Continental Tire the Americas said despite an overall slow down across the tire industry, the company has seen a number of bright spots — from increased original equipment tire demand to a resilient retread market.
Jochen Etzel, chief executive officer at Continental Tire the Americas, filled us in on the details in this Q&A.
In the U.S. replacement consumer market we have seen a slow start to the year, (which is) not totally unexpected, given the economic environment, the efforts being made to slow down inflation and given the strong first-quarter performance in 2022.
In the U.S. replacement truck tire sector, we have a seen a slow start to the year within the dealer channel due to high inventory levels carried over from 2022 into 2023. Fleet demand has slowed, however not as significantly as the dealer channel. The market has seemed to have moved from a "just in case to a just in time" buying behavior.
In the commercial specialty tires (CST) sector, the market dynamics are different in 2023, compared with the previous two years that were impacted by supply-chain issues. End-user demand is still strong but not at the level of 2022. There are more tires in stock and the cost of financing has increased so customers have less incentive to buy ahead. The port and materials-handling segments are impacted by fewer containers entering into the U.S.
Construction and aggregate segments have proved quite resilient, and earthmoving sales have been strong this year.
Conti also is active in the two-wheeler market: In bicycle we continue to see challenging times. Consumers seem reluctant to buy, and retailers are overstocked. Assembly of new bikes globally is affecting the parts and accessory market.
In motorcycle, consumer demand is slower than the last three years and the weather delayed the motorcycle season in many states. Some distributors and dealers are still overstocked from 2022.
As for original equipment: Light-vehicle production in the Americas continues its recovery following the disruptions caused by COVID-19 pandemic in 2020, and semi-conductor shortages in 2021. As was the case in 2022, we expect year-over-year growth in 2023. We are experiencing a stronger demand in the premium segments of the market due to OEMs prioritizing production of certain models and trim levels.
Most major disruptions in the global geo-political arena have some impact on the general supply chains to which Continental is also not immune. Just as the war in Ukraine resulted in a shifting of supply chains in 2022, a hurricane or ice storm hitting the U.S. Gulf coast region poses a similar risk to our supply chains.
In the first half of this year, besides inflation and interest rates, we have not experienced any major impact by way of disruption to our supply chain like we have each year since 2020 in the first quarter of this year. The impacts to our supply chain from the Ukraine war have mostly settled and market softening is bringing additional pliability. Inflation and high interest rates will continue to be burdensome as they directly impact the cost of our inputs.
Continental has sold its plant in Kaluga, Russia, to Russian company S8 Capital. With this step, Continental has divested the majority of its activities in Russia as part of its announced controlled withdrawal from the Russian market — a decision taken by the company in response to the war against Ukraine. The transaction has been approved by the relevant authorities.
"With this sale, we have divested the majority of Continental's activities in Russia and therefore completed a key step in our controlled withdrawal. It was and is important for us to fulfill our responsibility toward our Russian colleagues, and S8 has agreed with us to take over the employees as part of the sales agreement," explains Christian Kötz, Executive Board member for the Tires group sector.
We used our global manufacturing footprint to absorb the Russian export production capacity.
The war in Ukraine resulted in a shifting of supply chains. In 2022, general demand was strong which saw numerous manufacturers re-source their supply chains due to availability of materials impacted by the war. Whether sourcing was from Russia or Ukraine or not, supplies and supply chains were impacted either directly (products like carbon black, synthetic rubber and steel) or indirectly as supplies of gas and oil from the region were halted. This drove global costs up operationally, impacting cost to produce, but also commercially as demand outweighed supply for a period. This of course contributed to escalating inflation as one of many driving factors. Fortunately for us in the Americas region, we were able to anticipate some of these global challenges and react very early in such a way as to minimize the risks we faced to our supply security. We were also able to leverage a large global footprint and supply base to secure our needs. While we could not avoid the cost impacts, we believe disruptions in our supply chains were minimized due to the early and rapid actions taken by a great Conti team. Going into 2023, these impacts are yet again mitigated as overall supply chains continue to relax.
