What’s the one product in the world we’ll always spend money on?

On Wednesday morning, I awoke to my son, Max, running into our bedroom saying, “Daddy, daddy it’s snowing!!”

Once I grumbled and gruffed my way out of bed, and pulled back the curtains, I could confirm that it wasn’t just a fantastical dream Max was having, but it was indeed snowing again outside.

The backyard was covered with a healthy slab of the white stuff, the car on the driveway was wearing its fluffy white-covered hat, and the dog refused to go outside for a pee because it’d be too cold on his “puppy bits”.

While snow isn’t all that unusual this time of the year, it’s still quite the novelty to me as an Australian. However, it does also present its fair share of problems here in the UK.

Notably, the minute is snows, or things get a little icy, people lose the ability to drive.

By that I mean that snow and ice on the roads require not just a different skill set to regular driving, but also different “hardware”.

Once you go big, you never go back

The snow last week was a good dusting, but not severe enough to close Max’s nursery. That meant the nursery run in the morning was still a “go”.

With my wife’s car under the blanket of snow and requiring a thorough de-icing, it made more sense for us to jump in my car (in the garage) and for me to do the nursery run with Max.

The other thing in favour of using my car is that it has Audi’s (or rather the Volkswagen Group’s) famous Quattro four-wheel-drive system. However, even more favourably, I’ve got winter tyres on my car.

Winter tyres in the snow and ice are significantly better for driving than regular “summer” tyres. The technology deployed in them means they operate better in colder conditions (typically less than 7 degrees Celsius) and they can shake loose the build-up of snow and ice within the tread patterns.

There’s a lot more to it than that, and I’m sure there are experts more up to speed with winter tyre tech than me. Nevertheless, there’s no doubt in my mind that – given the conditions we see every year here in the UK – winter tyres are an absolute no-brainer.

That means that I do, in fact, have two sets of tyres for my car – one for summer and one for winter. That’s eight tyres. And around March and November each year they get switched over.

And if I’m unlucky (as I was last winter) I’ll have to replace one of those tyres because of the many potholes on UK roads that have a habit of shredding tyres.

That is a hit to the household budget of about £200.

Now, I’ll admit that £200 a tyre is on the higher end of the tyre price spectrum. But the size and specifications of my car’s wheel require it. And the thing is, if I need more tyres, it’s not as if I’m not going to buy them, I have to buy them. And if I’m replacing one tyre, it’s going to be the same tyre as the rest.

But I’m not alone. When I look at most cars on the road (and increasing number of SUVs) there’s a distinct increase in size of wheels, and hence tyres, and hence lower profile tyres, and hence more expensive tyres on the road.

Also, once you have a car with bigger wheels, you never can go back to smaller ones. I’d love to hear from you if you have… but I’d hazard a guess that aesthetically it’s not something that anyone ever does.

What is all this building to? Well the markets are awash with “tech” companies. And if you want to get technical about things, there’s a fair argument to make that every industry on earth is now “tech”.

But that also means some of the less sexy industries you can invest in also deploy tech into their products and services. Further, these companies – while not the FAANGS of this world – are arguably more important to our everyday lives.

Like tyre companies.

The things we’ll never do without

Have you ever tried driving a car without tyres? No? That’s because you can’t.

It doesn’t matter if you drive a car, an SUV, a van, an EV, a truck… whatever… all the vehicles on our roads require tyres to operate. And tyre tech is an ever-evolving part of the market. Companies like Michelin are even developing airless tyres which can’t be punctured. Many companies now also make EV specific tyres as the kind of tyre needed for an EV is different to an internal combustion engine car.

And what a lot of people don’t realise is that particulate matter pollution from tyres can be 1,000 times worse than particulate matter from car exhausts.

Hence the humble tyre is one of the most necessary products in the entire world and one of the most important to develop and innovate with new technology.

While swings up and down in new car sales might on the face of it impact the performance of tyre stocks, it’s the replacement market that drives (unintentional pun) these companies forward.

The bigger players in this space are the likes of Michelin, Goodyear, Bridgestone, Continental and Pirelli. You’ll also find that in more recent times a lot of consolidation has taken place in the industry with the bigger players bringing in smaller, more niche tyre companies into the fold.

This perhaps most obvious with Goodyear acquiring Cooper Tyres in 2021.

But of all these companies, it’s Pirelli that I think is the one to watch. In my view, the advantage Pirelli has over the rest of the tyre market is its brand strength and recognition.

One of the smartest moves Pirelli ever made was aligning itself as the sole tyre supplier of Formula One.

This immediately positions the brand as the world’s most elite performance tyre company. Furthermore, it has a very specific brand positioning at the premium end of the tyre market. That makes its tyres pricey, but popular – and in a world where we always need more tyres I believe their target market, their brand positing and the quality of their product makes them an interesting consideration for investment.

Until next time…

Sam Volkering
Editor, Exponential Investor

PS Buying and replacing tyres is a certainty. It’s something that we’ll always do and will always happen. That predictability of a market is a strong incentive when you’re looking for somewhere to invest. But what if there were other certainties in the market, like a regular “cash surge” that you knew was coming and that you could actively trade on? There is. You can. And you should check out the Rapid Money Masterclass right here to find out more.

PPS Just a reminder that Exponential Investor is changing. I’m joining forces with my colleague Nick Hubble over at Fortune & Freedom, to bring you wider ranging daily market analysis.

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