Good evening. Good evening, everyone. Q1 2023 results confirm the resilience of our business model, with performance that is improving year-on-year and among the best in the industry. Scenario we foresee for 2023 remains characterized by a slowdown in economic growth, substantially in line with February expectations, an inflation rate staying high, especially of consumer prices, despite a reduction in energy transportation and raw material costs. All 2023 targets are confirmed and supported by the delivery of our strategic programs. On Golden Power, final measure is expected to be issued after the 4th of June, term for filing this late for board of directors renewal.
In compliance with the best corporate governance principles, today the board has resolved to submit to the AGM, taking place on June 29th, the proposal to postpone the renewal of the board after the conclusion of the Golden Power procedure. A subsequent general meeting will be called presumably before July 31st, and consequently, current directors will remain in power until the renewal of the board. The update of the industrial plan is postponed and is now due before the end of 2023. The deleverage target of a net debt and an adjusted EBITDA ratio of 1 time by 2025 is confirmed. Let's go to the results. Pirelli closes the first quarter of 2023 with a solid economic and financial performance. Top line growth, 12% year-on-year plus, driven by price/mix and strengthening on high value, now equal to 75% of the group revenues.
Adjusted EBIT of EUR 248 million, with a margin of 14.6%, in line with full year target. Net income of EUR 115 million, growing by 5%. Net cash absorption in line with the same period last year and is counting the buildup of investments in the fourth quarter of 2022. Efficient inventory management, particularly of raw materials, continued in the quarter. Reminder that the high incidence of these inventories in 2022 was due to both rising inflation and actions to contain supply chain risks. Moving on, I would like to give you an update on sustainability. Our commitment to health and safety at work is continuing with the launch of a global awareness campaign on the World Day promoted by the International Labour Organization on April 28th.
On product sustainability, we'll introduce new product lines with high content of renewable and recycled materials already in 2023. The collaboration with the key stakeholders is being intensified in view of the introduction of the Euro 7 tyre regulation, which will come into force in June 2025. On the industrial front, the decarbonization of plants to the transition to renewable energy and energy efficiency programs continues. Our commitment to the fight against climate change has once again been recognized by CDP, which confirmed the A rating for Pirelli last February. I now leave the floor to Mr. Casaluci.
Thank you. Thank you, Mr. Tronchetti, and good evening, everybody. Let us analyze both the market dynamics and Pirelli's performance. In the first three months of 2023, the global car tyre demand declined by 4 percentage point year-over-year, with a very different trend by segments and channels. Pirelli outperformed the market thanks to our further strengthening in high value. Original equipment market growth, +3% year-over-year, was supported by easing supply chain tensions, particularly in semiconductors. More specifically, in the high value segment, Pirelli saw over 7% volume growth year-over-year, in line with the market, while in standard, Pirelli's performance reflects greater selectivity in this channel and halting of car production in Russia due to the Ukraine conflict. Replacement demand remained weak, -7% year-over-year, reflecting the volatile macroeconomic environment.
In 18 inches and above, Pirelli outpaced the market by around 3 percentage points. Pirelli plus 3% versus a flattish market, driven by market share gain, mainly in North America. In 17 inches and below, Pirelli minus 11 versus a market minus 8, we continue to focus on a mix more oriented towards higher rim sizes. The first quarter results reflect the implementation of the key programs in the industrial plan. On the commercial program, consistent with our strategy, we have outperformed the car 18 inches and above market by gaining share in replacement, particularly in North America, increased exposure to original equipment 19 inches and above. Reaching 82% of car 18 inches and above original equipment volumes, which is nine points above last year, and electric vehicle. Reduced exposure to standard, which accounted for 36% of car volumes in Q1.
On the innovation program, achieved 60 technical homologations concentrated in 19 inches and above, about 85%, and specialties, about 70%. Strengthened EV positioning and focus on sustainability, while the two wheels business saw the launch of two products based on racing experience. On the competitiveness program, gross benefits of about EUR 10 million were achieved, in line with expectations and project development schedules. On the operations program, the saturation level of the plants stands at about 90%, more than 95% on the high value, in view of the lower level of production in Russia. In addition, the program to decarbonize plants through the use of renewable energy sources and energy efficiency programs continues. Let's start from the commercial program.
