Blog - IDEATE
How has automotive and tire industry weathered the Covid19 storm?
The COVID-19 pandemic has wreaked havoc around the world with the total number of infections reaching over 55 million – and still counting. While the Pandemic has been in relatively good control in China and Southeast Asian countries such as Singapore, many countries in Europe are being hit by the second and even third wave and have been imposed lockdown. The number of infections is skyrocketing in the US — the world’s worst-hit country. With the economic recession will likely loom a longer while, the impact has swept across the automotive industry, with supply chains and operation taking a major toll.
Globally, the automotive industry is expected to decline by 22 percent, as per market analytics firm IHS Markit. Consulting firm McKinsey estimates that the world’s top 20 OEMs in the global auto sector are likely to see their profits decline as much as US$100 billion in 2020 alone. This is devastating news for an industry already struggling to cope with changing consumer demands, and it remains to be seen what subsequent effects will emerge.
In China, the automotive industry has experienced volatile swings in fortune: in the early months of the pandemic, many car dealerships were forced to close which resulted in customer visits dropping by 60 percent compared to the previous year, while the closure of Chinese auto OEM factories also resulted in a rippling effect that was eventually felt throughout the global supply chain.
It is to be expected that the tire industry is heavily affected by any changes in the automotive landscape. According to research firm Smithers’ Future of Global Tires to 2024 report, the global tire industry’s top line growth numbers are expected to fall significantly, with recovery only due to begin sometime in 2021.
China making a comeback
Despite the massive blows that have been dealt to the automotive industries in Europe and North America, the market in China had not only rebounded, but outperformed itself from the previous year. Prior to the emergence of the virus, car sales were already experiencing a “sustained drop”, but thanks to targeted government policies, including the introduction of subsidies for new car purchases, the market began rebounding by the beginning of the summer.
According to a Reuters report, in September China’s auto industry reported six straight months of positive growth in led by the domestic market for trucks and passenger cars. Chairman Wang Feng of Shandong Linglong Tyre Co Ltd, one of the biggest tire manufacturers in the world, the firm was affected in February and March, but began recovering soon after. By the time summer arrived in China, the company was registering rapid growth, commensurate with the upswing the rest of the country’s tire industry was experiencing.
Moving forward, it’s expected that the Chinese tire industry will continue to make gains and improvements as the economy eases back open. However, for Wang, the key to moving past the blows sustained as a result of the pandemic lies in the efforts continuing driving innovation and digital transformation to ensure product and service standard and quality.
The firm is already thinking ahead and building the foundation for a post-pandemic future, in particular with its new Changchun factory and partnership with Chinese vehicle OEM, FAW Group. The Changchun factory was dreamed up to take advantage of the city’s strategic location, and the Jilin Province’s initiative to transform the city into an international hub for the auto-industry that would centre investment and R&D into the cars of the future. For Linglong, Changchun is also strategically located, allowing it to take advantage of its three main retail markets in the country’s northeast, as well as international customers in Russia, South Korea and North Korea. The city would serve as one of six domestic basis that would dramatically shorten its distribution time and enhance its customer service.
“No matter where customer places an order in the country, we can deliver the products and service in the shortest time to enhance our competitiveness,” explains Wang.
Wang explained that the tire manufacturing processes all require a high amount of monitoring and quality control, all of which are still labour-intensive. In order to circumvent the need for more manpower, especially in the face of a crisis like the COVID-19 pandemic, the firm is looking into digitalised processes that are more automated, driven by machine learning and AI. The factory would see the firm working closely with technology firms Tencent and Huazhi Smart to develop new tools to digitalise many of these laborious processes, and upgrade their manufacturing processes.
Innovation and market opportunities for a digitalised tire industry do not only lie with the development of new products, but also in the go-to-market process. The pandemic has forced sales teams to fundamentally shift how they are meeting their customers, whether it’s automakers or individual consumers. LingLong has embraced the “New Retail” model which combine offline and online sales channels, as part of the company’s continuous push in the market service and digital transformation while taking a precarious approach in the tumultuous time.
The auto industry shifts gears
According to Auto Vista Group, most manufacturers agree that R&D investments will be absolutely crucial to their efforts to future-proof their businesses in a post-pandemic world. In this vein, Linglong’s Changchun production base is laying the groundwork for the company to enhance their R&D outputs, especially in the EV space, where new products and technologies will be needed to suit the particular features of these vehicles.
EVs are not only becoming more popular among climate-conscious consumers—EVs emit less CO2 over their lifetime, compared to their fossil-fuel predecessors—but increasingly they look like the future of the automotive industry. BloombergNEF is already forecasting that despite car sales falling across the board, the EV market will expand this year by about 7 percent.
However, it’s not all about climate change: EVs are also important for the emergence of any potential ecosystem of ride-hailing and self-driving vehicles, which could also have a drastic impact on the post-pandemic future of the cities and populations everywhere.
China, for one, has already had a head-start on this future: since 2009, the country has implemented policies to encourage the development and adoption of EVs through a system of subsidies and government-led infrastructure projects. As a result, the country now supplies a third of the world’s electric car batteries, and roughly 400 different EV firms ranging from legacy automotive firms such Geely and Dongfeng, and new startup entrants like NIO and Xpeng.
The drive towards an EV-centric future will also have a significant impact on the tire industry, whose fortunes are closely bound up with those in the automotive world. Tire manufacturers are already having to respond to the changing needs of EVs, which are on the whole much faster and heavier. Entrepreneurs in the tire industry will have to respond to these changing requirements by innovating new strategies and designs.
One challenge that manufactures will face is the fact that EVs tend to “eat” tires much faster than fossil-fuel cars will. This is because EVs are burdened with batteries which are much heavier than internal combustion engines, creating near-instant torque which has a tendency to place higher strain on regular tires. Another issue is that EVs are longer lasting, meaning an ancillary industry for replacement tires will need to expand to meet this growing demand.
As the EV industry grows, so will demand for tires that meet these specifications, which means that manufacturers will have to reconsider how to up their production numbers while also taking into account the risks posed by a virus that makes crowded plants dangerous.
In many ways, the tire industry is faced with an exciting chance to redefine how they products and sales efforts can bring value to their customers through systematic and innovative strategies. Chairman Wang has noted that the company’s success has lain in the fact that they take every challenge as an opportunity to improve themselves and their products.