Why Tire Companies Love EVs
CNBC
14 min, 5 sec
A detailed analysis of the tire industry's current state, challenges, and opportunities arising from the advent of electric vehicles (EVs).
Summary
- The tire industry is characterized by slow change, low growth, and susceptibility to raw material costs with buyers often indifferent to brands.
- Electric vehicles (EVs) present new opportunities for tire manufacturers, with EV tires costing more and needing more frequent replacement.
- Innovations in tire technology, such as new compounds and designs, have improved tire performance and lifespan.
- The shift to EVs is expected to increase tire demand, with EV tires being more expensive and wearing out faster due to heavier vehicle weight and quicker acceleration.
- Tire manufacturers face the challenge of balancing R&D investment in traditional and EV tire markets, as well as adapting to new trends like tire intelligence.
Chapter 1
The tire industry maintains a steady market value with slow growth and is highly competitive, with low margins and sensitivity to raw material costs.
- The tire market is valued at around $50 billion and grows slightly faster than the population but slower than GDP.
- Buyers often perceive tires as commodities, focusing on price over brand differentiation.
- The industry has low growth prospects, with an expected increase in overall demand of about 0.8% through 2027.
Chapter 2
Tire companies face challenges from fluctuating raw material costs, customer indifference, and the unpredictability of replacement demand.
- Key materials for tire manufacturing include rubber, fabric, steel, and carbon black.
- Around half of customers are indifferent to tire brands, making price a major factor in purchasing decisions.
- Unpredictable factors like driving habits and climate affect the regularity of tire replacements.
Chapter 3
Tire manufacturers seek differentiation through innovation, but face the paradox of improving product longevity, which reduces replacement frequency.
- Companies compete by creating tires that last longer, reducing replacement frequency.
- Investment in R&D for improved tire durability ultimately slows business growth due to extended tire lifespan.
Chapter 4
The rise of electric vehicles introduces new challenges and opportunities for tire manufacturers, such as increased tire wear and demand for innovation.
- EV tires are more expensive and wear out more quickly due to the vehicles' heavier weight and faster acceleration.
- Technological advancements in tires, such as radial designs and compound improvements, have evolved to meet varying performance needs.
Chapter 5
Tire companies are poised for growth with the expansion of the EV market and the need for specialized tires.
- The EV tire replacement market is expected to grow significantly, with increased costs for consumers due to more frequent replacements.
- Tire makers like Bridgestone and Goodyear offer extended warranties on their EV tires, indicating improvements in tire longevity.
Chapter 6
The tire industry continues to evolve with innovations like tire intelligence and increased rim diameters, demanding more investment in R&D.
- Tire intelligence involves sensors that monitor various aspects of tire health, aiding in maintenance predictions.
- The trend towards larger rim diameters to match vehicle size increases complexity and costs for tire manufacturers.
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