Japan Auto Parts & Equipment: Tire sector: upgrading our sector stance to bullish

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Japan Auto Parts & Equipment: Tire sector: upgrading our sector stance to bullish

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29 Jun 2026 02:35:30 ET │ 40 pages

Japan Auto Parts & Equipment

Tire sector: upgrading our sector stance to bullish

CITI'S TAKE

Arifumi Yoshida AC

We upgrade our sector stance on tires from neutral to bullish. Lower crude +81-3-6776-4610

oil prices bring benefits, both in lower raw material costs and the stability of arifumi.yoshida@citi.com

tire demand. While we see a risk that natural rubber prices remain elevated

due to El Niño concerns, we believe firms can absorb this through price Clement Tsin

pass-throughs. Our weekly price survey shows multiple Tier 1 tire makers +81-03-6776-4437

implementing price hikes in the US. Near-term earnings deterioration from kin.hang.tsin@citi.com

higher raw materials is already priced in, setting the stage for a return to the

narrative of stable growth and expansion in shareholder returns. Ross MacDonald

+44-20-7986-7547

Earnings outlook — We revise our earnings forecasts, assuming Dubai crude at ross.macdonald@citi.com

$70/barrel (previously $90) and natural rubber at 230¢/kg (previously 180¢). Our FX

assumptions are ¥158/$ and ¥184/€. Versus company guidance, we expect

Yokohama Rubber and Toyo Tire to achieve targets while we see Sumitomo Rubber

and Bridgestone falling short. While current replacement tire demand remains

sluggish, we expect stabilization as gasoline prices decline. Although the auto

industry is currently facing competition from Chinese manufacturers, the tire

industry has already experienced this. We believe traditional tire makers can keep

margins high via a shift to premium product.

Stock selection — We have Buy recommendations on Yokohama Rubber, Sumitomo

Rubber, and Toyo Tire, with our preferences in that order.