R$200m plan for laboratory and logistics center adds to purchase of natural rubber producer

18/03/2024

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Cesar Alarcon — Foto: Gabriel Reis/Valor

Carmakers have been in the news in recent weeks after announcing local investments, but they are not the only ones interested in Brazil: Pirelli also announced a R$200 million program on Wednesday. The acquisition adds to the recent purchase of a Brazilian company, which means a combined disbursement of R$350 million in three months. The plans take the local operation to a new level within the Italian tire manufacturer.

While investment announcements in the automotive industry tend to focus on plans, Pirelli’s were made when the project was almost half complete. Part of the money has been used to build a modern laboratory, which was inaugurated on Wednesday. The rest will be used to build a logistics center in 14 months.

Both buildings will be located on the same site as the factory in Campinas, which Pirelli bought 54 years ago. This plant and another one in Feira de Santana, Bahia, produce the tires sold on the national and international markets.

One third of the country’s production is exported, including tires for electric cars produced in the United States. “We even make snow tires in Bahia,” said Cesar Alarcon, the 45-year-old Argentinean executive who has led Latin American operations for five years after an already long international journey within Pirelli.

Considering the Argentinean plant, the group has 8,000 employees in the region, which accounts for 20% of the company’s global production.

With the new lab, the company now has an important research and development center in Campinas, “comparable to those in Germany or Italy,” according to the executive.

The quality tests conducted by the team of engineers trained for the new center, he added, will be able to meet the group’s needs in other countries. The project will also allow the group to forge closer links with the academic and scientific community in the region.

One advantage of the second part of the new investment is the proximity of the storage area, both for raw materials and tires, to the production line. As well as reducing costs, Mr. Alarcon said this proximity will bring environmental benefits by saving 5,000 freight journeys a year.

The group’s strategy to develop the region was completed with the recent acquisition of Hevea-Tec, a 25-year-old family business in Jaci, São Paulo, that produces natural rubber from latex lumps.

The agreement for the R$150 million acquisition was signed in the second half of 2023 and approved by Brazil’s antitrust watchdog CADE earlier this year.

By increasing Pirelli’s natural rubber share in Latin America, Mr. Alarcon said, the Latin American business will become more relevant to the group’s global sustainability agenda, which has set a target of reducing carbon emissions to zero by 2040. “We’ll be able to process and export this product, or we’ll be able to export the tires made of natural rubber,” he said.

“Brazil is strategically important for Pirelli,” said Mr. Alarcon. According to him, the group’s investments in Brazil amount to R$2 billion over 10 years.

“We have to invest before carmakers do,” he said. Mr. Alarcon said the company is in a comfortable position to cater for the future production of electric cars in the country, for example, because it already produces tires for this type of vehicle for export.

He added that the tire for a fully electric model is different because it needs to be made of lighter materials—these vehicles weigh more because of their big batteries—to reduce energy consumption and help with autonomy. “The car is silent, which requires materials with less noise; these are unique characteristics,” he said.

At the same time, Mr. Alarcon praises the carmakers’ plan to produce hybrid models in Brazil that can run on ethanol. “It was the right decision for the transition to fully electric cars.”

With his extensive international experience at Pirelli since 2007, including five years in China, Mr. Alarcon has an optimistic view regarding the potential for China’s BYD to become a future customer. Notably, BYD’s plant is close Pirelli’s Bahia unit. “Pirelli already supplies BYD in China; it’s reasonable to expect that the Camaçari plant will also opt for our tires,” he said.

The executive is excited about the expansion of sales of high-end cars in Brazil, which consequently require tires with wider rims. This means more sales for the company. “Today, Latin America accounts for 20% of global volume, but revenue is lower. In the United States, most cars boast 18-inch rims, here 85% of cars use 16-inch tires,” he said.

On the other hand, he complained about foreign products that are strong competitors in the replacement market. Mr. Alarcon is one of those who have taken to the government the industry’s complaints about the product, which comes mainly from Asia. He accused these rival brands of “dumping” and said that in addition to lower prices, they are companies that are not committed to the country’s environmental cause.

In Campinas, water from the factory is reused, and waste is no longer sent to landfills. “We even recycle tires that come from other countries. It’s necessary to have equality in a country where the industry’s share of GDP has been declining,” he said, commenting that if it weren’t for “unfair competition,” Pirelli wouldn’t have to have 400 employees currently on temporary leave with suspended employment contracts.

The country’s macroeconomic environment, on the other hand, does excite him to some extent. “I often tell people in the government that, as an Argentinian, I feel a certain jealousy,” he said. “Brazil’s economy is healthy and growing, despite the changes in government.”

The executive’s complaints relate to the country’s loss of international competitiveness, which he said is due to excessive costs that put the country at a disadvantage compared to nearby countries such as Mexico.

The tax overhaul, he said, has brought about a positive simplification. “But that is not enough. We need to create the conditions for efficiency.”

*Por Marli Olmos — São Paulo

Source: Valor International

https://valorinternational.globo.com/