Q&A: CEAT sees opportunities amid global tire-market challenges

The global tire industry is currently undergoing an unexpected series of market-disruptions and upheaval, according to Anant Goenka, managing director of Indian tire maker CEAT Ltd. However, the tire boss sees opportunities alongside the challenges now impacting domestic and global tire markets:

 

ERJ:    How does CEAT view its position in the tire market in India and worldwide today and what is the company’s vision for the future?

CEAT is one of the India’s leading tire manufacturers. It is amongst the top 30 tire players globally. CEAT’s strength lies in the passenger segment wherein it has a dominant market share in the 2W space in India. In fact, it is one of the leading 2W players globally too.

In last five years, CEAT has given the highest returns to its shareholders in the Indian tire industry and multiplied their wealth by more than 15 times. Last year, we were recognised by JD Power which ranked us no. 1 in customer satisfaction for the passenger car range of tires in India which is a testimony to our continuous efforts towards developing more customer centric products and services.

Today, CEAT exports to 90+ countries across the globe. A few years ago, we at CEAT had a nostalgic moment when we successfully re-entered European markets. We have introduced the entire range of passenger car and van tires in Europe which includes Summer tires, Winter tires and all-season tires.

Today, we are selling these tires in Italy, Spain, Poland and Greece with a go-to-market strategy set in place for entry into more European countries. We have also setup an R&D office in Frankfurt, Germany to support this plan.

India is the world capital with regards to road accidents, thanks to a combination of unsafe road conditions and poor driving habits. Taking cognizance of this problem, we at CEAT have taken up a larger purpose of “Making Mobility Safer and Smarter. Every day”.

 

ERJ:    How would CEAT describe the current state of the tire market, both domestic and global and what are the key trends in tire-manufacture going forward?

Growing nationalism, currency fluctuations, rising crude and commodity prices have resulted in market conditions that could not be anticipated as early as a year ago. China which has become a dominant player in the world tire market is threatened by duties imposed by EU and possibly the US soon. Rising crude and depreciating currencies are leading to an increase in the RM prices for many Asian and developing economies.

There has not been a dramatic change in tires as a product in its entire history. But this is likely to change in the next decade with the rapid pace of change in technology landscape. The convergence of ride sharing, autonomous driving, Electric vehicles (EVs) and connected vehicles will change the face of the mobility industry. Taxi aggregators like UBER, Lyft, Didi Chuxing, OLA have now become a part of our daily lives.

With this trend of shared mobility picking up, we are not surprised when we hear about the declining trend of vehicle ownership amongst youths. It is quite likely that bulk of our PCR tire sales tomorrow will be B2B and service and total cost of ownership would take precedence over comfort and control. We rightly see a growing concern for environment.

EVs have already begun to gain traction in many parts of the world. Indian government has mandated the 100% graduation to EVs by 2030. EV tires will need to be quieter (since tires will make the most noise in an EV in place of engine) and they would need to operate at much lower rolling resistance levels (to reduce energy usage owing to high battery prices).

We can already see OEMs getting more demanding and asking tire companies to come up with such tires. Connected vehicles is another technology trend that is disruptive.

 

ERJ: What other developments are reshaping CEAT’s markets?

We could have a future where data-management and analytics will yield much more rather than just the hardware or tires in our case. The ones who owns the data will have considerable advantage over others. As mentioned on the cover of recent edition of The Economist, data is the new oil.

Tire companies are also trying to come up with smart tires: tires with embedded chips which can collect road, vehicle and environment data and can pass it on to the driver or the cloud. We are also noticing a huge change in customer behaviour and expectations today.

Today’s customers are more informed than ever and do an extensive online research before making their buying decision. They expect the brand to respond to them within minutes of raising any complaint or query.

If we talk specifically about India, the market demand looks robust. The demand for truck & bus radial tires, particularly has seen a major uptick post anti-dumping duties on Chinese tires.

A constant rise in disposable incomes helped by the burgeoning middle class is leading to an increase in demand for passenger cars and utility vehicles. Also, a drive by the government in the direction of rural development and a rise in women commuters is leading to strong growth rates in two-wheelers.

Encouraged by these trends, we can witness a major boost in investment on capacity expansion projects across categories by the Indian tire industry currently.

 

ERJ:  We understand that there are issues around raw materials supply for tire makers in India. How has this affected CEAT and what steps is the company taking to manage such developments?

Raw material cost forms the largest cost head in the tire industry accounting for about 60% of tire cost total. Rubber (natural and synthetic), nylon tire cord fabric (NTC) and carbon black form a significant portion of the overall raw material cost of the industry. Hence, any sort of price change in the raw materials affects profitability. India is dependent on imports for natural rubber because of the lower and volatile domestic production.

The recent Kerala floods have made the domestic supply situation even worse. This has made Indian players dependent on imports for fulfilling their requirement. India attracts the highest import duty on natural rubber in the world which along with the inverted duty structure poses a stiff challenge to local players.

Further, the current import costs have been significantly affected by the depreciating domestic currency adding to the woes of the industry. In the last year, the industry has experienced shortages in Carbon Black due to the shutdowns of some of the Chinese plants owing to the environmental concerns which has further added to the supply issues.

In order to mitigate risks like these, we are continuously looking to develop new sources for RM supplies and augment the share and capacities with the existing ones. We are also partnering with them to help them create robust and reliable delivery and quality systems to create a win- win for both of us.

 

ERJ:    What are the most important areas-of-competence for CEAT, and which capabilities and technologies is the company targeting to achieve its goals for the future?

Some of the most important areas of competence for CEAT are our distribution network, state of the art R&D facilities and a strong brand recall. We are also the only company outside of Japan who has been awarded with a Deming Prize for the implementation of TQM (total quality management) practices.

We want to be future ready and are investing on building innovation and data analytics capabilities for our employees. Digital is one of the key priority areas for CEAT and we are investing heavily to create innovative digital solutions across the value chain for all stakeholders like customers, channel partners, employees etc. We are also developing EV-ready products and develop our plants on the lines of Industry 4.0.

 

ERJ:  How does CEAT plan to develop its tire product-portfolio?

We have a strong new product development process where we use a QFD (quality function deployment) process to identify customer needs and converted these into technical requirements by the R&D team followed by product development.

We look to develop our products on a platform basis. Each platform delivers on a unique value proposition as per the customer needs. Key customer needs also vary for different categories of products, e.g. for motorcycle, we have identified safety as the key need.

In truck & bus radials, hassle-free product performance in high loading conditions along with retreadibility is identified as a key need. For passenger car radial tire consumers, we expect the demand for greener products to pick up in the future: tires with lower rolling resistance and low noise.

Product developments are driven through cross functional teams which are empowered to take quick decisions to ensure speedy delivery.

 

ERJ:   How does the company plan to develop its presence in the tire markets of India, Europe, North America and Asia?

We plan to develop our presence in the various tire markets through the continuous development of customised products that deliver on key local customer needs with the help of a strong channel presence and insightful communication. We have set up offices in Indonesia, UAE, Germany, and The Netherlands to serve our customers better.

 

ERJ: Thank you