FORT MILL, S.C. — The war in Ukraine has had a profound effect on many segments of the economy, including the tire industry, as Russia is a major producer of both oil and carbon black.

One of those affected is Continental A.G., which initially idled production at its tire plant in Kaluga, Russia, but the company since has resumed production, temporarily at least, to serve the local market.

Continental Tire the Americas CEO Jochen Etzel told Tire Business the company opted to resume production to fulfill its duty to its Russian employees. Etzel said business in Russia and Ukraine accounts for less than 1% of Conti's sales revenue.

Etzel discussed other factors that impacted Continental's business this year.

How would you describe business thus far in 2022?

Demand remains strong across all tire segments, including passenger/light truck tires, bicycle and motorcycle tires, commercial vehicle tires, and specialty tires such as earthmover, material handling, port operations and agriculture.

However, demand on the consumer side has tapered off a bit compared to the unique highs in 2021, while on the commercial fleet side, we continue to see growth, including in retread. Across all segments, we maintain a high level of collaboration with our customers to manage together through what remains a very dynamic environment.

How has the pandemic changed how you do business?

We are adapting our communication to embrace a hybrid approach, capitalizing on the efficiency of digital while strengthening relationships via in-person engagement.

We continue to build our online tools and digital platforms, which enable immediate communication, while also returning to pre-pandemic levels of in-person activities, as are our dealers. We believe that face-to-face engagement is a vital element in keeping a strong relationship with customers, and we will continue to make this a pillar of our communication method.

Has there been any improvement with the supply chain?

The global supply-chain environment remains challenging. Container shortages for ocean and land freight continue to be an issue, impacting both raw materials and finished goods.

Project teams from our manufacturing, logistics, supply chain and operations teams are constantly working on options to best respond to the challenges.

What is the current state of affairs at your plant in Russia?

We are following the war against Ukraine with great concern. Our thoughts are with the people affected, and we hope that the combat operations end as quickly as possible.

Continental supports and continues to comply with all applicable sanctions and legal regulations imposed as a result of the war in Ukraine. Imports and exports of our tire products to and from Russia were already suspended for an indefinite duration at the beginning of the war.

The current situation is extremely complex for international companies like Continental that have production sites in Russia. Our employees and managers in Russia, for example, are faced with the prospect of severe criminal penalties if we fail to meet local demand.

To protect our employees in Russia from prosecution, we have temporarily resumed production at our tire plant in Kaluga. The plant is producing passenger tires for the local market in Russia.

We are taking this step in order to fulfill our duty of care to our employees in Russia. Business in Russia and Ukraine altogether accounts for less than 1% of Continental's total sales.

What effect is the war having on the overall market in Europe? North America?

The overall effect of the war, coupled with the COVID-19 resurgence in China, is leading to global shortages of raw materials required for tire production.

In Europe, we are observing that the supply situation for raw materials is further deteriorating in light of the sanctions and logistics bottlenecks. In Asia, shipping containers and logistics bottlenecks are worsening due to the COVID-19 situation.

From the Continental side, we are prepared to adjust our production volumes to the current availability of raw materials. No general effects on the availability of our products can be derived from this, as effects may vary from plant to plant.

Outside Europe, for example in North America, we currently do not see significant effects on tire supply from the war in Ukraine and the resulting disruptions, with the exception of some winter tire lines.

How has the General brand been performing in the market? With prices rising, is there more of an opportunity for the lower tiers?

On the commercial vehicle side, we have several new products launched in the General Tire brand this year, and we continue to offer passenger/light truck tires in this brand, as well as solid tires for material handling.

We do not yet see a specific movement of demand from Tier 1 to Tier 2, but believe we are well-positioned if that were to occur with our General Tire brand offerings.

What are you telling dealers who are unable to get certain tires?

Close collaboration with our customers in the forecasting process is now more important than ever. We talk to our customers frequently to ensure we are producing the right products for the market needs in this unprecedented environment. In the end, we are committed to being a long-term partner to our dealers through all market conditions.

What are some of the pleasant surprises in the industry?

Our customers remain resilient and innovative in navigating this still challenging environment. Demand continues to be strong, despite inflation pressure on consumers and businesses.

Commercial activities such as freight transport are also at historic high levels, driving continued demand for commercial tires.

What kind of trends are you seeing? How are you reacting?

Electric vehicles (EV) are a vehicle segment that is growing in the U.S.; however, right now the number of EVs on the road is still fairly limited. Continental has a lot of EV expertise as seven of the 10 highest-volume manufacturers of electric vehicles worldwide rely on Continental tires as original equipment. This includes Tesla, Porsche, Mercedes-Benz, Kia, Ford, etc.

In addition, our engineering expertise — as a result of our extensive work as an automotive components supplier for EVs — gives us first-hand insight into the EV market needs, which is something no other tire company can offer.