In the car 18 inches and above segment, we recorded growth of 5% compared to +2.6% of the market, driven by products with a higher technological content, the 19 inches and above, and specialties. In the original equipment car 18 inches and above, our performance, +7.5 volumes versus a +7.1 of the market, is characterized by an increasing selectivity in favor of electric vehicles. 100% of their year-on-year volume growth is related to EV homologations. In the replacement 18 inches and above channel, volume +3% compared to a -0.2 of the market, growth was driven mainly by the replacement product lines introduced in 2022, particularly in North America. On the product innovation front, our activity continued in the first quarter with an increasing focus on sustainability and performance.
In car, our EV portfolio stands at more than 350 homologations worldwide, mainly in 19 inches and above, and specialties, with an OE market share of 1.5 times that of premium and prestige internal combustion engine vehicles. In addition, the sustainability roadmap continues, with a strong focus on renewable and recycled materials. In 2023, our products will already have a sustainable material content well above our standards, and becoming a benchmark for the industry. As for motorbikes, Pirelli has been confirmed sole supplier for all classes of the Superbike World Championship until 2026, and our portfolio was further expanded with an introduction of the new DIABLO Supercorsa, the result of 20 years of experience in racing. Finally, in cycling, the P ZERO Rosso Tubeless Ready was introduced, produced in Italy and aimed at performance with low rolling resistance and excellent handling.
The competitiveness program in the first quarter recorded gross efficiencies of EUR 10 million, equal to 10% of the annual target, and in line with the timing of project development. The contribution of the efficiencies will be more evident starting from the second quarter. Reviewing our performance in the first quarter, in the product cost area, the adoption of a modular design and Design to Cost approach continued, aimed at reducing structural complexity and tire weight. In the manufacturing area, the results of which will be visible starting in the second quarter, projects are being implemented. Said projects are aimed at improving the production process by leveraging on industrial IoT, predictive maintenance and energy efficiency programs. In the SG&A, the process of optimizing the logistics network and supply chain continues. Finally, in the organization area, the process of digitization and staff upskilling is progressing.
Thank you so much, and I now leave the floor to Mr. Bocchio.
Thank you, Mr. Casaluci. Good evening to all. Let us analyze the dynamics of the top line in the first quarter. The volume trend, -3.1% at group level, reflects the weakness of market demand. As Mr. Casaluci already explained, we gained share in car 18 inches and above despite price increases, while we reduced our exposure to standard in line with our strategy. Strong improvement in price/mix, +15.1%, supported by a solid price discipline to counteract input cost inflation, and a continued improvement of the product mix through increased exposure to high value and improved micro mix.
The Forex impact was broadly neutral, -0.3% in first quarter or EUR -4 million , where the year-on-year devaluation of renminbi, Argentine peso was offset by the dollar's appreciation. In the first quarter, 2023, the adjusted EBIT amounted to EUR 248 million , up 9% year-on-year, with a margin of 14.6%, in line with the full year target. The contribution from internal levers more than offset the weakness of the external scenario. In particular, price/mix, EUR +198 million , and efficiencies, EUR +10 million , more than covered the drop in volumes worth EUR -20 million , linked to the weak market demand, and the increase in the cost of raw materials, EUR -78 million , including the related exchange rate impact, which was particularly significant in the first quarter.
This impact, which reflects the growth in the oil price, its derivatives, and rayon, is expected to improve in the coming quarters. The internal levers also offset the inflation of other production factors, such as energy, labor, and transport, for an amount of EUR 69 million, and the negative exchange rate effect, EUR -15 million, due to the revaluation of the currencies in our main production hubs, particularly in Mexico, whose currency appreciated by 15% against the euro. Let's look now at the net income dynamics for the quarter. Net income increased EUR 5 million year-over-year. The trend takes into account the already mentioned improvement in the operating performance, the EUR 2 million higher restructuring and non-recurring costs, the year-over-year increase of the net financial charges reflecting the rise of interest rates in the Eurozone and high cost of hedging Forex risks in Russia.
