At a glance
- Electric vehicles (EV) place greater demands on tyres than their internal combustion engine counterparts. EV tyres need to be more durable, reduce rolling resistance, control noise and grip better.
- Technically challenging objectives require deep research and development (R&D) capabilities. Premium manufacturers look better placed than their budget orientated competitors and the technological moat supports a price premium.
- Premium EV tyres are favoured by car makers meaning manufacturers are well placed to benefit from higher EV tyre margins and volume growth. Regulatory tailwinds also provide support.
- The EV transition is creating opportunity for premium tyre makers to increase both margins and volumes. Those – like Michelin – that can leverage R&D capabilities, regulatory readiness, and strategic positioning in growth markets look well placed.
The electric vehicle (EV) transition presents a significant opportunity for premium tyre manufacturers. EVs create unique demands on tyres that favour established industry leaders with advanced technological capabilities. At the same time, growing regulation and litigation on tyre particulate emissions, deforestation-risk rubber, and toxic tyre chemical compounds could reverse the market share growth of budget tyre entrants in Western markets. Our analysis suggests that premium tyre makers with strong technology capabilities, regulatory readiness, and exposure to EV growth markets are poised to benefit from this transition through higher margins and increased sales volumes.
Silent Revolution: the technological demands of EV tyres
EVs place substantially different demands on tyres than traditional internal combustion engine vehicles (ICEVs). EVs are approximately 25% heavier than comparable ICEVs due to battery weight, operate with instant torque that increases tyre wear, and lack the engine noise of ICEVs. Hence EVs require specialised tyre technology to improve durability, reduce rolling resistance, control noise, and deliver enhanced grip performance. These unique characteristics create both challenges and opportunities for tyre manufacturers.
Delivering all of these requirements in one tyre package is technically challenging for tyre makers and requires deep research and development (R&D) in rubber compound technology. Premium tyre makers like Michelin, Pirelli, Continental, Bridgestone and Hankook have the requisite technology to be able to consistently deliver. This technological moat has enabled premium tyre makers to sell EV tyres at a 15-20% price premium over comparable ICEV tyres, accessing 10-15% higher margins. For automotive manufacturers it also makes sense to fit these EV specific tyres as standard, as the reduced rolling resistance allows them to boost car ranges by up to 15% at a quarter of the cost of expanding the battery.
Figure 1: % of tires with tread depth alert by tire age (UV eye)
Source: UVEYE, July 2025
We forecast that EV tyre volumes will more than double to constitute approximately 25% of global original equipment (OE) tyres by 2028 and 10% of the global aftermarket tyre sales by the same year
The EV transition is also a volume growth opportunity for tyre manufacturers, as even EV-specific tyres have a 20% faster wear rate compared to ICEV tyres which accelerates the replacement cycle. This effect will begin to materialize significantly in the aftermarket from 2026-2027 as the first wave of mass-market EVs require replacement tyres. This volume growth comes with the added benefit that replacement tyres typically carry margins 2-3x higher than original equipment tyres. We estimate that by 2028, EV tyres could contribute a 1-2 percentage point improvement in overall margins for premium tyre makers.
Technological advantages are resulting in premium manufacturers capturing a disproportionate share of the EV tyre segment, particularly in the high-growth Chinese market. While the volumes of EV tyre sales today are relatively small in the overall context of global sales, we forecast that EV tyre volumes will more than double to constitute approximately 25% of global original equipment (OE) tyres by 2028 and 10% of the global aftermarket tyre sales by the same year.
Figure 2: Projected % original equipment EV tyre sales by market (Columbia Threadneedle analysis, 2025)
Source: Columbia Threadneedle Investments, July 2025
We expect premium makers to hold onto their technological moat due to their edge in R&D on tyre compounds. Michelin spends approximately $1.25 billion annually on tyre-relevant R&D with over 6,000 people across nine centres, this is nearly 10 times the R&D investment of budget manufacturers like Sailun or LingLong. This R&D advantage allows premium manufacturers to develop compounds and designs that balance the competing requirements of EV tyres – durability, rolling resistance, and grip performance.
Regulatory tailwinds an additional boon for premium manufacturers
A convergence of regulatory developments is creating substantial tailwinds for premium tyre makers, potentially reinforcing their competitive advantages over budget competitors. These regulations target environmental impacts across the tyre lifecycle, from raw material sourcing to end-of-life particulate emissions. We will continue to engage with premium tyre makers on these sustainability parameters to ensure they maintain this advantage.
