UBS Lane Assist Series: Stagnation and Struggle, Feedback from Tire Distributor Calls
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Following expert calls with European tire distributors, UBS reports that budget tire inventories remain elevated, with dealers hoarding stock in anticipation of future price increases and thereby delaying inventory normalization. High budget stock, compounded by a warm winter, has produced a weak start to the winter tire season, with volumes expected to decline about 5% year-on-year. Despite EU tariffs and inflationary pressures, premium tire prices have held flat over the past three months, and increases of 2-3% are expected by year-end. Budget stock is also tying up working capital and constraining purchases of premium product, with a budget tire shortage unlikely before Q2 2027 at the earliest. Results of the EU anti-subsidy investigation could be announced within four to five weeks. UBS sees the tire industry as resilient within the auto sector, underpinned by premium pricing power and replacement demand, and favors Continental for its potential to raise or narrow the range of its FY2026 guidance. Ratings: Continental (Conti), Buy, target 90 euros; Pirelli, Buy, target 7.10 euros. A chart of tire manufacturer valuations in euros accompanies the report.
Key exhibits
Exhibit 1