We will discuss this trend in a couple of slide. The 6 million increase in tax charges related to the higher operating results, as tax rate is at 28.5%, reflecting a different mix of result generation by country. Net income adjusted, meaning excluding all one-offs and non-recurring items, is positive for EUR 142 million at the end of March. Net cash flow in the first three months was negative EUR 691 million, in line with the seasonality of the business and with the first quarter of 2022. The change in operating net cash flow mainly reflects the improvement in operating performance absorbed by higher investment activity and higher working capital.
The trend reflects the usual seasonality of the business with the increase in trade receivables following the start of the summer campaign and the reduction in trade payables linked to the trend in investments and raw materials. The careful management of inventories is to be highlighted with an incidence on sales that is reduced to 21.5%, thanks to the actions on raw materials. It should be remembered that in 2022, the high incidence of these inventories was due to both rising inflation and actions to contain supply chain risks. On the other side, finished product inventories are stable. The group gross debt as of March 2023 stands at approximately EUR 4.9 billion. Considering the approximately EUR 1.6 billion of financial asset, our net financial position is equal to EUR 3.2 billion.
2023 debt maturities have already been fully managed. Liquidity margin allows the coverage of maturities until 2Q 2025. During 1Q 2023, Pirelli early repaid both a Schuldschein financing originally coming due in July 2023 for an amount of EUR 223 million and a bilateral bank loan original coming due in August 2023 for an amount of EUR 125 million. Pirelli also issued a EUR 600 million five-year bond, which was very well received by the market. This issuance marked a debut for Pirelli in the investment grade rating space. It was also the first sustainability-linked benchmark size bond from a tire maker company. ESG financing now represents 57% of our gross debt, confirming the centrality of the sustainability strategy.
Finally, our last 12 months cost of debt stands at 4.31%, 27 basis points up from December 2022. This increase reflects both the rise in interest rates, mainly in the Eurozone, and the higher cost for hedging against currency risks, in particular in Brazil and Russia. I now leave the floor back to Mr. Tronchetti.
Thank you, Mr. Bocchio. Let us now turn to the outlook for 2023. The framework remains extremely volatile with a general slowdown in the economy and consumption. We confirmed last February outlook. The car tire market is expected to be broadly stable year-on-year. With opposite trends between high value and standard. High value confirms its resilience with growth in car 18 inches and above mid-single digit compared to a 2% drop in standard. More specifically, on car 18 inch and above, expectation are for high single digit growth in original equipment supported by the progressive normalization of the supply chain. Replacement channel, on the other hand, is expected to grow the low single digit rate with a gradual recovery in demand in the second half of the year, thanks to recovery in China and other major markets.
Based on the results achieved in Q1 and the scenario just described, we confirm all 2023 targets. Revenue between EUR 6.6 billion and EUR 6.8 billion. Volumes between flat and +1% year-on-year, with mid-single digit growth on high value, while continuing to reduce exposure on standard. As mix improving between +4.5% and about +5.5%, benefiting from price increases in 2022 and those announced earlier this year, as well as continued improvement in product mix. Exchange rates declining between -4.5% and -3.5%. Profitability in terms of adjusted EBIT margin between more than 14% and around 14.5%, where adjusted EBIT in the mid-range, essentially flat year-on-year and where price/ mix and efficiencies will offset the impact of the external scenario.
Investments of around EUR 400 million, around 6% of revenues in technology upgrades and factories, mix improvement and increase in high value capacity in Romania and North America, the expansion of which will be completed by 2025. Expected net cash generation before dividends between around EUR 440 million and around EUR 470 million due to operational performance and efficient working capital management. This target includes the payment in the second quarter of 2023 of management's long-term incentives relating to the three-year period, 2020 and 2022, based on shareholder return, cash and sustainability targets, the latter being the maximum. Please note that from 2024, following the transition to the rolling system, incentive payments will be on an annual basis with a substantial alignment expected between impact on the income statement and cash outflow.
