Caso - Michelin in China in 2016

Michelin in China in 2016
02/2017-6280
This case was written by Laurent De Clara and Karel Cool, the BP Chaired Professor of European Competitiveness,
Professor of Strategic Management, INSEAD. It is intended to be used as a basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation. We would like to acknowledge the
support of Bain & Company and Johan Van Langendonck of Bridgestone.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at
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Jean-Dominique Sénard, CEO of Michelin since 2012, had many reasons to be proud of what
had been accomplished at the company during his tenure. Operating margins
(EBIT1/revenues) had steadily increased from 8.2% in 2006, to 10% in 2012 and 12.2% in
2015, while ROCE had averaged 10.8% over the period 2011-2015. The share price had
increased from the mid €50 range in 2012 to the €80-90 range in June 2016. The company
had completed major plant expansions in China, India and Brazil, and was on track to achieve
€1.2 billion in cost reductions through plant closures, restructuring and control of operating
costs in the period 2011-16. This had resulted in a steady increase of free cash flow and a
solid balance sheet.
On June 6, 2016, Sénard promised revenue growth of 20% by 2020 (2016 revenues were
expected to be €21 billion), announced a new competitiveness initiative aimed at cutting costs
by another €1.2 billion by 2020, a doubling of growth from services to €2 billion, a rapid
expansion of its retail network in China and emerging markets, and a ROCE (after tax) of at
least 15%.
With Michelin’s legendary R&D prowess, recent major product launches (CrossClimate,
Premier LTX), and the mining sector expected to regain momentum, the company was
banking on solid revenue and profit growth. However, in spite of its accomplishments, the
investment community was divided on the outlook for Michelin. Société Générale,2 Natixis,
Morgan Stanley, UBS and Deutsche Bank urged investors to “buy” and listed (12 month)
target prices from €100 to €120. Barclays recommended an “underweight” position and a
target price of €82-85. J.P. Morgan maintained a neutral position, similar to HSBC, that
recommended a “hold” (downgraded from “buy”).
After hitting a high of €102 in April 2015, the stock price had fluctuated downwards.
Michelin had delivered on its cost reduction promise but revenues had not materially
increased since 2012. Profits had been positively impacted by the sharp decline in the price of
rubber and other raw materials, but a reverse trend was expected going forward. While
Michelin had improved its operating margin, it was still trailing smaller players such as
Continental, Pirelli and Nokian, as well as market leader Bridgestone. And though Michelin
had been in China since the mid-90s, its share of passenger and truck tires fell well short of its
global market share. Had Sénard and his management team not explained the strategy well
enough to investors, or were the latter doubting Michelin’s ability to deliver on its promises?
History of the Tire Industry

Development and Globalization of the Tire Industry
The tire industry was born at the end of the nineteenth century, when several firms in Europe
and the US started manufacturing bicycle tires. The first pneumatic tires for cars were made in
France by André and Edouard Michelin, who used them for a race from Paris to Bordeaux in
1895. Soon car manufacturers had adopted standard tire designs, allowing interchangeability
1 EBIT = Earnings Before Interest and Taxes; ROCE = Return On Capital Employed
2 SG, 28 June 2016; Natixis, 7 June 2016; UBS, 9 May 2016; Barclays, 7 June & 27 July 2016; Morgan
Stanley, June 7 & July 26 2016. J.P. Morgan Cazenove, 23 May 2016; Deutsche Bank, 26 July, HSBC, 28
April 2016.
Copyright © INSEAD 1
between different brands of tires and wheels. The most innovative companies would later
become industry leaders: Britain’s Dunlop, which invented the original rubber tire, a carcass
made of fabric layers; Goodyear from the US, which patented the first tubeless pneumatic tire
in 1903; Michelin which developed the removable tire, and Germany’s Continental, the first
to develop tread patterns in 1904. In the 1920s, carbon black was introduced, which would
increase the lifespan of tires from nine months in 1910 to three years by 1937. The
development of synthetic rubber (butadiene) in the 1930s and 40s further improved the
quality of raw materials while reducing the cost.
The introduction of the steel-belted radial tire changed the course of the industry. Originally
conceived by a British company,3 the radial was first introduced in Europe in 1949 by
Michelin. It took its name from the cords that ran at a 90-degree angle to the wheel rim. A
restraining belt of steel that ran around the circumference of the tire and under the tread made
the radial more resistant to flattening under load. The radial offered many advantages over the
traditional ‘bias’ (or cross-ply) tire: longer tread life, superior traction, improved handling and
cornering, and less rolling resistance, reducing fuel consumption by one third. However,
production of radials required massive investment in new facilities. Since rivals Goodyear and
Firestone had made huge investments in bias tire production, they did all they could to delay
acceptance in the US. So while radial tires were standard on new cars in Europe by 1969, they
had not conquered the US.
That changed in the early 1970s when Michelin built two dedicated radial plants in North
America. The 1973 oil shock made fuel savings even more attractive. Eventually, US
manufacturers were forced to develop their own radials and invest in new plants. Goodyear
spent close to $3 billion to convert to radial production in the 1970s. As tire makers rushed to
bring their radials to market, the effects on product quality were often disastrous: high rates of
tread separation and blowouts forced Firestone to recall its first radial line in 1978. In Europe,
both Kléber (France) and Metzeler (Austria) had to recall their products.
Firestone’s difficulties hurt its share price, attracting corporate raiders, and in 1981 the Tisch
brothers accumulated a large holding of its shares. Uniroyal and Goodrich were targeted by
Carl Icahn. In 1986, Sir James Goldsmith pursued Goodyear, accusing management of
excessive diversification (into oil pipelines and space discovery). After selling its non-core
businesses, Goodyear spent $2.6 billion buying back shares.
The industry went through a round of consolidation. In Europe, bankrupt Dunlop sold its
European and North American interests to Sumitomo in 1984. The year 1986 saw a merger
between Goodrich and Uniroyal. Pirelli bid $1.8 billion for Firestone but was trumped by a
$2.6 billion counter bid from Bridgestone and had to settle for the smaller Armstrong Tire. As
a price war fed by overcapacity raged in 1989, Michelin overcame its longstanding reluctance
to make acquisitions and purchased Uniroyal-Goodrich for $1.5 billion, thereby becoming the
world’s largest tire maker. With the US dollar at an all-time low, exports to the US were less
feasible and acquisitions more attractive.4 Goodyear, burdened by heavy debt, was the only
major player not to afford a significant acquisition.
3 India Rubber, Gutta-Percha & Telegraph Works Co Ltd

4 By then, Uniroyal-Goodrich had already sold its European operations and licensed the Uniroyal brand in
Europe to Continental.
Tire manufacturers turned to alliances and joint ventures. In 1999, Goodyear took control of
Sumitomo’s Dunlop tire operations in North America and Europe, acquiring a 10% stake in
the Japanese manufacturer, regaining the No. 1 global position. The ‘big three’ established
joint ventures in China, the first between Goodyear and Dalian Rubber in 1994, followed in
1995 by the Michelin-Shenyang joint venture. Bridgestone linked up with Tianjin Bahai
Chemical Industrial in 1997. Interest in the Chinese market was boosted by the prospect of
China joining the Word Trade Organization (WTO) in 2001. Tire makers also formed
exclusive sales partnerships such as between. South Korean Hankook and Michelin in 2003 to
sell Michelin’s ‘run-flat’ tire, the PAX system in South Korea.
The Rise of China
By 2005 the world’s 75 largest tire producers included 15 Chinese manufacturers, its two
largest classified near the bottom of the top 20. Together, Chinese firms accounted for about
6% of global sales,5 with output of 185.2 million tires or 13.6% of global production. By
2015, China’s tire output had risen to 543.7 million units, growing on average by 11.4% per
annum (Exhibit 1).
China’s tire industry benefited from the consolidation of the country’s automotive industry.
The “Big Three, Mini Three” structure initiated in the 7th Five Year Plan during the late
1980s was the cornerstone of an industrial policy that saw the rise of major local car
manufacturers. The Big Three were the Second Automotive Works (SAW, which became the
Dongfeng Motor Group, with its joint-venture partner Citroën), the First Automotive Works
(FAW with its joint-venture partner Volkswagen), and Shanghai Volkswagen Co. The Mini-
Three were Beijing Jeep (now the Beijing Automotive Industry Group), Tianjin Automotive
Works (taken over by FAW in 2003) and Guangzhou Peugeot.
Between 2005 and 2015 the number of vehicles produced in China grew on average by 15.7%
per annum (Exhibit 2) to reach 24.6 million units, making China the world’s largest vehicle
producer ahead of the EU (17.8 million), the US (12.3 million) and Japan (9.4 million).6 Car
sales followed the same pattern, growing in China by 20.5% on average every year to reach
21 million in 2015 (Exhibit 3). This boom drove demand for car tires, which averaged annual
growth of 17.2% in the decade after 2005, reaching 176.8 million units in 2015 (Exhibit 4).
With a vehicle park of 181.4 million in 2015, China’s tire industry benefited from the catch-
up effect of the automotive market following its accession to the WTO. Since 2001, GDP had
grown on average by 12.1% per annum,7 while industrial production had almost quadrupled,
making China the world’s largest industrial producer. Demand rose for both personal and
freight transport, with cars sales reaching 123.6 million units, almost ten times the 2005 level
(Exhibit 5), putting China almost at the same level as the US (Exhibit 6).
The Chinese tire industry benefited from China’s expanding transport infrastructure. In 2014,
China had the world’s second largest road network with 4.1 million kms, behind the US (6.6
million kms), and boasted the world’s biggest expressway network with 111,900 kms (cf.
5 European Rubber Journal, Global Tire Report, December 2006

6 LMC International, World Tire Forecast Service, August 2015
7 OECD (2016), Gross domestic product (GDP), expressed in real terms (i.e. inflation adjusted)
103,027 kms in the US).8 The low valuation of the Renminbi (RMB) against the dollar also
helped lift tires sales (Exhibit 7). Between 2005 and 2015, car tire exports almost quadrupled,
absorbing about 50% of Chinese car tire production (Exhibit 8). By 2015, China had become
the new manufacturing hub for the global tire market (Exhibit 9).
Most of the tire production facilities were located in the coastal provinces of China that had
benefited in the 80s and 90s from China’s ‘open-door’ policy. Foreign investment was
promoted through special economic development zones (SEDZs), which gave foreign
companies a tax rebate on profits of about 50% of the 33% tax rate that applied to local firms.
Regions such as the Shandong province in the east were major tire production centres, along
with Shanghai and the adjacent Jiangsu and Zhejiang provinces (Exhibit 10).
Historically, China’s tire industry had relied on Russian cross-ply technology. In the late 80s,
the Research and Design Institute of the Rubber Industry, under the stewardship of the
Ministry of Chemical Industry, acquired radial tire-building technology from Pirelli, which it
in turn supplied to local manufacturers. In 2005, the government restricted any new
investment in cross-ply technology. By 2015, the radialization of the Chinese car tire market
was almost complete.
China’s ascent as a major tire-producing country was sustained by an abundance of low cost
labour. In 2014, labour costs (as a share of total tire costs) in China were a third that in North
America. At $4.41 per hour, wages in manufacturing jobs were six times less than in the US
($26.06 per hour).9
However, governments around the world were increasingly pressured to limit Chinese tire
imports. In 2009, the USA imposed a 35% tariff on tires imported from China based on the
conclusions of the US International Trade Commission that a 215% increase of Chinese
imports over 2004-08 had caused market disruption. In 2014, the US government imposed
additional duties of between 12.5% and 81.2% on various Chinese tire makers after imports
again increased following the end of the tariff period in 2011. In 2012, the European
Commission established stricter standards for tires to be sold in the EU regarding rolling
resistance, grip on wet surfaces and rolling noise. This had little impact on imports – most
Chinese tire makers were able to meet the lower end of the standards imposed.
The Global Tire Market

