Alcoa Announces Additional Investments In European Wheels Business To Meet Rising Demand
Alcoa (NYSE:AA) has announced that it is investing an additional $13 million to expand its wheel manufacturing plant in Hungary to meet the growing European demand for its lightweight, durable, low-maintenance aluminum truck wheels. This will double Alcoa’s capacity to produce Dura-Bright EVO surface-treated wheels by early 2015, compared to current production levels.
Alcoa manufactures wheels under its Alcoa Wheel and Transportation Products (AWTP) division. The products of this division serve the automotive market and the revenues are accounted for under Alcoa’s two downstream business divisions- Global Rolled Products and Engineered Products & Solutions. In 2013, these value added product divisions accounted for 57% of Alcoa’s total revenues and 80% of its after-tax operating income. [1]
See Full Analysis for Alcoa Here
The Need For Expanding Production Capacity
Europen countries are putting in place ambitious and strict emissions regulations for vehicles as a part of their effort to reduce greenhouse gas emissions. As a result a need is being felt for stronger, lighter and easier-to-maintain wheels that increase payload, reduce maintenance costs and enhance sustainability.
Alcoa claims that its Dura-Bright EVO surface-treated wheel maintains all the benefits of its predecessor, the Dura-Bright wheel that used the XBR technology, and also comes with enhanced performance levels. The company claims that the new wheel is much more resistant to corrosion caused by road salts, weather elements and chemicals found in truck wash cleaning agents. This, according to Alcoa, minimizes maintenance hassle and costs in addition to the benefits that accrue from the durability of the wheel.
Given these advantages over steel wheels, there is huge demand for them from automotive companies in Europe. Alcoa is looking to capture this market opportunity. The construction activity for expansion of the production line has already begun and it is expected to be completed in early 2015.
Move Is Part Of Larger Strategic Focus
Alcoa has consciously been focusing on growing its business in the automotive and aerospace segments. Demand potential is huge in these two areas as manufacturers are looking for parts and materials to enhance fuel efficiency by reducing weight. The U.S. has mandated automobile manufacturers to meet certain fuel efficiency benchmarks in a time-bound manner. One major way for companies to achieve these goals is by replacing existing steel frames and parts with aluminum. For instance, Ford has come out with a new model of its bestselling F-150 pick-up truck which is almost completely made from aluminum. In the process, the company has managed to reduce the weight of the vehicle by 700 pounds. Other major manufacturers like General Motors are expected to follow soon in Ford’s footsteps. [2]
Alcoa has always been at the forefront in devising new technologies and products in the aluminum segment which confers the first mover advantage to the company in new business areas. It is looking to do something similar with its latest offering for European automobile markets.
We would have liked Alcoa to give more details about the financial implications of this deal for its business. We would have liked more color on the additional revenue potential and its timing as well as profit margins. Hopefully, these details will be revealed in the company’s first quarter financial results scheduled for release next month. We will update our forecasts for the Engineered Production and Solutions division if these details require us to do so.
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Notes:- Alcoa Expands in Hungary to Meet Surging European Demand for its Latest Innovation in Lightweight, Durable, Low-Maintenance Truck Wheels, Alcoa News Release [↩]
- F-150 Sheds 700 Pounds as Ford Plans to Show, Not Tell, Bloomberg [↩]