How long can the "good days" of truck and bus tires last
With the release of semi annual operating data of listed companies in July and August this year, the profitability of tire companies has significantly improved. The revenue and profit of listed tire companies in the second quarter of 2023 increased significantly. The total revenue of the nine listed tire companies in Q2 2023 increased by 14.73% year-on-year and 13.74% month on month. The total net profit attributable to the parent company increased by 115.08% year-on-year and 93.86% month on month. As is well known, the two main categories of tires are all steel radial tires (TBR) and semi steel radial tires (PCR). Industry insiders understand that in recent years, PCR has been more profitable than TBR in the industry. PCR will not be discussed here for the time being, and we will mainly analyze TBR. According to the semi annual report of Guizhou Tire, which mainly focuses on TBR, in the first half of this year, Guizhou Tire achieved a revenue of approximately 4.441 billion yuan, a year-on-year increase of 12.45%, and a net profit attributable to shareholders of the listed company of approximately 340 million yuan, a year-on-year increase of 112.02%; The basic earnings per share were 0.3 yuan, an increase of 87.5% year-on-year.
According to data released by the General Administration of Customs, since the second quarter of this year, China's tire exports have continuously broken historical records and reached new highs.
According to relevant media reports, the average operating rate of TBR in the first half of this year was about 75%, a year-on-year increase of 10 percentage points. Overall, the business performance of tire companies in the first half of this year was impressive, especially in the TBR industry, which has basically achieved an overall improvement. Many industry insiders have a question, how long can TBR's good days last?
1. Background
As of August this year, the TBR industry has achieved such performance under the following three difficulties, which is indeed not easy and unexpected for many industry insiders.
① During the current period of political turmoil and conflict in some international regions, global economic growth is slow and sluggish, trade globalization is constantly experiencing serious impacts, and the market "cake" is facing shrinkage.
② As the world's largest economy, the United States adjusted its countervailing duty on truck and bus tires exported from China by a few 10 companies in August last year, resulting in a rebound in truck and bus tires exported from China; However, this year, due to high inflation, domestic demand in the United States has decreased. In the first half of this year, the total number of imported tires from the United States was 118.36 million, a year-on-year decrease of 23.2%. The total number of imported tires from China was 11.98 million, a year-on-year decrease of 52%, including a 34% year-on-year decrease in truck and passenger tires.
③ The contraction of domestic consumer demand is severe, especially since the second quarter, the market has gradually turned cautious, with a decline in real estate, weak social zero consumption, low prices, high local government debt, and low enthusiasm for private economic investment
2. Reason
In fact, discerning people can discern some clues from the above "triple difficulties": domestic truck and bus tire exports account for nearly 50% of the total production. In addition to the significant contraction of the North American market, domestic TBR exports to South America, Europe, Africa and other places have seen an astonishing year-on-year growth rate of 27% to 43%. Due to a large base and Southeast Asia being a region with a concentrated overseas base of domestic tire enterprises, the year-on-year growth rate of 8.5% has also achieved impressive performance. The main reason here is:
① Recently, the RMB has depreciated against the US dollar, especially due to the rapid upward trend of the US dollar index. As the depreciation of the RMB against the US dollar helps to increase exchange earnings, it is to some extent beneficial for the export of domestic tires.
② As of mid September, China's export container freight index remained low, indirectly offsetting the profit margin of rising raw materials in terms of freight costs. At the same time, with the global economic downturn, overseas consumption has also been downgraded, and the demand for cost-effective tires in China continues to rise.
③ Domestic independent brand TBR has been persistently exploring markets and building channels both domestically and internationally for over 20 years. After years of trial and error, it has gradually gained recognition from local end users; On the other hand, the production equipment and process technology of domestic factories have been continuously improved, and the experience of management and technical personnel has been continuously enriched, resulting in the continuous improvement and stability of tire quality.
④ TBR, compared to PCR, is more sensitive to the price of bulk raw materials. In the first half of the year, the market prices of the main raw materials for tires were at a low level compared to the same period last year, and fluctuated downward, with a certain degree of year-on-year decline. However, the prices of tire products remained relatively stable, thus easing the pressure on tire costs.
3. A few suggestions
It is not easy for the TBR industry to achieve good performance in the past three years despite the poor domestic and international economies. External factors are important, such as the decline in the RMB exchange rate, low container freight rates, and low prices of bulk raw materials, but internal factors are more crucial. What's more important is that many external factors are beyond the control of the enterprise or can be changed, and can only be adapted; Internal factors are what our tire companies can control or change. Internal factors have improved or strengthened, and only with TBR can our good days last longer.
