European tire sector still leads the way

European-based players remain to the fore in the latest ranking by sales of the world’s largest tire manufacturers, having adapted effectively to continuing business challenges and market disruptions.

Group Michelin weighed in again as the world’s largest manufacturer, with tire-related sales of $28.3 billion, well ahead of second-placed Bridgestone’s estimated total of $26.6 billion.

With sales of $12.4 billion, Europe’s next largest tire maker Continental AG retained its no 4 position – though the gap between it and third-place widened considerably on Goodyear’s addition of a first full year of sales from acquired Cooper Tire & Rubber.

By contrast, a strong performance by Pirelli, in no 6 slot, saw the Milan-based tire maker close the gap on Sumitomo Rubber Industry, one place above it in the 2022 sales rankings.

The solid year-on-year growth reported by the top three European tire makers reflected a continuing recovery from the impact of the Covid pandemic on their businesses and markets – tempered by developments in Russia.

Europe’s next largest player Nokian fell one position to no. 20, reflecting the onset of challenges linked to the Finnish group’s exit from the Russian market to which it was heavily exposed.

Interestingly, despite all the turmoil around its exit from Russia, Nokian generated the most sales per employee in 2022: at $377,906 the Finnish group stayed just ahead of India’s BKT at $360,017 and Toyo Tire of Japan at $358,124.

Milan-based maker of commercial and off-road tires Prometeon’s ranking at no 26 is based on its 2021 data: the 2017 spin-off from Pirelli did not provide revenue details for last year.

Elsewhere, it is worth noting that the $1-billion-plus revenue recorded for Trelleborg Wheel Systems, at no 29, now bolster the sales of Yokohama Rubber Co.

This follows the Japanese group’s €2.2-billion acquisition of the off-road tire maker from Swedish group Trelleborg SA in May – a deal that could threaten Pirelli’s long-held position among the ‘big-six’ next year.

Meanwhile, Michelin, Continental and Nokian will face pressure, to varying degrees, on their sales, as a result of exits from Russia and divestment of production activities in the country – all linked to the Kremlin’s invasion of Ukraine on 24 Feb 2022.

Investment focus

While perhaps, less of a ‘hot-spot’ for investment than other global regions, Europe was still the focus of some significant new-build and expansion announcements in the last year.

Finnish tire maker Nokian earmarked nearly $900 million for two projects to restore capacity lost through the divestment of its 16 million unit/year tire plant in Vsevolzhsk, Russia.

In May, Nokian started construction work on an $800-million project at Oradea, Romania to build a plant with capacity to produce 6 million car and light truck tires/year. Commercial-scale production is slated to start in 2025.

In the US, meanwhile, Nokian is investing $174 million to double capacity at its four-year-old plant in Dayton, Tennessee, to 4 million tires/year.

Elsewhere, Turkish-based Petlas Tyre Industry & Trade Co. announced the building of a new tire plant adjacent to its existing facilty in Kirsehir, central Turkey. Construction is set to start later this year and be completed by 2026.

According to Petlas, the $360- million project will raise the firm’s capacity for passenger car and light truck tires by 42% to 340,000 tonnes a year.

The new plant, it stated, will be equipped with “state-of-the-art” tire production technologies and, once operational, will turn the Kirsehir facility into “one of the largest ‘mega’ tire factories in Europe.”

Looking overseas, Pirelli is investing $113 million at its Silao, Mexico site, primarily to raise capacity for larger-rim-diameter and electric vehicle tires: increasing capacity there by around 13% to 8.5 million units within two years.

Closer to Europe, Qingdao Sentury Tire Co. Ltd plans to establish a $297-million plant, with capacity to make 6 million car and light truck tires/year, near Tangier, Morocco.

Construction of the plant was expected to begin in July and take 18 months to complete, with output in the first year reaching 3.6 million units, according to a Sentury stock exchange filing.

In addition to the Morocco investment, Sentury is progressing with a planned $590-million greenfield tire factory project in Galicia, northwest Spain – as first disclosed by the Chinese-based tire maker in 2021.

Cost challenge

While Europe remains a highly attractive market for most global players, the increasing cost of producing tires in the region is a challenge for many producers.

Pressures on profitability were, perhaps, most clearly evidenced recently by Goodyear’s September announcement of plans to cut 1,200 positions across its Europe, Middle East and Africa (EMEA) region.

