Have issues at ports impacted business? Do you expect the situation resolved anytime soon?
Yes, this has impacted business, particularly our TBR business. Because our TBR products are produced in markets outside the U.S., port congestion has caused prolonged shipping delays, which has caused a reduction in product availability in the U.S.
We expect container shortage and port congestion to continue this year, which means the delivery costs will continue to be high, possibly affecting our cost and sales.
It will be essential that the entire industry reacts to the changing atmosphere flexibly and immediately. We are hoping that it will stabilize next year.
What are some of the pleasant surprises in the industry?
We are pleasantly surprised at how quickly the market is rebounding as we emerge from the global pandemic. We foresee a gradual return to normalcy as it relates to driving/mobility as well as normalcy in daily lives.
How much impact do you expect Commerce's decision to place antidumping duties on passenger and light truck tires made in Thailand, South Korea, Taiwan and Vietnam to have on Hankook and the industry?
Hankook Tire is under the effect of antidumping in South Korea. This will have a large impact on the industry, as increased duties could result in increased tire prices for dealers and consumers.
Many manufacturers, including Hankook, will have to restructure and change their production strategies to combat these challenges. Our priority will always be to offer the best quality products that satisfy consumer needs.
What kinds of trends are you seeing in the marketplace?
Hankook has been seeing its sales stabilize in several major markets that include Europe, North America and China, particularly in the high-inch tire sector that accounts for tires 18 inches or higher.
Hankook seeks to maintain the growth momentum of its high-inch tire sales in major markets and add OE partnerships with an already robust portfolio.
Growth in the electric vehicle tire sector will also be one of the primary concentrations, as the company continues to pursue the highest levels of EV tire innovation as well as future technologies and solutions that transform consumers' imaginations into reality.
One of the trends we see is the rise in awareness of sustainability, which is in the minds of our customers more than ever before. We are starting to see our customers recognizing and gravitating toward sustainable products, and they care about what materials are used, how they are produced and whether the brand is genuinely conscious about the environment and our society.
What sector offers the most growth potential?
Growth in the electric vehicle tire sector will be one of the primary concentrations, as the market shifts toward an emphasis on sustainability.
We expect further growth of the EV tire market as the automotive industry shifts more toward an all-electric future, and because of this, Hankook continues to pursue the highest levels of EV innovation. We are currently equipping the Porsche Taycan, the first all-electric sports car from Porsche A.G.
Also, as mentioned previously, demands for SUV and all-weather tires are also continuing. Hankook recently launched our first all-weather product, the Kinergy 4S2 in 2020 to satisfy the demand for this growing segment, characterized by all-around performance in all seasons with an added emphasis on winter/snow performance.
In addition, as the market for SUV products continues to grow, we have expanded several of our product lines, including the Dynapro AT2 lines, to include popular SUV sizes.
Do you expect to roll out any additional products in 2021?
We have several product launches planned for 2021. We have already launched our Vantra Trailer tire, which is our first special trailer (ST) tire earlier this year, and we plan to launch two additional products that will serve the light truck/off road sector. We will also be launching new products under our Laufenn brand at the end of the year.
What technology do you expect be a game-changer?
Right now, there is a strong focus on electric vehicles throughout the automotive and tire industry. We are investing heavily in EV development to create innovative products for the EV market.
We are also starting our first partnership with Formula E from the 2022-23 season onwards, where the new, fully electric, third-generation racing cars will compete around the world in their own FIA World Championship. These tires will offer very low rolling resistance, suitable to race electric vehicles efficiency. Furthermore, they will deliver a long-lasting performance containing bio-sourced material and sustainable rubber.
Additionally, we know that the shift toward AI will continue to be a game-changer in the industry and are setting our sights on future technologies to adapt to this rapidly changing environment.
Hankook aims to stay at the forefront of adopting the most innovative technologies including AI and Internet of Things (IoT). A few examples include Virtual Compound Design (VCD) system, which predicts the characteristics of tire compound using AI, Automatic Inspection Process applied with digital sensors, and Hankook Condition Monitoring System Plus (CMS+), which detects facility anomaly in advance using AI and IoT. We've also developed a real-time road risk detection and notification solution based on AI in collaboration with a Korean leading data & test company.
As Hankook aims to become a technology-focused company, we are planning to accelerate the introduction of data-based innovative technologies throughout the tire industry ecosystem, ranging from materials supply and demand, design, R&D, testing, production, distribution (supply chain management), and customer usage.
Hankook Tire has also been continuously challenging the limits of tires by developing airless tires and applying the latest sensor technology to tires.
