Chinese tire makers catch up with global leaders

Beijing – China’s 11 major listed tire makers, including Linglong, Doublestar, General Science and Aeolus, recorded overall sales of €4.8 billion (38.4 billion yuan) during the first half of 2020, down by 11% from a year ago.

This compares with a 23% drop in sales to €37 billion for eight of the leading tire manufacturers globally, including Bridgestone, Michelin, Goodyear and Continental, according to China Rubber Industry Association (CRIA). 

“Chinese and foreign [tire makers] have been going on different tracks since April,” said CRIA deputy chairman and secretary general Xu Wenying at a Chinese online conference on 9 September. “The EU and Americas saw rather low utilisation rates, while China’s rates have been picking up month by month.”

The global leaders, excluding Continental whose earnings are not available, posted €1.5 billion net loss during the first half 2020, compared with €2.3 billion net profit a year ago.

The Chinese manufacturers, however, showed only a 23% fall year-on-year in net profit, to €220 million. In addition, gross profit margin of the Chinese companies rose by 0.7 percentage point from first half of 2019, to 20%.

The figure, Xu said, compares against a 4.4 percentage point drop in the global leaders' profit margin to 23.6%.

Additionally, Chinese producers had a smaller decrease in net cash flow - down by 6% to €583 million - whereas global leaders’ net cash flow shrank by 71% to €713 million.

It is still a gloomy scenario for the whole year. CRIA estimates that China’s total tire production in 2020 will arrive at 542 million unit, down by 17% from 2019. 

According to Xu, Chinese tire makers still need to take notes from global leaders’ practices, which have shortened the demand feedback cycle to one week to make avoid inventory overload.

Furthermore, global players are in close talks with car makers to make adjustments in manufacturing, and have been tracking market dynamics to prioritise products with stronger demand, better profit margin and higher cash flow, she added.

As auto makers are trying to curb their costs during the coronavirus pandemic, an opportunity lies ahead for Chinese tire companies to become OE suppliers, if they can provide competitive products at lower prices, Xu said.

Pointing to plans by Bridgestone and other international manufacturers to put capital expenditure on hold, Xu urged "equal prudence" for Chinese companies.

Another difference, she observed, is: “Chinese tire makers like to spend money building new plants or taking over bankrupted facilities for expansion, whereas overseas companies more often acquire businesses along the supply chain."

This, she said, offers global manufacturers lower costs, easier quality control of raw materials and better synergies.