Pirelli increases investment in China against the trend to seize the incremental market for new energy tires.

On October 10th, Pirelli held a special celebration in Jining, Shandong Province—commemorating the 20th anniversary of its industrial presence in China. At the event, Pirelli Group CEO Andrea Casaluç stated, “China is, and will continue to be, a key market for Pirelli.” More noteworthy is the news that Pirelli is planning to increase its investment to raise its stake in its Shenzhou factory. The global tire industry is currently experiencing an unprecedented downturn. Michelin’s sales in the first half of the year fell 3.4% year-on-year to €13.028 billion, and net profit plummeted 27.9% to €834 million; Bridgestone’s revenue declined 2.8% to ¥2.12 trillion, and net profit was halved by 42.2%; even Yokohama, which achieved revenue growth, saw its operating net profit decline by 23.7%. The domestic market is equally bleak, with more than ten listed tire companies, including General Tire and Fengshen Tire, experiencing net profit declines ranging from 7.7% to 77.56% in the first half of the year. Industry data shows that in September this year, passenger car tires needed at least 46 days to be stored in warehouses before receiving orders, 9 days slower than the same period last year. Dealers faced high inventory levels and cash flow difficulties, plunging the entire industry into a vicious cycle of “stockpiling – inventory backlog – tight cash flow.” However, Pirelli chose to increase its investment in China at this time, and the logic behind this decision deserves further investigation. Data shows that in 2024, Pirelli’s sales in the Chinese market reached 11% of its global sales, with high-value products accounting for over 90% of its business in China. In the first half of this year, Pirelli’s global sales reached €3.499 billion, a year-on-year increase of 1.5%; net profit was €247 million, a year-on-year increase of 14.4%. While its competitors were generally mired in losses, Pirelli’s performance stood out. The core of this differentiated performance lies in its product positioning. From the outset, Pirelli clearly defined its high-end strategy, avoiding price wars in the mid-to-low-end market. Its Shenzhou factory in China mainly produces high-end tires and high-performance new energy vehicle tires, focusing on large sizes such as 23-inch and 24-inch tires, directly targeting the high-end electric vehicle market. This strategy allows Pirelli to maintain a high profit margin even during an overall industry downturn. Behind Pirelli’s capital increase plan lies a deeper consideration—seizing the booming new energy vehicle tire market. Currently, the penetration rate of new energy vehicles in China has exceeded 58%, and the requirements for tires in new energy vehicles are completely different from those of traditional fuel vehicles. They need lower rolling resistance to improve range, better noise reduction, and the ability to withstand greater torque. These specific needs have given rise to a completely new niche market, and Pirelli happens to have technological expertise in this area. Pirelli’s presence in China began in 2005 when it established its first factory in Yanzhou, Jining, in a joint venture with Shandong Huaqin Group. In 2018, the two parties collaborated again to establish Jining Shenzhou Tire Co., Ltd., with Pirelli acquiring a 49% stake for approximately €65 million and the right to increase its shareholding to 70% between January 2021 and December 2025. Now, with this window closing, Pirelli’s decision to exercise its right to increase capital is clearly aimed at gaining greater control over the Shenzhou factory. This equity battle is actually a microcosm of the strategies of foreign tire giants in China. In 2015, China National Chemical Corporation (ChemChina) spent $7.7 billion to acquire a 26.2% stake in Pirelli, becoming its largest shareholder. However, in October 2024, the Italian government used its “golden power” to investigate ChemChina Rubber Co., Ltd., and in May of this year, Pirelli announced that ChemChina’s control over it had ended. This episode illustrates that even in today’s deeply integrated globalized world, industrial control remains a sensitive issue. From Pirelli’s perspective, the significance of increasing capital in the Shenzhou factory lies not only in expanding production capacity but also in deepening its localization capabilities. Since 2018, Pirelli’s four core tire technologies—Dynamic Self-Repairing Tread Technology, Run-flat Technology, Noise Cancellation System, and Electric Vehicle Tire Technology—have all been localized for production in China. In 2022, the “Pirelli Asia Pacific R&D Innovation Center” was established at the Shenzhou factory, signifying that Pirelli is no longer content with simply being a manufacturing base, but aims to make China a technology innovation center. It is worth noting that in February of this year, Huaqin Group announced an investment of 1.5 billion yuan to expand the production capacity of Pirelli and Shenzhou’s semi-steel radial tires to 4 million sets, providing original equipment manufacturer (OEM) parts for high-end electric vehicles such as Huawei’s HarmonyOS intelligent driving system, Li Auto, NIO, and Xiaomi. This expansion plan coincides with Pirelli’s capital increase, indicating a high degree of strategic alignment between the two companies—to seize the high-end new energy vehicle OEM market. Currently, Pirelli has three factories in my country, with a total production capacity of 15 million passenger car tires and 2 million motorcycle tires, employing over 5,000 people. Pirelli revealed that the expansion of its Shenzhou factory is underway, with continuous upgrades to its facilities and equipment. Domestic automakers are vying for priority supply rights. This supply shortage contrasts sharply with the industry’s overall inventory backlog, further validating the effectiveness of a differentiation strategy. Pirelli’s case offers a crucial lesson for the entire tire industry: in a saturated market with overcapacity and fierce price wars, blindly expanding production only leads to vicious competition; however, accurately targeting incremental markets, such as tires for new energy vehicles, can still create growth opportunities. Giants like Bridgestone and Michelin have also been increasing their investment in high-end tire production capacity in China in recent years. Bridgestone plans to invest 562 million yuan in China over the next three years, and Michelin’s Shenyang base will increase its silent tire production capacity from 1.3 million tires/year to 5 million tires/year, both betting on this trend. However, the overall industry predicament is unlikely to ease in the short term. Data shows that by 2025, China’s new tire production capacity will exceed 100 million tires, further exacerbating the supply-demand imbalance. For most mid-to-low-end tire companies, the only options are to upgrade their technology and shift to the high-end market, or to improve economies of scale through mergers and acquisitions; otherwise, their survival space will shrink. Pirelli’s capital increase is, to some extent, a vote of confidence in this decision with real money.