On the passenger/light truck side, we currently have over 50% coverage with our OE tires specifically developed for EVs. In addition, our current replacement products for both passenger and commercial vehicles are suited for EVs and have a near 100% size coverage for the current EVs in the market.

Continental's approach is to provide tire lines suitable for electric and hybrid vehicles, which still deliver excellent performance on standard vehicles. Replacement tire performance is typically more focused on grip, tread life mileage, and durability, matching the priorities of consumers and commercial fleet operators.

Electric vehicle OEMs may have a heightened focus on range and low noise, making this the priority for OE tires. By delivering excellent replacement tires that are suitable for standard, hybrid and electric vehicles, we simplify the portfolio for tire dealers, consumers, and fleets.

What sector offers the most growth potential?

On the passenger tire side, the ultra-high-performance (UHP) segment remains strong as more and more new vehicles come with tires in this segment.

Light truck/SUV segments have also shown strong resilience. Both segments come with high-rim diameters, and for LT we also see high outside diameter. This requires adjustments in the production process to best meet demand.

In bicycle tires, we see growth opportunities overall, especially in the mountain bike segment. We have extended our global partnership with Tour de France until 2027, and we are complementing our well-known road cycle tires with new investments in our mountain bike portfolio.

In April 2022, we launched the new Gravity tire line for mountain bikes at the Sea Otter Classic in California. We also see growth opportunities in the motorcycle market, which remains above 2019 levels.

On the commercial fleet side, with the renaissance of the retread segment, we continue to invest in precure retread production, in order to supply customers with a premium alternative to new tires. We develop tires specifically meeting the needs of North American fleets.

We also see growth opportunities in earthmover, material handling, port operations and agriculture tire segments, and we are maximizing our production for those categories.

There was talk last year Conti is considering capacity expansions in order to process more rubber at your North American plants. Has that started at any plant?

We are investing in several plants across the Americas to increase production on certain product lines, and we continue to ramp up production at our new commercial tire plant in Clinton, Miss.

Having this investment coming on line in the current market, coupled with the fact that our largest plant worldwide is in Mount Vernon, Ill., has created opportunities for our customers by offering supply from within the U.S. market.

Do you expect to roll out any additional products in 2022?

Continental will launch eight new products in the second half of 2022.

On the passenger tire side, the Continental SportContact 7 will be used as an OE product line for high- performance vehicles, replacing the SportContact 6. It delivers increased mileage as well as improved dry and wet performance.

The General Altimax RT45, a touring product line for cars, minivans and crossovers, delivers up to 10% longer tread life versus the previous generation Altimax RT43, which it replaces. With 136 sizes available, it covers more than 85% of the segment.

For commercial fleets, the Continental VanContact A/S Ultra for commercial vans is planned to launch in Q4 2022. It delivers high mileage, superb rolling resistance, and high sidewall robustness. It also has a three-peak mountain snowflake mark (3PMSF) for excellent snow performance.

The 19.5-inch Continental HSR+ and HDR+ regional tires are designed for medium duty commercial vehicles. Both are rated Load Range H, delivering an extra 220 pounds of load-carrying capacity per tire in single and dual applications. For a dual-drive pick-up truck such as the Silverado 5500, this equates to an extra 880 pounds per load.

For fleets paid by the pound, this means extra revenue, while for utility fleets this means the ability to carry extra or heavier equipment. The tires are also speed-rated for 87 mph, the highest speed rating in the market for this type of tire.

We launched a next-generation steer, drive and trailer tire in the General Tire brand for long-haul fleet customers earlier in 2022, and will continue to update the General Tire line with the release of the Grabber OA 2 in the second half. This all-position construction tire will be offered in six sizes and was designed to improve removal mileage and better resist cut and chip.

For earthmoving fleets, we will launch our LD Master line of L5 Radial products. This line will complement our existing Earthmover Master line of E3/L3 and E4/L4 sizes, with the new LD Master being designed for more severe applications.

For material handling, we have already launched the General Tire Super Elastic Lifter tires in both black and non-marking variants, as well as an extension of the General Tire solid press-on bands into a non-marking offering. This year, we will offer further sizes of the container handling radial product range. All OTR container handling radial tires are equipped with tire sensors to give pressure and temperature information.

In addition to tire products, we continue innovating with our digital tire monitoring solutions. Continental is already offering the ContiConnect Yard Reader for fleets who return to the depot frequently, as well as ContiPressureCheck on-vehicle solution and ContiLogger for OTR.

This year, we are testing the ContiConnect Live solution, which delivers over-the-road notifications for fleets who want to monitor tire pressure and temperature in real-time, anytime, anywhere.

What technology will be a game- changer?

Digitalization of tires will be a game-changer in the tire market. For fleets, data analytics and intelligent reporting are the future of tire management.

