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Pirelli to Invest 300 Million Euros in China as Car Sales Surge

Pirelli to Invest 300 Million Euros in China
A factory worker produces tires at the Pirelli & C SpA tire factory in Jining, Shandong Province. Photographer: Keith Bedford/Bloomberg

Pirelli & C SpA, Europe’s third-largest tiremaker, will invest about 300 million euros ($415 million) in China over the next three years to tap rising demand in the world’s biggest vehicle market.

The company will double capacity at its factory in Jining, Shandong province, to 10 million tires a year within the next two years, Chairman Marco Tronchetti Provera said in an interview with Bloomberg TV in the Chinese city yesterday.

Pirelli expects Asia sales to grow 20 percent this year, up from a previous estimate of 15 percent, helped by rising demand for more expensive vehicles in China, Tronchetti Provera said. China’s overall vehicle sales surged 32 percent last year, helped by economic growth and government stimulus measures.

“For us, what’s important is the high-end, expensive cars,” he said. “We are not looking for the mass market.”

The Milan-based tiremaker may get 10 percent of sales from China within two years from 7 percent how, he said. The company also plans to invest $210 million by the end of 2012 to build a new plant in Mexico.

The tiremaker in November said earnings before interest, taxes and restructuring costs will climb to as much as 11.5 percent of revenue in 2013, from about 8.8 percent last year.

The price of rubber, used to make tires, will peak this year, Tronchetti Provera said. Pirelli is working to reduce its use of natural rubber to offset costs that hit a record this month.

Pirelli fell 1.1 percent to 5.66 euros yesterday in Milan. The shares rose 40 percent last year, the sixth-best performance on Italy’s benchmark FTSE MIB.

The company completed the spinoff of its real-estate unit, now called Prelios SpA, in October and it also sold Pirelli Broadband Solutions to concentrate on tires.

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