Michelin, Nokian first tyre companies to quit Russia

© Reuters. FILE PHOTO: The logo of French tyre maker Michelin is seen on tyre of a Formula E racing car on display at the innovative center of German postal and logistics group Deutsche Post DHL in Troisdorf near Bonn, western Germany March 9, 2016. REUTERS/Wolfg

By Gilles Guillaume and Dominique Vidalon

(Reuters) -Michelin plans to hand over its Russian activities to a new entity under local management by the end of the year and rival Nokian Tyres said it would quit the country, the first Western tyre makers to give up doing business in Russia.

The French company, whose Western rivals in Russia include Italy's Pirelli and Germany's Continental AG (OTC:CTTAY), said it had become impossible to resume output owing to supply chain problems related to the sanctions against Moscow.

Foreign companies seeking to exit Russia over the war in Ukraine also face the prospect of a new law being passed in the coming weeks to allow Moscow to seize assets and impose criminal penalties.

That has encouraged some businesses to accelerate their departure.

Diageo (LON:DGE), the world's largest spirits maker, Finnish elevator maker Kone and Finnish forestry machine manufacturer Ponsse also announced plans to leave Russia on Tuesday.

The first Western tyre maker to enter Russia in 2004, Michelin (EPA:MICP) suspended its manufacturing activities there in mid-March because of supply chain difficulties after the invasion of Ukraine and resulting sanctions against Moscow.

"It is technically impossible to resume production, due in particular to supply issues, amid a context of general uncertainty," said Michelin, which makes tyres for cars, aircraft and trucks.

Later in the day, Nokian announced plans for a "controlled exit" from Russia, home to its largest production plant.

The company said it would evaluate different options and incur impairments of about 300 million euro in the second quarter. It didn't give further details. It has over 1,600 employees there.

The tyre industry has been hit hard by Western sanctions on Russia, which have cut off supplies of critical raw materials and shuttered factories that supply customers outside Russia.

Nokian has scrambled to increase capacity at its factories in Finland and the United States to make up for the closure of its Russian plant and is investing in new capacity in Europe. It did not provide further details.

In 2021, about 80% of its passenger car tires were produced in Russia.

Until Russia invaded Ukraine, nearly 30% of Michelin's carbon black - used to strengthen rubber in tyres - was sourced from Eastern Europe.

Michelin's sales in Russia represent 2% of group sales and 1% of its global car tyre output, the company said.

Michelin Russia employs approximately 1,000 people, including 750 at the Davydovo plant, located about 100 km (62 miles) from Moscow. The site has an annual production capacity of 1.5 million to 2 million tyres, mainly for passenger cars.

The company said it had a balance sheet exposure of 250 million euros ($265 million) from Russian operations, adding that the transfer would not impact its financial guidance.

In May, Renault (EPA:RENA) said it was to sell its majority stake in Russia-based carmaker Avtovaz to a Russian science institute reportedly for just one rouble with a six-year option to buy it back, leaving the door open for the French carmaker's return.

German car parts supplier Continental in April said it had temporarily resumed tyre production for passenger cars at its Russian plant in Kaluga to protect local workers who could otherwise face criminal charges.

Italy's Pirelli has halted investment in Russia and has progressively limited activities at its plants there. About 10% of its global tyre output is produced at two Russian factories.

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