Among those companies that have recently chosen to venture into China is Pirelli. The Italian corporation has been operating a truck tyre production facility in China since the summer of 2005 before opening a new PCR tyre factory very recently in November 2007.
At this stage Pirelli is still a relatively small player in the Chinese tyre market, but it is this context that will enable the company to achieve an above average growth rate, says Luca Cico in an interview with Tyres & Accessories, now that it has managed to fulfill the demands of the Chinese tyre market with two production sites in operation.
Although Pirelli only showed products from its passenger car tyre line-up during Reifen China – highlighting the fact that just two weeks later the new PC tyre factory would be officially opened in Yanzhou, Shandong province – it is the truck tyre joint venture which is able to generate most of Pirelli’s turnover in China.
The Italian company started to sell passenger car tyres in early 2006 (as imports) under its own organizational banner. Currently, Pirelli produces about 700,000 radial truck tyres per year. To that end it had to invest about $190 million. With another smaller investment of $30 million the factory will be expanded up to a capacity of 1.2 million units by the end of 2009.
Initially, the company had also planned to sell the tube type tyres (100% of the output) that are produced in China for export markets. But the high domestic demand for Pirelli’s truck tyres has reportedly made these plans obsolete. As Cico explained, Pirelli just started to produce its first tubeless tyres in Yanzhou at the end of 2007. These tyres are exclusively deemed to serve export markets and not in China. In the course of 2007 the truck tyre factory ended its Roadone tyre production; Roadone is Pirelli’s joint venture partner. Currently, 35 different dimensions are produced in the truck tyre factory, which is producing according to a conventional production.
For now the Chinese truck tyre market remains heavily dominated by domestic tyre manufacturers. According to Cico, about 80% of the Chinese truck tyre market is supplied with Chinese tyres. The remaining 20% is divided among companies such as Bridgestone, Michelin, Pirelli, Giti Tire (Giti a so-called wholly owned foreign enterprise because the ownership is lying abroad) plus some other manufacturers. It is the GT group that is clearly leading the group of foreign market players with a share of about 15% and its brands GT Radial, Primewell, Greatwall, etc.
It is particularly difficult to achieve decent profit margins on the Chinese truck tyre market, as the sales and marketing director points it. Low margin competition was even fiercer on the truck tyre market than they are on the – already bad – Chinese PC tyre market, he continues. In turn, Western tyre manufacturers dominate about 80% of the Chinese PC tyre market. When Pirelli will break even with its truck tyre factory in China is a questions the director did not want to officially comment on. However, he believes that the current market developments are favoring Western truck tyre manufacturers on Chinese soil and on the Chinese tyre market just like Pirelli. (Tyres & Accessories/Staffordshire, U.K.)
