Technological breakthroughs

The global tire market valued at $50 billion has been dubbed an industry that "grows slower than toothpaste." But in the United States - the world's second-largest market - electric vehicles are opening unprecedented opportunities for breakthrough growth after decades of sluggishness.

This article analyzes based on data and observations from the US market - where the transition to electric vehicles is leading the way and having the most pronounced impacts on the tire industry.

While most industries race for double-digit growth, the tire manufacturing industry faces a harsh reality: slow growth, razor-thin profit margins, and customers who view products as undifferentiated commodities.

"It grows a little faster than population, but a lot slower than GDP. In some ways it grows slower than toothpaste, much like the auto industry generally," said John Healy, analyst at Northcoast Research.

The US Market: Stagnation and Fierce Competition

From 2017 to 2022, the US tire and rubber market grew only about 9%. Americans bought 330 million tires in 2022, an increase of less than 1% from five years prior. Total demand in this market is expected to grow only about 0.8% through 2027.

The top three tire makers account for more than half of all tire sales in the US, yet they still struggle in an extremely competitive market. The industry is highly dependent on raw material prices - rubber, fabric, steel, and carbon black - which companies have little control over.

The bigger challenge comes from customers themselves. According to Healy's estimates, as many as half of customers are indifferent to which tire brand they choose. Price is usually the only differentiator.

"When you take all these things - whether it's the global nature of the business, the number of operators and competitors there are, half of the customer base that's buying based on price rather than brand, and then the inability to know when those customers are going to come to you - it just creates a dynamic that on January 1st, it's awfully difficult to know if your business is going to grow 3% or if it's going to decline 3%," Healy explained.

The Innovation Paradox: Better Products, Lower Revenue

One of the main ways that tire companies compete with each other is by creating a differentiated product. But this is precisely a painful paradox for the industry.

"And how do you differentiate your product? You try to make it last longer. So in essence, the R&D that tire companies put into their business is hurting their DNA over the long run. It's slowing the frequency of replacement by having tires last longer. So, it is a really tough business," Healy said.

Since Michelin, one of the largest tire makers in the world, created the radial tire in 1946, the industry has seen considerable innovation. Rubber compounds and materials used in tires have changed radically over the years - from compounds that stay soft at colder temperatures for winter tires, to various materials tuned for different types of performance.
Electric Vehicles: A "Gold Rush" for the Tire Industry

But the future may look very different. Many believe a real move to EVs will open up a whole new realm of opportunity. EV tires cost 50% more and need to be changed 20% more often.

"If EV does kind of evolve and proliferate through the car population like some think, it may bring about what I call the 'gold rush' for tire manufacturers," Healy predicted.

Michelin expects the EV tire replacement market to grow about 6-7% by 2027, compared to about 1-2% currently. Analytics firm AlixPartners says the total market for EV tires is expected to grow at a 33% compound annual rate through 2031, while ICE vehicle tires are expected to decline 2%.

"This might be the first thing from an auto market development standpoint in decades that actually causes tire demand to increase," experts noted.

Technical Challenges: Quieter, Heavier and Faster

Electric vehicles pose both challenges and opportunities in ways that help distinguish tire makers from each other.

Noise Issue: EVs are much quieter than ICE vehicles, making tire noise more noticeable. "Think about like the noise a basketball makes when it bounces? That's the air inside the tire ringing as you bounce the basketball. Tire does the same thing," explained a Goodyear engineer. There are ways to reduce this, such as inserting foam to dampen the sound.

Battery Range: Gasoline contains far more energy per unit of weight than typical EV batteries. The Chevy Bolt's battery with a 259-mile range weighs about 960 pounds (435 kg). The comparable gas-powered Chevy Cruze can travel nearly 550 miles on a single fill-up. Its fuel tank holds 13.7 gallons, weighing just above 80 pounds (36 kg).

Although EV batteries don't store energy as efficiently as gasoline, EVs deliver that stored energy far more efficiently. Only about 16-25% of the energy stored in a gallon of gas actually powers the wheels. In contrast, EVs deliver about two-thirds of their energy to the wheels.

Improving the tire can have a dramatic impact on an EV's range. "We've done studies that have shown that you can impact the range of an electric vehicle by as much as 10, maybe even 15%, depending on your tire choice," said a Goodyear representative. That means if a vehicle has 300 miles of range, you can get an additional 45 miles just from using the right tires.

The Biggest Issue: EVs Burn Through Tires

One key challenge - and the one that could be the biggest boon for tire makers - is that EVs burn through tires very quickly. This is a trend being observed most clearly in the US market, which has a significant proportion of high-end and high-performance electric vehicles.