① To have healthy competition, not vicious competition
The competition of market economy products is benign competition through aspects such as quality, performance, price and service. When the performance and quality are basically the same, and the service is also similar, only price competition is considered vicious competition. In recent years, there has been no lowest price in the domestic TBR market, only lower prices. We often hear from our peers overseas about how to use prices to dig corners, and there have been many such incidents in the long run. Without profits, companies do not have funds to invest in research and development or equipment upgrades, and the performance and quality of products cannot be improved, resulting in the entire TBR industry turning around and making it difficult to move forward.
We should seize the current good opportunity, hold onto the bottom line of prices, especially the red line of product costs, stop price wars, improve product performance and further stabilize quality through our own efforts, develop more marketable specifications and varieties, and let consumers feel the improvement of product cost-effectiveness or service. This benefits consumers, enterprises, and the industry, allowing the entire industry to enter a virtuous cycle.
② To cultivate talents, do not maliciously poach people
For the long-term development of an enterprise, the construction of its talent team should be based on self cultivation, rather than maliciously bidding high prices to recruit people, especially the introduction of the entire team. The introduction and short-term improvement of the entire team seem to be rapid. But the hidden danger is not small. Is the technical route of this team consistent with the original enterprise? If not, the running-in period will bring back many quality problems. In addition, whether this team is loyal to the enterprise or not, if there is friction in the future, the entire team can leave together, leaving a gap in technical and quality aspects, and the talent team may also be out of gear. 3. Quality is important, not production first
Previously, especially in the 15 years after the new century, the tire industry struggled to produce, resulting in severe structural overcapacity of the entire domestic tire production capacity, especially TBR, which led to a significant decline in the industry's profitability and severely hindered sustainable and high-quality development. Tires are safety products, TBR is the means of production, and over 95% of end users are "experienced drivers". Many people are still experienced tire users with over 10 or even 20 years of tire usage experience, and are very familiar with what kind of load, vehicle condition, road condition, and wheel position to use. So, the quality of TBR products is crucial. In the production process of TBR, there is a lot of human-machine interaction. So employee training is very important. Through continuous training, combined with practical operations, skilled employees are needed to ensure product quality. In the current fierce market competition, only products with excellent performance and excellent quality can enterprises achieve stability and progress.
③ Want a brand, less branding
A brand is the soul of an enterprise's existence and development. It is difficult for a company without a brand to last for a long time, with only products and no brand. Only by valuing the brand and building the soul of its own development can enterprises become stronger and last for a long time.
Domestic TBR enterprises above designated size have experienced the "pain" of last year's three quarters, with astonishing growth in carbon black and some additives. However, tire prices are difficult to pass on to the terminal, suffering greatly. Although there are many reasons, it is an undeniable fact that the brand's market influence is weak. Therefore, tire companies should attach importance to brand building, so that their products can withstand fluctuations in raw material prices, significant changes in material prices can be transmitted in a timely manner, and the enterprise can last for a long time.
④ To develop, not to plagiarize
Tire enterprises with a certain foundation must attach great importance to the research and development of tire technology, as does TBR. They must follow the technological trend of modern automobile development, and pay attention to the segmentation of tire market, rather than copying what other manufacturers found to be popular in the past and immediately bought a good sample tire to return to the first mock examination. Later products are very similar, with no characteristics, and can only rely on price reduction to attract sales promotion.
Tires are a supporting product of automobiles and the only accessory that comes into contact with the ground. Many of the performance of a car is directly related to the tires it is equipped with. Compared to last year's "torment" of domestic TBR companies, especially top PCR companies, the "comfort" of many top PCR companies has basked in a wave of "spring breeze" of new energy vehicles, mainly meeting their performance requirements for silence and self sealing. In the foreseeable future, for PCR, these two features will become the mainstream in the market, especially the self sealing performance. Not only will new energy vehicles become standard equipment, but traditional fuel vehicles will also "like" this performance. After all, it can save space on a spare tire and effectively increase the available space of sedans. So, tire companies that can keep up with these technological trends will not lose their market share; If there are advancements or optimizations in these new technologies, or if costs decrease while performance is comparable, their market share will gradually increase. The new energy wind has spread to commercial vehicles, such as the popularity of new energy buses. There are reports of new energy trucks pushing faster on some fixed line trucks. The load-bearing, acceleration, and wear performance of new energy commercial vehicles are definitely different from traditional vehicles. If we can seize the opportunity in a timely manner and develop TBR suitable for new energy, we can seize this new market.
In summary, our tire companies, especially TBR companies, should seize rare opportunities, abandon price wars and malicious poaching, attach great importance to research and development, talent cultivation, quality, brand, etc., make long-term plans, effectively improve product competitiveness, enhance brand influence, so that the "good days" will last for a long time, and the healthy development of the industry will also become normalized.