Continental started 2023 with solid results, in line with its expectations. We anticipate a further improvement in earnings over the course of the year, in particular due to rising production figures for passenger cars and light commercial vehicles, inflation-related price adjustments and cost discipline. Vehicle production in North America recorded an increase of around 10% to 3.9 million units. Continental is maintaining its outlook for 2023.
Globally and despite considerable challenges, we managed to keep all our production sites worldwide up and running in 2022.
In 2023, we have seen a general softening in the recent rigidity and tightness of the global supply chains. Ocean-vessel freight is normalizing, supply and demand has sufficiently resettled after the disruption caused by the war. One might even say supply chains have stabilized in many areas.
Of course, there are exceptions but generally speaking, raw-materials supply and demand is in balance with a trend to soften. Raw-materials costs are reacting to the changing market conditions in some areas as contracts allow, while other areas remain challenging. Many of our raw materials are reliant upon oil derivatives as a main feedstock, so naturally as oil prices fluctuate, so do the costs of those products to us. Other products are of a more technical nature and rely on numerous factors to drive costs. All materials remain moderately to heavily impacted by the high inflation rates, interest rates and labor challenges.
We do not currently foresee the environment supporting (or requiring) additional price increases.
Continental has set out in its new strategic "Vision 2030" program for the group sector tires, and it is focused on the systematic customer-centric alignment of the organization and all its business activities. The tires sector is targeting further profitable growth and, in a fast-changing market environment, aiming to set itself apart from the competition in respect of sustainability and through digital solutions.
The tires sector is looking to expand in the North American market as a definite growth driver for the Continental global business. In the passenger and light truck tires segment, the focus will be on growing the global business with tires for electric vehicles and ultra-high-performance tires.
In the truck and bus tire segment, the Conti360 fleet services offering will be a key driver across all regions. At the same time, Continental's specialty tire business, which covers two-wheeler and race tires, as well as tires for many different industrial applications, is also set for further growth, notably in the agricultural tires segment.
Going forward, with its premium portfolio of passenger, truck and specialty tires, Continental will continue to stand for innovative peak performance in tire technology. In the future, this will be complemented by an ever-expanding service offering and aligned even more precisely with the different customer segments.
As one of the world's largest suppliers of electronics, sensor systems and software in the mobility industry, Continental has a decisive competitive edge in this respect.
The tires sector is aiming to become the global leader for service-based digital solutions by 2030. The company already offers many fleet customers guaranteed mileage along with an extensive range of tire services whenever and wherever they are required. Then there are smart tires that permit customers to monitor their condition with the aid of sensors and software.
Continental is demonstrating added value for its customers by networking tires, sensors, telemetry data, algorithms and the cloud. The resultant smart digital solutions help to ensure that, in the future, tires are serviced or replaced precisely when necessary. This will lead to a substantial increase in safety and productivity, while at the same time cutting costs.
On top of this, in recent years Continental has pursued the targeted expansion of its worldwide production network. At the company's state-of-the-art production plants, innovations such as fully automated tire warehouses and the cross-company rollout of a global digital manufacturing system will support even more efficient and environmentally compatible production in the future.
In the U.S., the company has made significant investments in manufacturing in the last decade and continues to make further investments at the plants.
We are projecting the 2023 U.S. replacement passenger/light truck tire market to be "on par" with prior year, assuming it moves with more traditional seasonality this year. This means first-half 2023 comps will be more challenging compared with first-half 2022 comps which were weaker.
In the commercial vehicle tire sector, 2019 is our reference point for 2023. The pandemic years of 2020 and 2021 and first half of 2022 have been an exception. We do see however an increasing demand for high-end road tires.
We expect 2023 to be below 2022 levels, and the environment to normalize in 2024 into a more a historical nature to which we have grown accustomed.
In specialty tires, the U.S. economy is resilient, and the labor market continues to remain strong. Increased funding of infrastructure projects has helped offset a pullback in consumer spending on durable goods.
Conti is among the OE market leaders in the EV passenger/light truck segment; demand for our products by leading EV manufacturers shows our products are already meeting challenging performance requirements of the segment. We have a high level of activity with the OE manufacturers and, in particular, with developing tires for the increasing number of EV's that are being introduced in the market.