The tire market can be divided into two segments: (i) original equipment (OE) vs.
replacement (RE), and (ii) cars vs. commercial vehicles (CV). The first distinguishes between
tires mounted by a car manufacturer and replacements for used tires. The second refers to the
type of vehicle equipped: cars or commercial vehicles (including light and medium/heavy
commercial vehicles). In 2015, the OE market accounted for 26.2% of the 1.7 billion tires
sold worldwide; car tires represented 72.6 % of total volume10 (Exhibit 11).
8 CIA. n.d. Length of the largest road networks in the world as of 2014; Ministry of Transport of China. n.d.
Total length of public highways in China from 2004 to 2014. Statista. Accessed on 23 February, 2016.
9 Netscribes, Tire Market in China, December 2014
10 LMC International, World Tire Forecast Service, August 2015
OE vs. RE Sales
OE tire sales were determined by the level of vehicle production. RE demand was driven by
the growth of the vehicle park and the average number of replacement tires sold per vehicle
(the replacement ratio). Following the 2008 financial crisis, global vehicle production fell
sharply (-12.7%) in 2009, before recovering strongly (+25.6%) in 2010 to reach a new peak of
92.2 million vehicles (+18.2%) in 2015 (Exhibit 12). Over the period 2010-15, growth was
strongest in the US (58.1%), followed by China (34.6%), India (12.6%) and the EU (5.5%).
Japan almost reached its pre-level crisis despite a slowdown in vehicle production (-1.3%).
Global vehicle sales during the period 2010-15 followed a similar pattern, recording 18.7%
growth. The largest increases were in the US (48.6%) and China (36.9%), followed by India
(9.3%), Japan (3.6%) and the EU (1.6%) (Exhibits 13 and 14). Demand for replacement tires
remained relatively constant at around one tire per vehicle in the park, except in China and
India where tire sales grew at a slower pace (Exhibit 15), reflecting a lag of 3-4 years before
tires on a new vehicle needed replacement.
Cars vs. Commercial Vehicles
Globally, the car tire market accounted in 2015 for 73% of global demand. This had been
relatively constant over the decade. The OE market increased by 18.3% in 2010-15 to reach
355.6 million tires sold (Exhibit 16). China recorded the strongest growth (68.4%), followed
by the US (37.9%) and India (21%). Since 2013, China’s OE market has been the largest in
the world. Global car RE sales increased by 12.6% over 2010-15 to reach nearly one billion
tires, with the strongest growth in China (54.6%) and India (44.2%); crisis-hit EU saw a fall
in replacement sales (-0.9%).
Between 2010 and 2015, global OE tire sales for commercial vehicles fell by 1.1% to 98
million units due to a steep decline in commercial vehicle production in both China and India,
which caused OE demand to fall by 33% and 9.9% respectively. The RE market for
commercial vehicles tires increased by 18.6% in 2010-15 to reach 375.4 million units. In
China and India sales increased by 29% and 24.1% respectively. By 2015, the Chinese OE
and RE market for CV tires was nearly as big as the combined size of the OE and RE markets
of the US, the EU and Japan. In the US, where retreads made up 50% of the RE CV tire
market, low-priced new tires imported from China leapt from 5.5 million in 2011 to 9.4
million units in 2015, reducing the share of CV retreads to 45%.11 In Europe, the sale of
retread truck tires dropped from 5.6 million in 2011 to 4.7 million in 2015. Imports of new
truck tires from China increased from 2 million in 2011 to 3.5 million in 2015.12
11 In 2015, the average price of a retreaded truck tire in the US was $232, the average price for a new truck
tire was $355. In 2015, even with the federal excise tax included, new Chinese truck tires were selling for
less than the cost to retread a tire. Modern Tire Dealer, January 2016.
12 ETRMA, Statistics, 2015
The Tire Value Chain
Raw Materials
The primary raw materials for making tires are synthetic rubber, carbon black, and natural
rubber (see Appendix). Other components such as steel wire, steel cord and polyester are used
to reinforce the structure. Both synthetic rubber and carbon black are derived from petroleum
or natural gas; natural rubber was collected from rubber trees in Thailand and Indonesia, the
two biggest rubber-producing countries, as well as India, Malaysia and Vietnam. Raw
materials represented about 30-40% of the cost of a tire. Natural rubber and synthetic rubber
together accounted for more than half of the raw material costs, followed by carbon black
(13%), steel cord (10%) and fabric (9%).13 Truck tires had a higher natural rubber content of
up to 40-45% of the weight of a truck tire.14
Natural rubber accounted for 26% of Michelin’s total raw material costs (Exhibit 17). It had
latex processing units in Brazil and Vietnam, a 20% stake in SIPH15, which operated rubber
plantations in West Africa, and formed a joint venture in 2015 with Barito of Indonesia to
produce natural rubber. Michelin’s rubber operations met 12% of its requirements.16
Raw materials played a key role in profitability. For Michelin, a $0.10 change in natural
rubber prices was estimated to have a $90 million impact on production costs. In comparison,
a $1 change in the price of crude oil represented a variation of $15-20 million.17 After 2011,
raw material prices had fallen by more than half (Exhibit 18). In 2015, this translated into a
positive impact of €594 million on Michelin’s operating income (Exhibit 19). See Exhibit 20
for the profitability of tire makers in the 2011-15 period.
Research and Development
The success of the radial tire inspired companies to search for the next game-changer.
Demand for higher fuel efficiency, government policies, and environmental constraints (on
CO2 emissions) drove R&D efforts to reduce rolling resistance, improve handling (e.g. on
wet and icy surfaces), increase endurance, reduce noise and add safety features (e.g. in the
case of pressure loss).
Michelin was committed to tire innovation. Its ‘green’ tire, which mixed silica with rubber,
simultaneously improved wet grip, rolling resistance and wear, was a huge technical
challenge and a commercial success. Other industry innovations included the high-
performance tire, which improved handling, cornering, stopping and steering using new
materials and tread design, such as the bionic tread pattern, which narrowed the contour of a
tire when rolling and widened it when braking. Similarly, winter tires, which enhanced
traction on ice and snow, used specific rubber compounds and treads. They wore out
prematurely when used in the summer, obliging car owners to switch tires twice a year. In
2015, Michelin launched the CrossClimate, the world’s first ‘summer’ tire with similar grip as
13 J.P. Morgan, Monthly Tire Review, January 2016

14 Thomson-Reuters Streetevents, Michelin, 29 July 2011
15 Société Internationale de Plantations d’Hévéas
16 http://www.michelin.co.uk/tyres/learn-share/tyre-basics/rubber-tree-cultivation, accessed on 7 July 2016
17 Morningstar Equity Research, Michelin Reports 3Q Revenue, February 2015
a winter tire while keeping the same performance in dry conditions. It used an advanced
rubber compound that adapted to weather conditions.18
Tires represented only 5% of total truck fleet costs but influenced 40% of a fleet’s operating
costs (Exhibit 21). Reducing rolling resistance to increase fuel efficiency was thus vital for a
transport company. The “super single” truck tire for tractor-trailers pioneered by Michelin and
Continental generated additional savings. Rather than having two tires on each side of the
axels, there was only one. They had lower sidewalls and more could be stowed on the trailer
while still clearing height limits.
The industry had its share of R&D setbacks. In the 1970s, Michelin launched the TRX tire,
which was touted as superior but required different wheel sizes, hindering its adoption. Run-
flat tires were less successful than projected. These allowed the car to run safely for up to 100
kilometres when punctured, eliminated the need for a spare, and were ideal for small cars and
sports cars. First fitted during the 1990s on the Renault Twingo and the Chevrolet Corvette,
from the mid-2000s BMW equipped many of its cars with run-flat tires. Yet in 2008 Michelin
discontinued its PAX run-flat line. Incompatible technologies (PAX by Michelin-Goodyear,
and SST by Bridgestone-Continental) had hindered OE adoption as well as demand and repair
in the RE market. The harder ride necessitated a different tuning of the suspension and the
sensors monitoring tire pressure negated most of the benefits of run-flat tires.19
As tires and electronics moved closer together (initially in truck tires), tires were increasingly
equipped with sensors that allowed readings on pressure and wear-and-tear. RFID chips
(radio frequency identification) coupled with telematics solutions enabled tires to be tracked
individually, allowing fleets to manage their tires more efficiently. In 2015, the top five tire
manufacturers spent between 2.2% and 3.4% on R&D (Exhibit 22).
Exhibit 23 gives an overview of the major parts suppliers to OEMs; Exhibit 24 shows their
profitability. Exhibit 25 shows the world’s top 10 car manufacturers and the 2015 market
shares of the leading players in Europe and the US in the car and truck markets; Exhibit 26
shows the profitability of the major automobile companies.
Marketing and Sales
Sales channels for tire makers included company-owned stores, tire dealers, retail chains,
wholesalers and automotive manufacturers. Company-owned retail outlets allowed tire
makers to showcase their products and bypass distributors. Bridgestone operated the world’s
largest tire and car service chain, with retail outlets in all major markets including North
America (2,210), Europe (1,400), Japan (1,156) and China (3,273).20
18 Michelin reported 2015 sales of the CrossClimate of about 2.5 million units. Thomson-Reuters
Streetevents, Michelin, 16 February 2016.
19 Less than 5% of punctures lead to catastrophic results; only 1-2% resulted in complete pressure loss in one
minute or less. IHS, The Tire Report, 2008. p. 39
20 SMBC Nikko Securities, Bridgestone - Pole position for global showdown with Michelin, 9 June 2015
Independent tire dealers were a powerful influence on customer choices.21 In the US, tire
chains accounted for the bulk of consumer tire sales (60.5%), far ahead of company-owned
outlets (7.5%)22 (see Exhibit 27 for the profitability of selected tire dealers). Most chains were
franchise-based. An exception was Euromaster that was fully owned by Michelin. In Europe,
the Kwik-Fit Group, owned by Japanese conglomerate Itochu Corporation, was the largest
independent dealer, with 1,800 outlets across Europe (including Speedy). In the US, Discount
Tire was the leader, with 922 stores and 2014 sales of about $4 billion.23 In Japan, Autobacs
Seven led with 611 stores24 and 2015 sales of $1.7 billion.25
In China, Goodyear developed a franchise “nanny programme”.26 It introduced its Eagle Store
format in 2001 to offer car care services as well as Goodyear premium products. By 2015 it
had built a franchise network of about 1,600 exclusive stores.27 Domestic brands
manufactured for the Chinese market were sold through mass merchandisers, multi-brand
dealers, auto dealerships and service stations.
Selling tires under “good, better, best” brand names was a common strategy to target different
price segments (Exhibit 28). Many manufacturers also produced tires under private labels for
distributors. For example, Michelin (Uniroyal) had an exclusive agreement with Wal-Mart to
supply the Liberator brand for the US market. With product information available online, the
market in North America was increasingly price driven. A difference of $10-15 in price per
tire was enough to make consumers switch.
With an increasing number of shoppers using the internet to research their potential
purchases, some manufacturers upped their presence online. In 2015, Goodyear started to
offer online tire ordering; shoppers could have their tires delivered to an authorized retailer. In
the US Michelin launched a digital platform where shoppers could buy Michelin tires online
and locate dealers to have them installed (www.michelinman.com) or have them fitted at a
time and place of their choice (www.MichelinOnSite.com).
Tire makers focused increasingly on higher value-added tires (e.g., larger rim size, higher
speed rating, tires for electric cars). Car companies began working with new tire
manufacturers from Asia to get better prices and progressively reduce the quality gap.28 To
protect their margins, the major tire companies focused on higher value-added tires which
were more complex to manufacture and more lucrative as the price differential widened with
tire size (Exhibit 29). Tires with a diameter of 17” (inches) and more were increasingly
common, partly for reasons of style, partly because larger vehicles such as SUVs needed
larger wheels for safety reasons. Almost all major car makers had launched SUV models.
21
UBS reported that its surveys showed that most drivers were not aware of the tire brand their car is
equipped with and that tire distributors claim they can influence 9 out of 10 consumers at the point of sale.
UBS, Michelin, 9 May 2016.
22 Modern Tire Dealer, Facts Issue 2015
23 http://www.forbes.com/companies/discount-tire/ [accessed on 4 March 2016]
24 http://www.mb.com.ph/motech-automotive-autobacs-seven-sign-deal-to-expand-to-asean [accessed on 4
March 2016]
25 Company Annual Report, 2015
26 “Booming Foreign Investment in Tire Industry”, China Business Focus, December 2010
27 http://www.tyrepress.com/2014/12/rubber-ducks-bring-goodyear-a-sabre-award [accessed 4 on March
2016]
28 “Vision of the future for the global tire industry”, David Shaw, 5 November 2015
Premium demand had so far been higher in the OE business (39% of European volumes in
2016) than in the RE business (12% of European volumes).29
In the US market, retreaded tires for trucks were sold through specialized outlets. Bandag,
owned since 2007 by Bridgestone, was the leading chain with a 42.5% share in 2015,
unchanged from 2010. Michelin and Goodyear followed with 24% each. Continental had a
2% share in 2015.
Production
A typical factory employed about 1,500 people and ran 24 hours, 7 days a week for up to 350
days per year, making on average 10 million passenger tires per annum.30 In 2015, tire makers
had committed to invest $8.6 billion in new production capacity, up 7.5% from the previous
year. This represented an additional capacity of 46 million units per year, which added to the
50 million put in service in 2014.31 Asia accounted for the largest share of investments with
$2.8 billion (China $1 billion; India $834 million). All global tire makers invested in new
plant, progressively shifting part of their production to Asia (Exhibit 30).
Among the leading international players, Michelin was the most exposed to high-cost
countries with nearly two thirds of its plants located in Western Europe and North America
(Exhibit 31). With an average plant size of 15,993 passenger car tires per day and 1,255
people, Michelin lagged its closest rivals except Pirelli. UBS estimated in 2016 that
Michelin’s output (units per employee) remained about 30% lower than at Bridgestone.32
Among the leading tire companies, Pirelli had the smallest and the least productive plants. In
2015 it merged with China National Tyre & Rubber Co. (CNRC), a wholly-owned subsidiary
of state-owned chemical conglomerate ChemChina, in a €7.3 billion deal.
Competition
The Big Three
In 2014, Bridgestone was the leader with a 15.2% global market share and sales of $26
billion. Michelin and Goodyear followed with 14.4% and 9.5% respectively. Over the last
decade the fight for the leadership had been between Bridgestone and Michelin, with
Bridgestone holding the top spot for the fifth consecutive year (Exhibit 32). The Big Three
accounted for 39.2% of global sales, a drop from 55.2% in 2004 (Exhibit 33); Goodyear had
lost about 7% market share since 2004 (Exhibit 34).
The Second Tier
Among the second-tier tire makers, Continental (‘Conti’) was the largest in 2014 with a 6.9%
global share, followed by Pirelli (4.7%), Sumitomo (4%), Hankook (3.6%) and Yokohama
(2.5%). These five accounted for 22% of global tire sales, up 2.5 % from 2004. Conti and
29 Morgan Stanley, Michelin, 1 June 2016

