automotive industry

Michelin to hand over Russian operations to local management

Reuters
Michelin to hand over Russian operations to local management

MICHELIN. The logo of French tire maker Michelin is seen on a Formula E racing car in Rome, Italy, May 17, 2016.

Alessandro Bianchi/Reuters

French tire maker Michelin says it has become impossible to resume output in Russia owing to supply chain problems

Michelin plans to hand over its Russian activities to a new entity under local management by the end of the year, it said on Tuesday, June 28, becoming the first Western tire maker to give up doing business in Russia.

The French company, whose Western rivals in Russia include Italy’s Pirelli and Germany’s Continental AG, said it had become impossible to resume output owing to supply chain problems under the sanctions against Moscow.

Foreign companies seeking to exit Russia over the war in Ukraine also face the prospect of a new law being passed in the coming weeks to allow Moscow to seize assets and impose criminal penalties.

That has encouraged some businesses to accelerate their departure.

The first Western tire maker to enter Russia in 2004, Michelin suspended its manufacturing activities there in mid-March because of supply chain difficulties after the invasion of Ukraine and resulting sanctions against Moscow.

“It is technically impossible to resume production, due in particular to supply issues, amid a context of general uncertainty,” said Michelin, which makes tires for cars, aircraft, and trucks.

Until Russia invaded Ukraine, nearly 30% of Michelin’s carbon black – used to strengthen rubber in tires – was sourced from Eastern Europe.

Michelin’s sales in Russia represent 2% of group sales and 1% of its global car tire output, the company said.

Michelin Russia employs approximately 1,000 people, including 750 at the Davydovo plant, located about 100 kilometers (62 miles) from Moscow. The site has an annual production capacity of 1.5 million to 2 million tires, mainly for passenger cars.

The company said it had a balance sheet exposure of 250 million euros ($265 million) from Russian operations, adding that the transfer would not impact its financial guidance.

In May, Renault said it was to sell its majority stake in Russia-based carmaker Avtovaz to a Russian science institute reportedly for just one rouble with a six-year option to buy it back, leaving the door open for the French carmaker’s return.

German car parts supplier Continental in April said it had temporarily resumed tire production for passenger cars at its Russian plant in Kaluga to protect local workers who could otherwise face criminal charges.

Finland’s Nokian Tyres had warned that month that EU sanctions will make it hard to sell tires in Russia.

Italy’s Pirelli has halted investment in Russia and has progressively limited activities at its plants there. About 10% of its global tire output is produced at two Russian factories. – Rappler.com

$1 = 0.9443 euros

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