Japanese firm Sumitomo Rubber Industries will increase its Chinese production capacity of passenger vehicle tyres by 60% by 2020, predicting lively demand for fuel-saving tyres.
The Kobe-based rubber company plans to boost capacity in China to 100,000 tyres daily. To achieve this, it expects to spend about US$267 million to triple output at a plant in inland Hunan Province from around 20,000 to 60,000.
The 550,000-sq-m premises of the plant will house new buildings, with automation equipment to stem rising labour costs. The investment decision will be formalised within the year. Sumitomo Rubber also makes passenger vehicle tyres in Changshu, Jiangsu Province, near Shanghai.
Separately, Sumitomo Rubber plans to increase dealerships by around 10% to 7,000 in a year or two by selling its Dunlop brand tyres. It will focus on stores run by local owners in inland areas like Sichuan and Hunan.
The Chinese market for tyres is overcrowded with hundreds of manufacturers, including small and midsize players. Sumitomo Rubber has a market share of less than 10% in China. But middle-class people regard its products highly for their quiet on the road, as well as low resistance, and contribution to fuel economy. So although the company has prices that are higher than Chinese offerings, Sumitomo Rubber expects strong demand.
The number of passenger vehicles owned in China, including buses, more than doubled over five years to 140 million in 2015, according to the Japan Automobile Manufacturers Association.
While Chinese-manufactured tyres are often priced 40% cheaper than Japanese or Western counterparts, the latter have a strong position supplying tyres for high-end brand vehicles from Japan, Europe or the US. Sumitomo Rubber aims to expand its market share by selling more high-value-added tyres.
The 2015 dissolution of cooperation with American peer Goodyear has left Sumitomo Rubber unable to sell the Dunlop brand in the West. Sumitomo Rubber is stepping up promotion of its own brand, Falken, in the West markets. Meanwhile in China, South America and Africa, Sumitomo Rubber can still sell Dunlop tyres.
Sumitomo Rubber also operates 20 D-Guard shops in China, which offer oil change and battery replacement services. By stepping up these services, the company hopes to strengthen its brand.
Many tyre makers are eager to capture the ample growth potential in the Chinese market. China National Chemical — also known as ChemChina — bought Italian maker Pirelli, the global No. 5 in the industry, in 2015.
And Yokohama Rubber will increase its Chinese production capacity of passenger vehicle tyres by about 50% by 2020 from 2016 levels, by bolstering factories in Jiangsu and elsewhere.
Sumitomo Rubber expects to generate sales of 850 billion Yen in 2017, increasing 12% on the year, being the No.6 in global market share.
However, with Japan accounting for 40% of its overall sales, Sumitomo has lagged behind Bridgestone and other top players, in developing businesses abroad. The company is also planning to major investments in Brazil and South Africa.