Pirelli CEO Talks Future Mobility, Industry Challenges

Pirelli CEO Talks Future Mobility, Industry Challenges

As Pirelli rings in its 150th anniversary this year, international celebrations have honored the brand’s mark on the tire industry, art and society. Yet, with a storied past, it’s also a time to think back on the company’s history and what’s to come as the automotive industry continues to evolve. Reflecting on the company’s history and looking toward the future, Marco Tronchetti Provera, Pirelli’s CEO and executive vice-chairman, met with members of the media to discuss the Italian tiremaker’s innovations, focusing on future mobility and market dynamics that are affecting the business today.

Below are excerpts from that conversation as Tronchetti Provera gives a snapshot of the company and tire industry today and how he feels Pirelli is set up to succeed in the future.

(Editor’s Note: This Q&A was conducted before the Russian invasion of Ukraine in late February. Answers do not reflect current market conditions due to recent world events.)

Q: Pirelli is celebrating its 150th anniversary this year, but it is also important to look at the future of Pirelli. So where do you see Pirelli going in the near future, let’s say 10 to 15 years?

Marco Tronchetti Provera: I see Pirelli continuing to be very competitive. What we are bringing into the market is something that will last for the next decade. What we are starting and developing with the carmakers [Pirelli’s “Perfect Fit” strategy and Pirelli proprietary technology], it’s really challenging but also an opportunity to leverage our digital footprint and the experience of our people… We are eager to continue to compete in the way we are doing today.

Q: What is Pirelli’s strategy for the North American market? What role will independent tire dealers continue to play in that strategy?

TP: North America, for us, is one of the key markets. The market that is growing fast for us because we are 100% in it is the United States. We are now in the high-end segments with independent dealers and have very strong partnerships. We are growing fast, and this is one of the main opportunities for Pirelli. We’re supplying original equipment tires to American carmakers and European carmakers. We are also succeeding in delivering products that are fit for the American market from summer, winter and all-season products. And our clients are asking for more and more. We are very happy to satisfy their demands.

Q: Could you address three situations we’re all facing this year: One is the shortage of semiconductors for the automotive industry–how is Pirelli involved? The second, the COVID pandemic. And third, what do you expect with regard to the prices of oil, natural rubber and steel – the main products for tires?

TP: With the shortage of semiconductors, we have been able to balance our manufacturing volume for original equipment with high growth in the replacement market. Two-thirds of our sales are to the replacement market, and we’ve leveraged that so the results are positive.

With the pandemic, we learned from China, where we first experienced it in January a couple of years ago. Our team supported the safety of our people. The priority with the pandemic was the safety of our people. We succeeded in reducing the negative impact on our workforce, both white collar and blue-collar.

I think that with raw materials, prices will balance out. Obviously, we are not in a deflationary environment. There are some effects [to our business], but we can cope with price [increases], especially in the high-end [segment]… Right now, I think that we will continue to have an inflationary environment. But as I said before, we can cope with price [increases] without a major impact on our customers.

Q: The industry is facing global changes, and changes to the car itself are revolutionary. What changes should we expect in the tire industry in upcoming years?

TP: I think the move toward electric cars, for us, is an opportunity. Electric cars are heavier because of their batteries, which means they need lighter tires to help reduce battery consumption. This is positive since it means the technology, nanomaterials and design of the tire structure are different. For us, this is an opportunity, and we expect to grow 1.5 times our market share in electric cars because of the high level of technology required.

Q: Pirelli has such an emphasis on sustainability, especially going into the future. So can you talk a little bit about Pirelli’s long-term and short-term sustainability goals? How will they affect tire development within the next decade?

TP: We have set ESG targets, and that’s why we are leading all the indices related to ESG. Our targets are to continue this way. We delivered the first FSC-certified tire, and we are targeting a reduction in CO2 emissions. We are working to continuously improve and are using [sustainable and organic] materials that are environmentally friendly. The circular economy is also part of our plan.

Q: Which was your strongest market in 2021? Do you have any plans for expansions or new investments for this year?

TP: Currently, our largest market is Europe. China and the US are growing… and we are also growing in the Middle East. Growth markets for us are China, far eastern Europe and the US. We continue to expand in a balanced way.

Q: Pirelli has always been a company well known for its market-leading products, in particular, in the high-performance and ultra-high-performance segments. For you, how important is it or would you consider diversification for Pirelli’s future development? Should Pirelli maybe become a multi-brand manufacturer, offering its products on all tiers or levels of the tire market? What’s your opinion on this?

TP: We are focused on being leaders in electrification in the automotive industry as well as in-vehicle electronics. That’s why we’re developing sensors [and other tire technology]… The sensors are a way to deliver information to carmakers because the tire is the only piece of the car that touches the ground. Through that, we can provide information about safety, tire wear, etc… I think the future of Pirelli is to be more and more involved in digitalization as we are demonstrating today. With the OEs, we are developing [tires] in a digital way with a number of carmakers.

Q: What advantages does Pirelli’s footprint have that helped the company through recent supply challenges? Has the company found any room for improvement or addressed any challenges in terms of making its supply chain stronger and addressing certain issues?

TP: We have a policy in the company that we produce 80% of the product in the local market. This helps reduce the impact that comes from exchange rates, duties or other things. That has helped us because we didn’t need to move [product] from Asia to Europe or to the United States. The goods produced in the United States are for the United States. We had some costs coming from supply from Latin America and Europe, but all in all, we are coping with this in a balanced way. Obviously, the cost of transportation has increased, but with our target on the high-end [segments], we were able to increase prices to offset the cost of transportation.

Q: Can you provide your overall analysis of the global tire market in 2021 and some of the opportunities as the new year starts?

TP: I have to say that despite the crisis created by the semiconductor shortage, the global market recovered faster than expected and so did the will of people to restart moving. The entire industry was positively affected. The high-end [segments] were less affected by the semiconductor shortage. Looking forward, 2022 should continue the same way. We expect that in the second part of the year, the OE business will recover when the situation with semiconductors goes back to normal.

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