Tire Business

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Through Aggressive Restructuring
and Value Creation, We Will Take
on the Challenge of Further
Enhancing Profitability.

Hidekazu Nishiguchi

Representative Director and Managing Executive Officer
In Charge of the Tire Business and Automotive System Business

Business Profit Expected to Increase Significantly through Steady Progress in Structural Reforms

The Tire Business has grown and globalized since the 1980s, as we have followed in the footsteps of Japanese automakers pursuing global expansion by moving into other Asian countries. Historically, the bulk of our profits thus came from Japan and elsewhere in Asia. However, the share of our profits earned in other regions has gradually increased. By fiscal 2023, about half of our profits were generated outside of Japan or the rest of Asia.
The US Business has been one of the core sources for our profits along with that of Japan or Asia. While our US operations previously dragged down our overall business performance due to losses, recent increases in sales of high-value-added products have brought them into the black, leading to a marked improvement in the profitability of the Tire Business.
Although structural reforms at our US factory is still ongoing, SUV tires exported from Thailand to the US have proved incredibly popular among American customers, resulting in favorable business performance. I believe that progress with structural reforms at our production bases, including the US factory, will enhance the profitability of the Tire Business even more.
Incidentally, the reason for the deterioration in the business profit of the Tire Business was increased fixed costs resulting from business expansion, which caused a worsening in our break-even point. In the course of building up a formidable global business framework, we have provided a diverse product lineup to meet the needs of as many markets and customers as possible. We have backed these endeavors with enhanced development, production, logistics, sales and service structures, which have created a negative impact such as raising fixed costs. They have also rendered various aspects of our operations inefficient, putting pressure on our profitability.
There will be no delay in dealing with the issues faced by our US factory. After considering various options, we are determined to complete the structural reforms by 2025.

Sales revenue

Business profit^*(ratio)

* Business profit = Sales revenue – (Cost of sales + Selling, general and administrative expenses)

タイヤ — FALKEN “WILDPEAK A/T4W,” selling well in North America

Tire Business Headquarters, Supervising All Aspects of the Tire Business

We will optimize our business portfolio via “Selection & Concentration,” a key pillar of our mid-term plan, with the aim of returning to growth from 2026 onward. Within the Tire Business, we plan to increase the ratio of invested capital in businesses with high growth potential and profitability from 60% in 2021 to 70% by 2025. This will facilitate a resource shift of investment and human resources into businesses with high growth potential and profitability, thereby strengthening our profit base.
In January 2024, we established the Tire Business Headquarters as part of a forward-looking organizational restructuring drive. We will streamline the complex value chain within our global framework by bringing digital transformation (DX) to management. This will allow us to organize the value chain based on data and achieve efficiency and optimization through flat organizational administration. Through this initiative, the goal is to build a foundation for responding quickly and flexibly to changes in our external environment.
In the background to our establishment of this organization now is the shared realization, which emerged when President Yamamoto took up his post in 2019, that there can be “no improvement in performance without organizational transformation.” In other words, we needed to turn the twin wheels of improving our organizational health and generating profits. Back then, we had launched the “Be the Change (BTC)” Project, and as chief of the project, I set about transforming our organization. A key issue that came up was insufficient collaboration along the supply chain, from research and development to production and sales. Although individual departments were pursuing optimization, there was scant awareness of the importance of total optimization, and little progress was made with the sharing of issues.
Therefore, we aimed to create a framework that straddled departmental boundaries to enable swift and strategic decision-making. Incidentally, we deliberately located the Tire Business Headquarters inside the Tyre Technical Center next to Head Office. It brings together personnel from manufacturing, technology, and sales, and offers an environment in which everyone can discuss various issues face-to-face.
And of course, as the general manager, I am also based at the Tire Business Headquarters, from where I direct operations.
With the establishment of the Tire Business Headquarters, I want to focus on the following two tasks:
(1)Halt the declining trend in profits, both in absolute terms and in terms of margin, in the Tire Business, and ensure we turn things around.
(2)Formulate and implement measures to boost business profit in our mid-term plan.
To accomplish this task, the Tire Business Headquarters will take the following four actions:
(a).Ensure the sales and manufacturing sides straddle the boundaries between them and collaborate, driving the business forward with a sense of unity among manufacturing, sales, and technology departments.
(b).Have cross-departmental task forces proceed with work and accelerate the PDCA (Plan-Do-Check-Act) cycle.
(c).Maintain solid communication with overseas Group companies to manage and administer the business globally.
(d).Strengthen product planning and marketing, and focus on leveraging our unique technologies to develop hit products and on enhancing marketing at the global level.
In addition, regarding domestic replacement tires, one of the pillars of the Tire Business, we merged 11 domestic sales companies into one company in January 2024. By improving efficiency in all areas and concentrating on the solutions business, we aim to enhance our profitability in the future.
Alongside fundamental organizational transformation, we will pursue DX as we look toward 2025. By deploying ERP (Enterprise Resource Planning) systems, we will establish a mechanism for obtaining information on inventory, orders received, and production at our global bases in real time, thereby enabling us to make decisions faster. We will also create a structure that allows us to respond flexibly to market conditions, with the objective of improving profitability.

