Michelin investments, plant closures part of broader plan for balanced business

CLERMONT-FERRAND, France—Business is a balancing act. And Michelin has its center of gravity.

It's working to build a more balanced portfolio of products while managing manufacturing to better match global and regional demands.

That's also why you see the tire maker investing in some production and winding down manufacturing elsewhere: It's all part of a broader vision for growth, one rooted in moves that began in 2023 and continue through 2024.

Within the last 12 months or so, Michelin announced closures of TBR plants in Karlsruhe and Hamburg, Germany; a passenger car tire factory in Ardmore, Okla.; and a tooling facilities in Trier, Germany.

In addition, the tire maker is ceasing TBR production at its plants in Shenyang, China, and Olsztyn, Poland. Michelin's also ending steel cord re-enforcement production in Shanghai. These three facilities, however, will find new lives.

Because while Michelin is closing plants, it's also eyeing growth. And that means investing in operations that strengthen its position globally. Simply, Michelin is investing in more in-demand products—passenger car tires with larger rim diameters.

So those plants in Olstzyn, Shanghai and Shenyang are being converted for production of passenger vehicle tires.

Meanwhile, in North America, Michelin's expanding P/LT tire production. That includes a $220 million investment in its Bridgewater, Nova Scotia, facility, where the funding will add capacity and ensure more sustainable operations.

And in Leon, Mexico, Michelin is expanding P/LT tire production capacity as well.

Michelin also earmarked funding for expanded production of its Camso-branded rubber tracks for ag tractors, putting $100 million in its Junction City, Kan., facility.

Even with the investments, however, global capacity will come down.

Collectively, the aforementioned moves will reduce global production capacity by about 7 percent for P/LT tires and 15 percent for TBR, according to Yves Chapot, Michelin general manager and chief financial officer.

During a quarterly earnings call with investors on April 24, Chapot emphasized that the realignment plan is tailored to demand, and it gives Michelin room to grow in high-value areas.

And it does all of that, he said, with an eye on sustainability.

"Altogether," Chapot told investors, "these projects have led the group to reinforce its local-to-local strategy; improve our value-driven production mix as we—particularly for passenger car tires—decrease our share of capacity in 17-inch and (below), increase capacity in 18-inch and above; lower our environmental impact; and improve the retention of talent in the factories that are impacted by these transformations when we switch people from one activity to another."

While the manufacturing investments, transitions and closures are intended to help Michelin find that perfect balance, the tire maker is quick to note that it already has a very balanced portfolio.

Moreover, Michelin is working to grow its non-tire related businesses to better align with its With, Around and Beyond Tires strategy. The recent acquisition of Flex Composite Group and the strengthening of its fleet service is proof of that plan playing out.

That said, tires remain at the heart of Michelin. And in 2023, tire sales accounted for 84 percent of its total global sales of $30.6 billion.

"Each of these activities," Chapot said of the individual tire segments, "are driven by economic trends that are somehow different from each other."

Passenger, light truck and two-wheel tires combined to account for 46 percent of the sales last year, with replacement tires accounting for 36 percent. OE for that particular segment accounted for about 10 percent of sales.

Commercial tires represent 20 percent of the group's sales for the quarter, while specialty tires account for about 18 percent.

Non-tire activities—those that would fall primarily in the Around and Beyond Tires arenas—accounted for just 16 percent of the group's sales with fleet service, retail and distribution making up the bulk of that.

And when it comes to the company's geographical footprint—well, sales are balanced there as well, Chapot said.

North America accounted for the greatest portion of Michelin's 2023 sales at 39 percent. Europe was close behind at 35 percent, and the rest of the world accounted for 26 percent of 2023 sales.