Analysts: Michelin/Double Coin JV dramatically increases Chinese tyre capacity
Following yesterday’s confirmation of the news that Michelin and Double Coin have entered into a China-based tyre production joint venture, financial analysts shared their views about how this fits into the French tyre giant’s wider strategy. According to Deutsche Bank, the new joint venture run plant is already being built and is expected to cost approximately 390 million euros. The analysts also confirmed earlier reports that the factory will have a capacity of 15 million units annually. For the time being the agreement remains subject to approval by the appropriate Chinese authorities.
T&A understands that in late 2010, Michelin launched a $1,350 million capital expenditure program in Shenyang, China, designed to relocate part of the plant’s activities, to expand it and upgrade it too. The new unit will eventually have twice the production capacity as the former plant. It will mainly produce Michelin-brand fuel-efficient tyres, with capacity eventually reaching 10 million passenger cars and small truck tyres, 1.8 million truck and bus tyres, and 300,000 retreads for trucks and buses. Writing in an investors note published 8 September, Deutsche Bank agreed, saying Michelin is currently investing 1 billion euros in building a 10 million unit passenger car tyre and a 1.8 million unit truck tyre plant to more than double its size in China to over 2 billion euros of revenues.
Present in China since 1988, Michelin currently employs more than 6,000 people in the country, with four industrial sites producing passenger car tires and/or truck tires (three in Shanghai and one in Shenyang). Its retail network comprises more than 4,000 sales outlets, including the TyrePlus franchise network (more than 600 sales outlets). Michelin currently has approximately 7 per cent market share in the Chinese passenger car tyre market (which equates to around 10 million units) and 4 per cent market share (1 million units) in the Chinese truck tyre sector, according to Deutsche Bank.
According to the analysts Michelin strategy in China provides the company with “a cheaper way for Michelin to grow in the entry level segments” with approximately 75 million euros of initial investment. At the same time it increases the potential capacity in China dramatically for Michelin to 35 million units for passenger car tyres. And, of course, the partners know each other well having worked together before.
Over the next five years analysts expect the China passenger car tyre market to increase by 70 per cent (from 140 million to 240 million units) while the truck tyre markets is projected to grow 60 per cent (from 25 million to 40 million units).