30 Equals to 1.7 million truck tiress per year on average [source: Deutsche Bank, Michelin - reducing the gap,
18 March 2014]
31 European Rubber Journal, Global Tire Report, December 2014
32 UBS, Michelin, 9 May 2016
Pirelli had pursued different strategies. Pirelli focused on high-end tires while Conti adopted a
multi-brand offer to address all price tiers. In 2013, the share of high-performance tires in
Pirelli’s sales was about 60%33 versus 47%34 for Continental. Since 2004 Hankook had more
than tripled its revenues, overtaking Yokohama in 2012 to become the seventh-largest tire
company. Hankook’s average selling price was 25-30%35 lower than those of tier-one players.
It had also progressively narrowed the quality gap with leading tire companies, winning OE
supply contracts from Volkswagen, Audi, Porsche and Mercedes-Benz. It benefited from the
global expansion success of Korean carmakers Hyundai and Kia Motors.
The New Asian Majors
Among the newer players, Taiwanese Cheng Shin Rubber was the largest in 2014 with a 2.6%
global market share, followed by Singapore-based Giti (2%) and Kumho of South Korea
(1.9%). In 2014, their combined share was 6.5% of global sales, up from 3.9% in 2004. This
group gained share on the basis of price competitiveness, quality improvement and better
brand recognition. Cheng Shin Rubber had more than doubled its global market share since
2004, with almost 60% of its total sales from China (versus 18% for Hankook, 19% for
Kumho and 11% for Nexen).36 It also had qualified as an OE supplier to an increasing number
of carmakers such as GM, Mercedes-Benz, Nissan, Toyota and Volkswagen with its flagship
brand Maxxis. Giti provided low-cost, premium large rim tires to OEMs such as Ford or
Renault for their SUV and crossover models. Kumho was the first Korean tire company to
supply passenger car and truck tires to Mercedes-Benz in 2007-09 and had since expanded its
supply to the Benz G and B classes. The company was also supplying ultra-high performance
tires to BMW for its Mini range.
The Chinese Tire Companies
Among the Chinese tire manufacturers, Zhongce Rubber was the market leader in 2014 with a
2.4% global market share and total tire sales of $4.1 billion. Triangle Group followed with
1.7%, Shandong Linglong with 1%, and Double Coin with 0.9%. Together the largest Chinese
tire companies37 accounted for 9.4% of global sales, up from 2.8% in 2004 (Exhibit 33). With
prices at a 30% to 50% discount to international tire companies, Chinese manufacturers were
positioned in the mid-to-low end of the market, generally selling less sophisticated tires. They
exported a significant portion of their production; up to 90%38 for Sailun (ranked 24th in the
global tire league). Their main export destinations were the EU and the US (18% and 23% of
tire exports respectively).39 Unlike the leading players which had exclusive distribution
agreements with wholesalers, Chinese tire makers sold primarily in export markets through
retailers and direct channels.
Some Chinese tire makers sought to expand internationally. In 2014, Sailun acquired a 10%
stake in Canadian tire trading and retreading company Goma. They also sought to piggyback
33 Morgan Stanley, Michelin, 1 June 2016; Banca Akros (through the European Securities Network), Pirelli &
C., 3 November 2014
34 Redburn, European Tyremakers, Irreversible, 7 August 2014
35 Deutsche Bank, Korea Tires, November 2009
36 Samsung Securities, Sector Update, 27 November 2014
37 Those with sales above $1 billion in 2014
38 Macquarie Equities Research, Hunting Stocks, 15 March 2013
39 Macquarie Equities Research, Global Tire Report, 22 April 2013
on the internationalization of Chinese vehicle manufacturers. Chery, Geely and Great Wall
Motors had built international sales networks in Africa, South America and the Middle East,
as well as assembly plants in Russia and Ukraine. Export volumes peaked at 1 million units in
2012, but by 2014 were down by 16%. The global economic slowdown led the Chinese tire
makers to refocus on their traditional export markets.40 In response to rising import duties on
Chinese-made tires, several companies invested in new plant in South-East Asia (e.g.
Zhongce, Linglong, Sentury, Sailun). Sentury was the first company to announce a plant
investment in the US.
Michelin & Cie

Originating in 1863 as an agricultural machinery business in Clermont-Ferrand in central
France, using rubber for seals and joints, André and Edouard Michelin took over in 1889 and
renamed it Compagnie Générale des Etablissements Michelin. Building on the invention of
the removable bicycle tire, Michelin developed the first pneumatic tires for cars. In 1898, the
Bibendum character41 was born from the imagination of André, who saw in a stack of tires the
jolly fat man who would become an advertising icon.
Preserving its family roots, Michelin had a unique ownership structure. The holding was run
through a société en commandite par actions, a legal form dating back to the eighteenth
century. Control remained firmly in the hands of the 500 Michelin family members, who
designated a managing general partner (gérant) to head the company. The gérant enjoyed
extensive powers in exchange for unlimited liability for company losses. He received no
salary but was paid a substantial share of the profits. It was almost impossible for non-family
shareholders to dismiss the gérant, a situation often criticized by outside investors who were
mere “limited partners”. Other French companies had long adopted the limited liability
(société anonyme) structure, which was preferred by the financial markets.
Until the 1940s, Michelin was primarily a French company serving the domestic market, but
the development of the radial tire would propel the manufacturer to become a global force.
During the second world war, research led Michelin to develop substitutes for natural rubber
and improved tire designs, resulting in a 1946 patent for the first steel-belted radial tire, the ‘X
tire’, fitted as OE on Citroëns in 1951. The company’s manufacturing know-how gave it a
considerable competitive advantage as manufacturing a radial was a complicated process
involving more than 30 different types of rubber, cord and wire, along with chemicals and
various technical compounds.
By 1971 Michelin was exporting over 40% of the output of its French plants. It had a
presence in the US through a marketing agreement with retail chain Sears. Transportation
costs put Michelin at a considerable disadvantage to its US rivals, however, and it therefore
built factories in Canada in 1971 and in Columbia, South Carolina in 1975. By 1979, the
company overtook Firestone to become the world’s second largest tire manufacturer, with a
16% market share behind Goodyear (23%).
40 China Association of Automobile Manufacturers. Number of passenger cars and commercial vehicles
exported from China from 2009 to 2014, by type. Statista.
41 Depicted for the first time holding a glass full of nails, with the caption: “Nunc est bibendum” (Let’s drink
now) to underline the tires’ resistance to punctures.
During the 1980s, Michelin pursued international expansion, building plants in Brazil (1981)
and Canada (1982). The move into Asia occurred in 1986 with a manufacturing joint-venture
in South Korea; 1987 saw the construction of a plant in Thailand. In 1988, Michelin
established a joint venture with Okamoto in Japan. It increased its Asian presence in 1989
with a joint venture in Malaysia and the opening of a commercial office in Beijing, China.
By the late 1980s, Michelin was not producing enough tires in North America, yet exporting
from France posed insoluble logistical problems. Its premium ranges had won market share in
both the OE and RE market in the US, but it lacked access to independent retail outlets.
Meanwhile, Uniroyal-Goodrich, which had an excellent distribution network, was looking for
a buyer. In 1989, Michelin acquired the company, becoming the world’s largest tire maker.
Michelin next expanded its presence in central Europe. In 1995, it bought a majority interest
in Polish tire maker Stomil and acquired 90% of Taurus of Hungary in 1996. Among the
world’s three largest tire makers, Michelin was unique in making nearly 90% of sales outside
its home market. However, with its unbalanced footprint – heavily dependent on France and
other high-cost countries in Europe – and lack of competitiveness of its production facilities,
there were calls for a change in its operating model.
Restructuring the Company
In 1995, Michelin launched a wide-ranging reorganization. Its highly centralized structure

was replaced with nine profit centres, each covering a major product line. Each had its own
product development, marketing, manufacturing and sales departments. International co-
ordination was ensured by four regional executives, with 12 ‘group services’ providing
support. Key positions were filled by young executives in a break with the top-down culture
of the company.
The reorganization followed a period of intense restructuring of its Uniroyal-Goodrich

operations that aimed to put Michelin back on an even keel. The year following the Uniroyal
acquisition, Michelin had posted a $1 billion loss and an increase of its debt to almost $8
billion, more than three times its equity. To restore profitability Michelin implemented a
drastic cost-reduction plan, eliminating more than 23,000 jobs (16% of the total workforce) in
Europe and North America, and closing half of Uniroyal-Goodrich’s factories in the US. It
also merged the Michelin and Uniroyal-Goodrich sales operations in North-America. This
restructuring cost Michelin an estimated $4 billion.
After returning to profitability, Michelin accelerated its rationalization efforts. Between 2005
and 2009, the company closed 11 plants in Canada, 4 in France, 2 in the US and 1 each in
Germany, Italy, Japan, and Spain. With a productivity gap of 30% with Bridgestone42 and
even more with emerging Chinese competitors, Michelin sought to streamline its industrial
base by either specializing sites or increasing the size of production factories. By 2010,
Michelin had 49 factories in 17 countries. About 40% of its production occurred in North
America, 28% in Western Europe, 14% in Asia-Pacific, Eastern Europe, Middle-East and
Africa, and 4% in South America.43
42 “Michelin - La révolution culturelle”, Le Monde, 12 February 2011

43 J.P. Morgan, Monthly Tire Review, November 2011
Expanding in Emerging Markets
With weak growth prospects in Europe and the US, in 2011 Michelin announced it would go
for growth in emerging markets. Bridgestone had made investments in Asia and Latin
America – since 2007 allocating €1.7 billion per year (7.4% of revenue) to capital spending,
far more than Michelin's €1 billion (6.1% of revenues)44.
Michelin decided to double production capacity in Brazil (passenger tires) and China
(passenger and truck tires), and build a new factory in India (truck and earthmover tires), a
cumulative investment of €2.75 billion. It would raise investment to €1.6 -1.7 billion per year
(8.1% of revenue), of which €1 billion would be allocated annually to expansion projects in
emerging markets for the next five years. To help finance this investment, on 28 September
2010 Michelin launched a €1.2 billion rights issue through 27 million new shares at €45, 30%
less than the stock price the previous day. The stock market reaction was immediate: the share
price fell by 10.2%, its biggest decline in 12 years. Commented Jean-Dominique Sénard, “We
are not asking investors for a blank cheque [...] We would never dare ask the market for
money if we did not prove our capacity to bring growth.” Hoping to increase its sales in
Western markets by 25% and to double revenues from emerging countries by 2020, the CEO-
designate insisted: “The growth is there, we have to capture it and we are ready to do so…We
are convinced that there will be a consolidation in Asia. If the opportunity presents itself,
there will maybe be external growth, but this is not an objective for now.”45 In February 2010,
Michelin acquired the remaining 30% stake from its Chinese partner Double Coin in their
joint venture Shanghai Warrior Tire.
The Beginning of a New Era
In 2012, when Jean-Dominique Sénard became CEO, for the first time in its history the tire
manufacturer did not have a descendant of the Michelin brothers at its helm. “Monsieur
François”, Michelin’s charismatic president, had reigned over the company for more than 40
years. Born in 1926, the grandson of Edouard Michelin had been the principal architect of the
internationalization of Michelin, with a long-term objective to conquer the US. His decision
to buy Uniroyal-Goodrich propelled Michelin to the top spot of the world ranking. When he
stepped down in 1999 aged 73, he left his son Edouard, 35, in charge. An engineer by
training, Edouard was instrumental in restructuring the company. When he took the job,
Michelin was suffering from a lack of competitiveness of its production facilities, was heavily
dependent on France and other high-cost countries, and had lost its world leadership to
Bridgestone. He was heavily involved in the integration of Uniroyal-Goodrich (under the
leadership of Carlos Ghosn, then head of Michelin US) and the move into emerging markets,
particularly Asia. By entering into a joint-venture with Shanghai Tire and Rubber Co.,
Michelin edged back to the top of the ranking, four years after it had lost world leadership.
In 2006, tragedy struck. Edouard Michelin died in a boating accident off the Brittany coast.
Michel Rollier, 61, a second cousin, succeeded him. A financier by profession, Rollier
followed the path that Edouard had charted. He built a leaner organization by keeping a tight
control over costs, simplifying the decision-making process and rationalizing Michelin’s
44 S&P Capital, INSEAD Analysis

45 “Michelin trébuche en Bourse après l'annonce de nouvelles ambitions industrielles”, Les Echos, 29
September 2010
industrial base. He also changed the company’s by-laws to limit the number of managing
general partners to one, reduce the term in office to four years (renewable and revocable), and
strengthen the role of the board (previously a consultative body). By reorganizing Michelin’s
governance, Rollier made it possible to appoint a non-family member as CEO.
Sénard’s priorities were to pursue expansion in emerging markets, increase the

competitiveness of Michelin and embrace new technologies to develop innovative services: “I
insist on the fact that we strongly stick to the target of increasing productivity of our whole
plant system by 30-35%.”46 In 2012, he described how, “The implementation of the long-term
Michelin strategy is based on three major pillars. The first one is innovation, which is really
pulling the whole business across the world. The second is growth of our capacities
throughout the world. … Last but not least is the competitiveness of Michelin across the
board so that we can make sure that we will sustain our strong presence in the world for the
next 30 or 40 years.”47 He reiterated in 2013: “The only [issue] I am concentrating on is the
cost base of Michelin, making sure that whatever happens, the margins are not spoiled. That’s
it, and that will be our position for the coming years and we won’t change.”48
For Sénard, the tire was one element in an extended value chain. In 2013, Michelin created a
‘Solutions Group’ to enable more efficient mobility in transport. The new division committed
to results under multi-year contracts that helped fleet operators achieve fuel savings, reduce
emissions and minimize vehicle downtime.49 Michelin solutions included telematics services,
eco-driving training for drivers and tire management. Instead of charging trucking companies
by the number of tires they bought, Michelin charged a rate per kilometre driven. If the tire
failed early, Michelin bore the cost; when the tire lasted longer than expected, it generated
more revenue for Michelin. To boost its telematics services, in 2014 Michelin acquired
Sascar, Brazil's leading digital fleet management company, for €440 million.
Michelin also sought to gain more control of tire distribution. In 2015, it acquired a 40% stake
in French online tire retailer Allopneus. Explained Sénard: “In France where 70% of
customers look to the internet before they buy anything, already 12% of consumers are
buying online and Allopneus has 7% of these sales.”50…“We want to be totally
knowledgeable and monitor new vectors of distribution. … we probably didn't have within
Michelin all the skills necessary to compete quickly in this growing distribution channel.”51
It also bought the Scottish online tire company BlackCircles and German tire wholesale
specialist Ihle for a cumulative total of over €100 million.52 Commented Michelin’s CFO
Marc Henry: “To fulfil the needs of customers and OEMs, the number of SKU’s has
46 Thomson-Reuters, July 29 2011.

