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(Continental. Image from Continental’s official WeChat account)

Our reporter Xia Zhibin and Shi Yingjing report from Shanghai

The story of the auto parts giant splitting and restructuring is happening again. On August 5, Continental announced that due to the rapid development of the automotive market, the Executive Board decided to conduct a further detailed evaluation of the split of the automotive sub-group after a strategic review.

China Business News reporter learned that the purpose of establishing two independent companies is to give full play to Continental's potential in value creation and business growth. After a detailed evaluation, the Executive Board will make a decision on the split in the fourth quarter of 2024. If approved, the split plan will be completed by the end of 2025. It is reported that preparations for the split are already underway.

Furthermore, as part of the restructuring, the profitable Tire and ContiTech subgroups will remain within Continental. This structure will also be part of a detailed evaluation. The Continental Supervisory Board has also been informed of the decision of the Continental Executive Board.

The reporter learned that, like the spin-off of Vitesco Technologies in September 2021, Continental's shareholders will receive shares in an independently listed automotive company in proportion to their Continental shares.

The automotive sub-group's revenue in the second quarter of this year was 5 billion euros

Continental said that since 2022, the automotive sub-group has integrated its business into a legal entity. If the split is carried out as planned, it will become a completely independent company. The automotive sub-group achieved sales of approximately 20.3 billion euros in fiscal 2023 and currently has approximately 100,000 employees with high levels of technical and system expertise and vertical integration capabilities.

According to the news released by Continental, the automotive sub-group has gained a strong market position in the fields of innovative braking and comfort systems, sensor solutions and display screens. In addition, thanks to the great progress made in the development of software, architecture platforms and assisted driving systems, the automotive sub-group can cope with the rapidly developing future market of software-defined cars and autonomous driving.

It is reported that Continental's Tire Sub-Group and ContiTech Sub-Group currently employ about 100,000 employees and achieved total sales of approximately 20.8 billion euros in fiscal 2023 (Tire Sub-Group: 14 billion euros; ContiTech Sub-Group: 6.8 billion euros).

Regarding the strategic considerations for splitting the automotive sub-group, Continental CEO Steinberg said: "Our strategy is to enhance our value creation. This includes systematically analyzing how to find the best position for each sub-group to achieve success."

"In recent months, markets and customers have changed dramatically, especially in the automotive industry," said Situ. "Looking ahead, the drastic fluctuations in regional markets and software-driven technological transformation require companies to have greater flexibility and autonomous decision-making capabilities. Against this backdrop, we plan to split Continental into two independent companies. When conducting a detailed evaluation, we will keep in mind the interests of all employees - they will also benefit from having two strong, independent companies."

At the same time, Wolfgang Reitzle, Chairman of the Supervisory Board of Continental, also said: "The separation of the automotive sub-group has the potential to enhance our competitiveness, agility and transparency. As a strong, independent operating entity, the automotive sub-group will be able to fully utilize its potential and continue to create value. In addition, investors will also be able to invest in a company focused on automotive electronics."

The reporter noticed that Continental announced on August 7 that the company's performance in the second quarter of 2024 was in line with expectations. Compared with the first quarter, the revenue of the company's three major sub-groups increased significantly, and the group's revenue also increased significantly year-on-year.

Taking the automotive sub-group as an example, its earnings have been effectively improved thanks to price adjustments and cost reduction measures. Situ Che said: "We have made significant progress in the automotive sub-group and plan to continue to improve in the coming quarters."

Relevant data show that in the second quarter of 2024, Continental's sales will be 10 billion euros, of which the automotive sub-group's sales will be 5 billion euros, the tire sub-group's sales will be 3.4 billion euros, and the ContiTech sub-group's sales will be 1.6 billion euros.

The reporter learned that Continental expects the sales of the Automotive Sub-Group to be approximately 19.5 billion euros to 21 billion euros in fiscal year 2024. It is reported that in the first quarter of 2024, Continental received a large order for central control displays from a large international manufacturer, with an order value of more than 2 billion euros. In the second quarter of 2024, the total order volume of the Automotive Sub-Group has reached 5.9 billion euros.

