Pirelli announces €2bn investment plan to upgrade technology, capacity

Milan, Italy – Pirelli & C. SpA has unveiled a two-phased industrial plan which will involve the investment of nearly €2 billion in capacity and digitalisation through to 2025.

The Pirelli 2021-2022|25 industrial plan, announced 31 March, includes two distinct phases, which will see a rebound from the Covid crisis and then further stabilisation of growth in ‘high-end’ markets.

Throughout the course of the first phase (2021-2022), Pirelli said it expects “a substantial rebound” in global GDP, driven by China and the US. 

At this phase, the tire maker plans a return to a plant saturation of 90%, helped by “a capacity rationalisation that is already underway, with growing importance in countries with lower production costs,” said a 31 March statement.

This will be followed in 2023-2025 by a phase of expansion of capacity to support the growth in volumes. 

This phase will also see a strong focus on connectivity, automation and the Internet of Things at an industrial level, with benefits in terms of efficiency and elimination of production defects, said Pirelli.

During phase 1, Pirelli intends to invest between €710 and €730 million, equal to 7-7.5% of total revenues, focusing on technological upgrade, mix improvement, productivity and optimisation of industrial efficiencies.

In the second phase, the tire maker aims to invest between €1.2 and €1.3 billion, for both “constant technological upgrade” as well as capacity upgrade for “high value” tires, in particular in countries with lower production costs. 

The tire maker expects its digitalisation efforts, to "transform" its key processes, connecting them in real time. 

By 2023, the company said it “will adopt a simultaneous business model, wherein workflows are supported by five digital platforms capable of integrating internal functions with external partners/customers "in real time and full time”.

All the data will be stored in a “data lake” for better interpretation through AI models, Pirelli added.

In terms of production presence and capacity, Pirelli expects that it will manufacture 73 million units of tire in 2022, of which roughly 53 million are “high value”. 

By 2025, the tire maker targets a capacity expansion to 75 million units per year, of which 56 million will be high value. 

In terms of manufacturing footprint, Pirelli expects to operate 18 production plants by 2025.

Of these, 15 will manufacture passenger car tires (12 high-value and 3 standard), while its plant in Bollate will manufacture bicycle tires and its production unit in Java, Indonesia will focus on motorbike tires. The company’s factory in Burton, the UK will manufacture semi-finished products.

According to its website, Pirelli currently operates 19 production facilities in 12 countries and a commercial footprint of around 15,900 points of sale in 160 countries.

In financial terms, Pirelli anticipates that sales will grow to between €5.7 and €6.2 billion by 2025, compared to €4.3 billion registered in 2020. 

As for efficiencies, the Italian manufacturer said "programme was already set in motion in 2019", with phase 1 delivering €110 million in savings in 2020.

Phase 2 is foreseen in 2021-2022 and will deliver net savings of around €170 million, equal to 4.5% of total base costs in 2020. 

In addition to these savings, during 2023 and 2025, Pirelli aims to achieve net efficiencies between €70 and €100 million, of which around 50% will stem from the digital transformation.