 10-year plan which would see its turnover approach €6o million through a combination of acquisitions plus about 15% annual organic growth. The aim is to “go global,” focusing on people and assets with tire industry “knowhow”, with everything else outsourced.

“We have investment plans in Finland,” said Huavala. “It is not well known, but there are big tire manufacturers using Finnish university laboratories in the Tampere area already at the moment. This is happening already [but] could be structured better to attract more of the players.”

Asked about acquisition targets, Huavala said BDE was looking for small-scale companies serving the tire industry around the world: “We have already identified five or six different companies and have had some preliminary talks. They are only pure tire contracting or service and knowhow [providers]. Nothing else.”

Huavala is, likewise, resolute when it comes to discussing BDE’s ownership structure, in which management and staff own about 30% and investors the remaining 70%. He emphasised: “We are fully independent and that is how we want to keep it.”

Article from the July/August issue of European Rubber Journal magazine