Parts giant Continental embraces structural adjustments? The autonomous driving division may be spun off in 2023

Chen Maoli, a reporter of this newspaper, reported from Beijing

Auto parts giant Continental is accelerating its electrification transformation.

A few days ago, the German "Business Daily" reported that following the spin-off and listing of its powertrain division, Continental is currently considering divesting its autonomous driving division in 2023 or a little later.

The report also said, "People familiar with the matter said that Continental's autonomous driving division will become a separate legal entity from January 1, 2023, and may also conduct an initial public offering (IPO) in the future."

For this report, the relevant person in charge of Continental's China region replied to the Reporter of China Business Daily, "The Autonomous Driving and Mobility Business Group is part of the Continental Automotive Subgroup. Synergy between business groups under the same subgroup remains a top priority. There are currently no further planned arrangements. ”

However, the reporter paid attention to the news that the autonomous driving department of Continental Group may be independent and IPO in the future, which has aroused great interest from investors. Investors captured the news after the report was released, and Continental shares rose sharply.

Autonomous Driving Department or "Self-Reliance Portal"

Continental has not confirmed the latest reports, but the possibility of splitting its autonomous driving division and pushing its IPO forward in the future is not ruled out.

In fact, listing or selling after the divestiture of a single business is a more popular practice in the field of auto parts in recent years, with the purpose of reducing the burden or tapping the business potential.

Within the parts industry, Delphi Automobile Company spun off its powertrain business unit and promoted its listing, then sold it to BorgWarner for $3.3 billion; LG Chem. completed the listing in early February after spinning off its battery business to form LG New Energy.

After announcing the transition to electrification in 2019, Continental released the news: the split of its Powertrain Division. However, due to the adverse factors such as the epidemic and the decline in sales in the automotive industry, the plan was postponed for two years and finally reached in September 2021.

On September 16, 2021, Continental promoted the listing of Wisco Technologies (a development from the Powertrain business) in Frankfurt. Considering its electrification transformation strategy, many industry insiders are more inclined in the interview to split its autonomous driving division in the future.

What are the benefits behind Continental's consideration of spinning off its autonomous driving division?

"It's normal for Continental to consider spinning off the autonomous driving division and going public, and many companies are doing so now. Without this, the business is difficult to develop. Auto analyst Zhang Xiang pointed out in an interview with reporters, "The autonomous driving business has a special nature, the commercial landing time is relatively long, and it requires a lot of capital investment, if this department is still within continental group, the funds will be provided by continental group." However, if it is spun off and listed, it can be externally financed, and more funds will be invested in research and development. ”

According to public information, Continental's autonomous driving division mainly produces laser sensors and high-performance computers to assist cars in automatic navigation. As automakers increase their bets on autonomous driving, the division is growing rapidly, accelerating deployments in core technologies such as software, artificial intelligence (AI), and the Internet of Vehicles.

In March 2021, Continental announced the establishment of the Autonomous Driving and Mobility Business Group. The new business group will be officially established on January 1, 2022, and its core will be composed of the current ADAS (Advanced Driver Assistance) business unit.

"Generally speaking, the independent listing of the parent company's spin-off business, in addition to the consideration of improving the capital operation of the parent company's liquidity and market value, is often to promote the independent development and market competition of the proposed spin-off business sector with the help of the capital market." IPG China Chief Economist Bai Wenxi told reporters, "Continental's proposed divestiture and listing of the autonomous driving division should be that the group is optimistic about the future of the autonomous driving track and (believes) its own competitive advantage in this field, hoping to promote its faster development through spin-off listing, and form a relatively independent and sustainable business cluster." ”

From a business point of view, Yang Dong, an associate researcher at the State Intellectual Property Office, analyzed that "the autonomous driving technology of vehicles is like the human brain and nervous system, not like tires, it is a product that can be replaced at will." Multinational car companies often tend to develop their own autonomous driving, or their own affiliates to develop research and development. The fact that a component manufacturer's autonomous driving technology can be supplied to a well-known car company in the industry is a remarkable thing in itself. However, as an independent supplier, the position of autonomous driving in the mainland is not stable, with big guys such as Bosch in the past, and other parts manufacturers and ICT manufacturers catching up. In this context, the split is for better development. ”

Behind the solo flight: accelerating the transition to electrification

Whether it is splitting the powertrain business or wanting to spin off the autonomous driving division, the "driving force" behind continental's structural adjustment is continental's electrification transformation strategy. In the past two years, auto parts suppliers of different types and segments such as Bosch, ZF, and Qualcomm have spared no effort to accelerate their transformation. Naturally, the continents are no exception.

"In the future, the new market competition format, the restructuring of the relationship between OEMs and Tier1 (Tier 1 suppliers), and the breakthrough of more technology start-ups have made auto parts manufacturers realize that changes must be made." Auto industry analysts point out.

Since 2019, Continental has embarked on a transformation that will continue and revolve around "electrification" for years to come. At the time, Continental made it clear that it would no longer invest in the development of components for the internal combustion engine, but would instead focus more attention and money on the two potential growth areas and future technologies of traditional systems and autonomous driving.

Subsequently, in the direction of intelligent and connected vehicles, Continental reorganized the two major business segments of automotive chassis and body electronics, the chassis and safety business group was renamed the automatic driving and safety business group, and the body electronics business group was renamed the vehicle networking and information business group.

Between 2019 and 2021, while making organizational changes, Continental began to reorganize several plants, including in Germany. Affected by the adjustment of the organizational structure and the restructuring of the factory, some positions are facing readjustment of the work content, work location, and even cancellation, so the news of layoffs around the world once pushed Continental to the forefront.

"The purpose of all these business adjustments is to 'make way' for electrification and autonomous driving." Continental insiders said.

Continental's previous forecast confirmed its optimism about the prospects of the self-driving track. Continental expects the total potential market for autonomous driving to double to €70 billion in the three-year cycle from 2021 to 2023 compared to the previous three-year cycle (2018-2020).

In addition to the adjustment of the organizational structure, the greater strategic adjustment comes from "openness". The reporter paid attention to the fact that from 2020 onwards, Continental has successively established cooperative relations with counterparts in the intelligent automobile industry chain. For example, it has jointly developed long-range lidar with lidar startup AEye Inc.; partnered with Amazon Cloud Technology to develop an automotive software platform; and announced that it will cooperate with local Chinese chip company Horizon to establish a smart driving joint venture.

In this regard, industry insiders pointed out that this is rare in the development of Continental in the past few decades. Frank Petznick, head of Continental's Advanced Driver Assistance Systems division, said, "If a new technology already exists on the market, why should we do it again and try to imitate them? In Petznick's view, "the traditional Tier1 needs to make full use of the existing integration capabilities, as well as the technical integration of the experience of the whole vehicle and engineering development, which is the speed that the market needs." ”

(Editor: Zhang Shuo Proofreader: Zhang Guogang)