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.