The Chinese market is one of the important growth engines

In recent years, China's automobile industry has developed rapidly. China has been the world's largest automobile market for many consecutive years, attracting overseas parts companies to compete for layout, and Continental is no exception. "As the world's largest automobile market, China has unlimited development potential and opportunities. The Chinese market is and will continue to be one of the important growth engines of the Automotive Sub-Group." On August 8, the relevant person in charge of Continental said in a written reply to reporters, "Our strategy is to enhance our value creation. We are committed to making mobile travel safer, more enjoyable, more connected, and more autonomous. In the future, the Automotive Sub-Group will be able to further enhance our competitiveness, improve agility and transparency, and fully utilize its potential to continuously create value."

The above-mentioned person in charge said that adhering to the localization strategy of "taking root in the market and serving the market", the automotive sub-group will further enhance its localized innovation and technological capabilities in China. "In the future, we will continue to enhance our R&D capabilities in the Chinese market, cultivate domestic software R&D talents, enhance local system and software R&D capabilities, and promote the development and promotion of cutting-edge innovative technology solutions."

The reporter learned that in 2023, Continental's sales in the Asia-Pacific region will account for 21% of the group's sales. Regarding the future development trend of the Chinese auto market, the above-mentioned person in charge told reporters that the development of the Chinese auto market has both challenges and opportunities.

The above person in charge further explained: "First, there is fierce competition in the market in terms of pricing, innovation and upgrade speed. In addition, Chinese OEMs are also in a leading position in electric vehicles and software-defined vehicles. Therefore, Chinese OEMs can not only gain more market share in the domestic Chinese market, but also in overseas markets where exports are increasingly strong. On the other hand, geopolitical tensions also bring more risks and uncertainties."

As for how to seize the opportunities brought by the booming Chinese market, the above-mentioned person in charge said that in the face of the rapid development of China's automobile industry, the Automobile Sub-Group has a comprehensive product portfolio to meet the needs of smart electric vehicles, such as high-performance computing, sixth-generation radar, comprehensive wire-controlled braking systems, and electric tires developed specifically for electric vehicles. "In addition, we are also working with leading Chinese partners to build China's travel ecosystem and achieve high-quality and sustainable development."

Looking at the Chinese auto market in the past two years, "price war" is one of the high-frequency words that cannot be avoided. What kind of competitive pressure does the "price war" bring to parts companies? The above-mentioned person in charge told reporters: "If the price competition of the whole vehicle is very fierce, companies in the supply chain will also be under great pressure. In order to meet this challenge, we have been continuously improving our own market competitiveness. Market competitiveness is not just a competition of price and cost, but a competition of comprehensive capabilities in many aspects."

How to deal with the impact of the "price war" in the auto market? The above-mentioned person in charge said that the automotive sub-group has been deeply involved in the automotive industry for many years and has a high level of technical and system expertise, as well as vertical integration capabilities. "From the perspective of technological leadership, we can stably industrialize and mass-produce products, especially high-tech products, to ensure product consistency and high quality."

The above-mentioned person in charge also said: "In addition, we actively promote the localization of the entire industry chain, from product innovation, research and development, to production and service, etc. to consolidate local production and supply chain, which will also greatly enhance our cost competitiveness. The automotive sub-group has entered China for nearly 30 years. We also have very rich experience in production. We use advanced management methods and equipment to improve production efficiency. The management of the entire factory is also flexible to better meet market demand."

In addition to the "price war", exports are also a major trend in the Chinese auto industry that has attracted much attention in the past two years. Continental has been deeply involved in the Chinese market and has a large customer base in China. Continental has actively participated in the process of Chinese OEMs entering overseas markets.

The above-mentioned person in charge of Continental told reporters: "The Automotive Sub-Group has R&D centers and production bases in many countries around the world, which means that we have strong advantages and abundant global resources to help Chinese OEMs go overseas. The Automotive Sub-Group has rich R&D and manufacturing experience in Asia, Europe and America, has insight into local market regulations, and has a rich product line, which can provide Chinese OEMs with diversified products and services."

(Editor: Shi Yingjing Reviewer: Tong Haihua Proofreader: Yan Jingning)