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Why I think Michelin could be a good long-term play.

This is my first DD, please be gentle and tender, but abuse me at the same time.

With things starting to reopen and lockdowns slowly being lifted around the world, more people are going to be using their cars again and wearing out their tyres.

Who do you think of when you think tyres? Michelin.

“But this isn’t long term?” I hear you ask.

Yes it is, here’s how I think that Michelin’s performance will be tied to the rise of electric vehicles.

As I’m sure you all know, electric motors provide instant torque to the wheels. It’s how the Tesla Model S and cars like the Rimac Nevera are able to achieve such blisteringly quick acceleration times. One of the downsides of this instant torque is increased wear on the tyres.

I came up with this thesis after watching the Lotus Evija, a new electric hypercar, at the Goodwood festival of speed. When the car launched, there were huge plumes of tyre smoke, far more so than any of the petrol powered cars.

The Evija appears at 36 seconds.

Although this is an extreme example, something similar will be happening every time someone starts from a standstill in their electric vehicle, albeit at a much smaller scale. It’s these microslips that wear down tyres faster in normal electric vehicles.

Michelin also supplies tyres to semi trucks around the world. I believe that the use of semi trucks to transport goods will see a sharp rise in the future. Cargo ships are currently one of the single biggest factors in pollution around the world and we’re a lot closer to having electric semi trucks than we are to having electric ships.

More electric semi trucks means more tyres are going to get burnt through.

The biggest bear case that I can think of is that people are going to continue working from home after the pandemic ends, meaning that less people will be using their vehicles to commute to work. If this is the case, there is evidence to suggest that many people will move away from major cities, as they no longer need to pay the exorbitant prices required to be near their former office job. This process of mass urban sprawl would just increase the distance needed to travel between places on a day to day basis, counteracting most of the effects of people working from home.

Positions: Shares. This is a long term play. If you want to play options, go with leaps.

What do you think?

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15 Comments

  1. This theory doesn’t correlate to real world use as all electric cars have traction control and the high end ones have torque vectoring, so if anything the tyres will suffer less wear.

    You also cannot drive your car like its a racecar on the road, 99% of drivers will just tootle around like they do now.

    With home working there will be less car usage as has been highlighted in many city studies on the pollution levels since lockdown.

  2. As a car enthusiast and someone who’s thought about tire technology and how it’s always evolved with cars, I appreciate the creativity of your post. That being said, newer cars have insane computational power going into ensuring that traction is maintained. Electric cars may be faster and have instant torque compared to their ICE counterparts, but they’re also putting the power down better and more efficiently (traction-wise, I don’t want to start an argument behind net emissions here).

    I actually think tire consumption will decrease due to this increased efficiency in traction overall. On a side note, I think this chip shortage has opened people’s eyes to how modern cars are really just rolling computers. Most everything is being monitored, calculated, and acted on in real time. It’s pretty remarkable, albeit annoying for us DIY guys who’re left debugging electrical/software issues.

  3. “Long term play” seriously? If I wanted to know what my daddy invests in I’d ask him. I come to wallstreetbets to throw my paycheck away on a chance for a Lambo or beautiful loss porn. Repost this one some boomer stock sub.

  4. Personally, I do not believe new cars will bring it new-found business. Tire-burning cars have been around since cars could drive, and yes they have a very established place in the market, but I don’t think their revenue is gonna randomly increase tbh. Good company, though. Good investment, but not WSB

  5. I haven’t bought any Michelin tires in 20 years. Lots of good brands with good warranties. Go to most tire shops. You can see what people are buying.
    Most time I see them is on new vehicles only.

  6. Somehow I don’t see economy cars like Prius, volts, et al will by for performance rubber. Michelin is rumoured to be coming back into formula1 as well. When, not if, EVs become ubiquitous you can be sure the makers will still try to cut corners or find the best value in their offerings. I just don’t see a very bountiful ROI in Michelin or any other tyre makers due to the widespread adoption of EV. Also can anyone say how the tire wear is on Tesla’s, and moreover, consumer level EVs that have been out the last 5+ years? Are they wearing faster than ICE cars?

  7. Batteries are a good play IMHO but what I’m really here for is a deeper explanation on how electric semis will replace cargo ships. There is no replacing the need for shipping and the pollution associated isn’t moderated by electric semis.

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