On May 11, Linglong Tire announced the termination of its 6.066 billion yuan production expansion project in Tongchuan, Shaanxi Province. The plan to produce 15.2 million sets of high-performance radial tires and 500,000 sets of retread tires annually has been paused. About 380 million yuan has been invested in the early stage.
As soon as this news came out, the market’s attention quickly focused on “stop loss” and “turn”.
The Tongchuan project has been reviewed by the board of directors in June 2021 and approved by the shareholders’ meeting. It is planned to be constructed in three phases with a cycle of six years. The goal is to form a production capacity fulcrum linking the central and western regions.
At that time, it was envisaged that the project would be launched in Dongjiahe Circular Economy Industrial Park in Tongchuan, which would not only fill the gap in production capacity in the northwest, but also use the location advantage to radiate the northwest local and Central Asian markets. The estimated annual revenue of 6.345 billion yuan and annual net profit of 457 million yuan also brought room for imagination to the market.
From a corporate perspective, the tire industry is asset-heavy, has a long cycle, and has slow returns. The deployment of new bases requires systematic coordination of supply chain, logistics, manpower, and energy support. Any delay in any link will lengthen the cash-out cycle.
In its announcement on May 11, Linglong Tire attributed the reason for the termination to the slow progress of preliminary preparations and the failure of relevant supporting measures to be implemented as scheduled, which meant that the project was not on a smooth track.
In market reports in the past two days, the Tongchuan project is not the only matter discussed. Linglong Tire is in the stage of resource contraction and efficiency optimization. The outside world is re-examining the capacity utilization rate, intelligent upgrades, and foreign investment pace of existing bases.
At the same time, the company also has repurchase arrangements and plans to use its own funds to repurchase shares for employee stock ownership plans or equity incentives. This, together with the termination of the project, sends a signal that Linglong Tire is shifting its resources from external expansion to internal strength.
The Tongchuan project originally had great prospects. The designed production capacity covers high-performance radial tires and retread tires. After reaching production, it can serve multiple scenarios and can be connected with Linglong’s existing product structure.
However, the tire industry is changing rapidly, and the environment when the project is established in 2021 is very different from that around 2025.
In 2025, domestic pneumatic rubber tire production will reach 1.207 billion units, and the total automobile tire production will decrease slightly by 1.59%. The industry growth rate will slow down, and the production capacity expansion narrative will cool down.
As production rises and demand changes, inventories and prices have not improved simultaneously. Price competition, homogeneous competition, export disturbances, etc. have compressed the profit elasticity of enterprises, and the financial returns of production expansion projects have also been repriced.
Linglong Tire’s choice is not an isolated one. At the same time, many companies in the industry are recalculating their production capacity layout. Overseas expansion, domestic new construction, supporting delays, project suspensions, etc. all point to stabilizing operations first and then talking about growth.
Leading companies such as Sailun, Zhongce, and Senqilin are accelerating their overseas and high-end layout and looking for higher-quality growth methods.
The termination of the Tongchuan project reflects that the era of pure pursuit of production capacity scale is coming to an end. Companies that can survive the cycle will invest resources in technology, brand, channels and global synergy.
Linglong Tire’s foundation is not weak. It is a Chinese brand that has been the world’s most valuable tire brand for six consecutive years. It also has a presence in the global supporting market and has made moves in technology research and development.
However, technological breakthroughs and production capacity expansion do not have to be tied together. The Tongchuan project relies on the supporting environment and cycle realization. If the local coordination rhythm cannot keep up, the economics of the project will be weakened.
The progress of projects in Anhui’s Lu’an and Brazil did not meet expectations, which also allowed the outside world to see that Linglong Tire has encountered adjustments in its pace of advancement in many places.
The multi-project parallel model is originally conducive to spreading risks, but when the external environment changes faster than the internal advancement speed, resources will be diluted and project quality will be affected.
After the Tongchuan project was terminated, the market was concerned about how much of the initial investment of 380 million yuan could be recovered.
This investment includes land acquisition and upfront costs, which is both a sunk cost and a judgment correction.
Whether the company can admit the rhythm deviation determines whether subsequent resources can be reallocated.
Currently, the focus of debate in the industry is not “should we face reality” but “to what extent is reality necessary to adjust”.
2026 is regarded as the stage of intensive release of production capacity. The domestic market is under pressure and it is more difficult to repair profits. It may be more in line with financial logic to terminate projects that have not taken off.
Linglong Tire’s current mission is to stabilize existing production capacity, increase the proportion of high-end products, and implement smart manufacturing and green manufacturing.
For local governments, project termination means a recalculation of investment promotion logic; for enterprises, project termination is not the end, as buyback plans, base upgrades, technology iterations, and overseas layout will still form the main line of the next phase.
Competition in the tire industry has moved beyond the stage of simply competing for production capacity. Whoever can improve products, costs, and global support will have a better chance of overcoming fluctuations.
The termination of the Tongchuan project allows us to see that in heavy asset industries, rhythm, supporting facilities, and cash flow are more important than momentum, slogans, and imagination.
