French tyre maker Michelin which is also the World’s No 1 tyre manufacturer has decided to handover Russian activities to a new entity under local management by the end of the year and rival Nokian Tyres said it would quit the country, the first Western tyre makers to give up doing business in Russia.
Michelin is the latest foreign firm to exit the country following Moscow’s invasion of Ukraine. Hundreds of Western companies ranging from furniture store Ikea to fast-food chain McDonald’s and sports retailer Nike have left Russia since the war in Ukraine erupted in late February and sanctions were imposed on Moscow.
The French company, whose Western rivals in Russia include Italy’s Pirelli and Germany’s Continental AG, said it had become impossible to resume output owing to supply chain problems related to the sanctions against Moscow. Michelin cited supply chain problems as the main reason behind its decision to give up business in Russia.
“After suspending its manufacturing activities in Russia on 15 March, Michelin now confirms that it is technically impossible to resume production, due in particular to supply issues, amid a context of general uncertainty,” the tyre company said in a statement.
“The group is therefore compelled to plan the transfer of all of its Russian operations by the end of 2022.”
Later in the day, Nokian announced plans for a “controlled exit” from Russia, home to its largest production plant. The company said it would evaluate different options and incur impairments of about 300 million euros in the second quarter. It didn’t give further details. It has over 1,600 employees there.
The tyre industry has been hit hard by Western sanctions on Russia, which have cut off supplies of critical raw materials and shuttered factories that supply customers outside Russia. Nokian has scrambled to increase capacity at its factories in Finland and the United States to make up for the closure of its Russian plant and is investing in new capacity in Europe. It did not provide further details.
In 2021, about 80% of its passenger car tires were produced in Russia. Until Russia invaded Ukraine, nearly 30% of Michelin’s carbon black – used to strengthen rubber in tyres – was sourced from Eastern Europe.
Michelin’s sales in Russia represent 2% of group sales and 1% of its global car tyre output, the company said.
Michelin Russia employs approximately 1,000 people, including 750 at the Davydovo plant, located about 100 km (62 miles) from Moscow. The site has an annual production capacity of 1.5 million to 2 million tyres, mainly for passenger cars.
The company said it had a balance sheet exposure of 250 million euros ($265 million) from Russian operations, adding that the transfer would not impact its financial guidance.
Italy’s Pirelli has halted investment in Russia and has progressively limited activities at its plants there. About 10% of its global tyre output is produced in two Russian factories, which accounts for around 3% of Pirelli’s revenues and around 11% of its total car tyre capacity, especially in the standard segment, with about half of that intended for export.
Earlier on March 17, Pirelli halted all its investment in Russia excluding those linked to security. To mitigate the Russian impact Pirelli said it had sought alternative suppliers, increased stocks and shifted its production of standard tyres for European export to low cost plants in Romania and Turkey.
Pirelli has also taken measures to include a new credit line with a local bank to ensure financial continuity for its operations in Russia and diversification of logistic service providers.
Foreign companies seeking to exit Russia over the war in Ukraine also face the prospect of a new law being passed in the coming weeks to allow Moscow to seize assets and impose criminal penalties.