For example, Hankook presented an airless tire featuring unit-cell structure through its Design Innovation Project 2020, which is Hankook's R&D project held in collaboration with the world's leading design universities. A modular platform that Hankook proposed and named as 'Hankook Platform System (HPS)-Cell' employed an airless concept tire that uses sensor technology to not only identify tire treads and road conditions in real time, but also to respond to wear-out risks and change tread patterns according to the road condition. It was even recognized by the iF Design Award 2021 as a winner in the Professional Concept category.
What has been the overriding factor in price increases?
Like most manufacturers, we have raised prices based on several factors including the rising prices of raw materials, increased shipping/logistics costs and a changing business environment due to the pandemic.
It has been a turbulent year for the entire global economy, which has affected nearly every industry, including the tire industry. However, we are relentlessly driving our innovation and adopting the newest technologies to cut costs across all value chains to produce and supply products as efficiently as possible.
Do you expect any major investments in the next six months or year, in either personnel, distribution facilities or capacity expansions?
In addition to major investments in R&D, we are also investing heavily in the U.S. market by expanding our North American manufacturing facility. We are currently in the beginning stages of this expansion and expect it to be completed within the next three to four years.
Once complete, our production capacity will double to over 10 million units annually. As part of the Tennessee plant expansion, a regional distribution center will be added on site. This will allow us to meet customer demand even more efficiently.
How has the UHP market fared during the pandemic? Do you see continued growth in this segment?
During the pandemic, many consumers have been looking for more budget-friendly options, but at the same time, there have also been steady demands for UHP products from customers looking for tires with higher performance in high inches.
Our recent Q1 result proves this as the global sales of high-inch tires accounted for 38% of entire tire sales, which is now up 4% compared to the same period last year. So Hankook will be continuing to invest in UHP products to meet this demand.
To account for consumers looking for more affordable high-quality products, we have also expanded Hankook's strategic brand Laufenn in the North American market.
Sports sponsorship is a big part of the Hankook brand, starting with your support of Major League Baseball. How can dealers use that to entice consumers to buy your products?
The main goal of the MLB sponsorship is to strengthen our position in the U.S. market. We believe that our MLB sponsorship has the potential to reach beyond short-term sales to build our brand identity.
Being associated with one of America's most iconic sports leagues has allowed us to grow our brand presence and brand awareness among American consumers. We hope that consumers have been able to become more familiar with the Hankook brand and products through this partnership.
As our brand awareness continues to rise, we hope that this will have a positive impact on our dealers as more consumers begin to request the Hankook brand by name. For this reason, Hankook plans to continue to invest in sports marketing.
As part of our efforts to strengthen our sports marketing, we announced GEN3 Formula E partnership last year, which we believe is going to be a game changer.
Hankook will invest $85 million in 2021 as part of a Phase II expansion of its plant in Clarksville, Tenn., in part to accommodate production from plants in South Korea. Can you provide an update?
The expansion of our North American plant is still in its early stages and can expect to be completed in the next three to four years. This will allow us to double our production capacity to better meet the needs of the American market as well as allow us to move production of certain products from overseas markets to the U.S. Producing more tires in the U.S. will provide for quicker shipping times and higher fill rates.
Anything else to add?
The year 2021 marks the 80th anniversary for Hankook & Co., the holding company of Hankook Tire. Hankook & Co. will actively look for investment and M&A opportunities while strengthening Hankook Tire's competitiveness in the market.
Earlier this year, Hankook & Co. merged with the energy solution affiliate Hankook AtlasBX, a strategic move to strengthen its core competencies for rising future industries and solutions. This shows that we aim to become a 'Smart Energy Solution Provider' that pioneers the future energy era beyond a tire maker.
To do that, we have established a new long-term business portfolio, 'S.T.R.E.A.M.'
Each letter from 'S.T.R.E.A.M.' delivers the essential direction in which Hankook is headed in the future. Starting with the letter 'S,' representing Smart energy in the likes of renewable energy and eco-friendly batteries; 'T' represents Tire & core business; 'R' points to Rising technology which is to be adapted for business portfolio diversification. Rounding out the acronym, 'E' represents Electrification, 'A' stands for Automation and efficiency through advanced technology such as robotics; and finally, 'M' stands for Mobility.
Under the new slogan, 'Hankook Creates the Future STREAM', we will improve management efficiency through engaging in efficient allocation of resources and strengthening our integrated brand portfolio that leverages the global brand 'Hankook' to enhance competitiveness.