47 Thomson Reuters Streetevents, Michelin, 27 July 2012
48 Thomson Reuters Streetevents, Michelin, 12 February 2013.
49 For a truck travelling 120,000 kms/year, fuel savings can be greater than €2,500 per year [source:
“Michelin Acquires Sascar, Brazil’s Leading Digital Fleet Management Company”, Investor Presentation,
9 June 2014]. On average, Michelin’s Effifuel solutions allowed to save 1.5l/100 kms or €1,300 per truck
per year [source: Michelin solutions au salon IAA d’Hanovre, 23 September 2014]
51 Thomson Reuters Streetevents, Michelin, 16 February 2016
52 Morgan Stanley, Michelin: tough to believe in further margin expansion, 19 October 2015
increased a lot. That means that some small retailers that have insufficient storage capacity
require some wholesale capacity for them to be able to sell.”53
To get insight into how customers travelled, in 2015 Michelin bought a stake in Shanghai
based ride-sharing startup Luli Information Technology. Michelin also extended its vertical
integration. In 2013, it set up a joint venture in Indonesia for sourcing synthetic rubber,
complementing its capacity in the US and Europe. Explained the CEO: “It is part of our
strategic view that we need to be integrated vertically, notably in the supplies that are totally
specific to Michelin. … we have the strategy to make sure we can protect our technology by
being normally integrated in the specific domains where we have a competitive advantage. …
when it becomes very specific recipes and technology, then we keep that in-house.”54
Michelin in China
While Michelin had a sales office in Hong-Kong as of 1988, it was not until 1995 that it set
up a joint venture in Shenyang to produce radials for cars. In 1997, it invested in three
additional Shenyang joint ventures to double its capacity. By 2001, after 18 months of
negotiation, Michelin signed a $200 million deal with the Shanghai Tire & Rubber Co. to
form a foreign-invested joint stock company in which Michelin had a 70% stake. It then
merged the four joint ventures in Shenyang into a single entity in which it held 85% of the
capital.
In 2003, Michelin set up a research centre to provide technical support to its production
facilities and opened a regional head office in Shanghai.55 In 2010, it bought the remaining
shares in the Shanghai joint stock company and launched a €1.0 billion project for the
construction of a new car and truck tire plant in Shenyang. In 2012 a joint venture was formed
with Double Coin and Shanghai Huayi to produce Warrior-branded car and light truck tires
for the Chinese market. Owned 40% by Michelin, it aimed to make Warrior the No. 1 Chinese
tire brand in the medium-price tire market segment.
In addition to these partnerships to address the second-tier market, it also brought its latest
innovations to target the growing demand for premium tires. Michelin’s new plant in
Shenyang benefited from the company’s latest technologies and production processes. Said
Sénard: “China now has become one of the more important markets for Michelin […] The
new factory in Shenyang will enable the company to meet the diversified demand of local
consumers, especially in the high-performance sectors”56.
Market Development in China
Between 2002 and 2012 the market for luxury cars in China grew by 36% per year, faster than
the overall Chinese passenger vehicle market (+26% per annum)57. In 2012, sales of luxury
cars reached 1.25 million units and were expected to more than double by 2020, propelling
China to become the world’s largest luxury car market ahead of the US (Exhibit 35). The

54 Thomson Reuters Streetevents, Michelin, July 25 2013.
55 Financial Times Information, March 18, 2003.
56 “New Michelin Shenyang plant will replace current one”, Tire Business, 10 September 2012
57 McKinsey & Company, “Upward Mobility: The Future of China’s Premium Car Market”, March 2013
luxury car market in China represented 9% of all passenger car sales in 2013, surpassing
Japan (6%) and Russia (7%) (Exhibit 36). German automakers dominated China’s luxury car
market with Audi, BMW and Mercedes-Benz accounting for about 73% of sales in 2013
(Exhibit 37). With sales growing on average by 10% per year, the number of German luxury
cars on Chinese roads was expected to cross the 10 million mark by 2017.
Since 2002, sales of SUVs in China had grown by 55.4% per year on average to reach 2
million vehicles in 2012. SUVs accounted for 20% of China’s passenger car sales in 2013,
compared to 50% in Canada and the US (Exhibit 38), and were expected to double by 2017 to
reach 9.7 million vehicles, approximately the number of cars sold in the mainstream market
(Exhibit 39). Chinese SUV automakers were the market leaders with a combined market share
of 53.7% in 201558 (Exhibit 40). The surge in SUV production and sales in China fuelled the
growth of the premium tire market. In 2013, tires of 17” and above represented 30% of the
Chinese market, compared with 45% in North America and 21% in Europe. They were
expected to reach 40% of the market by 2019 (see Exhibit 41 for the share of premium tires
by region and Exhibit 42 for the share of premium tires in China).
With average growth of 16.3% per year since 2001, China’s commercial vehicle market had
become the world largest with a 50% share of the global market, ahead of the US (Exhibit
43).59 Its truck and bus market were principally populated by local low-end vehicle
manufacturers; international OEMs had less than a 10% market share (Exhibit 44). In 2012,
about 90% of transport companies in China were individual operators owning less than 10
trucks.60 In the heavy truck segment, five manufacturers – Dongfeng, Sinotruck, FAW, Foton
and Shaanqi – accounted for 81% combined market share (Exhibit 45). Sinotruck and Foton
had developed partnerships with international OEMs including Daimler and Volkswagen/Man
to develop high-end trucks.
Five manufacturers of light and medium trucks (Foton, Dongfeng, Jinbei, JAC Motors and
Jiangling) had a combined 52% market share in 2012 (Exhibit 46). The large market attracted
several international OEMs which made inroads into the light truck market. GM’s joint-
venture with SAIC was particularly successful in the minivan segment with its flagship
model, the Wuling Sunshine, China’s most popular minivan, topping 1.8 million units in
2014.61 Other international OEMs included Iveco’s joint venture with Nanjing Automotive
and Isuzu’s joint ventures with Qingling Motors and Jiangling Motors. In 2015, light truck
sales accounted for 71% of China’s commercial vehicle sales (Exhibit 47).
Although smaller than the light truck segment, China’s bus market had the highest growth. In
less than 10 years sales almost doubled to 580,000 units in 2015, boosted by rapid
urbanization and rising demand for public transport. In 2015, Yutong and King Long were the
largest bus makers, accounting for 64.3% market share (Exhibit 48). (See Exhibit 49 for
forecasts of tire sales by major segment).
58 HSBC Global Research, “China Autos: Hit the brakes - not the brick wall”, 25 February 2016, p. 37
59 The Asian truck market, Macquarie Research, 6 January 2014, p. 8
60 The Asian truck market, Macquarie Research, 6 January 2014, p. 30
61 Nikkei Asian Review, “GM to build low-priced minivans in Indonesia”, 3 February 2015
The Competition
There were more than 500 domestic tire manufacturers in China. The passenger car tire
market was dominated by Hankook and Kumho with respectively 11% and 9% of the market
(Exhibit 50). Leading international brands accounted for a 20% share and third-tier domestic
players for a 47% share (Exhibit 51).
Michelin primarily supplied the replacement tire market. Of the 15 million passenger tires it
sold in China in 2014, two thirds were replacement tires. In contrast, Hankook and Kumho
realized 60% to 80% of their sales in the OE market.62 In 2011, Hankook was the largest
supplier to the top five automakers, meeting 30% of their combined tire needs. Local players
such as Zhongce Rubber or Shandong Linglong supplied primarily Chinese OEMs whose cars
required ‘entry-level’ tires (see Exhibit 52 for a breakdown of tire supply by OEM).
All major tire makers had launched expansion projects in China, raising concerns among
Chinese officials about overcapacity. In 2010, the number of tire makers – and bankruptcies –
reached a peak (Exhibits 53 and 54). The government restricted permits for new plant, but
production continued to ramp up (Exhibit 55).
When run at full capacity, Michelin’s two plants in China produced 10 million passenger tires
per year (Exhibit 56). By 2018, it would reach 18 million when new capacity at the Shenyang
facility was brought into service. Of the 5 million Warrior tires produced by the Double Coin
plant in 2014, Michelin sold 1 million units. It hoped to bring this number to 5 million by
2018, a third of the plant production when full capacity would be reached (Exhibit 57).
In the truck and bus tire segment, Michelin sought to accelerate its expansion by more than
doubling the commercial vehicle tire capacity of its Shenyang plant. By 2018 production at
the new facility would reach 1.8 million units, about a third of the 6 million tires international
brands produced annually (see Exhibit 58 for production capacity forecasts on the truck tire
market). Michelin wanted to close the gap with Bridgestone (Exhibit 59) which was the
market leader among international players with a 2% share. The international brands
accounted for 8% of the market, against 86% for Chinese tire makers (Exhibit 60).
Competition was intense with chronic overcapacity and many local players (Exhibit 61).
Demand for city buses and intercity coaches led Michelin to target bus operators. Michelin
also focused on medium and heavy natural gas trucks and light commercial vehicles for cold-
chain and express delivery. It believed that the growth of China’s logistics and transport
sectors would eventually lead to the emergence of large professional fleet operators with a
preference for mid-to-high-end trucks. In 2005, it set up a retreading facility in Shanghai,
betting that China would follow the development of the US. Michelin believed that fleet
operators would shift from buying low-cost tires to premium truck tires, which would later
feed its retread business. However, by 2015 it had made little headway. There was a belief in
China that retreads were unsafe, had a low wear resistance, and lower mileage than new tires.
It was not uncommon to see overloading of trucks two to three times the weight limit.63
62 Macquarie Research, Hunting Stocks, 15 March 2013, p. 41

63 Michelin Investor Day, presentation by Huifeng Lu, Shenyang, China, 10 November 2014, p. 9
Retailing
Growing the company’s distribution network had been the cornerstone of Michelin’s
expansion in China’s replacement tire market. Since 2002, Michelin had built a retail chain –
TyrePlus – of more than 1,000 stores spread across 230 cities, servicing more than 5 million
vehicles a year.64 TyrePlus was a premium distribution franchise with a comprehensive auto-
service centre. Each store sold about 6,000 tires annually, of which half were Michelin’s
brands.65 By 2018, Michelin wanted 2,900 stores to cover all the major cities in China.
All major international tire makers had developed premium, multi-brand service and repair
centres through a network of franchised outlets. Yet premium stores were far from the
dominant sales channel (Exhibit 62). Thousands of independent retailers sold tires and auto
parts, which they bought from an official distributor at a discount and then sold on to the
consumer. In 2013, tire dealers achieved a higher profit margin on leading Chinese brands
such as Triangle or Shandong Linglong than on the Michelin tires (Exhibit 63).
As buying products online became increasingly widespread among Chinese consumers, tire
makers also started selling tires on the Internet. Michelin had paved the way with its TyrePlus
online store (www.tyreplus.com.cn). Similar to the physical retail outlets, consumers could
purchase tires and auto parts such as batteries or brake accessories and make an appointment
to have them fitted on their car. Other international brands sold tires through specialized
online retailers like Tuhu (www.tuhu.cn).66
Outlook for Michelin
Michelin has gradually lost share in core markets such as the US to Asian rivals (Exhibit 64).
To fight back, it had increased the range of tires from its sub-brands. Sénard explained: “They
tend to have an impact on the price structure of the tire business. At the same time, we are not
playing on the same field. We are a premium company more than anything else. While we are
clearly present in the lower price brackets, we need to be there more than we are today
without being in direct competition with these tires.” 67 In 2013, Michelin had not hesitated to
cut its prices when its competitors did not follow suit. Commented CFO Henry: “It is a
Michelin responsibility to grow prices when raw material is growing. It’s also our
responsibility to make sure that we do not let tier 2, tier 3 products, specifically in the
[premium] segment to grow a bigger part of the market share … it is because the margins are
high [in this segment] and they did not increase their prices as much as we did.”68 Added
Sénard, “… It’s simply the fact that it has to be fair with our customers. We had seen in the
market that the prices of our competitors were way too low relative to ours in some
segments.”69
64 Michelin accelerates for network expansion, China Daily, 26 May 2014

