Will 2018 turn the tide?
More things change more they remain the same. That is especially true when it comes to global ranking of tyre companies. There seems to be hardly much change in the ranking of top world tyre majors in the last several years. An analysis of Global Tire Report 2017 shows that three large companies account for about 40% share of global tyre sales. Top 5 companies continue to account for 50% of world tyre market while the top 10 account for about 65%. That only lends credence to the fact that tyre is a concentrated industry worldwide.
And that makes tyre industry stand out since in several other areas the ranking keeps on fluctuating. The tyre is a concentrated industry since it is capital intensive, needs linkages with a large value chain and hence scaling up needs time and resources.
Even in terms of countrywide composition, if we take a look at the spread of top 30 tyre companies in the world in 2010 and 2016, six years apart, the two charts look like mirror images of each other.
It is clear that the axis of tyre manufacturing is shifting to Asia. In fact, Asia accounts for 60% of the total number of tyre plants in the world. In 2012, it accounted for 55%. As many as 64 new plants came up in the largest continent during this period of four years. With the increase in a number of plants, the number of employees working in tyre plants has also gone up significantly in Asia.
Within Asia, China and India alone account for 65% of the total number of plants with China leading the tally at 159 and India at 58. Thailand, Japan, Vietnam, Taiwan, Indonesia and South Korea also have tyre plants in double digits.
Even amongst the top 30 tyre companies in the world, Asia clearly dominates with China alone accounting for 9 (30%) followed by India and Japan tied at four each.
While Asia accounts for 60% of a total number of plants, in terms of global bias only plants, Asia’s share is more than 80%. And that again provides interesting insights into the continued demand for bias tyres in Asia. In India too, bias tyres continued to be preferred for certain specific requirements in view of geographical conditions and usage. In fact, Indian bias tyres are known to be the best in the world.
However, a closer look at the data points in the Global Tyre Report points to certain disturbing trends too. It is clear that global tyre industry is in the throes of a downturn. For the fourth consecutive year, the industry has continued to contract. From a high of US$189 billion in 2012, the industry size has contracted to US$151 billion in 2016. That represents a contraction of steep 20% in industry turnover in four years.
Notwithstanding the downturn in their fortunes in 2016, what is redeeming is that most of the tyre companies globally have witnessed an increase in Research & Development (R&D) spends. Amongst the top 20 companies, as many as 16 have witnessed an increase in R&D spend YoY in 2016. That shows the resilience and true character of tyre industry worldwide.
It is a matter of pride for tyre industry in India that out of top 15 companies who have witnessed the maximum YoY change in R&D spend in 2016, as many as 4 are from India. In fact three Indian companies namely MRF, CEAT and JK find a pride of place in top 5 in terms of YoY increase in R&D spend.
Significantly, there has been a threefold increase in R&D spend by tyre companies in India. Till five to six years ago, Indian tyre majors were spending 0.5% of revenues on R&D which currently has shot up to 2% of revenue. This way Indian companies are fast catching up on the 3.5% spend of global tyre companies.
As the year 2018 gets off to a good start, several factors are shaping up the tyre industry of the future. Electric mobility perhaps ranks at the top of the list. In an ambitious move, Indian Government is exhorting the Automobiles companies to go in for full electrification by 2030. For the fourth largest vehicle market in the world (after China, US and Japan) that represents significant implications for all the components including tyres.
Notwithstanding the current downturn in tyre production, the future certainly is not bleak. In its latest World Economic Outlook (WEO) update released recently in Davos on the sidelines of the World Economic Forum, the International Monetary Fund (IMF) said global output is estimated to have grown by 3.7 percent in 2017, which is half percentage point higher than in 2016. Moreover, the world economy is gathering speed with the growth forecast for 2018 and 2019 pegged at 3.9 per cent by IMF.
The growth in the world economy will indeed have a cascading effect on mobility. And hope springs eternal for the tyre industry.
Here is to a stronger and resurgent tyre industry in 2018.
(Appeared in the February-March 2018 issue of Tyre Asia)