Through that work, we have developed a good understanding of the requirements of these vehicles and the expectations of drivers of these vehicles. Mileage, efficiency (rolling resistance), and low noise are key performance criteria. In the development of our existing portfolio, these are also performances that we look to optimize, and these products perform at high levels. We do not believe we add value by introducing additional "EV-specific" SKU complexity into the market developed around the same performance criteria that is utilized in our existing product portfolio.
All of Continental's car replacement tires are also suitable for EVs and thus meet their high requirements. This underlines the premium tire manufacturer's product strategy for electric vehicles.
Tire dealers are not looking for more complexity in what they need to stock unless it provides a unique value.An EV Ready mark will be applied to the sidewall of all new passenger/light truck tires going forward and be used as load range is sufficient. It will be actively communicated for all products on the websites.
The retread market has shown resilience in 2023 and will completely buck the trend of the new tire situation, anticipating that the retread market will grow versus the prior year.
Increasing demand from the OE marketplace for sustainable products is very exciting to see, the alignment between emerging market demands on sustainability and Continental's sustainability ambitions is a good match.
The trend of longer-lasting, efficient, quiet, comfortable and fun-to-drive tires will continue to drive the industry. Together with our OE partners we develop products that will provide the end users with the best product experience.
We continue to see a growing trend in high-rim diameter passenger/light truck tire sizes, which is driving investment in our manufacturing facilities.
With the cost and changing economic environment, trucking fleets are focusing on the total cost-of-ownership topic. More requests about digital tire monitoring, enhanced retreading solutions and service visibility are requested. The new Gen II tire sensors allow a user to check their air pressure via Bluetooth connection on the ContiConnect On-Site mobile app.
End-users in the CST sectors are demanding more data from tires to help manage their operations efficiently and reduce the cost of ownership of their tires. Continental's digital solution suite is designed to give our partners the ability to monitor our tires at their fingertips. The new Gen II tire sensors allow a user to check their air pressure via Bluetooth connection on the ContiConnect On-Site mobile app.
In the two-wheeler segment, fast iterations of new bicycle tires highlight the gravel segment. We know that road (riding) is and will be declining and a shift towards gravel will take place. We need to be prepared to fill that space.
Motorcycle's fastest growing segment is Dual Sport, where we are launching several new lines in 2025 and re-launching the TKC80 in some sizes for the North American Market in 2024.
In the truck tire segment, we see growing demand for digital-solution initiatives and treating a tire as an object to manage the tire life. We are well on the way to have a fully implemented static, yard reader offering and live tire pressure monitoring system, mounted on the truck, which will include alerts to protect the tire asset from failure.
Fleets want to avoid breakdowns and catastrophic events due to a truck going into service with an incorrectly inflated tire. Fleets need to protect the tire asset so the casing can be retreaded,this not only saves the fleets money but it also reduces the environmental impact reusing the casing within a retread offering.Continental has invested heavily in growing our production capabilities in the earthmoving and agriculture segments. These investments are allowing us to offer more volume with advanced technologies to our partners in North America.
Later this year we will be introduce the General G-Max AS07, our next generation all-season ultra-high-performance tire for the General Tire brand. We are excited with the advancements in dry, wet and snow performance that this new tire will deliver, without trading off the strong mileage performance of its predecessor, the G-Max AS05. It should be a very compelling offer for consumers in the Tier 2 value segment.
For the commercial sector, we will roll out our digital tire monitoring solutions for live vehicle monitoring and our trailer standalone monitoring solution in the second half. This will enhance our current static offering used for domiciled fleets returning to yards at night or a single point within the working day and go live 24/7 with a tire-pressure-monitoring system and also the alerts to manage the tire environment anywhere, anytime.
We also will launch a Conti Road bias line focused in the mid-CC range of motorcycles for Latin America.
We believe manufacturers that are able to successfully minimize the trade-offs between the increasing requirements for high mileage, high efficiency (low rolling resistance), on vehicle performance (dry, wet, snow) AND increase the utilization of sustainable materials in tire design will have an advantage in the future. Continental is well positioned to take on these challenges.