EURO7 and tyre wear regulations
The European Union (EU) is introducing new limits on tyre wear rates through EURO7 regulations from 2028. These regulations will likely require a 35-50% reduction in wear rates, focusing primarily on the number of emitted particles. This is a direct response to growing concerns about tyre and road wear particles (TRWP), which are increasingly recognized as significant environmental pollutants.
Figure 3: Average tyre wear (mg/km/t) by manufacturer (ADAC, 2025)
Source: ADAC, January 2025
Our analysis of tyre wear rates across manufacturers shows that premium brands like Michelin and Continental already outperform budget competitors. Michelin’s performance is particularly impressive with tyre wear rates 20% lower than the peer group average. This regulatory change will likely force budget manufacturers to invest heavily in their compounds and designs or risk being excluded from the European market.
Several premium brands such as Pirelli have also set public targets to further reduce tyre wear rates over time, demonstrating their commitment to addressing this issue proactively. This positions them favourably as regulations tighten, potentially creating a wider moat against budget competitors who may struggle to meet increasingly stringent requirements.
6PPD regulation
6PPD is a chemical additive used in virtually every tyre sold globally to slow degradation and extend tyre life. However, when 6PPD breaks down, it produces 6PPD-quinone, which has been linked to serious negative impacts on some fish species, particularly salmon. There are ongoing legal cases related to this in California, and it is likely to become a focus area for both US and EU regulation in the coming years.
Our analysis shows that most premium tyre brands typically have lower 6PPD concentrations in their products, with average concentrations (measured in parts per million) significantly higher for budget manufacturers. Combined with their lower wear rates, this means premium brands release less 6PPD into the environment over the tyre’s lifetime.
As regulators increasingly focus on this issue, premium manufacturers’ lower dependence on 6PPD could provide them with another competitive advantage. While there is currently no viable alternative to 6PPD in the market, premium manufacturers with stronger R&D capabilities are better positioned to develop alternative solutions should regulations restrict its use.
EU Deforestation Regulation (EUDR)
The EU Deforestation Regulation (EUDR), which takes effect at the end of 2025, will require companies to prove their supply chains are deforestation-free. This is particularly relevant for tyre manufacturers, as natural rubber – a key raw material – is a deforestation-risk commodity covered by this regulation.
We have been focused on EUDR for tyres for some time and coordinated the Investor Working Group for a Deforestation-Free Automotive Industry to drive progress on deforestation in tyre supply chains. Our assessment of tyre manufacturer readiness for EUDR, supported by analysis of third-party platforms including ZSL SPOTT and CDP Forests, shows a stark divide between premium and budget manufacturers. Premium manufacturers are closing in on full traceability for their natural rubber supply chain, have evolved policies and targets and advanced supplier due diligence and management systems. In contrast, budget manufacturers have much more nascent deforestation programmes and an unclear pathway to complying with the EUDR. This is significant as the EU can fine companies that fail to comply with EUDR up to 4% of their EU revenues.
Additionally, EUDR is expected to cause natural rubber prices to increase by 5-10%. Budget tyre makers are more exposed to this price increase as natural rubber constitutes a larger percentage of their cost of goods sold (15-20% for budget manufacturers versus 7-8% for premium manufacturers). This cost differential could further erode budget manufacturers’ price advantage.
Stock spotlight
Michelin: in pole position thanks to sustainable competitive advantages
We initiated a position in Michelin in the first half of 2025 due to a belief in the the firm’s market position and growth potential in the evolving EV tyre market. Michelin’s exceptional rubber compound technological capabilities creates substantial competitive advantages. This leadership is already translating into commercial success, with Michelin equipping 7 out of 10 premium BEVs in China and achieving market share 2.5x higher in this segment than its overall OE presence. With the highest Chinese revenue exposure among premium tyre makers, Michelin is uniquely positioned to capitalize on the world’s fastest-growing EV market. With R&D spend 50% higher than its closest competitor and diversification into more technical applications for polymer composites, we believe Michelin’s technological moat should prove durable. Michelin is well positioned for upcoming regulation on tyre wear particles, with wear rates 26% lower than the peer group average. The company is also amongst the top performing tyre manufacturers on deforestation-free rubber sourcing and 6PPD management, which pose regulatory and litgation risks for other tyre manufacturers.
The bottom line
The EV transition is creating a rare opportunity for premium tyre makers to increase both margins and volumes simultaneously. The confluence of technological demands from EVs, tightening environmental regulations, and changing market dynamics creates a rare opportunity for established industry leaders to reverse years of market share erosion from budget competitors. Premium manufacturers that can leverage their R&D capabilities, regulatory readiness, and strategic positioning in growth markets can drive volumes and margins.