As a customer-oriented company, Continental sees the need for helping fleets reduce tire-related costs, increase uptime and optimize maintenance operations. This can only be done through a combination of data intelligence and service capabilities.

By providing this solutions-provider approach, Continental allows fleets to focus on their core operations, whether that means delivering goods, performing services or transporting people.

ContiConnect is Continental's digital tire monitoring platform, displaying tire pressure and temperature data for every vehicle in the fleet in a single web portal. Currently focused on commercial vehicle fleets, the yard-based solution is ideal for fleets whose trucks or buses return to the terminal frequently, while the live solution is ideal for fleets who want over-the-road real-time information.

Our partnership with Zonar also offers unique solutions. Fleets benefit from increased uptime, extended tire life and fewer tire-related breakdowns. Fleets no longer have to rely on performing tire pressure checks on tens, hundreds or even thousands of tires on their vehicles.

With Continental's digital tire-monitoring solutions, they will know whether any tires have low pressure or high temperature. Leveraging the Internet of Things (IoT) saves fleets time and money by protecting their tires, and improves safety for everyone who drives on the roadway.

In addition, we see efficiencies from the maintenance side. Fleets are able to replace manual and routine tire care with automatic and targeted care. They are fixing tire issues where they are known to exist and saving inspection and maintenance time.

Digitalization will also be essential for autonomous driving and shared mobility scenarios. Continental is developing Conti C.A.R.E. (Connected. Autonomous. Reliable. Electrified.), a comprehensive technology system.

Conti C.A.R.E. is a fine-tuned networking of wheel and tire technology to deliver desired performance characteristics. In combination with ContiConnect, Conti C.A.R.E. forms a flexible system solution that can provide a means of tire management for modern robo-taxi fleets, for example, boosting performance as well as helping to optimize costs.

What is the most compelling initiative your company has or is taking to address sustainability?

Continental is committed to making the tire of the future even more energy-efficient and environmentally friendly in terms of production, use and recyclability. We are systematically investing in the research and development of new technologies, alternative materials and environmentally friendly production processes.

By 2050, we are targeting for all tires to be made from 100% sustainable materials. In addition, we aim to make the production of all our tires fully carbon-neutral by 2040 at the latest.

At the IAA Mobility 2021 in Munich, we presented our sustainable tire concept Conti GreenConcept to the public for the first time. With this concept study, we are providing an outlook on current and future technologies for the construction of sustainable passenger tires.

In the near future we will be implementing individual aspects of the study in series production, such as the use of sustainable polyester yarn derived from recycled PET bottles.

Continental is the first tire manufacturer that has launched volume production of recycled polyester yarn from PET plastic bottles. The new high-performance material will first be used in selected sizes in the European market.

Manufacturers also should not forget the impact of rolling resistance. Continental estimates that 35% to 60% of fuel consumption is caused by rolling resistance, depending on the number of tires on the vehicle.

Today, we offer products with optimal rolling resistance to help reduce fuel costs and emissions from both passenger cars and commercial vehicles. Our tires took first place in fuel efficiency for both regional and long-haul commercial vehicles.

Our goal is to be the most progressive tire company in terms of environmental and social responsibility. For us, sustainability means looking at the entire value chain of a tire, as all parts are intertwined. For example, new, recycled or renewable materials all have an individual influence on safety and performance-relevant criteria in the use phase of a tire.

To this end, we invest a lot of effort in research and development and in testing new materials before we are sure they can be used in mass production. In the end, Continental has very ambitious sustainability targets but will never compromise on safety and performance of its products.

Do you expect any other major investments in the next six months?

In addition to our plant investments, we are executing our previously announced expansion of the South Carolina headquarters as a signal of our commitment to the U.S. market.

What are some of the challenges facing the industry?

High inflation as well as attracting and retaining employees seem to be challenges across the entire U.S. market. This comes on top of the aforementioned issues related to raw material supply and worldwide logistics bottlenecks.

Now that the company's first 150 years is complete, what's ahead in the next 150 years?

Being more than 150 years in the tire business is an extraordinary achievement. It illustrates our reliability and speaks to our wealth of experience. Over our history, we've gone from being a local German tire manufacturer to a global powerhouse with locations in 52 markets, thanks to operational excellence and constant innovation.

As we look to the future, we see Continental driving innovative topics, remaining customer oriented and committed to our team culture. With digitalization in tires, completely new opportunities are arising. By connecting the tires using our digital tire monitoring solutions, we can offer our customers new and efficient service offerings.

We also deliberately call our sustainability activities "Our Responsibility" in our strategy program. We are convinced that sustainability is our responsibility, both environmental and social.

We remain focused on what our customers need and offer tailored solutions to their challenges. This 360-degree approach allows us to serve as a holistic solutions provider.

All of this is possible thanks to our team. From day one at Continental, team spirit came first. For many of our team members, Continental is more than just a workplace, and we continue to build this culture today.

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