Tire industry: high-end market to break through

From the demand side, according to the statistics of the Ministry of Public Security, the number of motor vehicles in the country in 2022 reached 417 million, of which 319 million were automobiles, an increase of 5.81%, accounting for 76.59% of the total motor vehicles. By the end of 2022, the number of new energy vehicles in the country reached 13.1 million, and 5.35 million new energy vehicles were newly registered nationwide in 2022, an increase of 81.48% year-on-year. The number of newly registered new energy vehicles has grown rapidly from 1.07 million in 2018 to 5.35 million in 2022. At the same time, the replacement rate of Chinese tires is also rising. In the past two years, the replacement rate of domestic tires has reached 1.3-1.5. If the average replacement rate of 1.5 tires per car per year is followed, the current demand for automobile tire replacement in China is about 625.5 million.

From the perspective of domestic supply and demand structure, China's tire market has been oversupplied, but a considerable proportion of Chinese tires are exported overseas.

Customs data show that in the whole year of 2022, China exported about 553 million new inflatable rubber tires, down 6.6% year-on-year. In December 2022, the export volume of new pneumatic rubber tires was 45.82 million, down 12.2% year on year.

Although the export market has a downward trend, if the domestic market demand bursts, the production of Chinese tires is less than the demand.

In order to better meet market demand, many leading tire companies are still expanding production capacity.

Linglong Tire recently announced plans to build a new high-performance radial tire project with an annual output of 14 million sets in the high-tech Industrial Development Zone in Lu 'an City, Anhui Province, with a total investment of 5.1 billion yuan; Cylun Tire plans to invest and build projects with an annual output of 30 million sets of high-performance radial tires, 150,000 tons of off-highway tires and 500,000 tons of functional new materials in Dongjiakou Chemical Park, West Coast New District, Qingdao, with a total investment of 17.48 billion yuan; On December 30, 2022, SenQilin announced the non-public offering of A-shares plan, the total amount of funds to be raised is not more than 4 billion yuan, and the net amount of funds raised after deducting the issuance cost is used for Spain's annual output of 12 million high-performance cars and light truck radial tires project and supplementary working capital.

Data show that as of the end of February, among the 45 companies in the A-share tire industry chain, about 10 companies have disclosed or updated refinancing issues, such as Lianke Technology, Daye Shares, Haohua Technology, Senkirin and other 7 companies disclosed the plan or latest progress of private equity. Yanggu Huatai, Qicheng shares, what shares and other companies announced the new progress of the public issuance of convertible bonds.

Not only that, the leading company's capacity is not saturated, in 2021, Linglong tires capacity utilization rate is 86%, racing tires is 71%.

The high-end market has yet to break out

In recent years, affected by multiple factors such as rising raw material costs, weak downstream demand, blocked shipping, and competition, most domestic tire companies have experienced shrinking performance.

Recently, Linglong Tire released a performance forecast, affected by the overall gross margin reduction, it is expected that the annual performance in 2022 will decline significantly, and it is expected to achieve a net profit of 240 million yuan to 280 million yuan, down 65% to 70% year-on-year; Qingdao Double Star will lose 540 million to 670 million yuan in 2022, increasing its loss by 68.59% to 109.18% compared with 2021, which has been a loss for four consecutive years since 2019; Giti Tire is expected to achieve operating income of 3.332 billion yuan to 3.682 billion yuan, net profit attributable to shareholders of listed companies is 29.19 million yuan to 43.78 million yuan, net profit after deducting non-recurring profit and loss is 25.45 million yuan to 38.18 million yuan; Triangle Tire achieved total operating revenue of 6.805 billion yuan in the first three quarters of 2022, up 2.3% year-on-year, and net profit of 470 million yuan to the mother, down 3.14% year-on-year; In the first three quarters of 2022, Guizhou Tire achieved total operating revenue of 6.252 billion yuan, an increase of 15.90%, net profit attributable to the mother of 255 million yuan, an increase of 3.46%, and withholding non-net profit of 270 million yuan, an increase of 16.36%.

In 2022, in the context of the global macroeconomic downturn, the challenges of China's tire industry are more severe.

At present, in the domestic tire market, the share of domestic brands is only 20%-30%, and more than 70% of the market is occupied by foreign brand tires, especially high-end brand tires are almost monopolized by foreign tires. From the price point of view, the average price of Chinese brands of tires is less than 380 yuan, while the average price of foreign brands of tires is 770 yuan, almost twice that of domestic tires. At present, the main foreign tire companies in China include: Bridgestone (Japan), Michelin (France), Goodyear (United States), Horse brand (Germany), Sumitomo Rubber (Japan), Pirelli (Italy), etc., foreign companies in the brand and market influence is better than domestic enterprises.