EVs weigh a lot more than comparable ICE vehicles. For example, the Kia Niro EV is about 20% heavier than its ICE counterpart. The GMC Hummer EV is almost twice the weight of the GMC Sierra 1500 pickup with a turbo diesel engine.

EVs also accelerate faster. The Niro with an engine accelerates from 0 to 100 km/h in about 10.4 seconds. The Niro EV does it in 7.8 seconds. Many EVs can easily attain supercar levels of quickness.

This is because of torque - a measure of the power an engine delivers to wheels. Electric motors don't have the same constraints as engines, so they can deliver torque very quickly, essentially instantly. A car taking off like that will scrub the tires more as they try to grip the road and accelerate the vehicle. Add more weight on top of that, and those tires are scrubbing the asphalt hard.

"High performance tire in general wears out quickly anyway. Now you put the load and that instant power on that type of a tire, it is gonna wear out even quicker. Some of these vehicles are wearing tires out in 15,000 to 20,000 miles, which is concerning because they're wildly expensive as well," said an industry expert.

The New Technology Race

According to estimates in the US market, the cost of replacing EV tires over the average vehicle lifespan (over 12 years as of 2023) will be about twice that of ICE vehicles. EV tires are about 50% more expensive and need to be replaced about 20% more often.

"We've been hearing this from tire replacement chains for about two to three years consistently. A Tesla vehicle replaces its tires every 15,000 miles instead of every 40 or 50,000 miles. And that 15,000 might actually be a touch on the high side. It might be even closer to 12,000 miles sometimes," Healy shared.

However, the biggest manufacturers say their EV or "EV ready" tires should last a lot longer than that. Bridgestone's Turanza EV tire has a 50,000-mile limited warranty, and Goodyear's ElectricDrive has a 60,000-mile one.

Other tire development trends also pose further challenges and opportunities. One is "tire intelligence." The Goodyear tires that come fitted on the Tesla Cybertruck are equipped with sensors that measure tire temperature, pressure, and how much rubber is actually in contact with the road. Pulling that data together allows for some predictions: how much tread is left on the tire, when the tire will need to be replaced, and so on.

Large Rim Trends and Growing Complexity in the US Market

Another area that has seen a lot of change is tire diameter. The ever-increasing size of American vehicles has boosted demand for proportional wheels. Rim diameters of less than 18 inches still make up most tire replacement sales in the US, but larger sizes are growing rapidly. Diameters of 18 inches or larger grew 10% in February 2023 year-over-year.

"The size proliferation is insane. A lot of these EVs that we're seeing have - they're coming with 20, 21 inch, 22 inch wheels on them. Tires that wrap around a wheel that size are, no matter what they're touted to do, they are more expensive," said a tire expert.

"As people go and gravitate towards that, vehicle manufacturers will continue to reinforce that behavior as they are getting rewarded for it. And so what we've seen is over the last 15 to 20 years, a significant increase just in the number of raw sizes in the market. The industry is very challenging as a baseline, but it continues to become more and more complex as it gets newer and newer and we get newer sizes. And I think we're on the verge of starting to see 23 and 24 inch rim diameter tires become a big part of the market," predicted a Goodyear representative.

Resource Challenges

While all of these rapid changes - heavier, torquier vehicles, onboard sensors, massive wheels - present opportunities for growth, they do strain the budgets of companies used to operating on razor thin margins.

"We've only got so much capacity. We've only got so much research and development capability. What parts of the market do we have to go after at the expense of potentially other parts of the market? And so, I think you've seen, again, with rim diameters going up, some of those older vehicles may not necessarily get all of the latest technology just because we've got to focus on things like EV products to make sure that we're there as that market grows," a tire manufacturer executive admitted.

Future Outlook: From Stagnation to Breakthrough Growth?

After decades of stagnant growth, the tire industry may finally find new momentum from the electric vehicle revolution. While there are still many challenges in terms of technology, resources, and competition, the opportunities for manufacturers who can seize the trend are enormous.

"While EVs expand, it's hard for me to think it's not a really good thing for Goodyear and other manufacturers," Healy concluded.

The question now is not whether the tire industry will grow, but how quickly companies will adapt to the biggest wave of change in the industry's history.

Note: Trends observed in the US market - with rapid vehicle electrification and diverse EV offerings - are gradually spreading to other developed markets such as Europe and Asia, opening global opportunities for the tire industry.

Analysis based on US market data and interviews with tire industry experts