PRW: Considering the focus of the Frankfurt motor show, do you think that EVs have taken over from autonomous driving in importance?
Christian Kötz: It’s not a question of autonomous driving being forgotten, but a question of what’s in the mindset of European people, what is the priority.
People are worried about tyres degrading, particulates in the air. Is there anything that can be done about that?
Friction is needed to absorb energy, so without friction there’s no braking. But friction with the road creates abrasion.
Is there anything that can be done in terms of a compound?
It’s the remit of the industry to advance the technology, looking at the next level. But on the one side we have to provide maximum safety, balanced with standards and performance in line with economy and ecology.
Are you being pushed by government regulations to improve performance?
New labelling guidelines have made tyre performance more visible to the consumer. By doing that you incentivise technological progress. It’s a differentiator between competitors and it drives investment to achieve technical progress.
Legislation does help with driving technical progress. There’s legislation on raw materials, including REACH, which has meant that some materials have needed to be replaced. Clearly, there’s an incentive to manufacture products which help to reduce energy consumption.
How has Continental addressed environmental concerns related to tyre production and automotive in general?
Our industry is very capital intensive, very high investment, so we need a sustainable, reliable business model. Local production is part of that. We’re convinced that logistics costs will continue to increase. That links in with trying to improve sustainability and reduce any environmental impact. So we should minimise unnecessary transport.
A tyre is not a great product to be shipped, you’re moving around a lot of air. The quantity of material being moved in comparison to other products is significantly less.
The European car market is a little soft, has that impacted business?
You say ‘soft’, that’s a kind description! We’re forecasting that the European car market will be down 5% over 2019. Being a major OE supplier, with Continental supplying maybe one third of all new car producers [in the region], that affects us. Yes, it’s concerning for the business.
As I said, we’re in a capital-intensive business. That means you have to have high capacity utilisation. If something hits your utilisation targets, that’s immediately a problem. You have to use your assets and if you don’t, that will hit your bottom line.
The replacement side is a very diverse picture. In Europe, for the first time in many years, we have a slightly reduced market over last year. Normally, when OE volumes are down, replacement volumes go up as people keep their cars. But now OE is significantly down and replacement also slightly down.
Do you think that’s due to people being more environmentally conscious, driving fewer miles?
I don’t think there’s any indicator which suggests that’s already a reality. We think that is a future trend. All the statistics I’m aware of say that miles driven are not going down.
I think issues with replacement is more an issue of margins deteriorating between wholesale and retail. There’s some considerable consolidation occurring and that creates financial stress. The total distribution chain is not keen on holding stock, they’re cash conscious. We run our own business and looking at how many tyres are sold to the end consumer. Based on that we believe the market is actually running positive. So it’s more of a temporary imbalance between wholesale and retail.
Are you concerned with online retailers, their discounting?
It has been a major discussion point for many years, but it’s difficult to differentiate what is online and what is offline. So we talk about on/offline synchronisation. As online retailers invest in offline to deliver a full service, I believe it’s more of a single market. But it has created more price transparency, which is good for the end consumer.
Are raw material prices affecting business?
This year we experienced some headwind with raw material costs. With OE declines and replacement market trends I think it will lead to a reducing of raw material prices – at least that’s what we believe. But the peak [material prices] of the last few years have evened out, we’re in a relatively stable environment.
Raw materials are still made up of a significant portion of natural material?
Well, synthetics are already playing a much bigger role in the truck tyre market. But there is no material yet, and we don’t see it changing at any point in the near future, where there will be a synthetic material to completely replace natural rubber. The material has properties which are impossible to copy.
So we’re working on natural rubber sources. We have the first series of tyres out now for two-wheelers using taraxagum material [TKS, from dandelion plants], which has replaced traditional sources.
We’re also recycling natural rubber, developing technologies to support sustainable reuse of natural rubber. That’s more of a focus over simply trying to replace natural rubber with synthetic materials.