Net financial position of about, minus EUR 2.35 billion, with leverage between around 1.65 and 1.7 times adjusted EBITDA, in line with the de-leverage process outlined in the 2021, 2025 business plan. This ends our presentation, and we can start the Q&A session.
Thank you. We will now begin the question and answer segment. Anyone who wishes to ask a question may press star then one on their touch-tone telephone. To remove yourself from the question queue, please press star then two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. That's star and one. We will pause for a moment as callers join the queue. Our first question is from Giulio Pescatore with Exane BNP Paribas. Please go ahead.
Hi, good evening, everybody, thanks for taking my question. The first one on the guidance, very strong results from price/mix in the first quarter. I'm just looking at this guidance for 5% price/mix on the full year thinking that it does imply a big drop in the second part of the year. I do understand the pricing comes from the pressure, can you maybe help us understand how you get from 15% in Q1 to 5% on the full year? If you went back to Q1, can you maybe share some color on how much was pricing and how much was mix within the 15%? Also on the various drivers of the mix effect.
I'm just trying to understand how sticky the mix effect we saw in Q1 will be in the coming quarters. Then maybe the last one on the governance. I understand that you might not be able to share anything incremental on the Golden Power agreement, but this is creating significant or certain level of uncertainty. Anything you can share in addition to your initial remark with regard to potential implication of this adverse decision from the Italian government or anything like that would be much appreciated. Thank you very much.
Well, I start with the answer to the Golden Power question. We just know until now that there will be a postponement because of question raised by other countries, which is normal in such a process. That's why we split the AGM in two parts. And about the outcome of the Golden Power, it's really impossible to say anything because it's an ongoing process, and we will be aware of the outcome not before, let's say, the end of May, beginning of June. Until then, really, there is nothing we can add to the fact that the procedure is an ongoing procedure. Mr. Casaluci for the other question, please.
Yes. Thank you. Price/ mix of the Q1, 15.1 percentage point, roughly is 2/3 coming from price performance and 1/3 coming from mix performance. The first question is related to the expectation of the price/ mix for the coming quarters. To lend to what we do consider today the most comfortable performance of 5.5, it means on the upper range of our guidance, we do expect in the coming quarters a price/mix, which is a mid-low single digit performance. This will be driven by roughly a price positive performance of 2-3 percentage point, mainly driven by the rollover of the price increase of last year, and also the price increase applied in North America in January, up to 10%, and in Europe end of 2022. The price performance is below the performance...
is expected to be below the performance of the Q1 simply because of the less favorable comparison year-over-year because in 2022, we started to apply the price increase starting from Q2. Some minor impact of the original equipment cost matrix in the second half. All in all, the price will be maintained. There is a full price discipline in our segment, in the high value, we keep on performing as we are doing till now. maximum level of price discipline and price control is the priority 1 of the commercial campaign.
If we move to the mix, we do expect the usual four, five point of positive product mix, mainly driven by the micro mix effect, and so the growth in specialties and the reduction of standard, and a negative impact of 2-3 percentage point related to channel and region mix. Because as we saw, the original equipment market is expected to perform better than the replacement, and because the replacement demand in North America and Europe is expected to be weakening, and these two regions have normally a positive impact on the region mix. Thank you.
Thank you very much.
Our next question is from Monica Bosio with Intesa Sanpaolo. Please go ahead.
Yeah. Good evening. Thank you for taking my question. I hear Enrico. I hope you can hear me. Can you hear me?
Yes, we can hear you.
Yes, good evening. I was wondering if you can update us with the total impact of headwinds from inflation and raw material for the full year. I remember that in occasion of the full year 2022 release, you gave an indication in the region of EUR 250 million, if I'm not wrong. The second question is on the dealer network in the replacement channel in Europe. I was wondering if there are some pricing pressure, some sign, more visible sign of trading down. The very last question is on the EV tires. In occasion of the full year 2022 results, I remember that EV tires reached 17% of the original equipment in tires above 18 inches.
I was wondering if you can give us an update for the full year 2023, if you have it. Thank you very much.