However, European-based tire makers appear to be faring better, at least from a global perspective during the first six months of this year.

The world’s largest tire producer Michelin, for instance, posted a significant increase in first-half earnings, as ‘value-management’ policy offset cost inflation and lower volumes. Revenue, meanwhile, was lifted by a strong price-mix and the “fast-growing” non-tire business.

Michelin’s revenue growth was achieved despite a 3.7% decline in tire volumes, and a negative 1% currency effect, due to depreciation of most currencies against the euro.

The volume drop, said Michelin, reflected the uncertain economic environment and increased interest rates, which prompted major dealers to curtail inventories. The group’s termination of sales in Russia also weighed on its first-half volumes.

Negative factors were, however, offset by a 9.4% positive tire price-mix effect, reflecting a 12.3% impact in the first quarter and 6.7% in the second.

This translated to a €1.1-billion positive price effect, and €124-million positive mix effect, which helped to offset higher costs for raw materials, freight, energy and payroll at Michelin.

Recovery signs

For its part, Hanover, Germany-based Continental Tires posted a 14.0% year-on-year decline in earnings (EDITDA) on first half sales 3.7% higher than a year ago.

Continental, however, noted signs of a recovery in earnings towards the end of the second quarter, while tire revenues continued to benefit from positive price and product-mix effects, including a high proportion of premium-tire sales.

Over the first six months, the German group said OE tire sales increased “considerably” compared to the prior-year period due to a rise in vehicle production.

This, it said, included 15% year-on-year rises in vehicle production in April, May and June, in Europe and North America along with a 20% rise in China to around 6.6 million units.

On the other hand, replacement tire sales in the passenger car tire business, particularly in Europe and North America, were down year-on-year on “consistently high inventories in the trade and the price reduction anticipated on the market.”

In the commercial vehicle tire business, sales were “considerably lower” than in the prior-year first half, the Hanover-based group also reported.

Improved mix

Higher first-half earnings at Pirelli, meanwhile, were linked to improved price/mix and efficiencies, which more than offset the strong impact of raw materials, inflation and exchange rate effects.

The Milan, Italy-based tire maker also highlighted a strengthening of its position in high-value tires, including 5.7% growth in 18-inch-plus car tire volumes – outpacing the market by around 1%. 

Based on its first half showing – particularly on price-mix – Pirelli upgraded is full-year forecast for adjusted EBIT margin to between around 14.5% and 15%, from around 14-14.5% previously.

Revenues, however, are now projected to come in slightly lower than previously forecast, at between around €6.5 billion and €6.7 billion.

The downgrade, from the previous forecast of between around €6.6 billion and €6.8 billion, was linked to projected volumes and forex developments.

Volumes are estimated to decline by between around 2% and 1%, compared to Pirelli’s previous indication of ‘stable to around +1%.’

Given a weaker-than-expected second quarter, Pirelli forecast global car tire demand to dip by around 2%, compared to ‘flat’ previously. On the other hand, it expects demand for high-value tires to grow by 3% year-on-year.

PCR volumes

Finnish group Nokian Tyres reported a 12% year-on-year decline in second quarter sales to €293 million, largely due to lower passenger car tire volumes.

Earnings (‘segments operating profit’) for the period to 30 June turned positive at €15 million, up from €0.9 million the year before and a loss of €14 million the previous quarter.

Over the first six months, sales dipped 19% year-on-year to €530 million, while ‘segments operating profit’ fell 97% at €1.1 million – again reflecting lower volumes.

For first half 2023, Nokian reported passenger car tire sales of €529.5 million, compared to €758.0 million in the same period of 2021 – the year before Russia’s invasion of Ukraine.

In addition to “demanding” car and tire markets, Nokian “faced some currency headwinds, impacting its net sales negatively” according to president and CEO Jukka Moisio.

“We expect the second half of 2023 to be stronger due to winter and all-season tire sales and contribution from contract manufacturing,” Moisio added in the company’s interim report.

During the second quarter, he noted, Nokian progressed its investments in new capacity, including the start of building work on its new passenger car tire factory in Romania.

For full-year 2023, Nokian’s financial guidance has remained unchanged, with sales expected to come in at between €1.3 billion and €1.5 billion – compared to €1.8 billion in 2022.