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Recently, many multinational auto parts giants have also followed the pace of automakers and disclosed their performance in the first half of 2024.

According to incomplete statistics from the Daily Economic News, multinational auto parts suppliers such as ZF, Continental, Freia, Valeo, BorgWarner, Magna, and Aptiv have all released their financial reports for the first half of this year. From the data, few companies have achieved both revenue and profit growth. Among them, ZF led with 22 billion euros in revenue, but its revenue and profit both fell; BorgWarner was the only auto parts company that achieved growth in both revenue and net profit.

It is worth noting that many auto parts companies mentioned the negative impact of the slowdown in sales growth of electrified products in their financial reports. For example, French automotive electric drive system manufacturer Valeo said that due to the fact that the sales of electric models of major European customers were far below expectations, its high-voltage electric drive business sales in the first half of 2024 plummeted by 40% year-on-year, thus dragging down its overall performance.

Based on the performance in the first half of the year, many auto parts companies have lowered their financial expectations. Among them, ZF has cautiously adjusted its sales forecast for 2024 to between 42.5 billion euros and 43.5 billion euros (previously forecasted to be more than 45 billion euros); Continental currently expects the group's sales in fiscal 2024 to be between 40 billion euros and 42.5 billion euros (previously forecasted to be about 41 billion euros to 44 billion euros).

Some companies' revenue and profits both fell

A careful reading of the first half financial reports of various auto parts manufacturers reveals that the performance of many companies has declined. Few companies have achieved a double increase in revenue and net profit, and some companies have even experienced a double decline in revenue and net profit.

Take ZF, whose sales in the first half of the year reached 22 billion euros, for example. Its revenue fell by 5.6% compared with the same period last year. ZF attributed the reasons to the challenges of the market environment and the impact of mergers and acquisitions.

During the same period, ZF's adjusted EBIT was 780 million euros, down 17.1% from the same period last year (941 million euros); the adjusted EBIT margin was 3.5%. ZF said that this was mainly affected by the continued huge R&D investment of 1.8 billion euros, the automotive market conditions, and the fixed costs of new factories and new products.

"Despite large investments and pressure on profit margins, our free cash flow has improved compared to last year," said Michael Frick, CFO of ZF. "In the face of continued severe challenges in the market, our profits and cash flow have reached our expected levels. At the same time, we are enhancing our competitiveness. Adhering to the strategic guiding principle of 'strengthening advantages', the company will continue to promote structural adjustments: further increase investment in commercial vehicle technology, industrial technology, chassis solutions and after-sales, which have certain profit levels and are forward-looking."

Similar to ZF, Continental also suffered a double decline in revenue and net profit in the first half of the year. In the second quarter of 2024, Continental's sales were 10 billion euros, down 4.1% year-on-year; adjusted EBITDA increased to 704 million euros, up 40.6% year-on-year; net profit was 305 million euros, up 46.2% year-on-year.

Based on the financial data for the first quarter of this year, Continental's sales in the first half of this year were 19.8 billion euros, down 4.3% year-on-year; adjusted EBITDA was 900 million euros, down 16.3% year-on-year; and net profit was 252 million euros, down 57.4% year-on-year.

In the financial report, Continental said that the weak production in the European automobile market had an impact on its performance. Data showed that in the second quarter of 2024, global passenger car and light commercial vehicle production was basically the same as the previous year, at 22.1 million vehicles, a slight decrease of 1% year-on-year. During the same period, automobile production in the European market was about 4.3 million vehicles, a sharp decrease of 6% year-on-year.

"The strong measures we have taken to reduce costs have begun to take effect, and our performance has improved significantly compared to the first quarter. We will continue to work hard in the second half of the year and will not let up to achieve our expected financial targets," said Olaf Schick, Chief Financial Officer of Continental.

Freya's performance is also under pressure. According to the financial report, in the first half of this year, Freya's sales were about 13.5 billion euros, a year-on-year decrease of 0.6%; operating profit was about 700 million euros, a year-on-year increase of 3.8%; net profit was about 4.8 million euros, a year-on-year decrease of 83%.

From a global perspective, Faurecia achieved business growth in Europe, North America and Asia (excluding China), with growth rates of 2.0%, 5.1% and 7.2% respectively. However, in the Chinese market, Faurecia's sales fell by 6.1% year-on-year. The reasons for this are the sharp decline in sales of Faurecia's seat division to two major customers, BYD and Tesla, as well as the sharp decline in exhaust business due to the rapid electrification of the Chinese market.

Electrification-related businesses face challenges

Unlike the above-mentioned companies, some multinational parts manufacturers have also encountered the dilemma of "increased revenue but no increased profit" or "increased profit but no increased revenue".

For example, in the first half of this year, Valeo Group achieved sales of 11.1 billion euros, a year-on-year decrease of 1%; operating profit was approximately 445 million euros, a year-on-year increase of 23%; attributable net profit was 141 million euros, a year-on-year increase of 18%; free cash flow was 121 million euros, an increase of 277 million euros from the first half of 2023.

Valeo said that the main reason for its revenue decline was the decrease in sales of its high-voltage electric drive business. It is reported that during the period, the sales of the high-voltage electric drive business decreased by 330 million euros, a year-on-year decrease of 40%, and the main factor affecting it was that the sales of electric vehicles of major European customers were far below expectations.

According to the latest data released by the research organization EU-EVS, in the first half of 2024, the cumulative sales of pure electric vehicles in 15 European countries were approximately 790,100 units, a year-on-year decrease of 13.5%.