65 Includes middle-market brands BF Goodrich and Uniroyal. Source: Deutsche Bank, Postcard from
Shenyang 2, 18 November 2014
66 See examples at: https://bridgestone.world.tmall.com/ (Bridgestone); https://michelin.world.tmall.com/
(Michelin); https://goodyear.world.tmall.com (Goodyear)
67 “Michelin aims to fight off Chinese rivals on 2 fronts”, Automotive News, 12 January 2015
68 Thomson Reuters Streetevents, Michelin, 22 April 2013.
For Michelin, offering cheaper tires under budget brands was a response to a market trend.
Sénard explained: “We need to be present because our customers want Michelin Group tires
but not necessarily all the performance of premium tires. Also, our distribution centres cannot
live on just premium tires. They have to fill the racks with other brands, so if we don’t offer
these tires, they will go to the competition”70.
Sénard was also asked how a slowdown of the Chinese economy would affect Michelin. In
2013, he had this to say: “Never forget that whatever the ups and downs in the Chinese
market, it will be in the future one of the major, probably the first market in terms of mobility,
so we are there and we are strong there now.”71 Commenting on the exposure to China in July
2015, he said: “I know that the market today is concerned about China … but everybody must
understand that it does not go over 5% of our earnings and sales, which is not a major figure,
… and we are exposed to the replacement market much more than the OE market, which is
showing some signs of negative growth. The RT market is still experiencing some strong
growth.”72 On the restructuring of the Chinese tire sector, he added recently: “We are
disappointed, I would say, by the fact that the restructuring of the Chinese industry is not
really taking place as we speak. We have signs that it might start, but these signs are early…
so we will see.”
Asked about the outlook for acquisitions of tire companies, Sénard reiterated his longstanding
position: “We would protect our interests if it was necessary and if opportunities arose, which
honestly, has not been the case recently. When you want to buy a company, you need to have
a seller in front of you. And if you don’t or the seller is greedy, you just try to not do stupid
things.”73 He was optimistic regarding the potential for margin improvement: “[It] is all about
improving the mix of our products. We acknowledge the fact that some competitors enjoy a
much better mix than we have. But we have been improving dramatically our presence in the
high premium ranges. As we speak, we are growing capacity throughout the world … So it’s
a matter of one year or two.”74
Michelin’s stock market price remained volatile in the first half of 2016 (Exhibit 65).
Questioned about the source of this and previous volatility, the CEO confided: “When it
comes to the share price, I don’t exactly understand whether it is linked to the performance
[of Michelin] or to the automotive sector. … At some point, we have to understand that we
are here for the next 200 years and that what’s happening in the business of stock exchange is
sometimes questionable. But the market is always right obviously, as we understand, so we
just have to see what it tells. … I don’t feel at all concerned with what we see on the stock
exchange today. I only feel bad for the teams of Michelin who have been working incredibly
hard for the results we produced. And if they look at their screens, they will probably today
not be very happy with what they see, and probably not understand at all.”75
Sénard and his management team could look back to many significant accomplishments in the
past five years. They had articulated a strategy of innovation, cost competitiveness and global
70 “Michelin aims to fight off Chinese rivals on 2 fronts”, Automotive News, 12 January 2015
71 Thomson Reuters Streetevents, Michelin, 25 July 2013.
footprint, and were committing the organization to these. It was on its way to achieve a larger
percentage of its car tire sales in the premium range, hoping to realize higher margins (Exhibit
66). However, the competition was also making strides on cost improvement and innovation.
What further action, he wondered, could be taken to accelerate the transformation of Michelin
and reach the ambitious targets announced (Exhibits 67 to 70).
Exhibit 1
Trends in Chinese Vehicle Tire Production by Major Category (2005-2015)
Compound annual growth rate
In million units 2005 2007 2009 2011 2013 2015
(CAGR) 2005-2015
Car tires 88.8 156.8 192.9 250.9 309.2 347.8 14.6%
CV tires (1) 96.4 121.8 138.4 167.5 184.6 196.0 7.4%
Total 185.2 278.6 331.3 418.4 493.8 543.8 11.4%
(1) includes Light Commercial Vehicles (mini and light vans and buses) and Medium/Heavy Commercial Vehicles (trucks and buses)
Source: LMC International, World Tire Forecast Service, August 2015
Exhibit 2
Trends in Chinese Vehicle Production by Major Segment (2005-2015)
In million units 2005 2007 2009 2011 2013 2015
(CAGR) 2005-2015
Cars 3.1 5.4 8.4 12.2 16,4 19.9 20.4%
CV 2.6 3.5 5.4 6.2 5.7 4.6 6%
Total 5.7 8.9 13.8 18.4 22.1 24.5 15.7%
Exhibit 3
Trends in Chinese Vehicle Sales by Major Segment (2005-2015)
In million units 2005 2007 2009 2011 2013 2015
(CAGR) 2005-2015
Cars 3.3 5.4 8.8 13.0 17.4 21.0 20.5%
CV 2.6 3.5 5.3 6.3 5.7 4.6 5.8%
Total 5.9 8.9 14.1 19.3 23.1 25.6 15.8%
Exhibit 4
Trends in Chinese Domestic Sales by Major Tire Category (2005-2015)
In million units 2005 2007 2009 2011 2013 2015
(CAGR) 2005-2015
Cars 36.2 60.0 86.0 120.4 143.4 176.8 17.2%
CV 69.6 85.6 105.4 125.8 131.6 133.1 6.7%
Total 105.8 145.6 191.4 246.2 275.0 309.9 11.3%
Exhibit 5
Trends in the Size of the Chinese Vehicle Park by Major Segment (2005-2015)
In million units 2005 2007 2009 2011 2013 2015
(CAGR) 2005-2015
Cars 14.1 23.5 37.5 60.1 88.4 123.6 24.2%
CV 22.5 27.2 34.0 43.6 51.8 57.8 9.9%
Total 36.6 50.7 71.5 103.7 140.2 181.4 17.4%
Exhibit 6
Total Cars in Selected Countries (2005-2015)
275 258.3
250
227.9
225
200
Car park (in million units)
175
139.8
150 136.6
123.6
125
100
75 61.1
57.1
50 33.5 39.7
23.8 27.5
25 18.4 14.1
10.3
0
Brazil Russia India China EU-28 Japan US
2005 2015
Exhibit 7
Evolution of the RMB/US$ Exchange Rate (2000-2014)
9,00
8,70
(RMB per US$, period average)
8,40
8,10
Exchange rate
7,80
7,50
7,20
6,90
6,60
6,30
6,00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: International Monetary Fund, International Financial Statistics, World Development Indicators
Exhibit 8
Trends in Chinese Car Tire Exports’ Share of Domestic Production (2005-2015)
350
60%
Production & exports (million car tires)
300
Exports' share of production (%)

50%
250
40%
200
30%
150
100 20%
50 10%
0 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Export Production Export as share of production
Exhibit 9
World Tire Production in Selected Markets (in million units)
Source: European Rubber Journal, INSEAD Analysis
Exhibit 10
Overview of China’s Tire Manufacturing Hubs
Note: the number of plants in China as reported by the CRIA is much larger than the number documented by the
European Rubber Journal (Exhibit 9). See also Exhibit 55.
Source: China Rubber Industry Association (CRIA) and company self-announced data.
Exhibit 11
World Tire Sales by Market Segment (2015)
In million units Car % of total Commercial vehicle % of total Total vehicles % of total
OE 355.6 28.3% 98.0 20.7% 453.6 26.2%
Replacement tires 900.2 71.7% 375.4 79.3% 1,275.6 73.8%
Total 1,255.8 100% 473.4 100% 1,729.2 100%
Exhibit 12
Trends in Vehicle Production in Major Markets (2005-2015)
In million units
Exhibit 13
Trends in Vehicle Sales in Major Markets (2005-2015)
In million units
Exhibit 14
Trends in the Size of Vehicle Park in Selected Markets (2005-2015)
In million units
Exhibit 15
Trends in the Replacement Ratio in Selected Markets (2005-2015)
In million units
Exhibit 16
Vehicle Tire Market in Selected Markets (2005-2015)
In million units 2005 2007 2009 2011 2013 2015
US
Car OE 52.7 46.3 24.6 34.5 41.5 44.0
Car RT 202.3 204.0 184.0 193.3 198.8 206.4
CV OE 12.9 9.1 5.2 9.2 10.2 12.1
CV RT 53.6 50.8 39.5 45.5 44.2 47.8
Total OE 65.7 55.3 29.8 43.7 51.6 56.0
Total RT 255.9 254.8 223.5 238.8 243.0 254.2
Total 321.6 310.1 253.3 282.5 294.6 310.2
EU-28
Car OE 82.0 86.1 69.7 76.6 69.9 75.1
Car RT 206.4 220.6 213.4 245.5 216.5 233.6
CV OE 11.5 13.7 6.2 10.9 10.4 10.9
CV RT 33.2 36.5 31.4 37.7 32.0 35.8
Total OE 93.5 99.8 75.9 87.5 80.3 86.0
Total RT 239.6 257.1 244.7 283.2 248.5 269.4
Total 333.1 356.9 320.6 370.7 328.8 355.4
Japan
Car OE 45.8 50.0 34.2 34.8 39.3 38.4
Car RT 57.2 56.2 49.5 57.0 58.9 60.5
CV OE 8.0 7.2 5.0 6.2 7.2 6.8
CV RT 20.4 20.7 17.0 19.7 20.4 20.8
Total OE 53.8 57.2 39.1 41.0 46.5 45.2
Total RT 77.6 76.9 66.4 76.7 79.3 81.2
Total 131.4 134.1 105.5 117.7 125.8 126.4
China
Car OE 15.6 26.9 42.0 60.6 79.8 95.6
Car RT 20.6 30.1 42.0 58.7 67.0 81.0
CV OE 15.1 21.2 31.5 36.4 33.8 27.4
CV RT 54.1 64.2 73.7 88.1 98.6 105.2
Total OE 30.8 48.1 73.5 97.0 113.6 123.0
Total RT 74.6 94.3 115.8 146.8 165.6 186.2
Total 105.4 142.4 189.3 243.8 279.2 309.2
India
Car OE 6.2 7.0 8.1 8.7 10.2 13.3
Car RT 8.6 9.2 10.0 10.6 11.1 13.4
CV OE 3.0 4.1 4.5 4.1 3.9 6.2
CV RT 11.3 12.0 13.4 14.0 14.8 15.9
Total OE 9.3 11.1 12.6 12.8 14.1 19.5
Total RT 19.9 21.2 23.4 24.6 25.9 29.3
Total 29.2 32.3 36.0 37.4 40.0 48.8
World
Car OE 272.8 295.4 245.8 310.1 337.8 355.6
Car RT 700.4 747.4 723.7 831.9 843.2 900.2
CV OE 76.7 84.1 73.7 101.5 102.7 98.0
CV RT 281.8 3051 287.0 336.3 351.7 375.4
Total OE 349.4 379.4 319.5 411.6 440.5 453.6
Total RT 982.2 1,052.5 1,010.7 1,168.1 1,194.9 1,275.6
Total 1,331.6 1,431.9 1,330.2 1,579.7 1,635.4 1,729.2
Exhibit 17
Michelin’s Cost Structure (2009 and 2015)
Source: Company Annual Report, INSEAD Analysis
Exhibit 18
Raw Materials Price Trends, Base 100 in December 1999 (2009-2015)
Source: J.P. Morgan, Monthly Tire Review, January 2016
Exhibit 19
Impact of Operations-related Items on Michelin’s Operating Income (2015)
In million euros
(1) before non-recurring items
Note: Volumes = Impact of sales volumes; Raw materials = impact of raw materials costs; Price-mix = impact of product pricing;
Competitiveness = impact of Michelin’s competitiveness plan; Inflation = impact of the price increase of goods and services;
Depreciation = impact of the reduction of an asset value; Other = other operating incomes and expenses such as the start-up costs
linked to the construction of a new plant, etc.; Currency = impact of currency fluctuations
Source: Company Annual Report
Exhibit 20
5-year Average Return on Capital Employed (ROCE) of Leading Tire Manufacturers
(2011-2015)
2011 2012 2013 2014 2015 5-year average
Bridgestone 6.9% 8.9% 10.9% 10.4% 10.8% 9.6%

Michelin 9.2% 9.9% 8.6% 7.3% 8.1% 8.6%
Goodyear 6.8% 5.2% 9.4% 11.4% 8.8% 8.3%
Continental 22.4%* 29.1%* 33.2%* 29.9%* 29.4%* 28.8%*
Pirelli 12.9% 9.9% 8.7% 10.1% 11.2% 10.6%
Sumitomo 9.1% 9.0% 8.9% 8.3% 9.0% 8.9%
Hankook 11.1% 17.7% 15.8% 14.7% 10.6% 14.0%
Yokohama 8.3% 10.3% 9.2% 8.7% 7.6% 8.8%
Maxxis/Cheng Shin Rubber 8.7% 14.1% 14.6% 12.4% 11.2% 12.2%
Zhongce Rubber n.a n.a n.a n.a n.a n.a
GITI 6.3% 8.7% 12.9% 9.4% 8.7% 9.2%
(*) Estimates; non-tires revenues excluded
n.a: not available
ROCE: [(Operating Income)*(1-Effective Tax Rate)] / [(Total Assets – Total Current Liabilities)] * 100
Source: S&P Capital IQ, Company Annual Reports, INSEAD Analysis
Exhibit 21
Cost Breakdown of a Transport Company (as % of total)
Source: Continental’s presentation, Driven by Customer Needs – The Design of Truck Tires,
Eurotyre Conference, 4 November 2014
Exhibit 22
R&D Expenditure of Top 10 Tire Manufacturers (2008-2015)
2008 2011 2015
Share Top 10 Share Top 10 Share Top 10

