S.Korea’s Kumho Tire to invest $751 mn to build plant in Europe

Kumho Tire Co., South Korea’s No. 2 tire maker, plans to invest more than 1 trillion won ($750.8 million) by 2027 to build its first plant in Europe to meet demand from major automakers there such as Mercedes-Benz AG and BMW amid the Red Sea shipping crisis.

“We are reviewing Romania, Serbia, Portugal and Turkey as potential locations for the plant,” Kumho President and CEO Jung Iltaik told The Korea Economic Daily on Friday. “We plan to complete the site selection process by the end of this year after checking subsidies and tax incentives from the federal and local governments.”

Kumho, which does not have any plant in Europe, has been supplying tires to the region from Vietnam where the company easily procures raw materials such as natural rubber.

The tire shipments have been disrupted as the Yemen-based Houthi Militia attacked ocean vessels entering the Red Sea through the Suez Canal, however. The freight costs rose more than 10% and the journey took more than two weeks longer as ships sailed via the Cape of Good Hope.

“We decided to invest in a production facility in Europe as automakers there including three major German companies asked us to build one amid the escalating geopolitical tensions,” Jung said, referring to Mercedes-Benz, BMW and Audi AG.

ORIGINAL EQUIPMENT TIRES

Kumho generated 963.9 billion won from Europe last year, about a quarter of its total sales, mostly by selling replacement tires. The company supplies original equipment (OE) tires to Germany’s Volkswagen AG and France’s Peugeot, which account for single digits of its total sales.

Kumho aims to increase supplies of OE products to premium European automakers through the new plant with an annual capacity of 12 million units, which is scheduled to manufacture high-end models such as the Ennov lineup for electric vehicles. The company aims to begin construction next year for commercial production from 2027.

The tire maker plans to build the factory in line with the RE100 required by the European Union, a multinational campaign to make a full switch to renewable energy by 2050. The facility will be operated only with renewable energy to meet Scope 3 emissions standards requesting not only the company but also its suppliers to meet renewable energy guidelines.

Kumho, which logged a record operating profit of 411 billion won, plans to discuss how to raise the money for the investment with China’s Doublestar Group Co., its top shareholder.

FAST GROWING MARKET

Kumho, which currently operates eight plants in four countries to produce 62 million tires a year, has long been dreaming of a factory in Europe. The company was under control by creditors from the time Kumho Asiana Group got in trouble in 2009 until Doublestar acquired a controlling stake in April 2018.

“The construction of the plant in Europe is significant as it indicates we are shifting away from our so-far defensive stance to an aggressive stance,” said a Kumho official.

The European tire market was forecast to grow by 58.9% to $108.7 billion by 2033 from $68.4 billion last year, according to research firm Future Market Insights.

Kumho’s South Korean rivals are expanding production capacities for the market.

Hankook Tire & Technology Co., the country’s No. 1 player, is set to invest 758.9 billion to build a production line for truck, bus and radial tires at its Hungarian plant, which produces 17 million tires a year.

Nexen Tire Corp. nearly doubled the annual production capacity of its Czech factory to 10 million units from 5.5 million.

Write to Jin-Won Kim at jin1@hankyung.com
 
Jongwoo Cheon edited this article.