Launch of All-season Tires Equipped with ACTIVE TREAD in Autumn 2024

In addition to moving forward with structural reforms, we will be taking on challenges with an eye to the future. This is the SMART TYRE CONCEPT, an advanced concept for future-oriented tire technology. As a means of offering products that meet the mobility needs of society in the future, we have been pursuing development along five technical axes: Airless Tires, SENSING CORE, Sustainable Materials, Performance Sustaining Technology, and ACTIVE TREAD. In recent years, the rise of tire manufacturers in China and other Asian countries has been remarkable. We are gripped with a sense of urgency that unless we create incredibly high-value-added, differentiated products, we will not be able to compete. Therefore, based on the SMART TYRE CONCEPT, we are concentrating on developing tire technologies in anticipation of the competitive landscape of 2030 and even 2040. In autumn 2024, we will launch all-season tires equipped with ACTIVE TREAD. It is no exaggeration to say that these will significantly change the notion of tires, and I am confident they have the potential to become a game-changer for the market. These new products feature rubber that actively switches its performance in response to changes in road conditions. Simply put, on sunny days, the tires excel in terms of dry grip and fuel efficiency, and when there is rain, they respond to the water by transforming into tires specialized for wet grip. Furthermore, when it snows, they respond to the low temperature by changing into tires specialized for grip on snow and ice. In other words, although they are merely a type of tire, they were born from the completely new idea of having multiple tire features that adapt to changing road conditions. In Europe, the share of all-season tires has grown to about 20% of the total tire market in recent years. However, in Japan, penetration stands at just a few percent, so we had been exploring the potential for such products. In response, our materials development team presented rubber material technology that they had been working on since 2018 in an internal technical report in 2022. I intuitively felt that this technology could allow us to create products that are befitting of Sumitomo Rubber, and urged other people in the company to aim for commercialization immediately, which accelerated the development of our all-season tires. In October 2023, we exhibited prototypes of ACTIVE TREAD tires and materials at the JAPAN MOBILITY SHOW 2023, and they were met with a great response. Based on feedback from the media and analysts, who were questioning the feasibility of tires, we invited them to our test course in Asahikawa, Hokkaido during the harsh winter of 2024. I also attended personally and hosted the test drive event. The latest, improved version of ACTIVE TREAD was so impressive that even I, the host, was amazed, and the event participants also heaped praise on the tires for their "incredible performance." Brimming with confidence from the test drive event, I have been telling the people that we do business with that in autumn 2024, Japanese tires are going to change. In addition to various data, the evidence for this that the performance of ACTIVE TREAD can be felt by ordinary drivers. Just as our XXIO golf club has become a long-seller because many golfers can experience the "straight flight" of the ball when they hit it, ACTIVE TREAD allows drivers to feel the tires’ grip on snowy roads. This is the value that Sumitomo Rubber provides, and I believe it will be a driving force for creating new revenue opportunities. You can expect great things from us.

Unveiled at JAPAN MOBILITY SHOW 2023

Release of Next-generation EV Tires around 2027

ACTIVE TREAD is no more than a component of the overarching SMART TYRE CONCEPT. We plan to bring out second and third versions going forward. Specifically, in 2027 we plan to launch next-generation EV tires equipped with ACTIVE TREAD.
Compared to gasoline vehicles, EVs have greater torque, leading to faster tire wear. In addition, tires with poor rolling resistance can reduce the efficiency and range of EVs. To address such issues, we will continue to come up with tires incorporating measures to tackle them.
Looking ahead to the full-scale arrival of the EV era, we aim to contribute to extending the range of EVs, ensuring customer safety, and protecting the earth’s environment, as we position ourselves on a new growth trajectory.

SENSING CORE, a Solutions Service for Predicting Automobile Breakdowns

Besides ACTIVE TREAD, another of our unique tire technologies is SENSING CORE. This solution service expands upon DWS, a tire pressure warning system that has been adopted in 53 million vehicles. We will continue to add new functions to the four already-established ones. It will enable us to better contribute, in diverse ways, to the shift toward CASE and a sustainable society in the coming era, so we are endeavoring to rapidly commercialize such new functions.
As a concrete example of commercialization, automakers are set to start installing SENSING CORE in 2024. We have also invested in Viaduct Inc., a US-based company that has a track record of products for predicting failures of vehicle parts, with the aim of strengthening our relationship with the company.
Since 2023, we have been carrying out proof-of-concept trials with Viaduct that combine its AI-powered vehicle failure prediction solutions with the ability to detect tire conditions provided by SENSING CORE. By strengthening our strategic partnership with the company through this investment, we will accelerate the deployment of failure prediction solution services for the entire vehicle.
The appeal of these solution services lies in the fact that they do not require large-scale production facilities like tire factories and can yield early returns with minimal investment. The marginal profit rate is far higher than in manufacturing, making it an attracting business model from an ROIC perspective.
Our plan is to enhance the value of SENSING CORE by integrating it with Viaduct's technology. I encourage the technical team for SENSING CORE by telling them they need not be afraid of anything. I urge them to look at what is in front of them and push ahead. We have already started making presentations to hundreds of corporate customers worldwide. Through this unique technology-driven data business, we are aiming to establish a fourth business pillar generating profits of more than ¥10 billion by 2030.

Aiming to Make Sumitomo Rubber the First Company You Think of When You Hear the Word Rubber

Our Philosophy defines Our Purpose thusly: “Through innovation we will create a future of joy and well-being for all.” And going forward, I believe that realizing Our Purpose is the biggest challenge for the Tire Business.
Additionally, we will evolve our technology concept, the SMART TYRE CONCEPT, and its components, ACTIVE TREAD and SENSING CORE to create products and solution businesses. I believe that this will allow us to differentiate ourselves from other companies and contribute to the development of the mobility society and sustainable society of the future.
Finally, my dream is to delve into the essence of rubber, many aspects of the structure of which remain unknown. I believe that by pursuing the essence of rubber, which still offers a great deal to explore, we will be able to create unprecedented business opportunities.
Furthermore, I want Sumitomo Rubber the first company you think of when you hear the word rubber. As a rubber pioneer, we will be aiming to establish ourselves a global manufacturer boasting advanced rubber technology. We will continue to believe in the endless possibilities of rubber and to take on new challenges.