Thank you. For inflation impact is around EUR 310 million. I leave the floor to Mr. Casaluci for the other questions.
Yes, thank you. The inflation already answered by Mr. Tronchetti has been lowering on EUR 35 million compared to the previous guidance, and it is the positive impact that together with price/mix has been basically compensated by the Forex effect. On retail channel price, no, as I said before, there is a good level of price discipline in the market in our reference segment, which is the high value. We keep on growing in market share, but always having the price discipline and as the priority one in our commercial policy. As far as the weight of the region, the EV into the regional equipment today in the 18 inches and above has been around 25% in the first quarter.
The weight of the electric vehicle in the 18 inches and above segment in original equipment, and is expected to arrive within end of the year around 31%-32%. It's the fastest growing segment inside our original equipment sales in high value.
Okay. Thank you very much. Very helpful. Thank you.
Thank you.
Our next question is from Martino de Ambroggi with Equita. Please go ahead.
Thank you. Good evening, everybody. Just to complete the previous answer, this is for original equipment. Just to clarify, are you referring to volumes sales for the original Equipment BEV, and after market is still at 1, 2, maybe 3%, or maybe a little bit more?
I was referring to the volume impact. Yes, if we move to the replacement, it's still very low. It's around 3%, within year-end, is expected to go up at 3.5%-4%. We are still waiting for the impact on the pull-through rate in the after-sales, that is expected to grow significantly from 2024 on.
Okay. The second question is on price discipline. It's very clear, you already mentioned it, in high value, is always respected. What is going on on the standard segment overall? Let's say also how your competitors are acting in this business.
Well, thank you for the question. In, in the high value, we are also supported, I forgot to mention before, to the, from the high level of saturation of our production capacity. In the high value and mainly the specialty segment, the demand is still higher than the installed capacity, and this is supporting the price discipline and the resilience of the demand. While in, the standard, some negative impact, in the market are visible, also accelerated by the trade down of the 16 inches and above segment. Let's consider that the tier one weight on the 16 inches and above segment today is around 35-34% of the entire market. Today is an arena of tier two and tier three brand.
That's the reason why we accelerated the phase out from this segment, since years ago. Now we have the less exposure inside the tire industry to the segment. Thank you.
Thank you. The last is on from a geographical perspective, if you could elaborate on China, how the market is going on. In Russia, you mentioned the utilization capacity was penalized by Russia. What's the current utilization capacity in Russia, and is it still profitable for the full year?
I refer always to the 18 inches and above market, so our reference market. In the first quarter has been positive, around 4%, more or less, with the same pace of growth in original equipment and in the after-sales. We do expect a recovery, a fast recovery in the second quarter because of the comparison versus last year. The expectation is for an 18 inches and above market in the second quarter of a positive around 23%. Again, more or less, with the same speed, original equipment and replacement.
We have to remind that in last year, in 2022, in the second quarter, China was basically, was strongly affected by the lockdowns related to the COVID-19 and the restriction to mobility. The Russia market today accounts for less than 3% of our total result, so the is less and less meaningful. The capacity is utilized at around 65% of the total capacity available and fully dedicated to the local market. Thank you.
Okay. In your guidance, you still have Russia as a profitable entity this year.
Slightly profitable.
From Sanjay Thawani with Keely. Please go ahead.
Hi. Thank you very much for taking my question also. I have got three questions as well. My first one is on pricing. Could you please remind us what proportion of your volumes are tied to the index pricing? That is. When we talk about the indexing, then what components are included in the indexing? Is it just the raw materials or it's the other inflationary components like energy or, and logistics are also indexed? What I'm trying to assess is, like, if the raw material prices are going down, then when do we start to see this coming into the lower index prices? That is my first question.
Okay, thank you. I will answer to this first question. When I talk about price indexation, is only referred to the original equipment channel. To the 70% of the total channel, the channel waits for 25% of our sales. 70% out of 25, it means that no more than 16%, 17% of our total sales are affected by the indices indexation. Thank you. The index is fully related to raw material, no more than raw material. If the raw material will go down, we have after from 3 to 6 months, depending by customers of delay, the impact on our price. We can consider that the impact on original equipment price is already fully factorized, fully included in our actual guidance. Thank you.
