A few days ago, the global tire leader Linglong Tire disclosed its 2025 annual report and 2026 first quarter report.
In 2025, Linglong Tire achieved annual operating income of 24.642 billion yuan, a year-on-year increase of 11.72%. The company stated that this was due to the year-on-year increase in the supporting volume of passenger car tires, truck and bus tires, and off-highway tires.
But at the same time, the company’s full-year net profit attributable to the parent company was only 1.369 billion yuan, a sharp decline of 21.88% year-on-year.
The gross profit margin for the year was 17.03%, a decrease of approximately 5 percentage points from the previous year.
What shocked the market was the company’s “exploding” performance in the first quarter.
In the first quarter of 2026, Linglong Tire achieved operating income of 6.057 billion yuan, a year-on-year increase of 6.33%. However, the net profit attributable to the parent company was only 16.8935 million yuan, a year-on-year plunge of 95.04%. After deducting the non-attributed net profit, it recorded a loss of 26.8959 million yuan, turning from profit to loss.
The company explained that it incurred an exchange loss of 267 million yuan in the first quarter of 2026, compared with exchange gains in the same period last year, resulting in a sharp deterioration in profits.
The market reacted violently.
After the first quarter report was disclosed, the company’s stock price hit an intraday low of 13.21 yuan in nearly a year on April 30, falling more than 5% for the whole week.
With revenue growth of only about 10%, the growth rate of Linglong Tire’s sales expenses far exceeds the revenue growth rate.
The 2025 annual report shows that the company’s sales expenses are as high as 862 million yuan, a surge of 33.05% from 647 million yuan in 2024, mainly driven by the year-on-year increase in advertising fees and sales and service fees.
The sales expense ratio subsequently rose to 3.50%, becoming one of the key variables that lowered the company’s net profit margin.
At the same time, management expenses increased by 18% year-on-year due to increases in consulting service fees, employee compensation expenses, and fixed asset depreciation expenses.
The squeeze from both ends on the expense side adds to the rising costs, further compressing profit margins.
The financial report shows that the company’s operating costs will increase by 18.93% year-on-year in 2025, and the growth rate is significantly higher than the revenue growth.
Linglong Tire continues to promote the “7 + 5” global strategic layout, and the Serbian base is one of the company’s largest overseas projects in recent years.
However, as of the end of 2025, the base’s semi-steel and all-steel production capacity utilization rates only exceeded 70% and 50% of the overall design capacity respectively.
The company also admitted in previous investor interactions that as of the end of 2025, the company’s semi-steel production capacity utilization rate was 70% and its all-steel production capacity utilization rate was 50%, showing its shortcomings in order saturation.
The launch of overseas production capacity requires a value return period of several years, and it is still questionable whether orders are sufficient to support the digestion of this new production capacity.
Comparing Linglong Tire with leading companies in the industry can clearly see the gap in its profitability.
Competitor Sailun Tire will achieve operating income of 36.792 billion yuan in 2025, a year-on-year increase of 15.69%, and net profit attributable to the parent company of 3.522 billion yuan, a year-on-year decrease of 13.30%.
Although Sailun also faces the common industry problem of “increasing revenue without increasing profits”, its net profit decline is less than 60% of Linglong’s.
In the first quarter of 2026, Sailun Tire achieved a net profit attributable to its parent company of 1.056 billion yuan, which has returned to positive growth of 1.72% year-on-year, while Linglong was still bottoming out during the same period.
Looking at Triangle Tire, it will achieve operating income of 9.821 billion yuan and attributable net profit of 923 million yuan in 2025, a year-on-year decrease of 16.30%. However, the gross profit margin bucked the trend and increased by 2.07 percentage points to 20.02%.
In addition, Triangle Tire’s capacity utilization rate in 2025 will be approximately 90%, which is higher than Linglong’s industry utilization level.
Looking forward to 2026, Linglong Tire still faces multiple risk factors.
First, exchange rate risk is still exposed.
Huge foreign exchange losses in the first quarter have already dealt a heavy blow to the company’s earnings.
Although the company has launched foreign exchange hedging operations, exchange rate fluctuations remain highly uncertain amid global trade tensions.
Second, there is a mismatch between overseas production and profits.
The Serbian base continues to be under huge fixed cost pressure, and whether the production capacity ramp-up can be achieved on time remains to be tested.
Third, there is the double attack of raw material prices and export barriers.
The tire industry continues to face long-term trade barrier risks such as natural rubber price fluctuations and EU anti-dumping/countervailing investigations.
Linglong Tire is going through a painful period from “scale expansion” to “balance between volume and profit”.
A correct strategy does not mean that the execution is flawless. The high growth in sales expenses has not been converted into an equal proportion of profit contribution. The huge sunk cost of new overseas production capacity has swallowed up the current profit. The gap in profitability with peers such as Sailun continues to widen.
Against the background of intensified competition in the industry as a whole, if the core issues of cost control and production efficiency cannot be solved as soon as possible, the company’s valuation logic may face revaluation pressure.
