Michelin will leave the tires to the dealer

Michelin, which was the first foreign tire company to localize production in the Russian Federation, has found a buyer for a plant in Davydovo, which has been idle since the beginning of the crisis. According to Kommersant’s sources, the asset will be bought by the distributor of this and other tire brands, Power International Tires LLC. Initially, Michelin intended to sell assets in the Russian Federation to local management, but in its reporting for 2022, it allowed the participation of a third party, announcing ongoing negotiations. The prospective buyer has been importing Chinese brand Hifly tires to Russia since last year, and analysts believe the collaboration could help restart the plant.

The deal to sell the Russian assets of Michelin is close to completion, the buyer is the distributor of tires of this and other brands of LLC Power International Tires, Kommersant’s interlocutors familiar with the situation said. Michelin told Kommersant that the owner is considering a possible sale of assets in Russia, refusing to comment on a possible buyer and the prospects for a site in the Moscow region. Power International Tires LLC did not respond to Kommersant’s request.

The Michelin site in Davydovo (Moscow region) started operating in 2004 and became the first example of global tire manufacturers investing in Russia. The capacity of the site is from 1.5-2 million tires per year, mainly for cars. Both summer and winter tires were produced, some of the products were exported (now EU sanctions prohibit the import of tires from the Russian Federation). Output in the Russian Federation accounted for 1% of the total production of Michelin and 2% of sales. The site has been idle since mid-March.

At the end of June 2022, Michelin announced a “forced” plan to transfer all Russian operations before the end of the year, considering the possibility of the company’s transition to local management. At the same time, the head of the Russian office, Dmitry Molokanov, indicated that their task was “to study scenarios for the autonomous operation of the tire plant and restart the production of tires of other brands in Davydovo.” In its 2022 financials, Michelin said it was working on various options to exit the Russian market, including a sale to a third party. Then the concern noted that the process of searching and negotiating with a local buyer takes longer than planned, and is still ongoing. The company estimated the group’s impairment loss in the Russian Federation on balance sheet risks at €139 million and another €13 million for the cost of restructuring Fenner’s business in the UK, which mainly served the Russian market.

The Russian car tire market in recent years has been about 30–40 million units per year. The largest foreign player was Nokian Tires, which is now in the process of selling its plant in Vsevolozhsk with a capacity of 17 million tires per year to Tatneft. The Russian legal entity Nokian Tiers has already registered new trademarks.

Michelin LLC did not issue new trademarks. However, the company registered the domain davydovotyres.ru in December 2022. Asked if this is part of the process to suspend the Michelin trademark, the company said it uses it, like a number of others, for internal processes.

Power International Tires LLC, which is engaged in the wholesale trade of automotive components, received certificates of conformity for Hifly brand tires (China) for cars and trucks in October 2022.

The head of Infoline Analytics, Mikhail Burmistrov, calls the sale of the asset to a distributor a “good option”, noting that Power International Tires is already cooperating with Chinese suppliers and, accordingly, in theory, they can expand this partnership. At the same time, it will be difficult to load such a site even by a quarter, he notes, and the resumption of production, under the most optimistic scenario, will take several months. Mr. Burmistrov adds that now it is necessary to rebuild supply chains, purchase raw materials and a full-scale launch of production will take at least a year.

Olga Nikitina, Dmitry Kozlov