Michelin said Europe’s “difficult economic situation” is causing a drop in tire demand across different sectors that is leading to overcapacity in the region.
Author of the article:
Bloomberg News
Albertina Torsoli
Published Jul 24, 2024 • 2 minute read
(Bloomberg) — Michelin said Europe’s “difficult economic situation” is causing a drop in tire demand across different sectors that is leading to overcapacity in the region.
The company on Wednesday flagged potential further factory closures after the recent decision to shut some struggling plants and businesses in Germany and Poland. While the manufacturer confirmed its full-year guidance, some analysts had predicted an outlook hike.
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“The region’s structural difficulties are such that it’s no longer possible to export from Europe,” Chief Executive Officer Florent Menegaux said on a media call. “Energy costs are prohibitive and the European market has remained open to all sorts of competition — we’ve been inundated with budget tires from China.”
Previously, exports from Europe had always helped the company make up for higher costs, Menegaux said. But “much higher” salary and logistics costs following the pandemic as well as social charges in France among other elements are weighing on competitiveness.
“This is creating structural overcapacity in Europe,” Menegaux said. “It’s a very delicate situation. We are reviewing our industrial footprint and are actively looking for solutions.”
Earlier Wednesday, an indicator for economic activity in the euro zone unexpectedly fell, with Germany’s private sector contracting in July. The reading for the region’s biggest economy adds to signals that the recovery from sluggish months will prove more difficult than foreseen.
No Transfer
Michelin won’t sell any of the plants it decides to shut down as it doesn’t want “technology transfer” to happen, the CEO said. The company also has closed some operations in China and the US as the slowdown goes well beyond Europe.
“In 2023 and 2024, there’s been an explosion of tire exports from China,” distorting the market, Menegaux said. “The Chinese market is not growing and their capacity has increased — they are exporting tires everywhere.”
To offset waning demand, Michelin has been focusing on high value-added sectors, including tires for the mining, aviation and farming industries, the CEO said. Non-tire business is resisting better to the difficult global economic situation, he added.
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