The U.S. Environmental Protection Agency has made tremendous strides in reducing scrap tire stockpiles in the past 20 years. In 1992 there were over 1 billion scrap tires in the United States, but that number plummeted to just 128 million in 2007. While solid used tires are not considered hazardous waste by the U.S. EPA, tire piles pose a significant fire risk. Worse yet, one tire can produce over 2 gallons of oil as well as heavy metals and gaseous aromatic compounds when burned, all of which are serious environmental toxins. That makes cleanup more logistically challenging than it seems.
Engineers have tackled the problem with creativity -- recycling tires into various petroleum products, sound barriers for highways, flooring for playgrounds, turf for athletic fields, and more. That's a good start, but there's still one scrap tire for every American household. Knowing that, you probably wouldn't be surprised to learn that leading tire manufacturers such as The Goodyear Tire & Rubber Company (NASDAQ:GT) are interested in synthetic biology pioneer Amyris (NASDAQ:AMRS) for its sustainable fermentation approach to producing, with major help from leading chemical company Kuraray, liquid rubber from the hydrocarbon farnesene. But, surprisingly, sustainability isn't the motivating factor driving companies to develop tires with renewable chemicals -- and that's actually great news for Amyris.
Sustainability is nice, but value is king
I earned a degree from the country's leading tree hugger, er, environmental school, so I've listened to numerous arguments made in favor of protecting the environment from unsustainable practices. Saving a tiny snail that lives in only one prairie in Kansas (exaggerated example, of course) may sound like a sexy and important idea -- and it may be rooted in fact and backed up by reams of data -- but the reality is that it's mighty difficult to get companies to change suppliers just because there's a more sustainable option available. And that's exactly why it's so important for Amyris' Liquid Farnesene Rubber not to lean on the sustainability argument alone.
Why, then, are 13 of the world's leading tire manufacturers running to Amyris and synthetic biology? It all boils down to value created from more efficient production processes. Tires consist of natural rubber (isoprene), synthetic rubber, and sometimes mineral oils, which play the role of softener. Liquid Farnesene Rubber replaces a key monomer (presumably from the synthetic rubber component) in tire formulations. That alone is not significant, but tire manufacturers have discovered that the much lower viscosity of Amyris' renewable product makes it significantly easier to work with during manufacturing. Decreasing viscosity increases throughput, which allows tire manufacturers to produce more tires (with less energy) per unit time at a lower cost per unit. That has the potential to boost their margins and protect selling prices for Amyris and Kuraray. It's a simple win-win in economic terms.
Of course, the same physical properties of Liquid Farnesene Rubber that make it easier to work with during manufacturing also significantly reduce rolling resistance while driving. What the heck is that? When you accelerate your vehicle or cruise down the road, you put torque on your tires. The process stresses the tires and causes them to deform, forces the molecules within the tires to rub together, and creates friction and heat, which have a detrimental impact on the fuel economy of your vehicle. Therefore, significantly reducing that friction and heat can create a considerable boost in fuel economy.
For instance, Assurance Fuel Max from The Goodyear Tire & Rubber Company can improve fuel economy by 4% over their lifetime of about 65,000 miles. That may not seem significant, but it equates to 2,600 miles' worth of fuel. In other words, current-generation low-rolling-resistance tires nearly pay for themselves in fuel savings. How much better will next-generation tires with Amyris' Liquid Rubber Farnesene perform? We may find out soon enough: The first tire produced with Amyris' chemical should be sold by the end of 2014.
Foolish bottom line
That key feature will take center stage in the marketing strategy employed by tire manufacturers such as The Goodyear Tire & Rubber Company when pitching new tire formulations to consumers. Simply put, consumers don't really care about less viscous raw materials during production, but they will care about enhanced fuel economy and, to some extent, more sustainable raw materials. Better yet, the formulations incorporating Liquid Farnesene Rubber could even survive longer than conventional tires. Safety tests conducted by major manufacturers are expected to wrap up in 2014, but previous testing of low-rolling-resistance tires has demonstrated comparable safety data compared with conventional tires. In other words, Amyris can help tire manufacturers gain multiple advantages without sacrificing, well, anything.
The tire market represents a significant opportunity for Amyris, and Liquid Farnesene Rubber only represents one of three major products that will be thrown at the opportunity. Coupling Liquid Farnesene Rubber with Solid Farnesene Rubber, other high-performance polymers derived from farnesene, and isoprene (to replace natural rubber) could allow Amyris to supply the great majority of the components of a tire. Perhaps the magnitude of the opportunity is summarized by the fact that CEO John Melo expects tire manufacturers to fund the completion of the half-completed 65,000 MT-per-year facility in Brazil (part of the SMA joint venture) by 2016, which would be fully dedicated to the tire market. Additionally, products sold into the tire market are not included in the company's projected $1 billion in revenue potential by the end of the decade.
I hope that introduces the amazing opportunity presented by the tire market, which I want to cover in great detail through multiple articles. Next time we'll dive into the financial details and the size of the tire market.