Suppliers suffer as top brands make fewer tires
Highlights
Tire production volumes are declining
Major tire manufacturers are closing/withdrawing from the Chinese truck tire market
Emerging competitors are expanding capacity, challenging established suppliers
One of the most persistent requests to our team here at Tire Industry Research is to provide data on the actual production volumes of tire makers. We’ve given our estimates of that below, but before giving the numbers, there are a few caveats.
In our conversations with suppliers to the tire industry, there is often some discussion on how suppliers are being affected by the shift in the patterns of tire production around the world.
The first lesson we learned from those discussions is that the traditional suppliers to the tire industry have always been proud of their strong relations with Michelin, Goodyear and other top tire makers.
Those customers have provided a stable demand for high-quality materials, and fair transparency about volume growth into the future and pricing. That stable partnership has enabled the suppliers to plan capacity expansions into the future and project forward about prices, profitability and other factors.
Not only that, but the technical demands on the tire makers have pushed the suppliers to develop new and better materials. Once these have been developed, there is a steady demand for those materials – and the prices they command – from the top tire makers.
Despite a few ups and downs, this situation has been in place for at least the current generation of managers and most of the previous generation as well.
Now, however, orders from some of the biggest tire makers are falling at accelerating rates.
We are hearing that suppliers are typically seeing declines of 10% in volume since 2019. The big tire makers first blamed it on the temporary effects of Covid and more recently on the temporary effects of high import numbers.
But that does not seem to fit the facts. Bridgestone, Michelin and Goodyear – the world's biggest tire makers – have all announced multiple factory closures in the last 36 months. It looks like they do not expect those volumes to come back.
Furthermore, all the main non-Chinese tire makers have steadily withdrawn from China’s huge truck tire business and that has further reduced the volumes for rubber, steelcord, carbon black and the other key ingredients.
Strategy teams at the suppliers are seeking strategic responses to this changed environment. Of those who contacted us, it was clear that the decline in volumes from the tire majors is having a significant impact on business profitability and long-term viability.
At the same time, corporate boards have looked at the traditional automotive business and seen a big increase in risks associated with the elastomer demand from that business, as the pattern of deliveries changes and as the industry is encouraged to offer more cars with electric drive trains. Those drive trains use less rubber in the engine and fluids management, making boards and bankers increasingly cautious about the long-term future of the thermoset elastomers business.
Just as tire factories need to operate at high fill rates, chemical plants must do the same, so they are watching the development of tire production and engine production carefully.
Premium tire brands are closing tire factories as they lose orders for truck tires in China and also continue a tactical withdrawal from the lower-profit car tires in rim sizes below about 18 inches. Meanwhile, the 'Jackals' as we have named them – JK, Apollo, (Prinx) Chengshan, Linglong, Sailun, GST and a few others – are adding capacity around the world.
However, the Jackals are connected into different supplier networks than the established suppliers to Michelin, Goodyear and Bridgestone.
As the Jackals expand capacity for tires, those alternative supplier networks are building their own capacity for ingredients to serve the expansions of existing customers – and hoping to add the established tire makers in Europe and North America.
This is causing huge headaches for the established materials suppliers – especially those who have not worked over the last decade or two to gain trust with the Jackals. That may have happened for many reasons. In some cases there was prejudice against those companies as having lower technical demands. In other cases, it was a pricing issue. In yet others it was basic complacency. They were comfortable with the relationships and volumes and conversations with the main tire makers and saw no need to court the up-and-coming rivals.
As the Jackals expand with new strategies and new products and new offerings, they are taking business away from the premium tire makers and that has affected the flow of materials around the world.
Estimated tire production by company
We have to caution readers that the data given below is very approximate. We took publicly-available data on tire factory capacities. We then used our internal estimates to split that capacity between car (and light truck), truck and speciality categories. We made assumptions about the operating rate of each factory – mostly around 80%. Finally, as a cross-check, we compared the results of that analysis with published data on raw material purchases and revenues by segment in order to correlate the total production by company and added in appropriate correction factors to arrive at the table below.
It is important to note that our analysis revealed some quite substantial discrepancies in the publicly-available data on tire plant capacities compared with the data on material purchases by the tire makers themselves and on the average sell-in price per unit in the different tire segments. We have sought to minimise the effects of these discrepancies, but expect to return to this analysis as we can get better estimates.
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