% sales % sales % sales
(in % of total) (in % of total) (in % of total)
Bridgestone 33.6 2.9 33.6 2.8 26.1 2.5

Michelin 22.8 3.0 23.7 2.9 24.7 3.3
Goodyear 11.9 1.9 11.4 1.6 12.6 2.3
Continental 7.2 2.4 5.4 2.0 8.1 2.2
Pirelli 7.1 3.3 6.8 3.0 7.9 3.4
Sumitomo 7.0 3.2 7.7 2.8 6.4 2.8
Hankook 2.6 2.2 3.2 1.8 4.7 2.5
Yokohama 5.0 2.8 5.5 2.3 3.8 2.3
Maxxis/Cheng Shin Rubber NM NM 2.0 1.6 4.1 3.4
Zhongce Rubber n.a n.a n.a n.a n.a n.a
Giti NM NM 0.8 0.9 1.6 1.2
Cooper 1.1 1.2 NM NM NM NM
Kumho 1.7 2.3 NM NM NM NM
Top 10 spending 3,063.1 3,249.7 3,024.4
Note: T10 = total spending on R&D of the top ten tire companies; % sales = the ratio of R&D spending to sales for
each of the companies. NM: Not Meaningful; n.a: not available
Exhibit 23
Leading OEM Parts Suppliers: Sales Ranking (2013)
In million $
Source: J.P. Morgan, Auto Parts and Tire Sectors, 15 October 2014
Exhibit 24
5-year Average Return on Capital Employed (ROCE) of Major OEM Suppliers (2011-
2015)
2011 2012 2013 2014 2015 5-year average

Robert Bosch (Germany) 5.5% 3.6% 4.7% 3.4% 6.9% 4.9%
Denso (Japan) 5.5% 3.6% 6.1% 8.1% 5.8% 5.8%
ZF TRW (Germany) 19.6% 17.6% 16.1% 15.7% 14,8%* 16.7%
Magna (Canada) 11.6% 11.8% 14.2% 17.0% 13.7% 13.7%
Continental (Germany) 11.8% 15.0% 15.6% 14.2% 14.0% 14.1%
Hyundai Mobis (South Korea) 12.6% 9.7% 8.0% 7.3% 7.3% 9.0%
Johnson Controls (USA) 8.0% 6.7% 7.5% 7,8% 8.4% 7.7%
Aisin Seiki (Japan) 6.7% 5.6% 6.8% 6.5% 5.1% 6.1%
Faurecia (France) 19.2% 11.1% 11.3% 13.5% 14.2% 13.8%
Delphi Automotive (USA) 24.8% 21.6% 20.5% 23.5% 20.2% 22.1%
(*) ZF Friedrichshafen acquired TRW Automotive in May 2015. As a result, the ROCE in 2015 is calculated on a 12-month basis (from May
2014 to April 2015) versus a fiscal year ending in December 2015 to allow comparison across data.
Exhibit 25
a) Top 10 Car Manufacturers Globally by Number of Vehicles Produced
(2009-2014)
Rank 2014
Rank 2009
2014 2009
Group
Total Total
Toyota (Japan) 1 1 10,475,338 7,234,439

Volkswagen (Germany) 2 3 9,894,891 6,459,053
General Motors (USA) 3 2 9,609,326 6,067,208
Hyundai (South Korea) 4 5 8,008,987 4,685,394
Ford (USA) 5 4 5,969,541 4,645,776
Nissan (Japan) 6 8 5,097,772 3,042,311
Fiat (Italy) 7 9 4,865,758 3,012,637
Honda (Japan) 8 7 4,513,769 2,744,562
Suzuki (Japan) 9 10 3,016,710 2,460,222
PSA Peugeot-Citroën (France) 10 6 2,917,046 2,387,537
Total 64,369,138 42,739,139
Source: International Organization of Motor Vehicle Manufacturers (OICA)
b) Market shares of the Top Manufacturers in cars and large trucks

in the EU and the US, 2015
Registration numbers, EU & EFTA and the US. Note: Freightliner and Western Star are owned by Daimler;
Kenworth and Peterbilt are owned by Paccar; Mack is owned by Volvo
Exhibit 26
5-year Average Return on Capital Employed (ROCE) of Major Car Manufacturers
2011 2012 2013 2014 2015 5-year average

Toyota (Japan) 1.5% 1.1% 4.1% 6.2% 6.3% 3.8%
Volkswagen (Germany) 6.1% 5.0% 4.0% 4.0% 3.2% 4.5%
General Motors (USA) 7.6% 5.5% 3.5% 2.7% 5.6% 5.0%
Hyundai (South Korea) 8.2% 7.4% 6.3% 5.2% 3.9% 6.2%
Ford (USA) 7.7% 3.9% 8.5% 0.5% 4.0% 4.9%
Nissan (Japan) 6.1% 5.6% 3.9% 4.0% 4.0% 4.7%
Fiat (Italy) 2.9% 4.2% 5.4% 2.5% 2.1% 3.4%
Honda (Japan) 5.6% 1.8% 3.8% 5.2% 3.6% 4.0%
Suzuki (Japan) 4.1% 5.2% 5.9% 6.7% 5.6% 5.5%
PSA Peugeot-Citroën (France) 3.9% -2.5% -1.9% 3.5% 7.7% 2.1%
Exhibit 27
5-year Average Return on Capital Employed (ROCE) of Selected Tire Dealers
(2011-2015)
2010 2011 2012 2013 2014 5-year average

Point S (France) 0.4% 1.9% 1.6% 2.4% 3.9% 2.0%
Monroe Muffet (USA) 10.7% 14.2% 14.4% 7.8% 9.6% 11.3%
Yellow Hat (Japan) 4.6% 8.1% 7.7% 8.7% 10.6% 8.0%
Autobacs Seven (Japan) 1.7% 3.6% 4.2% 3.8% 5.0% 3.7%
Feu Vert (France) 10.5% 7.8% 8.9% 9.8% -26.0% 2.2%
Exhibit 28
Branding Strategy of Western Tire Manufacturers
Source: financial reports tire companies, IHS, LMC
Exhibit 29
Summer Tires Price Comparison (€ per tire)
Morgan Stanley, Autos & Auto Parts, 19 October 2015
Exhibit 30
Change in Tire Production Landscape (1999-2014)
Note: the graph only illustrates the capacity change of key leading tire companies
Source: financial reports tire companies, IHS, LMC
Exhibit 31
a) Global Production Capacity per Major Tire Manufacturer (2015)
South Africa/
Asia/ Western Eastern North
In number of plants America Middle East Global
Pacific Europe Europe (*) America
(**) (***)
Bridgestone 23 5 3 9 7 3 50
Michelin 7 21 6 11 4 0 49
Goodyear 6 9 2 9 5 3 34
Continental 6 4 5 2 3 1 21
Pirelli 1 6 3 1 8 1 20
Sumitomo 8 6 0 1 1 1 17
Hankook 4 0 1 0 0 0 5
Yokohama 10 0 1 3 0 0 14
Maxxis/Cheng Shin Rubber 10 0 0 0 0 0 10
Apollo 4 1 0 0 0 0 5
Note: Includes capacity available through joint-ventures;
(*) includes Ukraine and Russia; (**) Includes Mexico; (***) Includes turkey
Source: European Rubber Journal, Global Tire Report 2015
b) Michelin Tire Capacity Footprint, 2013 and 2015
Note: Capacity is expressed in KiloTons (KT) of Rubber per plant per year. A capacity of 95-100KT per year
was considered an efficient plant
Source: J.P. Morgan Cazenove, Michelin, 23 May 2016.
c) Michelin Europe: Average Plant Capacity and Effect of Restructuring
Note: The “After Additional Restructuring” columns are estimates by J.P. Morgan Cazenove of the additional
number of plants that need to be restructured to get to an average capacity of 90KT per plant per year.
Source: J.P. Morgan Cazenove, Michelin, 23 May 2016.
Exhibit 32
Top 20 Tire Manufacturers by Sales Value (2006-2014)
Rank 2014
Rank 2012
Rank 2010
Rank 2008
Rank 2006
2014 2012 2010 2008 2006
Tire sales Tire sales Tire sales Tire sales Tire sales
Company
($ million) ($ million) ($ million) ($ million) ($ million)
Bridgestone (Japan) 1 1 1 1 1 26,045 28,575 24,425 23,435 19,400

Michelin (France) 2 2 2 2 2 24,669 26,222 22,515 22,820 19,300
Goodyear (USA) 3 3 3 3 3 16,335 18,900 16,950 18,525 18,000
Continental (Germany) 4 4 4 4 4 11,875 10,895 8,100 8,100 6,800
Pirelli (Italy) 5 6 5 5 5 7,992 7,626.9 6,321 6,003.2 4,996
Sumitomo (Japan) 6 5 6 6 6 6,918 7,763.4 5,850 4,843.9 3,702.7
Hankook (South-Korea) 7 7 8 8 8 6,201 6,259 4,513.1 3,687 3,110
Yokohama (Japan) 8 8 7 7 7 4,703 5,570 4,750.4 3,977 3,185.5
Maxxis/Cheng Shin Rubber (Taiwan) 9 9 10 11 12 4,441 4,630.9 3,356.4 2,541.5 1,481.1
Zhongce Rubber (China) 10 10 11 13 14 4,119 4,557.6 3,226.1 2,126.4 1,082
Giti (Singapore) 11 15 15 14 13 3,474 2,695.9 2,207.5 1,931 1,424
Cooper (USA) 12 11 9 9 9 3,425 4,200.8 3,361 2,881.8 2,676.2
Kumho (South-Korea) 13 12 12 10 10 3,240 3,599.5 3,025.9 2,593.3 2,448
Toyo (Japan) 14 13 13 12 12 2,959 2,867 2,500 2,410 1,867.3
Triangle Goup (China) 15 16 14 15 18 2,870 2,469.8 2,259 1,767 900
MRF (India) 16 14 17 18 17 2,326 2,708.4 1,739.7 1,376.3 903.2
Apollo (India) 17 17 16 20 15 2,085 2,345.8 1,943.4 1 072,5 1,055
Nexen (South-Korea) 18 21 24 24 25 1,826 1,684.0 1,157.4 877.3 590.5
Nokian (Finland) 19 18 20 17 16 1,753 1,865 1,261 1,424 953.0
Shandong Linglong (China) 20 19 18 16 20 1,673 1,824.6 1,428 1,466.8 752.0
Total top 20 138,927 147,261 120 889 113,859 94,626
Total world 171,147 178,528 152 026 140,000 112,500
Note: sales include specialty tires segment (agricultural, aircraft, two-wheel and earthmover)
Source: European Rubber Journal, Global Tire Reports, 2007-2015
Exhibit 33
Market Share Trend per Group of Competitors (2004-2014)
60%
[VALUE]
55%
50%
45%
40% 39,2%
35%
30%
25%
19,5% 22,0%
20%
15%
10% 9,4%
3,9% 6,5%
5%
0% 2,8%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Big Three Second Tier New Asian Majors Chinese Tire Co.
Note: Big Three include Bridgestone, Michelin and Goodyear; Second-Tier include Continental, Pirelli,
Sumitomo, Hankook and Yokohama; New Asian majors include Kumho, Maxxis/Cheng Shin Rubber and Giti;
Chinese Tire Co. include Zhongce Rubber, Triangle Group, Shandong Linglong, Xingyuan Tire, Double Coin,
Aeolus, Shandong Hengfeng and Sailun;
Source: LMC International, August 2015, European Rubber Journal, INSEAD Analysis
Exhibit 34
Global Tire Revenue Market Share
70%
4,6% 4,9%
60% 1,4% 4,7%
4,1% 1,5%
4,8% 1,7% 10,6% 12,1% 13,2% 13,8% 14,8% 15,3%
5,5% 9,1%
5,5% 2,1%
50% 5,3% 2,3%
2,7% 2,9% 3,0% 3,2%
5,1%
5,5% 5,7% 6,1% 3,3% 3,3%
17,8% 17,3% 6,5% 6,8% 6,6%
40% 16,0% 14,7%
13,1% 12,4%
11,1% 11,7% 10,6% 9,9% 9,5%
30% 18,1% 18,2%
17,2% 16,7% 16,7% 16,2%
16,1% 16,2% 16,0% 15,4% 15,2%
20%
10% 19,3% 17,7% 17,2% 16,9% 16,3% 15,5%