Thank you. That is very helpful. My next question is on the Q2 volumes. Could you please maybe provide some update on what are you expecting for the volumes going into the Q2? Then finally, last question on E tires. Could you please provide some latest update on what the price difference is between the like for like EV versus conventional engine tires? How do you see this trend developing in the next few years? I mean, depending on the order pipeline you have. Thank you.
Thank you. Q1 volumes market, I guess, is expected to be more or less equal to the first quarter in Europe and in North America, with a positive original equipment around 10% positive from 8% to 10% positive in both regions. As always, more resilient in the 18 inches and above. That goes up normally 4, 5 percentage point more than the overall market. While we do expect a rebound of the market in China, as I said before, compared to the first quarter, the market was slightly positive.
While in the second quarter in China, we'd expect a total market of, as I said before, 12%-13% of growth year-over-year, more or less same pace of growth in original equipment and replacement, and the 18 inches and above is expected to grow average 20%. Moving to the electric vehicle, very important question for us, because EV is going to represent one of the most important opportunities we have in front of us as a high value leader in the tire industry. The average selling price on electric vehicle in replacement is around 15 percentage point higher than the equal size for the internal combustion engine. The weight on our sales, as I said before, starting from original equipment and then moving to replacement, is expected to grow year after year.
We have already reached the 1.5 times our market share in EV compared to the internal combustion engine, and this is expected to be reflected in the replacement channel starting from 2024.
Thank you. That's very helpful. This 15% price gap, do you see this remain for the next 2, 3 years?
Our estimation is not. This price gap will remain for the coming 2-3 years because the technology is still in the growing phase. Even if in the high value segment, in the original equipment, the car registrations are expected to grow significantly, going up to 50% or even more of the car registrations. In the car park, the weight of the EV will remain relatively small. The introduction of the technology and being less competitors in this arena will protect the price gap between internal combustion engine and the electric vehicle. I'm always talking about the high value segment, of course, premium and prestige car park.
Thank you. That is, very, very helpful.
Our next question is from Stephen Benhamou with Bank of America. Please go ahead.
Hi. Good evening. Thank you for taking the questions. The first one, apologies if you've already answered this, I joined the call slightly late, but what was the split between price and mix within the Q1 15% price/mix tailwind? Perhaps just touching on the guidance with 15% in the bag for Q1, it would appear that you should have a carryover effect of at least 7 or 8 percentage points for Q2, which assuming that the second half is zero, would suggest that the 4.5%-5.5% is already basically achieved for the year. Just wondering if that's a fair assessment or if there is something that I'm missing there?
On Forex, should we expect a similar negative effect impact at an EBIT level for the coming quarters? One final question. I hope it's a quick one, if I may. Can you please just comment on the expected development of raw materials for Q2, as I'm sure you're already, you already have visibility on this, at, in your inventories. Thank you.
Yes. Back to the question of the price/ mix. We expect to land the end of the year at the upper range of our guidance, around 5.5%. Starting from a very positive Q1 of 15%, it means in the following nine months, a mid-low single digit price/mix, always positive price/ mix. The positive price/ mix of mid-low single digit will be driven, as I said before, with a positive price. We keep on with the price discipline. That's a priority one of our commercial policy. We will have a positive price effect of 2-3 percentage points for the following nine months. This is mainly driven by the rollover of the price increase of last year.
Is expected to be lower than Q1, the impact, simply because the less favorable comparison with last year. The vast majority of the price increases last year have been applied starting from the second quarter. That's the reason why you see this reduction in the % impact. We will have the usual positive impact of the product mix, driven by specialties and growth in the micro mix, partially compensated by a negative channel and region mix. As we saw before, the original equipment market is expected to perform much better than the replacement, and because the slowdown of the demand in Europe and North America will negatively affect the region mix. That's are the measure impact. Important to remind, price will be priority one and maximum level of price discipline in our product offer. Thank you. Sorry.