In truck tires, digital-monitoring solutions and tread-depth prediction. This complete asset management, tire maintenance preditions and full tire as a asset management, through the life of a tire asset to optimize total cost of ownership within the tire fleet management.
For the OE sector, Conti believes pneumatic tires are here to stay in the current planning horizon of Conti and our industry partners. Enhanced pneumatic tires with sealant layer or tire cavity noise-absorbing materials will continue to provide greater flexibility to OEMs in developing their future vehicle platforms which are primarily EV.
Continental's commitment is to become the most progressive tire company in environmental and social responsibility by 2030. By 2050 we aim to have all tires made from 100% sustainable materials.
Continental has developed three concept tires to meet the future needs of mobility by incorporating renewable and recyclable materials, while delivering performance equal to that of our current generation of premium tires.
The Conti GreenConcept is a sustainable, lightweight, and efficient. passenger tire that demonstrates the company's ability to minimize resource consumption throughout the entire value chain, from raw material sourcing through every stage of production and beyond, including a new pattern design to extend service life.
More than 50% of the GreenConcept tire consists of renewable or recycled materials. Bio-materials will include natural rubber derived from dandelions and silicate from rice husk ashes. This visionary tire for passenger cars utilizes 17% recycled materials including polyester from recycled plastic bottles in the carcass. The tire is up to 40% lighter than today's standard tire.
The Conti Urban is a concept tire for the electric city bus application that utilizes a 50% share of sustainable materials. These include: natural and reclaimed rubber; rice-husk ash silica; and recycled carbon black and steel.
The ContiTread EcoPlus Green takes us to the next level by combining the same sustainable tread from the Conti Urban with a premium Conti casing which has reached the end of its first tread life. This combination reaches a level of 88% recycled and renewed materials and is guaranteed to be retreadable for up to four tread lives.
In 2022, Continental announced that it will start to use reprocessed polyethylene terephthalate (PET) in the construction of Continental tire carcasses, completely replacing the use of conventional virgin PET. Continental teamed up with OTIZ, a fiber specialist and textile manufacturer, to develop a specialized technology that produces high-quality polyester yarn from recycled PET without the chemical steps previously required in the recycling process. PET yarn is actually an essential ingredient that makes up the tire carcass in the form of textile cords that run from bead to bead (the inner circle of the tire).
The horseshoe-shaped layer sits just above the inner liner, affecting tire durability, load carriage and comfort. It's the backbone of the tire, sustains loads, and absorbs shock. It maintains its shape even at very high temperature, so thermal stability is crucial. The use of PET bottles is just the first step in Continental's commitment to using recycled materials in the design, development, and production of premium tires.
Comments around retreading and also correct tire pressure maintenance managing the rolling resistance to best optimize fuel usage and casing longevity for multiple retreads of the casing
2W: Packaging and Sustainable naturally sourced rubber will be key topics, with a product launch, that will address this topic specifically. Motorcycle: recycling programs in Latin America are being implemented.
In April 2023, Continental announced that it has upgraded the electric vehicle-charging infrastructure at its company-owned test sites in Arvidsjaur, Sweden; Jeversen, Germany; and Uvalde, Texas. Continental continues to systematically align its in-house development and testing capacities towards electric transportation and its specific requirements.
The charging infrastructure at Continental's test site in Uvalde is being upgraded to accommodate the ever-increasing number of tire tests for electric vehicles. The number of charging stations in Uvalde is also set to be increased in the future.
"Many of our customers are working intensely to advance the transformation toward electric transportation. The next ten years will see them continue to shift the focus of their product portfolios toward battery-powered vehicles," said Meletis Xigakis, who is responsible for global tire testing at Continental.
In the third quarter, Continental will open a retread training and retread process development center in Rockhill, SC.
Our plants in Clinton, Miss., Mount Vernon, Ill, and Sumter, S.C., are continuously making investment improvements to make these facilities more sustainable, productive and flexible as Continental strategically adjusts its portfolio.
In the fourth quarter, Continental will commission an expansion at our Fort Mill, S.C., North American tire business headquarters.
Do you have an opinion about this story? Do you have some thoughts you'd like to share with our readers? Tire Business would love to hear from you. Email your letter to Editor Don Detore at [email protected].