Already overcapacity, why tyre factories still keep production expanding insanely?

Tire is an important part of the car. To a certain extent, the car production and sales decide the demand of tires. As we all known that, the global auto market has been weak in recent years,the car market has not expanded significantly, but the tyre production keeps increasing.

So who will absorb the increasing tyres? Tire factories compete to expand their production, will it lead to oversupply of tires? Will China tire fall into the embarrassing situation of “Overcapacity”?

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How Fast is the Chinese Tire Enterprises expansion?

Last month, from the beginning of June to the end, Linglong, Sailun, Pulin-chengshan, General Motors pile up to expand the production.

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In addition, many other tire companies have also made plans to expand production this year or in the next several years. After 7 + 5 strategy issued by Linglong,seven production bases in China and five production bases abroad,in the “Medium and Long-term development strategic plan (2020-2030) outline”.

Why the tire Enterprises compete to expand the production?

The reason why all tire enterprises expand production, mainly because there are many factors follows to support tire enterprises to keep to expand.

1.The Shandong government clears off the low-end production capacity, vacates the certain market space.

As noticed that, in the last two years, especially since last year, Shandong government have pushed harder and harder to eliminate low-end capacity.For example, at the end of April, Shandong Province announced the implementation of the “Three resolute”action plan (2021-2022) , which mentioned that there would be 18 tyre companies capacity eliminated.

According to statistics from the Founder Securities Research Institute, the production capacity includes 5.56 million sets of all-steel tire production capacity, 25.61 million sets of semi-steel tire production capacity

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On June 9th, the Dongying government also released a list of companies that had fallen behind in production capacity, and ask Yuanxin shut down three million semi-steel tyres by 2022.

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On January 25th, Shandong provincial Department of Industry and information technology announced the “2020 production capacity reduce situation of synthetic ammonia and bias tire in Shandong Province.”. Among them,65 enterprises reduce 17.32 million bias tire production capacity.

2. Expanding production is the only way for enterprises to expand themselves. Last year’s outstanding performance brought confidence for enterprises to expand.

 As we all know, the tire industry is a manufacturing industry, if enterprises want to grow rapidly, under the quality assurance, they must expand the volume of products,that is, increase production capacity. Because only production increasing can take a chance of gaining a higher market share.

Moreover, per last year’s pandemic, the global tire production and sales have declined more or less. Last year, the global market tire sales 1,577 million,decrease 11.7% year-on-year. However,China domestic tire companies have seen their performance soar as they take the lead in controlling the epidemic, and with the policy of “New infrastructure and internal circulation”, increase their confindence of going out into the world.

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3. Loose Credit policy helps enterprises to raise funds for building factories smoothly

The tire industry is a capital-and-technology intensive industry. In order to expand production, enterprises need to raise a lot of funds.Loose credit comes at the right time,make it possible for the tire company to build a factory.

4. Consumers are increasingly accepting domestic tires

In recent years, for the rapid development of China’s tire industry, many tire companies began to build their brands value, by increasing research and development, explore more channels.etc. In addition, because China domestic tire quality is getting higher and higher, domestic tires can be easily accept by car owners.

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Plus”Home-made tide”trend, the consumer recognition of the domestic tire higher and higher,even many high-end models cars are starting to choose domestic tyres.

Therefore, to the Chinese tire enterprises, expansion is just an opportunity at the right time, hardly appear once missed.

Followed the expansion of production,is the demand for tyres also increasing?

It should be noticed that even all the signals indicate that the expansion is a general trend, that the rate of consumer’s digestion of tires should be pay more attention to.

1. Automotive production and sales have been steady in recent years, the demand for tyres has not EXPLODED.

From the car production and sales data on International Association of Automobile Manufacturers (OICA) statistics,car sales have not increased significantly. Global vehicle sales in 2020 were 77,971,200, down 13.77% compare to 90,423,700 in 2019.

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China Association of Automobile Manufacturers has released China’s auto production and sales data for the whole year of 2020.From that, last year the number of cars dropped 1.9 percent year-on-year,passenger cars decreased by 6% and commercial vehicles increased by 18.7%.

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2. The tire replacement cycle is lengthened, the replacement market increment is not obvious

The main sale channels for tire enterprise are the OE and the replacement market. Automobile production is declining, cause the tire replacement taking time longer and longer.

With the technology go-ahead, tire basic raw materials and rubber formula Gradual mature, tire quality is better and better, the natural replacement cycle will be longer and longer.For example, for truck and bus tires, more and more tire enterprises have launched ultra-high mileage tire products, 400,000 km and 500,000 km of tires are more popular. Some manufacturers even launched 400,000 km tires and twice retreaded avaiable, total mileage can reach 80-1 million kilometers.

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If a driver who run 200,000 kilometers a year and use the ordinary tires, can make a change once a year. But with 400,000kms tyres, the tire replacement cycle can be as long as 2-3 years, and if the tyres are retreaded, the mileage is up to a million kilometres, the cycle will be longer.

3. Top Tire enterprise executives: worried about the most expansion plans

Not long ago,zc-rubber (American company) high-levels executives told US magazine Tire Business in an interview. “We are concerned about the future expansion investments of most tyre manufacturers. Actual demand has not increased much, but many tire companies plan to increase capacity over the next few years.”

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Tire Enterprises should find the balance point in ‘Increasing capacity ‘and ‘Overcapacity’

For years, China’s tire industry is suffering from the complications of “Low-level repeated expansion”. Now excellent domestic tire enterprises are no longer “Low-level repeated expansion,”but under the circumstances of production expandation and demand increasing is not exuberant,easily cause to further overcapacity and oversupply.

On the one hand is the right time and opportunity, no expanding production means no large. On the other hand there is no significant increase in demand. So how should tire enterprises do?

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At present, tire enterprises do have the need of “To expand production capacity to strengthen themselves”, but at the same time tire enterprises should find a balance point between “Expanding production capacity”and “overcapacity”,they should not expand production blindly.

In addition, China Tire enterprises want to stand in the world high-end, not only implement expansion, but also do brand value, sales strategy, channel promotion and so on.

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Wang Feng, chairman of Aeolus Tire, publicly stated that the traditional thinking of “Put production capacity ahead of market”should be changed, shouldn’t be a “Giant of production,”but a“Dwarf of brand.”,pay attention to from “extensional” expansion to “intensional” development.

What’s your opinion to the continuous expansion of current Chinese Tire Enterprises? Do you think it will exacerbate China’s tire overcapacity? Welcome to any comments.

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