Tesla Tires?

As Tesla continues to grow as a vehicle manufacturer, it is actively pursuing a strategy of vertical integration in its supply chain. This must include

exploring the possibility of bringing tire production in-house, which is currently outsourced.

It's difficult to determine the top tire company that would make the best sense for Tesla to acquire, as the potential acquisition targets are subject to various factors such as compatibility with Tesla's business strategy, market trends, regulatory approvals, and financial considerations. In addition, the decision to acquire a tire company would depend on Tesla's plans for its tire production, whether it plans to integrate tire production into its current operations or to use it as a separate subsidiary.

Some tire companies that might be considered as potential acquisition targets based on their market position, innovation, and technology include Michelin, Goodyear, Continental, and Pirelli. For this acquisition example Goodyear was chosen.

Acquiring Goodyear could potentially bring several benefits to Tesla. Some of these benefits include:

• Access to tire technology: Goodyear has a long history of innovation and technology development in the tire industry. By acquiring Goodyear, Tesla could gain access to this technology and expertise. By having control over its tire production, Tesla could develop tires that are specifically tailored to its vehicles, which could improve the performance and efficiency of its vehicles and differentiate its products from those of its competitors.

• Supply chain integration: Goodyear has a global network of tire manufacturing facilities and suppliers, which could provide Tesla with a reliable source of tires and reduce its dependence on third-party suppliers. Including reduced risk of supply chain disruptions by owning its tire and rubber production, with less interruptions, price increases, and quality issues that could arise from relying on third-party suppliers. By integrating tire production into its existing operations, Tesla as a vehicle manufacturer could streamline its supply chain and reduce costs associated with logistics and transportation.

• Cost savings: Acquiring Goodyear could allow Tesla to reduce its tire-related costs, as it would no longer need to purchase tires from third-party suppliers. Additionally, Goodyear's existing manufacturing facilities and supply chain could help Tesla lower its production costs.

It's important to note that these benefits are speculative and would depend on the specifics of the acquisition, including the terms of the deal and how the companies would integrate their operations.

For a vehicle manufacturer such as Tesla, the cost per tire can be lower than the retail price due to volume discounts and other arrangements with tire manufacturers. The exact cost per tire will depend on the specifics of the agreement between the vehicle manufacturer and the tire manufacturer, and is not publicly disclosed. It's likely that the cost of tires for Tesla is a significant expense, as tires are a crucial component of any vehicle and are subject to wear and replacement over time. 

Tesla intends to grow substantially over the next decade as they bring their vehicle production from 1,000,000 units annually to 10 Million+ vehicles annually. As this production grows further vertical integration into the vehicles supply chain will be critical to Tesla mission.

To determine how much Tesla is spending on tires we are assuming a $180 tire cost estimate, that’s approximately $720 per set of tires. This is a speculative average estimate that could be higher or lower.

At 1 Million annual vehicles = $720,000,000

At 5 Million annual vehicles = $3.6 Billion

At 10 Million annual vehicles = $7.2 Billion

As of early February 2023, Goodyear’s market cap is in the neighborhood of a $3B valuation. Making this acquisition realistic and possible for Tesla to accomplish.

It's important to note that these potential benefits are subject to various factors, such as the cost and complexity of acquiring and integrating a tire company, as well as the ongoing cost of maintaining tire production operations. The decision to acquire a tire company would depend on a thorough analysis of the costs and benefits involved.