How is that managed, do you have specialist partners which collect and deliver the reclaimed material?
There are different legal requirements, globally. In Germany, there is a free market. Tyres are collected from dealerships and they try and ensure the tyre is recycled in the most efficient way. The recycling technologies are also getting better at reclaiming material.
What is the average you can get back from a tyre?
It depends on the product. If we can get the steel out of the rubber compound, it is more or less 100% reusable. The rubber, though, that is a complex material and recovering it is difficult. We have our own machine, in Slovakia, which is continuing to be developed to help increase reclaimed amounts.
The objective is reuse rubber in tyres, instead of making playground surfacing. I would say our objective is to get to 20 or 25% reclaim levels. If we could do 100%, that would be fantastic, but we don’t know how to get there yet!
Continental is running an expansion programme, Vision 2025, that would look to expand production in various regions. How is that advancing?
When we started this initiative in the late 2000s, the idea was to turn Continental into a global player in the tyre market. Our industry is based on economies of scale, so if you’re not one of the ‘big guys’ you’re at a competitive disadvantage. If you produce 50m or 200m tyres, the basic effort is largely the same, so there’s value in delivering higher numbers.
We also wanted to reduce our dependency on individual product segments and markets. We were very much a European tyre manufacturer and 10 years later we’re one of the truly global players. Not 100%, but getting there. As part of that, we’re opening our greenfield truck tyre plant in Clinton, Mississippi [second in the US].
Have we achieved our goals, I would say we’ve made significant moves in the right direction. Are we 100% where we intended to be? Not yet, but there are some years to go.
Have there been a lot of advances in tyre production?
Yes, absolutely. But this is more for volume products, not so much the premium brands. We have been able to increase output, improve efficiencies. On the other side, it’s not about how to get the last 10 seconds out of the curing time but what can I do in the process to improve performance by 2%. So we’re seeing more specialisation, in product and process. That’s why we’ve invested in our Korbach [Germany] testing site.
Are you noticing any trends in tyre sizes?
The size mix is changing, definitely. This has been changing over many years, largely driven by OE customers. Ten years ago, the Golf had a basic wheel size of 13”, today it’s 17”. So OEs are driving that size mix. But there’s still a big difference between what we sell for OE and replacement, as there is a huge number of vehicles beyond the average age of eight or nine years.
Competition is fierce in this segment, everyone wants to sell 18” tyres, such is the law of supply and demand. This creates significant price pressure. We think there’s other areas of the market based on performance differentiation beyond size – such as vans. A decade ago that was a commodity segment, but now they’re high load, high speed products. It’s a commercial benefit to fleets, having good tyres, so they’re willing to pay for something a little better.
Can you say what direction Continental is going in terms of new product development?
We’re getting more specialised. When I was working in the R&D division, the volume products were satisfying the majority of market needs. Now, we have to have products for alternative applications.
The Eco 6, for example, the name gives away the application, it’s designed to reduce rolling resistance, increase fuel economy. For stopping distance, you have the Premium Contact. High performance is served by the Sport Contact 6.
But I tend to say that now it’s less tyre innovation and more technology innovation. That comes from material and production processes. To be honest, [tread] pattern designs are similar. There’s a perfect solution and everyone will find that eventually. So the secret is in the material recipe, manufacturing.
What do you think of airless tyres, is there a future for those technologies?
We’re continuously looking at the market, what’s presented. This is not a new phenomenon, but if you look back over the past 50 years, none of those concepts succeeded.
I always compare the pneumatic tyre with windscreen wipers. They are ideally suited to the intended purpose. There’s different solutions, but they just achieve the same goal for a significantly higher cost. A pneumatic tyre is a pretty smart solution.
The flip side is the risk of having a puncture, which makes an airless tyre look appealing. But they can have broken spokes, other issues. From my point of view, I can see technologies like this being used in very specific applications. Are they the future of tyres? I have my doubts.