The second was related to raw material. We don't expect measure changes in the raw material market for the second quarter. Let's also consider that the impact on our costs is covering the following from four-six months, depending by raw material. We can consider that in 2023, the potential impact of raw material movement and volatility for the coming months is, for the vast majority, already included in our cost base.
Understood. Thank you. Should we expect a raw material headwind, incremental raw material headwind again in Q2?
Yes. Is expected in headwind. That is the result of commodity price versus last year and Forex impact on the purchasing of commodities, even if is expected to be less than what has been in the first quarter, much less.
Yeah. My final question was just on the Forex impact, if we should expect a similar high drop-through rate at an EBIT level for the coming quarters.
Mr. Bocchi.
Yes. Thank you. Thank you for the question. The answer is yes. Actually, we are considering in our guidance a negative impact of the effects on EBIT, even higher in the coming in the coming quarters. It is already factored in the in the guidance. For 2023 on the full year, we are expecting the drop through of the effects to be a little bit higher than what we experienced in 2022 due to the mix of currencies. We are taking into consideration a devaluation of the United States dollar, a revaluation of the Mexican peso, and some uncertainty related to the Latin America currencies. Particularly, we are imagining taking into consideration devaluation of the Argentine peso.
All of this is included, but, the answer is yes, we are foreseeing a similar negative impact even more for the next quarters.
Very clear. Thank you.
Our next question is from Thomas Besson with Kepler Cheuvreux. Please go ahead.
Good evening. Thank you. Two questions, please. First, could you comment on the level of inventories for your main dealers in North America and in Europe? Tell us whether you believe there is a kind of waiting game, or them waiting basically for potential price cuts, or whether you think there is already an excess level of inventory at dealer levels, for instance, in winter tires in Europe. The second question, I'd like to come back to BEV tyres. Can you tell us what you have learned over the last 12-18 months or about the driving patterns of the customers who have bought the BEV, and what you expect in terms of replacement cycle compared with someone driving an internal commercial car, either in terms of months or kilometers driven?
Thank you.
Okay, about stock in the trade, I would say to simplify that the stock we see is at the normal level, basically in all markets and regions, with the sole exception of winter in Europe. The stock in winter in Europe is above the average of the season. Normally, at this point of the year, we have from 15%-20% of leftover, and what we measure today is from 20%-25%. Despite the winter has been longer than normal, the stock is still high. About the EV, this is a very important question again. What we see is the tire for the electric vehicle will cover a more and more important role in the driving experience of our end users.
The electric vehicle is an easier car. Requires less maintenance than an internal combustion engine, with the sole exception of tire. Because tyre is going to influence the comfort in terms of noise control, the safety in terms of grip, because the torque momentum is much stronger in terms of load index, because EV are heavier. Also, the durability of the battery is affected by the yre maintenance. All in all, what we see, and so also the consumption of the trade partner is expected to be from 15-20 percentage point higher than the internal combustion engine. All in all, the maintenance of tires and the role of the trade and the retailer in this process becomes more and more important.
That's also one of the reason we see this huge opportunity. We need, together with the current makers and the trade partner, to educate the consumer more and more in this process of maintenance. Thank you.
You have no equation in mind in terms of kilometers driven or time it takes between first purchase and the first replacement as an average to indicate us?
It's faster than.
Thank you.
The internal combustion engine.
Thank you.
Our next question is from George Galliers with Goldman Sachs. Please go ahead.
Yeah. Thank you very much for the presentation and for taking my questions. My first one is on the standard segment. You're clearly reducing the exposure quite quickly, with another 4% reduction compared to last year. Just, can you give us a bit of, a bit of a guidance around at what point, you see sort of a floor for your standard exposure, where you want to land, you know, and how much more capacity or how much more exposure are you willing to take out? At what point, you know, will you have to invest more into, to convert some of the standard capacity into high value capacity if it takes up more share within your business? My second question is on just on Russia.
I know it's only 3% of the sales. According to your release, it's still 8% of the production. Is that production just being redirected to other regions in the world where you can still export from Russia? What is sort of the strategy that you pursue there if you are not only supplying the local market? Thank you very much.
