The Goodyear Tire and Rubber Company (NASDAQ: GT) shareholders have breathed a sigh of relief with the events of the past few months, which include a new CEO who has the backing of activist shareholder firm Elliott Management. The sentiment is more bullish this time around with the normalization of rubber prices. However, the Autos/Tires/Trucks sector company is facing additional tailwinds that electric vehicle (EV) owners are complaining about.
EV replacement tire tailwind
Investors may get another surprise with Goodyear's earnings due out on February 8, 2024, due to a growing tailwind accompanying every new EV sale. While the demand for electric vehicles (EVs) may be waning, the need for replacement tires is surging. Due to the instant torque, acceleration and weight, EVs tend to wear out tires up to 5X faster than internal combustion engine (ICE) vehicles.
This could mean a strong surge in business for Goodyear, which has surpassed Compagnie Générale des Établissements Michelin SCA (OTCMKTSL MGDDY) as the largest replacement tire company in the United States, especially when a new set of EV replacement tires can run $900 to $1,400. Check out the sector heatmap on MarketBeat.
EVs burn rubber 5X faster.
It turns out the most costly expense when it comes to EVs is replacing the tires. Traditional ICE vehicles tend to wear out tires around 55,000 to 70,000 miles. Depending on the models, EVs tend to wear out tires between 7,000 to 10,000 miles. Tesla Inc. (NASDAQ: TSLA) Model 3 owners have regularly complained about having to replace tires around the 7,000 to 10,000-mile mark due to the massive acceleration and heavy weight of its batteries.
Model S Plaid burning rubber even faster
Telsa Model S Plaid owners have complained about having to replace tires every 5,000 miles. The vehicle's heavy weight can cause uneven wear on the inner edges. The intentionally negative camber due to the suspension set-up is "exacerbated" with 21-inch wheels. This is meant to provide a better grip of the road on turns during high speeds. Unfortunately, this leads to even faster degradation of tires.
Goodyear EV tires
Goodyear is actively developing its ElectricDrive EV tires specifically designed to address the unique degradation that EVs cause to tires. While it has been selling its ElectricDrive EV tires, the ElectricDrive 2 EV tires have a 60,000-mile warranty and are expected to start selling in May 2024.
Hertz dumping 20,000 EVs
Hertz Global Inc. (NYSE: HTZ) has stated it would be selling off a third of its EV fleet, or 20.000 of its Tesla EVs, despite the accelerated business from leasing to Uber Technologies Inc. (NYSE: UBER) drivers. EV repairs cost 20% more than ICE vehicles, and resale values drop significantly quicker than anticipated, as evidenced by the $245 million depreciation charge that will be reported on its Q4 2023 financial results. The company will use some of the proceeds to purchase more ICE vehicles. Get AI-powered insights on MarketBeat.
The Goodyear Forward turnaround plan
In November 2023, Goodyear collaborated with Elliott Management to develop the Goodyear Forward optimization plan to bolster margins, reduce debt and optimize its portfolio. Some of its actions include selling non-core assets, including Dunlop (Europe), off-the-road (Asia), and its chemicals business in the United States, which is comprised of three chemical plants.
Sell or spin off non-core assets
These three non-core assets generate $2 billion in annual revenues, which the company hopes to recoup in a sale or spin-off. Margins are targeted with $1 billion in cost savings, resulting in segment margins that will grow to 10% by 2025. Leverage is expected to decline to 2X to 2.5X with improved earnings and debt servicing from the sale of assets.
The longtime CEO of Goodyear, Rich Kramer, is also set to step down and is being replaced by Mark Stewart, a former executive at Stellantis N.V. (NYSE: STLA). Goodyear earnings are expected after the close on February 8, 2024. Consensus EPS estimates are for 36 cents and revenues of $5.376 billion.
Goodyear analyst ratings and price targets are at MarketBeat. Goodyear peers and competitor stocks can be found with the MarketBeat stock screener.
Daily ascending triangle
The daily candlestick chart on GT illustrates an ascending triangle pattern. The ascending lower trendline started upon bouncing off its $11.35 low on November 1, 2023. The flat-top upper trendline resistance sits at $14.85 after multiple attempts for a breakout failed. The daily market structure low (MSL) buy triggered the breakout through $13.42 on January 17, 2024. Shares again peaked at rejected off the upper trendline to fall back under the daily 50-period moving average (MA) support at $14.10, retesting the ascending trendline. The daily relative strength index (RSI) is stalled flat at the 50-band.
