Michelin: Tire Market, Technology & Vertical Integration

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When comparing Michelin to other tire companies, it's striking to see how much more consistent the company's performance has been over the years. Perhaps we could start by discussing the different segments - tires, trucks, and off-road. Could you help me understand what accounts for the company's superior and more consistent returns over time?

Additionally, in Western countries, particularly in Europe, the trend towards winterization will expand the market. More and more, there's a requirement to use winter tires, which, although Michelin's are excellent and comparable to summer tires, will wear slightly faster, thereby boosting the market.

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When comparing Michelin to other tire companies, it's striking to see how much more consistent the company's performance has been over the years. Perhaps we could start by discussing the different segments - tires, trucks, and off-road. Could you help me understand what accounts for the company's superior and more consistent returns over time?

The market will also become more technical with labeling, such as minimum noise and braking distance, which are crucial factors. Lastly, the electric car market is a boon for tire manufacturers. Initially, electric cars wore tires twice as fast, but now it's 20% to 30% more due to tire advancements. Electric cars wear out tires faster for two reasons. Firstly, they have a strong torque, which wears the tires. Secondly, regenerative braking also contributes to tire wear. Moreover, these cars are larger and heavier, primarily due to the weight of the battery, necessitating larger tires.

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Yes, that's a comprehensive overview of the broader trends impacting the business. I appreciate it; it's extremely helpful. If I were to compare the margins, returns, and performance of Goodyear, Firestone, or any other tire producers to Michelin's, there's a noticeable difference. Michelin seems to yield higher returns on capital and is more stable over time, despite operating in the same market and facing the same challenges. Why is that?

I can't provide specific figures as they are confidential, but the return rate is 10 times lower than other premium brands like Goodyear or Bridgestone. All these factors contribute to a higher price but also lower costs, which is significant. Financial analysts sometimes criticize Michelin because they only look at the broad figures without considering the details. Michelin is highly integrated upstream. They manufacture part of their own cables for the tires and 100% of their synthetic rubber, which is a crucial element of the rolling resistance and wear.

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