Well, the first question is, Is the standard for us is mainly the 17 inches and below. In 2023 is expected to reach, in terms of sales, a maximum of EUR 25 million. A reasonable landing point for us in the coming two years, as we always explained, it is around EUR 20 million. In terms of market share, it means below 2% of the global market share, mainly concentrated in South America. Always keeping the most profitable products inside this segment. Moving to Russia, yes, you are right. We were used to export in the past, around 3.5 million tires from Russia. Today, the export is finished. We are not exporting anymore.
The tires that we were used to export mainly to Europe, today are delivered from local production in Romania, Europe for Europe, increasing the local for local percentage, and so the de-risking of the company, and partially from Turkey, through an offtake agreement. Thank you.
Thank you.
Our next question is from Ross MacDonald with Morgan Stanley. Please go ahead.
Hi there. Thanks. Ross MacDonald, Morgan Stanley. Maybe I can ask Stephen's earlier question slightly differently. It looks like high value tires are now 75% of group revenues, up 1.4 percentage points. Is there a target internally that you're shooting for in terms of high value revenues versus standard over the medium term? You mentioned in your slides that Pirelli is working to reduce tire emissions as part of Euro 7. I'm just curious, you know, how much further you have to go in that process and if that's driving higher R&D spend. If the change towards, you know, lower abrasion products is relatively straightforward for Pirelli.
Finally, on the Phase III competitiveness program, obviously this is currently EUR 10 million of savings in the first quarter, EUR 100 million for the full year. Do I infer correctly that this should now rise in the second quarter to around about the EUR 30 million mark? Perhaps you can comment on the key drivers, that mostly energy consumption or something else. Thank you.
For the local for local in our business model is today around 85%. This is a strategy we have since decades and it continues like this, and it increased lately. In emission, all our targets are public. We have a continuous process. It's an endless process. Renewable electricity will be by 2025, 100%. Energy will come from renewable electricity. In 2022 was 74%. CO2 emission, our target is to minus in 2025 is -42% compared with 2015. CO2 emission is target 2025 is -9% versus 2018. We target always the leadership in on the action on climate change.
It's confirmed by CDP with an A rating. For sustainable finance, we have made the first ever tire sector benchmark sustainability-linked bond placed in January 2023. The third question was? There was another question. The euro. We are quite balanced between dollar and euro. In fact, if the euro is increasing slightly, it's better for us. We are very much hedged. All in all, for us it's a euro a bit stronger is better. We lost you.
Mr. MacDonald, your line is still open, sir.
Oh, yeah. No, that's. I think that covers things. I'll maybe follow up separately. I mean, the real thing I'm interested in is on this tyer abrasion, the Euro 7 regulations specifically. You talk about a 30% improvement across your products in recent years. Is that costing significantly more in terms of R&D spend and is that extending the duration or the replacement cycle for your products? That would be my one key question. Thanks.
No, this is equal, so we don't have a higher cost for it. What is worth underlying is that being the high-end and producing tires with specific materials, the PM10 in our products are less dangerous because the size is a bit bigger. That is the all in all our situation.
Thank you.
Thank you.
Our next question is from Gianluca Bertuzzo with Intermonte SIM. Please go ahead.
Hi, everybody, thank you for taking my question. I have just one. Given the positive set of results, do you feel more confident on reaching the high end of the guidance? Thank you.
We will fight for it, obviously. A bit of cautiousness is better to keep in an environment that is very volatile. As it was explained before by Mr. Casaluci, in our segment, in the high end, we see we have opportunity to deliver the best part of our range. Anyhow, it's early to say. It's the first quarter, we still have to see what is going to happen in the future. For the time being, we stick to prices, and we see opportunities looking forward, but it's a really very volatile market.
Thank you.
Thank you.
Mr. Tronchetti Provera, there are no further questions registered at this time. Back to you for any closing remarks you may have, sir.
Thank you. Thank you, ladies and gentlemen. This conclude today's the program. Thank you for your attendance. Have a good evening.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.