14,8% 15,6% 14,7% 14,4% 14,4%
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Michelin Bridgestone Goodyear
South-Korean tire makers Taiwanese tire makers Chinese tire makers
Note: South-Korean tire makers include Hankook, Kumho and Nexen; Taiwanese tire makers include
Maxxis/Cheng Shin Rubber and Kenda Rubber; Chinese tire makers include companies ranked in the top 75
global tire league only
Source: LMC International, August 2015, European Rubber Journal, INSEAD Analysis
Exhibit 35
Global Premium Car Sales Ranking (in thousand units)
Source: McKinsey & Company, Upward Mobility: The Future of China’s Premium Car Market, March 2013
Exhibit 36
Percentage of Premium/Luxury Cars as a Portion of All Car Sales
Source: Barclays, China Automobile Industry - Fight for the middle-ground, 7 May 2014
Exhibit 37
Market Share by OEM in Premium Markets (based on registration)
Exhibit 38
SUV Sales as a % of Total Car Sales
Exhibit 39
Chinese Car Sales by Segment (2008-2017)
In thousand units
30 000 12%
25 000 10%
20 000 8%
15 000 6%
10 000 4%
5 000 2%
0 0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Sedan MPV SUV Premium as a % of sales (RHS)
Sources: Macquarie Equities Research, Global tire report – Conquering new earnings highs, 22 April 2013;
Barclays, China Automobile Industry - Fight for the middle-ground, 7 May 2014; Macquarie Equities Research,
China auto market – revising up 2016 growth estimates, 4 February 2016; INSEAD Analysis
Exhibit 40
Market Share of SUV by OEM
Source: HSBC Global Research, China Autos – Hit the brakes – not the brick wall, 25 February 2016
Exhibit 41
Share of Global Premium Tires* (in volume) by Region (2013)
(*) tires of 17” and above
Source: HSBC Global Research, European Tire Manufacturers – wheels keep on turning and earning,
20 July 2015
Exhibit 42
Car Tire Sizes as a % of Tire Sales in China (2009-2024)
Source: Deutsche Bank, Postcard from Shenyang (2), 18 November 2014
Exhibit 43
Commercial Vehicle Market Shares by Country and Region (2001-2012)
Source: Macquarie Equities Research, The Asian truck market – Global growth engine, 6 January 2014
Exhibit 44
Share of Foreign Truck OEMs in Domestic Truck Sales (2014)
Exhibit 45
Truck OEMs Market Shares in China (2012)
Exhibit 46
Light and Medium Truck OEMs Market Share in China (2012)
Exhibit 47
Chinese Commercial Vehicle Sales by Segment (2008-2017)
In thousand units
8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Heavy truck Medium truck Light truck buses
Sources: Macquarie Equities Research, Global tire report – Conquering new earnings highs, 22 April 2013;
Barclays, China Automobile Industry - Fight for the middle-ground, 7 May 2014; Macquarie Equities Research,
China auto market – revising up 2016 growth estimates, 4 February 2016; INSEAD Analysis
Exhibit 48
Market Share of Leading Bus Manufacturers in China (2010-2015)
Source: Macquarie Equities Research, China bus market – A tale of two companies, 24 February 2016
Exhibit 49
Vehicle Tire Market Forecasts in China (2016-2018)
In thousand units 2016 2017 2018 CAGR 2016-2018

Car OE 111,580 119,640 129,345 7.7%
Car RT 86,522 103,176 125,498 20.4%
CV OE 31,220 31,990 33,570 3.7%
CV RT 100,711 103,888 110,700 4.8%
Total OE 142,800 151,630 162,915 6.8%
Total RT 187,233 207,064 236,198 12.3%
Total 330,033 358,694 399,113 10.0%
Sources: Deutsche Bank, China auto sector, 28 June 2012; Macquarie Equities Research, Hunting stocks -
Snowballing Chinese tire market, 15 March 2013; Deutsche Bank, China auto sector, 27 November 2015;
Macquarie Equities Research, China auto market – revising up 2016 growth estimates, 4 February 2016;
INSEAD Analysis
Exhibit 50
Chinese Car Tire Market Share Estimates (2012)
Source: Macquarie Equities Research, Hunting stocks - Snowballing Chinese tire market, 15 March 2013
Exhibit 51
Chinese Car Tire Market Share (in volume) by Group of Competitors (2014)
Note: Tier 1 includes Bridgestone, Continental, Goodyear, Michelin and Pirelli; Tier 2 includes Cheng Shin/Maxxis,
Hankook, Kumho, Toyo, Yokohama; Tier 3 includes Cooper Chengshan, Double Coin, Double Star, Giti, Shandong
Linglong, Triangle and Zhongce Rubber
Exhibit 52
OEMs’ OE Tire Sources (2011)
Source: Macquarie Equities Research, Hunting stocks - Snowballing Chinese tire market, 15 March 2013
Exhibit 53
Number of Tire Manufacturers in China (2000-2011)
Source: Barclays, Cheng Shin Rubber Industry Co. – Riding on the secular growth trend, 9 July 2012
Exhibit 54
Number of Loss-making Tire Manufacturers in China (2000-2011)
Source: Barclays, Cheng Shin Rubber Industry Co. – Riding on the secular growth trend, 9 July 2012
Exhibit 55
Regional Supply-Demand in the North America, South America, Europe and China
(2010 and 2015, millions of units)
2010 US EU Japan China India

Exports 73 47.1 70 173 5.1
Imports 198 106.2 24.2 9.4 13.2
Net exports* -125 -59.1 45.8 163.6 -8.1
Domestic demand 267.9 345.65 111.6 216.55 36.7
Production** 142.9 286.55 157.4 380.15 28.6
Capacity 254 347.8 179.7 538.8 51.8
2015 US EU Japan China India

Exports 77.5 68.1 48.4 233.1 4.9
Imports 247.2 121.2 22.8 10.6 14.7
Net exports* -169.7 -53.1 25.6 222.5 -9.8
Domestic demand 310.2 355.4 126.4 309.2 48.8
Production** 140.5 302.3 152 531.7 39
Capacity 268.6 360.6 176.3 1025.1 83.6
(*) Or balance of trade calculated as Exports - Imports
(**) Calculated as Demand + Exports - Imports
Sources: LMC International, European Rubber Journal
Exhibit 56
Car Tire Production Capacity per Major Tire Maker in China (2014)
Source: Morgan Stanley, Autos & Auto Parts – Tires: not clear a defensive play, 19 October 2015
Exhibit 57
Car Tire Production Capacity in China by Group of Competitors (2014-2018)
Note: Tier 1 includes Bridgestone, Continental, Goodyear, Michelin and Pirelli; Tier 2 includes Cheng
Shin/Maxxis, Hankook, Kumho, Toyo, Yokohama; Tier 3 includes Cooper Chengshan, Double Coin, Double
Star, Giti, Shandong Linglong, Triangle and Zhongce Rubber
Exhibit 58
Truck Tire Production Capacity in China by Group of Competitors (2014-2018)
Note: Tier 1 includes Bridgestone, Goodyear, Michelin and Pirelli

Exhibit 59
Truck Tire Production Capacity per Major Tire Maker in China (2014)
Source: Morgan Stanley, Autos & Auto Parts – Tires: not clear a defensive play, 19 October 2015
Exhibit 60
Chinese Truck Tire Market Share (in volume) by Group of Competitors (2014)
Note: Tier 1 includes Bridgestone, Goodyear, Michelin and Pirelli

Exhibit 61
Chinese Truck Tire Market Share (2014)
Source: China Rubber Industry Association (CRIA)
Exhibit 62
Tire Manufacturers’ Retail Outlets in China (2014)
Premium Specialty Store Premium General Store Other retail networks Total
Michelin 880 (1) 1,150 (4) 5,770 (*) 7,800

Bridgestone 2,400 (2) 330 (5) 3,700 (*) 6,430
Continental - 20 (6) 3,980 (*) 4,000
Hankook 1,260 (3) 40 (7) 1,000 (8) 2,300
Total 4,540 1,540 14,450 20,530
(1) Michelin Tire Service Centers (company-owned retail outlets)

(2) Bridgestone Tire Shops (company-owned retail outlets)
(3) Tire Town (franchise/multi-brand retail outlets)
(4) TyrePlus (franchise/multi-brand retail outlets)
(5) Car wings (franchise/multi-brand retail outlets)
(6) Best Drive (franchise/multi-brand retail outlets)
(7) T-Station (franchise/multi-brand retail outlets)
(8) The Tire Shop (franchise/multi-brand retail outlets)
(*) Independent tire dealerships
Source: Adapted from Michelin investor day, Shenyang, China, Bruno de Feraudy presentation,
10 November 2014
Exhibit 63
Chinese Distributor/Dealer Profit Margin per Tire Maker (2013)
Distributor rebate Distributor profit margin (net) Dealer profit margin (net)
Michelin 1% 4% 9%
Bridgestone 1% 5% 10%
Goodyear 1% 2% 10%
Hankook 1% 2% 5%
Cheng Shin Rubber/Maxxis 3% 6% 9%
Zhongce Rubber 2% 4% 7%
Triangle 1% 4% 10%
Shandong Linglong 4% 3% 10%
Note: distributor rebate = rebate received from tire makers

Source: Adapted from Macquarie Equities Research, Hunting stocks - Snowballing Chinese tire market, 15
March 2013
Exhibit 64
a) Tire Manufacturers Market Shares in the US (2009/2014)
Big Three Car RT

2009 2014
(1)
Michelin 16.5% 15.0%
(2)
Bridgestone 15.0% 16.5%
(3)
Goodyear 17.5% 15.5%
CV RT
2009 2014
(1)
Michelin 19.6% 18.4%
(2)
Bridgestone 18.3% 18.6%
(3)
Goodyear 18.2% 15.2%
Second Tier Car RT
2009 2014
(4)
Continental 5.5% 6.5%
Pirelli 1.5% 2.5%
Sumitomo 1.0% 1.5%
Hankook 4.0% 4.0%
Yokohama 2.5% 4.0%
CV RT
2009 2014
Continental 5.4% 6.8%
Pirelli 1.5% 2.5%
Sumitomo 2.5% 1.0%
Hankook 2.8% 3.3%
Yokohama 3.9% 5.9%
New Asian Majors Car RT
2009 2014
Kumho 3.0% 2.0%
Cheng Shin/Maxxis < 1% < 1%
Giti < 1% 1.5%
CV RT
2009 2014
Kumho 2.1% 1.6%
Cheng Shin/Maxxis 1.0% 1.5%
Giti < 1% 1.0%
Chinese Tire Co. Car RT
2009 2014
Hangzhou Zhongce < 1% < 1%
Triangle Group < 1% < 1%
Shandong Linglong < 1% < 1%
Double Coin < 1% < 1%
CV RT
2009 2014
Hangzhou Zhongce < 1% < 1%
Triangle Group < 1% < 1%
Shandong Linglong < 1% < 1%
Double Coin < 1% < 1%
Note: CV RT includes Light Commercial Vehicle tires and Medium/Heavy truck tires
(1) Includes Michelin, Uniroyal and BF Goodrich brands only; (2) Includes Bridgestone, Firestone, and Fuzion brand
tires only; (3) Includes Goodyear, Dunlop and Kelly brand tires only; (4) Includes Continental and General Tire (GT)
brands only;
Sources: Modern Tire Dealer Facts Issue 2010/2015; J.P. Morgan, Monthly Tire Review, February 2016
b) Tire Manufacturers Market Shares (in units) in the EU (2003/2015)
Cars RE 2013 2014 2015
Bridgestone 8.7% 7.9% 8.1%
Continental 17.2% 16.7% 15.8%
Goodyear/Dunlop 16.9% 15.9% 15.7%
Michelin 21.1% 21.4% 21.7%
Pirelli 7.2% 7.6% 7.7%
Hankook 4.4% 4.4% 4.9%
Cars OE 2013 2014 2015
Bridgestone 15.0% 14.3% 14.2%
Continental 35.0% 33.0% 29.2%
Goodyear/Dunlop 14.0% 15.0% 18.4%
Michelin 20.0% 20.0% 21.8%
Pirelli 9.0% 9.0% 8.4%
Hankook 6.0% 7.0% 5.8%
Trucks RE 2013 2014 2015
Bridgestone na 14.9% 15.0%
Continental na 14.5% 13.9%
Goodyear/Dunlop na 17.6% 17.2%
Michelin na 23.1% 22.6%
Pirelli na 5.0% 4.8%
Hankook na 7.4% 7.4%
Trucks OE 2013 2014 2015
Bridgestone na na 13.8%
Continental na na 21.0%
Goodyear/Dunlop na na 25.2%
Michelin na na 36.8%
Pirelli na na -
Hankook na na -
Cars: cars, SUV's and light trucks; Trucks: trucks and busses.
Source: Bridgestone
Exhibit 65
Stock market performance of Michelin, Bridgestone, Goodyear and Pirelli
(2005-2015)
Base 100
300%
250%
200%
150%
100%
50%
0%
-50%
Michelin Bridgestone Goodyear S&P 500 PIRELLI
Source: S&P Capital IQ
Exhibit 66
Estimate of Michelin’s EBIT Margin of Passenger Tire Sales as a Function of the Share
of Premium Tire Sales ( >17”) in Total Michelin Passenger Tire Sales
Source: J.P. Morgan Cazenove, Michelin, 23 May 2016. Note: SR1 is the notation of Michelin for their
Passenger Tires
Exhibit 67
Michelin: Balance Sheet (2011-2015)
Year-end December ($ million) 2011 2012 2013 2014 2015
ASSETS
Cash And Equivalents 2069.5 2449.7 2152.4 1412.5 1685.5
Short Term Investments 432.6 - - - -
Trading Asset Securities - 388.9 683.0 378.8 222.6
Total Cash & ST Investments (A) 2502.1 2838.6 2835.5 1791.4 1908.2
Accounts Receivable 3994.8 3694.3 3466.2 3242.7 3125.7

