China's tire market continues to be hot, which boosts Continental's performance
Text | Wang Jingyi
Edit | Lee H.Y. Yin
When approaching the factory, the most striking thing is a "big chimney".
It is about dozens of meters high, and stands out in a low factory building around it, and the whole is square, straight into the sky.
The "Big Chimney", officially known as the Continental Tower, was built in the Continental tyre factory to collect vulcanized exhaust gases from the tire production process. Compared to ordinary smoke extraction methods, the towering Horse Tower can send the treated exhaust gases higher into the air, reducing the impact on the surrounding area.
There are quite a few "weird" facilities like this at the Continental tire factory in Hefei.
For example, electricity. Tang En, President and CEO of Continental China, told us that about 200,000 square meters of solar photovoltaic panels have been laid on the roof of the Hefei plant, and by the end of this year, the Hefei plant will have an annual solar power generation capacity of 27 million kilowatt hours, which can provide 18% of the current power needs of the plant's production and operation.
There is even an energy storage power station in the factory. Wang Xiaoji, general manager of Continental Tyre's Hefei plant, said that the overall design scale of the energy storage power station is 42,000 kWh, "which is the largest in terms of storage scale in Anhui Province." "Through the energy storage power station, the factory can achieve the distribution and adjustment of its own power, and help the whole society to regulate the peak and valley electricity consumption.
Another example is water. There is a sewage treatment station in the factory, and all the wastewater can be treated and used for firefighting water or irrigation of the plant's greenery.
Is that all there is to the Continental tire plant? There's more to the quest.
01
Tire production capacity is in short supply
If sustainability is the first label, you will find that there are many more labels, such as supply exceeds demand.
Tang told us that Continental's Hefei tire plant was established in September 2009 and is the first and only tire production base invested by Continental in China, with a total investment of nearly 1 billion euros.
The plant was officially put into operation in May 2011 and more than 90 million tires have rolled off the production line here.
Continental tires
Wang Jingyi/photo
Over the past 13 years, the output of Continental Tyre's Hefei plant has grown rapidly: in May 2015, the cumulative total output of the plant exceeded 10 million pieces, and in December 2023, it exceeded 90 million pieces, from 0 to 10 million pieces, which took 4 years; And from 10 million to 90 million, it took only 8 years.
"Last year, China's automobile production and sales exceeded 30 million for the first time, which is a very large market for us, in addition, Chinese automobiles have been at the forefront of the world in terms of electrification and intelligence, and we can meet the needs of Chinese and global customers by developing iterative technologies in the Chinese market." Towne said.
The tires produced at the Hefei plant are sold not only nationwide, but also to overseas markets.
Under the market demand that exceeds supply, the factory continues to expand. Following the completion of Phase 2 and Phase 3 plant expansions in 2013 and 2017, Phase IV was officially commissioned on June 20, 2024.
It is planned that 18 million passenger car and light truck tires will roll off the assembly line every year when production is fully completed in 2027.
For higher productivity, automation is essential.
Courtesy of the company
In the fourth phase of the factory that has just been built, we learned that all the transfer links are completed by AGV trolleys, and no longer through traditional manual handling, which on the one hand reduces the impact on employee safety and improves transportation efficiency on the other hand.
In the vulcanization plant, one of the core links, the degree of automation is higher. The formed tires are fed into each curing press one by one via conveyor belts and robots, and this process is fully automated. Then, through two odor removal processes, the tires that pass the test can enter the market.
"The completion of the fourth phase of the new plant is not only another important milestone for Continental's development in the Chinese market, but also demonstrates our firm confidence in the Chinese market." Towne said.
Towne revealed that there are still plans to expand the factory in the future, and the specific pace depends on market demand.
02
Boosted Continental's performance
Behind the shortage of production capacity at Continental's tire factory is a hot tire industry.
According to the data of the Passenger Car Association, the total number of narrow passenger cars in China will increase by 9.2% year-on-year in 2023, and the sales of tires in the same period will also reach 393 million, a year-on-year increase of 20.7%.
This boosted Continental's financial performance: revenue in 2023 will reach 41.4 billion euros (about 325.3 billion yuan), a year-on-year increase of 5%; The net profit was 1.2 billion euros (about 9.4 billion yuan).
As a world-renowned auto parts supplier, Continental ranks 362nd among the world's top 500 companies.
The towering Horse Tower is particularly eye-catching in the factory area
Wang Jingyi/photo
In 2024, Continental expects sales of around EUR 41 billion to EUR 44 billion, with an adjusted EBIT margin of around 6.0 to 7.0 percent.
The Tire Subgroup, which accounts for about one-third of sales, is expected to reach 14 billion to 15 billion euros, with an adjusted EBIT margin of around 13 to 14 percent, which is one of the highest in the industry.
The Q1 2024 earnings report showed a particularly strong performance in the tire replacement business, with Continental forecasting that the tire subgroup will also benefit from an increase in demand for tires in the coming months.
According to the China Rubber Industry Association, each car is equipped with 5 tires and the replacement cycle is 3.3 years, so each car needs to replace 1.5 tires per year. Trucks and buses are equipped with a higher number of tires and a shorter average replacement cycle. Due to the rigid consumer nature of the tire replacement market, it usually shows stronger elasticity for demand growth and resilience to resist declining demand.
As of December 2023, the number of cars in China has reached 336 million, and the huge size of the car market has created a long-term demand for tires.
Electric vehicle tires also create new opportunities for Continental. In 2023, for the first time, Continental will supply tires to the world's top 10 EV manufacturers, and for the first time, it will also supply original equipment tires to the five highest-selling EV manufacturers in the Asia-Pacific region.
Courtesy of the company
"In recent years, Continental tires have made great progress in the original equipment market, especially in the new energy vehicle supporting area." Xu Qiao, general manager of the original supporting business department of Continental Continental Tire in China, said.
Xu Qiao told us that the requirements of new energy vehicles for tires are different from those of traditional cars, which are mainly reflected in appearance, low rolling resistance, low noise, and high durability. Torque output and silent requirements pose challenges to the manufacturing process and R&D of tires. Therefore, tire companies must strengthen the research and development and production of new energy vehicle tires to adapt to market changes.
In the face of the hot Chinese tire market, the Hefei plant is working at full speed towards the goal of producing 18 million tires per year, and Continental is also continuing to increase its weight in R&D, manufacturing and other fields to move towards higher performance.