Continental employees
The supplier is investing more in e-mobility.
(Photo: Bloomberg)
Dusseldorf Less turnover, less profit and rising debt – Continental has already experienced better times. The worldwide decline in automobile production is dying DaxCorporation the balance sheet.
Sales in the second quarter fell by one percent to 11.3 billion euros, adjusted EBIT by almost 25 percent to 868 million euros, resulting in a margin decline from 10.2 to 7.8 percent. Debt rose by 1.4 percent as of June 30 to around 5.7 billion euros.
However sobering the numbers are, they are not surprising. On July 22, Continental already had a profit warning issued and adjusted its business forecasts. The real surprise is not in the numbers, but in the announcement of a “portfolio adjustment”. Hiding behind this technical word is Continental’s long-term farewell to the combustion engine, which is now becoming reality with the publication of the figures for the second quarter at the Hanover-based supplier.
In order to stem the change in the automotive industry and the resulting decline in demand for internal combustion engines, plans Continental to discontinue the business with hydraulic components. This includes the production of injectors for petrol and diesel engines.
In addition, Continental is reviewing the exhaust after-treatment and fuel-extraction components business. In contrast, the Group’s propulsion division, which will operate under the name Vitesco Technologies in the future, intends to focus even more strongly on electromobility in the future.
Increased investment in e-mobility
For the otherwise very reserved DaxThis is a noteworthy turnaround that has been reluctant for a long time. Time and again, Continental had pointed out and invested in the increasingly important electromobility and digitization. However, the business with components for internal combustion engines was still the key component of the group – but now the first stones fall out of this module.
Continental is now focusing its investments on e-mobility. Great hopes rest on Continental’s newly developed 48-volt mild-hybrid drive, which can prove to be a guarantee of success in the age of drive change in the auto industry.
But Continental is too slow even in times of change. Because it has been known for years that electromobility will play an increasingly important role. The political pressure from Europe regarding the stricter exhaust gas specifications alone would have been reason enough to begin electrification of the product portfolio much earlier. In the meantime, the economic conditions have worsened.
The US-led trade war with China causes great uncertainty, as does the weakening global auto market. “Car production is already falling for the fourth quarter in a row. That’s why we can already speak of a worldwide recession in the automotive industry, “says Continental CFO Wolfgang Schäfer. And a recovery of the automotive market is not in sight.
Schaefer expects a challenging second half. The company no longer plans to revive the market environment in the short to medium term. Overall, according to Continental, global automobile production is expected to decline by five percent this year.
At this very time, the supplier is pushing ahead with a cost-intensive restructuring of the group structure and at the same time has to invest in the three megatrends of the automotive industry – autonomous, connected and electric driving. Without savings, this is an impossible task.
“We are reacting to the declining market with strict cost discipline and increasing our competitiveness,” says Continental’s CEO Elmar Degenhart, The management has already explained to the supervisory board the strategy for how this should succeed. “The resulting need for action is discussed with the employee representatives,” it says in the press release on the numbers.
In contrast to the major Conti shareholder Schaeffler or competitor Bosch the group does not speak of concrete job cuts. “The majority of our customers are located in Europe, North America and China. If we have to take action in any way, that usually affects all three regions, “says CFO Schäfer. According to this interpretation, German locations would also be affected.
Group Works Council Hasan Allak, on the other hand, does not expect job losses Germany, “In contrast to the competition, Continental has not yet clearly announced its job cuts,” says Allak. “I do not expect that in the case of job cuts jobs at German sites will be affected.”
According to Allak, the works council had alerted the group management at a very early stage to the personnel challenges that are now emerging as a result of the change in the automotive industry. “Works council and corporate management would have needed stable structures to take employees through this disruptive change through training and education,” says Allak.
In the transitional period, however, Continental can rely on a well-filled cash register. The Group has cash and cash equivalents of 4.8 billion euros available. Frank Schwope of the North LB Therefore, the company considers itself well positioned even during times of crisis.
And the still stable tire business is also putting a bit of pressure on Continental. In contrast to the automotive sector, where sales fell by 3.1 percent to 6.8 billion euros in the second quarter, revenues in the Rubber Group increased by 2.5 percent to 4.5 billion euros. Nevertheless, Continental must press on the pace, not to lose the connection to the electrified competition.
Mild hybrid drive as a hope
For the future Vitesco CEO Andreas Schäfer, “the future is undoubtedly electric.” However, the transformation phase will initially be characterized by a drive mix in which the hybrid drive will play a central role. So Continental is in the field of the 48-volt drive system supplier from VW. The Wolfsburg will use the Conti components in the new Golf, which will come on the market at the end of the year.
Continental also has great hopes for a newly developed 48-volt hybrid drive, which the supplier is offering his tech show in Laatzen at the beginning of July presented. With it, vehicles can be moved electrically up to 90 kilometers per hour.
So far it has not been possible to electrically drive tons of hybrid vehicles with such low voltages. The advantage of mild hybrid drives over full hybrids is the low cost. These are crucial if suppliers like Continental want to earn money with electromobility. So far, the e-mobility for the Dax Group is a loss.
“The field of e-mobility makes no profit contribution,” says Schäfer. Also in the coming year no income should be achieved. Essential carriers of the drive business are currently components for the transmission and engine control. Well over 60 percent of sales come from this area.
But Schaefer sees a turnaround here. “We had hoped for many years of significant growth in e-mobility, which did not happen then,” says Schäfer. “But now we see that customers are asking more and more components and systems for electric drives and that growth momentum is increasing.”
Changing markets would require adaptation, according to Schäfer. Continental is now convinced that now is the right time to start stepping away from the combustion engine.
At the same time, however, Conti CEO Elmar Degenhart decides, as in the case of cell production of lithium-ion batteries, to forgo the production of solid-state battery cells – the next battery generation. “With the solid state technology, which will probably be available only after 2030, Continental will no longer be able to develop an attractive business model,” says Conti CEO Degenhart.
Another reason could be the high investment requirement. Volkswagen is currently investing tens of billions to set up its own cell manufacturing facility. Continental can not afford such sums against the background of the planned cost savings.
On the contrary: “Planned investments are being put to the test. However, we are sticking to construction projects that have already begun, such as new plants, “says Schäfer. “Overall, however, we will adjust our investment ratio. So far, this should be over eight percent. Now we are planning with a quota just under eight percent. “
More: Jobs are canceled, works closed: Suppliers such as Schaeffler, Mahle or Eisenmann are responding to the slack in the auto industry with tough measures.