European tire makers on track to restore capex levels

London – Capital spending among Europe’s largest tire manufacturers is on a recovery track: returning close to levels last seen about five years ago, a HSBC Global Research analysis shows.

Capex as a percentage of sales among the leading players – principally Michelin, Continental and Pirelli – declined from over 8% in 2016-18 and 7.5% in 2019 to around 6.4% in 2022, the 7 Dec report noted.

Spending, it said, was “relatively subdued” from 2020 to 2022 as tire makers delayed expansion because of Covid-19 lockdowns and related supply-chain issues.

“We forecast the capex ratio to increase to around 7.8% in 2025 as the delayed capex catches up,” said HSBC Global Research, while noting a high degree of selectivity around future investments.

In particular, as tire demand has “plateaued in Europe”, HSBC Global Research does not expect any significant capacity additions by EU tire makers in the region over the next few years.

Elsewhere, the analysis company sees scope for “some capacity additions in North America and China in high-value segments, but at the expense of standard tires.”

Alongside recently announced standard-tire capacity reductions, mainly in Europe, tier-1 producers are adding capacity in premium at the expense of lower-cost tires, continued the report.

This, it said, reflects how premium tires, mainly used in SUVs and premium cars, generally command a premium price compared with standard offerings.

“With much more focus on brands and performance, low-cost players are not able to compete. Hence, competitive pressure is lower in the premium segment,” commented HSBC Global Research.