Since last year, the auto parts sector has been shrouded in the shadow of the ‘tide of price cuts’, and PE valuations have continued to fall to a relative bottom position since 2019.
However, from the profit side, the situation disclosed in the 2024 interim report is eye-catching.
The profitability of related companies is generally good, especially in the ‘tire and rubber’ sector. Domestic tire companies have shown strong competitiveness and development potential.
From the WIND industry classification, there are 16 “tire and rubber” related listed companies in A-shares, with significant profits in the first half of the year.
Among them, the gross profit margin of 12 companies increased year-on-year. The net profits of the leading companies Sailun Tire, Senqilin, Linglong, and General Motors increased by 100.86%, 77.71%, 64.90%, and 394.54% respectively year-on-year.
Industry analysts believe that benefiting from the withdrawal of overseas production capacity caused by the previous epidemic and the increase in consumer demand for cost-effective products due to inflation in Europe and the United States, Chinese tires have accelerated their overseas expansion and their global market share has continued to increase.
In addition, the first round of U.S. anti-dumping review of Thai semi-steel tires took effect in January this year, and the tax rate was significantly reduced, which greatly improved the profitability of related companies.
In recent years, electric intelligence in the automobile industry has become a development trend, the penetration rate of new energy vehicles has continued to increase, and vehicle intelligence represented by autonomous driving has also entered the stage of mass application.
Recently, the policy side has also been continuously introducing various measures to stimulate automobile consumption to boost domestic demand growth, such as optimizing purchase restriction policies, launching a new round of “cars going to the countryside”, exchanging old ones for new ones, extending and optimizing the vehicle purchase tax reduction and exemption for new energy vehicles until the end of December 2027, etc.
Data from the China Association of Automobile Manufacturers shows that in the first half of 2024, automobile production and sales totaled 13.891 million and 14.047 million vehicles, a year-on-year increase of 4.9% and 6.1% respectively. Among them, new energy vehicles continued to maintain a strong development momentum, with production and sales of 4.929 million and 4.944 million vehicles respectively, a year-on-year increase of 30.1% and 32.0% respectively, and the market share reached 35.2%.
Local tire companies have followed the trend, actively transformed, developed tire products suitable for new energy vehicles, and strengthened supporting independent brands.
General Motors developed the Longma series of ET commercial vehicle green tires to seize the new energy heavy truck market, and created the EV series of new energy green tires to enter the field of passenger tires.
In the field of supporting new energy vehicles, Linglong Tire has successfully supplied all GM-Wuling series, BYD Dynasty, Ocean and other flagship series, as well as Dongfeng Nissan, Honda, FAW-Hongqi, Geely, Sailis and other car companies, covering traditional and new energy companies.
In the first half of the year, Sailun Tire achieved batch supply to domestic and foreign models such as BYD Yuan PLUS, Qin L and Seal 06, as well as Vietnam’s Vinfast VF5 and VF3.
Zhang Xiang, an expert consultant at Beijing Zhongzhi Huaxing Engineering Technology Research Institute Co., Ltd., said, “New energy vehicles have a large production and sales volume, and the tires of new energy vehicles are different from the tires of fuel vehicles. They are tires with low drag coefficient, which can make the vehicle have a longer mileage. The tires of new energy vehicles are generally more expensive and more profitable than fuel vehicles. Therefore, the rapid development of new energy vehicles has driven the growth of profits of tire companies.”
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From a global perspective, the replacement market is still the main force in the market.
In 2023, the global tire replacement market will account for more than 70% and will be the main source of demand.
In the replacement market, Europe and the United States are the battlegrounds for Chinese tire companies.
Last year, tire sales in the European and American markets accounted for 51.4%, of which the replacement market accounted for more than 80%.
In the past few years, on the supply side, on the one hand, overseas production capacity has been withdrawn due to the epidemic, and on the other hand, the conflict between Russia and Ukraine has caused overseas tire companies to close their factories in Russia, further shrinking production capacity.
On the demand side, inflation in Europe and the United States remains high, consumer goods prices are soaring, and users’ demand for cost-effective products continues to rise. Under this trend, China’s tire advantages are highlighted and overseas expansion is accelerating.
However, the only limiting factor is ‘double reverse’.
Europe and the United States have implemented anti-dumping and countervailing investigations on tires exported from China, which has become a source of demand fluctuations faced by local tire companies.
For example, in March last year, the Internal Market Protection Department of the Eurasian Economic Commission issued an announcement, making a final ruling on the review of the anti-dumping situation of truck tires originating in China, and decided to continue to impose anti-dumping duties of 14.79% – 35.35% on Chinese truck tires.
Minsheng Securities believes that given that the main consideration for Europe and the United States to initiate “double-reverse” policies is “countries or regions with a relatively high proportion of tire imports”, Chinese tire companies’ global construction of factories will be more effective in responding to “double-reverse” policies and the fluctuations caused by declining demand.
In fact, local tire companies are vigorously accelerating the deployment of overseas production capacity.
For example, General Motors has successfully built three major production bases in China, Thailand and Cambodia; Sailun Tire has deployed in Vietnam and Cambodia, and is planning to build new tire projects in Mexico and Indonesia.
Sentury’s management said frankly in investor exchanges that “overseas production capacity expansion is the only way for the global development of China’s tires. The company’s first and second phases of smart manufacturing bases in Thailand have been successfully put into operation and have become a core profit engine.”
The key work this year is to steadily promote the put into operation of the Moroccan smart manufacturing project. The current construction is progressing smoothly and we are striving to put it into operation in the fourth quarter of 2024.
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