Nexen Tire in dilemma over Czech plant

Nexen Tire's Zatec plant in Czech Republic / Courtesy of Nexen Tire

By Kwak Yeon-soo

Nexen Tire is in a dilemma over its plant in the Czech Republic as it faces a range of difficulties in setting up its presence in Europe amid falling car sales on the continent, according to industry analysts, Thursday.

Korea's third-largest tire manufacturer broke ground on the $1.1 billion project in 2015 and began its commercial operation in mid-April of this year, with an aim to boost manufacturing capacity and strengthen its position in Europe.

However, the tire demand in Europe has been slowing down, increasing market uncertainties.

“Nexen Tire faces steep initial costs and the tire demand in the European market seems not too good,” said Kim Joon-sung, an analyst at Meritz Securities. “Weak tire sales figures are weighing on the plant.”

According to the European Tyre & Rubber Manufacturers' Association, replacement consumer tire sales fell 3 percent in the first quarter of 2019.

Meanwhile, passenger car registrations fell by 3.3 percent in this year's first quarter, the European Automobile Manufacturers' Association said.

“The Czech plant will likely face growing challenges related to distribution channels, fixed costs and inventory adjustments until the second or third year of its operation, when it reaches stable production,” said Chang Moon-su, an analyst at Hyundai Motor Securities.

Nexen Tire Chairman Kang Byeong-joong

Nexen Tire admitted the commercial operation of the Czech plant was delayed, but showed confidence plant operations will normalize and reach its maximum production.

“We did start the commercial operation a month later than expected, but we aren't discussing production adjustment at the moment. The facilities are all set to reach the production capacity of about 3 million,” a Nexen Tire official said.

The company said it plans to increase the facility's production capacity gradually to more than 12 million tires a year.

Regarding the soft demand for tires in Europe, the official said it is a general issue applicable to the entire sector.

“It's true the European tire market has been declining this year. But the North American market is recovering from its bottom line,” the official said. “We decided to make inroads into Europe to supply original equipment tires for global car manufacturers and we're confident about meeting our production target.”

The company explained that initial costs are essential in the early stages of operating a new plant, saying the situation will improve over time.

The Zatec plant in the Czech Repubic is Nexen Tire's second manufacturing plant outside Korea. The other one is located in Qingdao, China.