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(Bloomberg) — France is destroying its industrial base by over-taxation, Michelin Chief Executive Officer Florent Menegaux said, with a thinly veiled threat to take business elsewhere.

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“You’re economically killing your country when you’re imposing taxes that are much higher than in other countries,” the French tiremaker’s CEO said in an interview in Paris. “Right now, the direct and indirect taxation in France is the highest in Europe. Don’t expect corporations to be able to swallow that all the time.”

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The French budget this year includes more than €8 billion ($8.3 billion) in extra revenue from a temporary increase in corporate taxation and a higher rate on share buybacks as part of a package of spending cuts and tax increases.

Menegaux is among French corporate leaders warning that the effects of a prolonged government crisis have put hiring and investment on hold. Higher taxes at home coupled with a drop in demand in the auto industry across Europe forced Michelin to shut down three plants in Germany, two in France and one in Poland. Producing in Europe is twice as expensive as in Asia, a gap that’s widened considerably since 2019, the executive said.

“We have to re-adapt our industrial footprint in Europe to export less because it’s not economical,” he said. The company has 50,000 employees in Europe, including almost 18,000 in France.

For Michelin, like for other large European industrial groups, the concerns in the region — including high energy and labor costs and red tape — have been compounded by the mounting likelihood of a trade war as US President Donald Trump multiplies his tariff threats. 

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“Let’s wait and see, but in a globalized world, the mechanisms are very complex,” Menegaux said. “If you start to put tariffs, it becomes very, very delicate to understand what are going to be the consequences.” He warned that it could mean more expensive tires for consumers in the US.

To weather the tougher environment, Michelin has been focusing on growing abroad as well as investing in high value-added sectors including tires for the mining, aviation and farming industries. It’s also extending its diversification push, going into inflatable shelters for the army and textiles used by astronauts while working on a new generation of glue that doesn’t use molecules harmful to health, Menegaux said.

Italian Acquisitions

Medical devices are another area of growth for the company. A string of acquisitions had already allowed Michelin to develop implantable material that enables repair, recovery and regeneration of human tissue.

As its key markets turn murky, Michelin is scouting for acquisitions to grow in Italy, which has a rich tradition of strong family controlled niche enterprises. Michelin is looking at medium-sized businesses that are contending with succession issues. 

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“Most of the time there are very well-run businesses already exporting outside of Italy,” the CEO said. “There are many things that interest us in Italy, where the economy is less affected than what we see in Germany, France and Spain right now.” The company already has two plants in the country.

Michelin is mostly looking for bolt-on acquisitions, but the company isn’t ruling out bigger M&A, Menegaux said. It has a “very strong” balance sheet and a limited level of debt, which gives it fire power for acquisitions.

“Without asking the market to help us we could raise up to €10 billion to do what we want,” the CEO said.

Competition laws in Europe “need to be revised” to allow for cross-border deals that can make the region’s players stronger amid cut-throat Asian competition, Menegaux said.

“The tire industry is still a fragmented industry. It needs consolidation,” the executive said.

The company has “no project right now, but everything is open,” the CEO said, when asked if he could contemplate multi-billion dollar transactions with some European rivals like Germany’s Continental AG.

—With assistance from Vidya Root, Stefan Nicola, Benoit Berthelot, Frank Connelly and Craig Trudell.

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