Magna also saw an increase in revenue but not profit. According to the financial report, in the first half of this year, Magna achieved revenue of US$21.928 billion, a year-on-year increase of 1.3%; net profit was approximately US$322 million, a decrease of 41.2% compared with the same period last year (US$548 million).

It is worth noting that Magna also mentioned in its financial report the impact of the sales growth of electric vehicles failing to meet previous expectations, and therefore adjusted its financial outlook for 2026. Magna said that in recent months, many automakers have postponed, cut or otherwise changed their electric vehicle production plans, while increasing the production of hybrid vehicles or internal combustion engine vehicles.

"Our updated 2026 outlook reflects updates on customer programs and a more cautious view on medium-term electric vehicle penetration, particularly in North America. While we have lowered our sales forecast, we are taking a number of specific actions to mitigate the sales impact and continue to expect margin expansion and strong free cash flow growth," said Magna CEO Swamy Kotagiri.

Aptiv, which focuses on future mobility solutions, achieved a substantial increase in profits in the first half of the year. According to the financial report, in the first half of this year, Aptiv's revenue was US$10 billion, down 1% year-on-year; net profit was US$1.156 billion, more than three times that of the same period last year (US$375 million); adjusted operating income was US$1.15 billion.

From a regional perspective, in the first half of this year, Aptiv's performance in the North American and European markets declined, with revenues falling by 3% and 2% respectively; but the Asian market performed stably, with revenues growing flat, with the Chinese market growing by 1%.

In contrast, among the manufacturers counted by reporters, BorgWarner is the only auto parts supplier that has achieved positive growth in both revenue and net profit. According to the financial report, in the first half of this year, BorgWarner Group's sales were about US$7.2 billion, a year-on-year increase of 2%; operating profit was about US$610 million, a year-on-year increase of 2.5%; net profit was about US$540 million, a year-on-year increase of 19%.

Specifically, in the first half of this year, BorgWarner's internal combustion engine business revenue reached US$6.4 billion, a year-on-year increase of 4.6%, and its adjusted operating profit was nearly US$1 billion, a year-on-year increase of 12.2%; but its electric drive-related business sales fell 14.5% year-on-year to US$900 million, and its adjusted operating profit was -US$111 million, and the loss amount increased by 100% compared with the same period last year.

Many companies lowered their full-year expectations

Based on the performance in the first half of this year, many parts companies chose to lower their full-year financial expectations.

Among them, ZF said that considering the market situation, it will cautiously adjust its sales forecast for 2024 to between 42.5 billion euros and 43.5 billion euros. At the same time, based on the advantages of the company's flexible production layout and the effects of the implemented performance measures, the adjusted EBIT margin remains as expected, between 4.9% and 5.4%, and the expectation for free cash flow of 800 million euros remains unchanged.

Continental adjusted its sales forecast for this year to between 40 billion euros and 42.5 billion euros, with the adjusted EBIT margin expected to remain at around 6% to 7% and adjusted free cash flow expected to be around 600 million euros to 1 billion euros, compared with the previous forecast of 700 million euros to 1.1 billion euros.

Due to the sharp decline in new orders, Valeo also lowered its original target of achieving revenue of 22.5 billion euros to 23.5 billion euros in 2024 to 22 billion euros, and lowered its original target of achieving revenue of 24.5 billion euros to 25.5 billion euros in 2025 to 23.5 billion euros to 24.5 billion euros.

It is understood that due to the sluggish high-voltage electrification business and the adverse impact of the postponement of some large orders, Valeo's new order amount in the first half of 2024 was only 9.1 billion euros, a year-on-year decrease of more than 50%.

As for Magna, its total sales outlook for 2024 remains basically unchanged, and its adjusted EBIT margin range has narrowed to 5.4% to 5.8%. However, Magna currently expects its sales in 2026 to be US$44 billion to US$46.5 billion, which is about 10% lower than the US$48.8 billion to US$51.2 billion expected in February this year; the EBIT margin is expected to be 6.7% to 7.4%, while the previous expectation was 7% to 7.7%.

Taking into account factors such as the downward revision of vehicle production expectations, weak foreign exchange and slowing sales growth of electrified products, BorgWarner also adjusted its full-year performance forecast based on its performance in the first half of the year, lowering its full-year sales forecast from the previous US$14.4 billion to US$14.9 billion to US$14.1 billion to US$14.4 billion; the full-year operating profit margin is expected to be 8.2% to 8.3%.

In fact, the adjustments of parts suppliers are more than just the latest outlook for financial reports. At the end of July this year, ZF announced that it plans to lay off about 11,000 to 14,000 employees in Germany by the end of 2028. In the financial report, ZF pointed out that the group announced that it would reorganize and merge its branches in Germany more effectively, which is also part of the structural adjustment.

Continental announced in early August this year that it had decided to conduct a further detailed evaluation of the split of the automotive sub-group. After a detailed evaluation, the Executive Board will make a decision on the split in the fourth quarter of 2024. With the approval of the Executive Board and the Supervisory Board, the split and listing plan of the automotive sub-group business will be voted on at Continental's annual shareholders' meeting on April 25, 2025. If approved, the split plan will be completed by the end of 2025. Preparations for the split are already underway. The purpose of establishing two independent companies is to give full play to Continental's potential for value creation and business growth.

Official data shows that Continental AG's automotive subsidiary achieved sales of approximately 20.3 billion euros in the past fiscal year and currently has approximately 100,000 employees.

"In recent months, markets and customers have changed dramatically, particularly in the automotive industry. Looking ahead, drastic fluctuations in regional markets and software-driven technological transformation require companies to have greater flexibility and autonomous decision-making capabilities. Against this background, we plan to split Continental into two independent companies," said Continental CEO Steiner.

Daily Economic News