Chinese tires: Cheapness is the last word

The achievements of Chinese tires in recent years are obvious to all, from being unknown to being loved by people all over the world, but there are also many difficulties and dangers. Let's put aside its gorgeous appearance. What really supports Chinese tire companies' slow progress is not high-end high-end tires but affordable tires. Only price is the basis for Chinese tire companies to win.

01

He who gets the price wins the hearts of the people

Whether it is the tire industry or any other industry, when the market gradually matures, price is almost the decisive factor. Consumers are very obsessed . Under such soil, the rapid development of Chinese tire companies has a foundation.

Chinese tire companies have unified the TBR tire market and are moving towards unifying the PCR tire market.

But there is a big problem with this, which is that serious involution will drive away high-priced foreign investment. Chinese tires will become expensive products, and product pricing will be seriously trampled. Therefore, many tire companies have decided to go out and expand overseas markets, but this is not a long-term solution.

02

Doing export business depends on being cheap?

(U.S. market tire import data: data from TIRE BUSINESS)

It can be seen that the United States, as the world's major market, does not welcome Chinese tires. Many years ago, the volume of Chinese tires exported to the United States was much larger. However, after rounds of sanctions imposed by the U.S. Department of Commerce, China's tire exports to the United States have There are relatively few. After all, it is really not cost-effective to do export business with high double-reverse tax rates and shipping costs. But even so, the price of tires exported from China to the United States is still one of the lowest.

This is still the price sold in the United States. You can imagine how low the export price of Chinese tire companies is, but the situation is like this. If Chinese tire companies lose their price advantage, the tire business will become extremely difficult. There is no way that the cheap price of Chinese tires is the greatest competitiveness of exports. In areas such as Europe and the United States that have imposed sanctions on China, cheap Chinese tires are still popular, although many people criticize Chinese tires for being cheap. But this is what others can’t do, and it’s useless to say anything.

03

Building factories overseas has achieved both volume and price increases

However, we cannot give up on major tire markets such as Europe and the United States. Everyone knows that Chinese tires have successfully built overseas factories in recent years. Taking into account factors such as double reverses, manpower, raw materials, and shipping, Chinese tire companies either actively or passively choose to go overseas. After building factories, well-known Chinese tire companies began to frantically carry out "overseas production capacity competition." In just one year, the speed and quantity of China's overseas tire factories in building and expanding production has almost exceeded the total of the past ten years. Before the end of November 2024, at least 11 Chinese tire companies have built new factories, expanded production, or even started production, with a total production capacity of more than 159 million units.

The exploding production capacity in Southeast Asia has greatly satisfied the tire demand in Europe and the United States. This is why Southeast Asia tires export so much to the United States. Chinese tire companies’ factories in Southeast Asia continue to provide tires to Europe and the United States, and they can maintain good sales. Price, no wonder when global tire companies are shrinking, Chinese tire companies are growing against the trend, and the contribution of overseas factories is indispensable. And from a price point of view, the value of tires has begun to double after changing to another export destination. Of course, there is also the support of quality and brand behind this, but the most important thing is that the overseas factory building strategy has allowed Chinese tires to regain their advantages.

04

Success is cheap, failure is also cheap

On July 19, 2024, the Revenue Bureau of the Indian Ministry of Finance issued a notice stating that it decided to continue to impose countervailing duties on truck and bus tires originating or imported from China for a period of five years at a tax rate of 17.57%.

On July 25, the Brazilian Ministry of Economy issued an announcement announcing the launch of the third sunset review investigation of anti-dumping on passenger car tire products imported from China (the "product under investigation").

In July 2023, the South African International Trade Administration Commission (lTAC) imposed anti-dumping duties ranging from 7.18% to 43.60% on passenger car, truck and bus tires imported from China. The collection period will last until July 2028.

That’s all for Europe and the United States. After all, China’s exports to Europe and the United States are subject to restrictions. However, countries such as India, Brazil, South Africa, Argentina, and Thailand also adopt dual reverse regulations for Chinese tires, which is very intriguing. The U.S. tire market has announced two counter-injunctions against different Thai tires since 2021, and the targets behind them are also local tire factories of Chinese companies.

These anti-dumping and anti-counterfeiting penalties all stem from one reason without exception - Chinese tires are "too cheap"!

05

Low price as the core operating strategy

In fact, in the structure of tire prices, operations have a very large impact. Even if there is a difference in tire raw material costs and labor, it will not be very big. What really determines the premium comes from operations. The brand operation capabilities of foreign brands are obviously stronger. As far as PCR is concerned, the prices of foreign brands are always the benchmark. The price combinations of some Chinese tire brands are more based on competitors - just a little higher than the cost, or even Price it lower than your competitors – you can’t lose the price war!

This pricing strategy determines that the main theme of some Chinese tires is that they are cheap, and it is expected that they will be criticized for being cheap and boycotted. On the other hand, the tire pricing strategies of some leading tire companies are more scientific. Price combination is more cumbersome, and competitive product price collection can only be regarded as the smallest part of the price composition. The publicity expenses required for product launch, the overall budget for mid-term promotions, the advertising investment required for brand promotion, the sales expenses required for subsequent product operations, and even the support of store sales tools must be calculated in the pricing system. When all brand promotion and sales support are taken into consideration, the price of a tire is no longer as simple as higher than the cost.

But that doesn’t mean that low prices are necessarily bad. In the early days of market development, low-price dumping is a required course. Whether it's expensive or cheap, whatever suits you is the best. But people always focus on the first and ignore the second and third, but the second and third are also very good. Tire companies do what they do when they want, and there is nothing to be ashamed of. The market needs high-end, expensive performance tires, as well as cheap tires suitable for ordinary people. It does not mean that your tires are cheap and you are shameful because they are low-end. This is a prejudice against the tire industry.

06

Where will China’s tire price war go?

But low price is not the final solution. To untie the bell, one must tie the bell. Low price is not the goal, the goal is profit. According to news, the gross profit margin of some tire factories in China has dropped to less than 5%, and every tire produced costs one. And such tire companies account for a large proportion in the country. But because they have reaped too many sales dividends brought by low prices, these tire companies have also been nailed to the "fire sale list" - if you dare to raise prices, you will not be able to sell your tires!

Chinese tire companies, which have already experienced many battles in the global tire market, have already seen this crisis in advance. In fact, as early as 2020, China's leading tire companies started a "brand war."

Increase visibility by sponsoring sports events, increase brand awareness in the high-end market by arranging more publicity channels and supporting channels, and gradually refer to the pricing model of leading foreign tire companies to price its own high-value products.

Although it is still in the initial stage, as long as we realize that we need to start to enhance our premium capabilities, it will only be a matter of time before the brand's influence changes qualitatively. After all, the saying that cheap is the last word only applies now. In the long-term future, it remains to be seen whether the principle of cheapness is the last word will be applicable.

Original link：

https://mp.weixin.qq.com/s/7S-NQX2QXS0wC4UZvs9Frw

William? QINGDAO LENSTON TIRE CO.LTD.

Mob:+8613206369528(Whatsapp/Wechat)?

Email:?[email protected]

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