Although the three domestic tire makers are expected to see higher sales this year, their operating profit is forecast to decline. It is because they were hit directly by tariffs in the United States, which had been considered a "core" market. The tire industry is moving to restore profitability by expanding production capacity at U.S. and European plants and targeting high-margin, high-inch and electric-vehicle tires.
According to brokerage forecasts compiled by FnGuide on the 25th, the combined sales of the three tire makers this year were estimated at 29.0178 trillion won, up 72.8% from a year earlier. In contrast, their operating profit over the same period is expected to fall 1.2% to 2.4928 trillion won from 2.523 trillion won. Operating profit is not keeping pace with sales growth.
The picture is similar by company. At Hankook Tire & Technology, sales are projected to surge 124.6% from 9.4119 trillion won last year to 21.1358 trillion won this year, but operating profit is estimated to rise only 1.6%, from 1.7623 trillion won to 1.7899 trillion won.
However, since Hanon Systems was consolidated into Hankook Tire's results starting this year, the tire institutional sector needs to be viewed separately. According to Hankook Tire, cumulative sales and operating profit for the tire institutional sector in the first to third quarters this year came to 7.5648 trillion won and 1.1991 trillion won, respectively. Sales rose 9.9% from a year earlier, but operating profit fell 7.0%. The trend is expected to be similar even when including the fourth quarter.
Separately, Kumho Tire is forecast to see sales rise 4.6% but operating profit fall 9.8%, while Nexen Tire is expected to post a 10.4% increase in sales and a 0.1% decrease in operating profit.
The biggest factor that crushed the profitability of Korea's tire industry was the 25% tariff imposed on auto parts by the Donald Trump administration in the United States early this year. Europe is the industry's largest sales market, but profit relies more on the U.S. Unlike Europe, where small and midsize cars are mostly used, the U.S. has relatively more large vehicles such as pickup trucks and sport utility vehicles (SUVs) that use larger tires. The share of sales from high-margin, 18-inch-and-above tires is around 20% to 30% in Europe, but reaches 50% in the U.S.
An industry official said, "After tariffs were imposed, the industry broadly raised selling prices, but even that was around 10%, which did not offset the 25% tariff, and the situation has been the same even after the tariff was lowered to 15%," adding, "Because the distribution structure is complex, it is also taking time for the actual price increase to be reflected." Another industry official noted, "This year, other expense items such as materials and supplies and freight were stable, and business conditions were not bad," and said, "Even if inventory had been secured before the tariffs, the tariff impact was felt in full for at least one quarter."
Company-specific setbacks also followed. At Kumho Tire, a fire broke out in May at the Gwangju plant, which accounted for about 40% of nationwide production, causing major production disruptions. Partial production resumed only last month, six months after the fire. The Gwangju plant is scheduled to transfer to Hampyeong, South Jeolla, by 2027, and a total of 660.9 billion won will be invested in the first-phase construction alone. At Hankook Tire, the entire group has been shaken since May, when Cho Hyun-bum, chairman of Hankook & Company and the group's chief, was arrested on charges of embezzlement and breach of trust.
The tire industry plans to lift profitability by expanding overseas production. Hankook Tire is finishing the expansion of its Tennessee plant in the United States. Once mass production is in full swing, annual output there will climb to 12 million units, more than double the previous level. At its Hungary plant, the company is expanding a large truck and bus tire line with annual capacity of 800,000 units, targeting completion in 2027.
Kumho Tire recently finalized construction of a new plant in Poland, and Nexen Tire has completed all expansion work to add annual production of 5.5 million tires at its Czech plant. The goal is to raise the operating rate to 100% by early next year.
In particular, rising electric-vehicle sales in Europe are an opportunity for the tire industry. According to the European Automobile Manufacturers' Association (ACEA), EV sales in Europe from January to October this year rose 26.2% from a year earlier to 2,022,173 units, marking the fastest pace on record. The replacement cycle for internal-combustion-engine car tires is four to five years, but for EVs, which are heavier and have stronger acceleration, it is three to four years. In addition, the fact that EV tires start at 19 inches by default is another factor that boosts profitability.
An industry official said, "In the initial stages of plant expansion and construction, facility investment and labor costs must be spent and operating rates are low, so profitability is not good," but added, "Once operating rates rise, tariffs and logistics expenses can be reduced, which will help secure profitability."