Pirelli Tire sees growth ahead for premium segment

LAS VEGAS — The post-pandemic tire market has been a roller-coaster of numbers.

Demand for commercial tires, once hotter than an Italian sportscar, has trailed off. Demand for passenger tires, steady for many during the pandemic, remain flat, and the market for tires for electric vehicles (EVs) continues to be a wildcard, as tire makers ramp up for the onslaught of EVs set to hit the market in the coming few years.

There is another phenomenon in the market, though, that has caught the attention of Pirelli Tire North America Inc. CEO Claudio Zanardo.

He calls it "clusterization," a trend he defines as consumers migrating to opposite ends of the tire spectrum, either Tier 1 premier brands or Tier 4 value brands.

That is good for the Italian tire maker, Zanardo said, which markets its products in the Tier 1 premium category.

"The customer who is choosing the Tier 1 brand, who wants to have the quality and performance, they keep going," Zanardo told Tire Business. "The (lower tier) part of the segment is growing, for sure, Customers are looking for very cheap product, but I see clusterization in two big segments.

"Where we see the market suffering is (the tiers) in between, but we are not there. Our focus is on the Tier 1 product, and that market we seek keeps growing."

Pirelli keeps growing its portfolio in that area, evidenced by the firm's recent launch of the P Zero AS Plus 3, an ultra-high-performance all-season tire designed for premium vehicles.

Zanardo said the trend dovetails nicely with Pirelli's oft-stated strategic goal of investing heavily in the growing market for tires with larger rim diameters, 18 to 23 inches.

According to Zanardo, Pirelli has grown in that segment even more than the overall market.

"No new car is going into the market without a big rim," Zanardo said. "So we see that trend keep going in the future."

Pirelli has an estimated 4% share of OE fitments with North America-based vehicle makers, according to Tire Business research, supplying tires to eight companies.

Pirelli is also well-positioned in the EV segment, Zanardo said, noting the Milan, Italy-based tire maker collaborates with vehicle makers Ford Motor Co., Rivian Automotive Inc., Stellantis N.V. and Tesla Inc., all strong players in the EV segment.

Pirelli's involvement with OEMs are helping shape the company's replacement market, "so we are able to predict which cars will arrive for replacement in two, three, four, 10 years, because we know how the OE market is growing," Zanardo said.

"So following the trend, collaborating with the OEMs, it's allowing us to predict and to be ready for the market that is evolving in that direction."

He said EVs are gaining popularity "faster than anyone was expecting. But it's good. We are there. We are ready. All the investment that we do is in that direction, all in the high diameter rims, the rich part of the market. We are actively playing in that arena, and it's a game we want to keep playing."

North America, which represents 24% of parent Pirelli & C. S.p.A.'s global sales, continues to be a key region for Pirelli's growth strategy, he said. Pirelli generated $1.67 billion in sales last year in North America, up 39% over 2021.

To support growth, the company has pledged $165 million in investments over the last two years for its plant in Silao, Mexico, including $113 million last October primarily to boost capacity for larger-rim-diameter tires and tires for EVs that will be sold in the U.S.

The upgrade will increase annual production by more than 1 million tires, Pirelli said, to 8.5 million units and create 400 new jobs by the time it's completed in 2024/25. The plant's size will grow 8.3% to 2.24 million square feet and to 3,200 workers at full capacity.

Another $15 million was budgeted for a new research and development facility, which will be housed in a 71,900-sq.-ft. expansion of the factory premises slated to be operational by year-end.

"It's a factory that's following the demand, and the demand at the moment in North America is extremely high, so we want to be local," Zanardo said.

He said the Silao R&D facility will work closely with others around the globe, and it will help foster shorter lead times in creating and testing products specifically for North America.

"Having an R&D center there is a very important point not only to have it by our production plant, but also in a place where we can develop and produce our product more and more for North America, designed for U.S. customers."

Navigating the challenges of the last four years — COVID, supply challenges, inflation, the war in Ukraine — has helped Pirelli prepare for the future.

"There has been a lot of different things (that have affected the company), and probably another one will arrive tomorrow," Zanardo said. "The reason we were able to be successful is that we were very agile, very fast to adapt."

Zanardo acknowledged that Pirelli's market share is lower in North America than in other markets, especially Europe. That, he said, is a result of not having the right products available for the market.

That isn't the case any longer, he said.

"We see huge potential in terms of growth (in North America), now that we are developing and presenting new product."