The Michelin Man at a road safety event in Beijing, May 2012. (Photo/Xinhua)
French tire manufacturing giant Michelin is shifting its focus to the high-end and replacement tire segments of China's tire market with a new US$1.5 billion production base in the northeast of the country, reports Shanghai's First Financial Daily.
Michelin recently announced the opening its new US$1.5 billion tire factory in Shenyang, the capital of Liaoning province. The factory will specialize in high-performance tires made from 100% recycled materials, according to Jean-Dominique Senard, CEO of the Michelin Group.
The company's production bases in Shanghai and Shenyang currently produce around 80 million tires a year. When the new Shenyang factory becomes fully operational by 2015, it is expected to raise Michelin's total tire production in China to nearly 200 million a year, meaning that at least 60% of the company's products will be targeted at the high-end market.
Other international tire companies in China are also moving from manufacturing generic tires to the narrower and more specific high-performance market as Chinese consumers grow more knowledgeable about how tires affect the performance of their vehicles.
Last year, South Korea's Kumho Tire announced it would be entering the high-end tire market in China with the aim of securing a 15% market share. Italy's Pirelli Tires, which remains focused on China's high-end tire market, has already invested US$400 million in China and will inject another US$200 million within the next two years to boost its production capacity.
China's car market is slowing down but there are still certain segments with room for growth, according to Philippe Verneuil, president of Michelin China. There is still very strong demand for all-round high-performance tires that save energy and provide safety, comfort and durability, he added.
China produced approximately 483 million tires last year, an increase of 5%-7% from the year before. The annual global tire growth rate has remained steady at around 4%, though the high-end segment of the market has enjoyed higher growth at 9%-10% per year.
Experts predict that between 2011 and 2015 the annual global growth rate for high-end cars will be 4.7%, while rate for the Asia Pacific region will be significantly higher at 19.1%. Similarly, global demand for high-end tires is expected to grow annually by 9.6% compared to 17% in the Asia-Pacific during the same period.
Michelin believes that the number of cars in China could double in as little as five years, with the replacement tire market growing just as fast, if not faster. Based on this view, Michelin's strategy for China in the foreseeable future is to produce 30% of its tires for new vehicles and 70% for the replacement tire industry.