Other Receivables 445.5 419.2 480.6 674.2 695.0
Notes Receivable 33.7 73.8 59.2 62.9 21.7
Total Receivables (B) 4474.1 4187.4 4006.0 3979.9 3842.5
Inventory (C) 5978.5 5823.7 5479.5 5087.4 4658.1

Other Current Assets (D) 449.4 537.9 527.4 378.8 407.2
Total Current Assets (A+B+C+D) 13404.3 13387.8 12848.5 11237.6 10816.1
Gross Property, Plant & Equipment 25692.7 27640.5 29791.3 29014.1 27688.2
Accumulated Depreciation -15 444,00 -16329.4 -17459.2 -16811.7 -16249.8
Net Property, Plant & Equipment 10248.7 11311.2 12332.1 12202.3 11438.5
Long-term Investments 479.3 557.7 516.4 439.3 623.4

Goodwill 539.1 545.8 534.3 1010.7 872.1
Other Intangibles 506.6 531.3 621.0 728.6 674.4
Loans Receivable Long-Term 181.8 93.6 90.8 73.8 77.1
Deferred Tax Assets, LT 1756.4 1988.2 1451.4 1399.2 1367.3
Other Long-Term Assets 19.4 10.5 86.7 58.1 80.3
TOTAL ASSETS 27136.0 28426.3 28481.7 27150.0 25949.4
LIABILITIES
Accounts Payable 2629.4 2625.0 2712.9 2616.9 2556.6
Accrued Exp. 1235.4 1215.6 1149.9 1040.9 1016.5
Short-term Borrowings - 515.5 267.1 507.1 230.2
Curr. Port. of LT Debt 1713.5 1149.7 897.8 360.7 347.5
Curr. Port. of Cap. Leases 14.2 14.5 13.7 10.8 17.3
Curr. Income Taxes Payable 118.2 127.8 119.8 174.3 136.8
Other Current Liabilities 1565.4 1520.2 1527.2 1471.8 1364.1
Total Current Liabilities (A) 7276.3 7168.5 6688.7 6182.8 5669.2
Long-Term Debt (B) 3098.4 2586.8 1925.2 1885.8 2544.6

Capital Leases (C) 94.8 80.4 67.4 76.2 109.6
Unearned Revenue, Non-Current (D) 335.1 - - - -
Pension & Other Post-Retire. Benefits
4969.1 6095.3 5363.9 5582.5 5308.7
(E)
Def. Tax Liability, Non-Curr. (F) 102.6 114.7 59.2 114.9 128.1
Other Non-Current Liabilities (G) 735.3 1127.2 1630.5 1786.6 1825.6
Total Liabilities (A+B+C+D+E+F+G) 16611.8 17173.1 15735.0 15629.1 15586.2
Common Stock 467.6 481.2 512.2 449.0 395.3
Additional Paid In Capital 4411.8 4625.2 5014.1 4358.7 3499.3
Retained Earnings 5248.4 5972.7 7545.2 6817.1 6615.2
Comprehensive Inc. and Other 393.6 171.4 -333.3 -118.6 -204.2
Total Common Equity 10521.5 11250.5 12738.4 11506.3 10305.7
Minority Interest 2.5 2.6 8.2 14.5 57.5
Total Equity 10524.1 11253.2 12746.6 11520.9 10363.2
TOTAL LIABILITIES & EQUITIES 27136.0 28426.3 28481.7 27150.0 25949.4
Exchange Rates €/$ (year-end rates) 1.299 1.318 1.377 1.21 1.086
Exhibit 68
Michelin: Income Statement (2011-2015)
Revenue 26916.5 28313.0 27882.6 23667.6 23023.6

Total Revenue 21 619.1 24 630.9 22 927.4 21 221.1 23 990.6
Cost Of Goods Sold 19254.3 19466.0 19060.8 16097.5 15463.4

Gross Profit (A) 7662.2 8846.9 8821.8 7570.0 7560.1
Selling General & Admin Exp. 4322.1 4892.8 5022.3 4347.8 4102.0
Stock-Based Compensation 9.0 9.2 15.1 8.4 9.7
R & D Exp. 769.0 820.0 885.4 794.0 748.3
Other Operating Expense/(Income) 70.1 48.7 63.3 -41.2 51.0
Other Operating Exp., Total (B) 5170.5 5770.9 5986.3 5109.2 4911.2
Operating Income (A-B) 2491.7 3076.0 2835.5 2460.8 2648.9
Interest Expense -302.7 -220.2 (157,0) -152.5 -218.3

Interest and Invest. Income 27.2 29.0 15.1 15.7 9.7
Net Interest Exp. -275.4 -191.2 -141.8 -136.8 -208.5
Income/(Loss) from Affiliates 27.2 19.7 -1.4 -15.7 18.4

Currency Exchange Gains (Loss) -16.9 1.3 -6.9 -16.9 -7.6
Other Non-Operating Inc. (Exp.) -1.3 -43.5 -1.4 -55.7
EBT Excl. Unusual Items 2225.3 2862.4 2684.0 2235.6 0
2451.2
-87.0 -314.0
Restructuring Charges 2.5 -163.4 -398.6
(87,0) (314,0)
Gain (Loss) On Sale Of Invest. 332.5 - - - -

Gain (Loss) On Sale Of Assets 18.1 - - - -
Asset Writedown 14.2 -19.8 -2.8 -6.1 -22.8
Other Unusual Items - 127.8 -23.4 -67.8 -
EBT Incl. Unusual Items 2593.0 2883.5 2343.8 1998.4 2029.8
Income Tax Expense 693.7 917.6 791.8 750.4 766.7

Effective Tax Rate (%) 26.8 31.8 33.8 37.6 37.8
Net Income to Company 1899.3 1965.8 1552.0 1247.9 1263.1
Minority Int. in Earnings - -1.3 - - 5.4

NET INCOME 1899.3 1964.5 1552.0 1247.9 1268.5
Exhibit 69
Michelin: Revenues and Income by Business Segments (2011-2015)

Revenues by business segment
Car and Light Truck Tires 14004.5 14632.4 14725.6 12707.1 13063.2
Truck Tires 8727.5 8881.2 8848.0 7361.8 6765.1
Specialty Tires (Mining, agriculture, etc) 4184.4 4799.2 4309.0 3598.6 3195.2
Total Revenues 26916.5 28313.0 27882.6 23667.6 23023.6
Income by business segment
Car and Light Truck Tires 1018 1033 1090 1010 1384
Truck tires 233 444 503 495 645
Specialty tires (Mining, agriculture, etc) 694 946 645 574 548
Total Income 1945 2423 2238 2079 2577
Source: Michelin Annual Reports
Michelin: Revenues by Geographic Segments (2011-2015)

Revenues by geographic segment
Europe 11473.8 11205.7 11282.7 9671.3 8909.0
North America 9018.5 10211.6 9683.9 8331.4 8779.7
Other 6424.1 6895.6 6915.9 5664.8 5334.7
Total Revenues 26916.5 28313.0 27882.6 23667.6 23023.6
Exhibit 70
Michelin: Key Metrics (2011-2015)
2011 2012 2013 2014 2015

Valuation Summary ($ million)
Market Capitalization 12 514.1 15 897.6 22 990.5 17 378.2 17 399.7
Total Enterprise Value 15 001.9 17 366.4 23 334.8 18 442.2 18 798.5
Key Financial Ratios (%)
Return on Capital Employed 9.2 9.9 8.6 7.3 8.1
Debt-to-Capital 31.9 27.9 19.9 19.8 23.9
Gross Margin 28.5 31.2 31.6 32.0 32.8
Operating Margin 9.3 10.9 10.2 10.4 11.5
Inventory/Total Revenue 22.2 20.6 19.7 21.5 20.2
Capital Expenditures/Total Revenue 8.1 8.9 9.7 9.4 8.4
R&D-to-Sales 2.9 2.9 3.2 3.4 3.3
Sales & Marketing-to-Sales 9.4 9.6 9.7 9.4 9.1
Source: S&P Capital IQ, Michelin Annual Reports /INSEAD Analysis
APPENDIX
Production Process
Although manufacturing a tire involves complex operations (see Figure 1 for a simplified tire
production flow chart), production can be summarized as a 4-stage process:
Mixing
A tire is made up of various raw materials mixed together into a machine called a Banbury mixer to
obtain a homogenized batch of black material with the consistency of gum. The two major ingredients
used in the mixing operation are rubber and filler which, combined, offer different characteristics
depending on the intended use of the tire (i.e. optimize performance, maximize traction in both wet
and dry conditions, achieve superior rolling resistance, etc.). The mixing process is typically a batch
operation which was computer-controlled to assure uniformity and avoid damage such as scorching, as
the mixing temperature can exceed 170 degrees Celsius. Once the mixing is completed the
compounded materials are sent to other machines for further processing into the sidewalls, treads or
other parts of the tire.
Assembly
All tire components – bead assemblies, calendered plies, belts and innerliner, tread and sidewall
sections – are machine assembled. The first component to go on the tire building machine is the
innerliner, a special rubber that is resistant to air and moisture penetration, which is wrapped around a
drum. Then comes the body plies, often made from polyester, which are wrapped on top. The bead
assemblies are then positioned and a bladder on the drum is inflated and pushed in from both ends of
the drum, forcing the body plies to turn up to cover the bead assemblies. The sidewall sections are
pressed onto both sides. The building process is completed by applying the belts, nylon cap and tread
on top to give the tire strength and flexibility. The end result is called a “green” or uncured tire
because there is no tread on it.
Curing
The curing operation consists of a series of chemical reactions during which the sidewalls and tread
details of the tire are shaped. The “green” tire is placed inside a mould at a high temperature and
pressured for several minutes to bond the components and cure the rubber. This vulcanization process
can take up to at a day for off-road and large tires because of their size.
Inspection
Once the tire is cured it was then inspected to ensure quality in both performance and safety. Controls
include visual inspection to spot obvious defects, tire durability and weight balance inspection as well
as x-ray examination to check the tire’s internal structure. Some tires are taken randomly and run on
test wheels or road-tested to evaluate handling, mileage and traction performance.
Figure 1
Simplified Tire Production Flow Chart

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Michelin in China in 2016

History of the Tire Industry

3 India Rubber, Gutta-Percha & Telegraph Works Co Ltd

The Rise of China

5 European Rubber Journal, Global Tire Report, December 2006

The Global Tire Market

Cars vs. Commercial Vehicles

Research and Development

13 J.P. Morgan, Monthly Tire Review, January 2016

Marketing and Sales

The Second Tier

29 Morgan Stanley, Michelin, 1 June 2016

The New Asian Majors

The Chinese Tire Companies

Michelin & Cie

Restructuring the Company

In 1995, Michelin launched a wide-ranging reorganization. Its highly centralized structure

The reorganization followed a period of intense restructuring of its Uniroyal-Goodrich

42 “Michelin - La révolution culturelle”, Le Monde, 12 February 2011

The Beginning of a New Era

44 S&P Capital, INSEAD Analysis

Sénard’s priorities were to pursue expansion in emerging markets, increase the

46 Thomson-Reuters, July 29 2011.

Market Development in China

53 Thomson Reuters Streetevents, Michelin, 28 July 2015

62 Macquarie Research, Hunting Stocks, 15 March 2013, p. 41

Outlook for Michelin

64 Michelin accelerates for network expansion, China Daily, 26 May 2014

Source: LMC International, World Tire Forecast Service, August 2015

Exports' share of production (%)

Source: LMC International, World Tire Forecast Service, August 2015

Source: European Rubber Journal, INSEAD Analysis

Source: LMC International, World Tire Forecast Service, August 2015

Source: LMC International, World Tire Forecast Service, August 2015

Source: LMC International, World Tire Forecast Service, August 2015

Source: LMC International, World Tire Forecast Service, August 2015

Source: LMC International, World Tire Forecast Service, August 2015

Source: LMC International, World Tire Forecast Service, August 2015

Source: Company Annual Report, INSEAD Analysis

Source: J.P. Morgan, Monthly Tire Review, January 2016

(1) before non-recurring items

Source: Company Annual Report

Bridgestone 6.9% 8.9% 10.9% 10.4% 10.8% 9.6%

Source: S&P Capital IQ, Company Annual Reports, INSEAD Analysis

2008 2011 2015

Share Top 10 Share Top 10 Share Top 10

Bridgestone 33.6 2.9 33.6 2.8 26.1 2.5

2011 2012 2013 2014 2015 5-year average

Source: S&P Capital IQ, Company Annual Reports, INSEAD Analysis

Toyota (Japan) 1 1 10,475,338 7,234,439

Source: International Organization of Motor Vehicle Manufacturers (OICA)

b) Market shares of the Top Manufacturers in cars and large trucks

2011 2012 2013 2014 2015 5-year average

Source: S&P Capital IQ, Company Annual Reports, INSEAD Analysis

2010 2011 2012 2013 2014 5-year average

Source: S&P Capital IQ, Company Annual Reports, INSEAD Analysis

Source: financial reports tire companies, IHS, LMC

Morgan Stanley, Autos & Auto Parts, 19 October 2015

b) Michelin Tire Capacity Footprint, 2013 and 2015