The constant attempts by Tier 1 suppliers such as Continental to adapt their structures seem to indicate that tier 1 suppliers' large, highly complex operating structures are no longer appropriate, replaced by clusters of companies that emphasize professionalism, responsiveness, and medium size.
Author 丨 Huang Yaopeng
Edited 丨tian grass
Produced 丨 Automan Media
In recent years, Continental AG seems to have become the most willing to toss organization and business structure among Tier 1 suppliers.
The 2022 restructuring plan has just entered into effect and new adjustments may now be considered. It is reported that The mainland is considering splitting four independent companies, namely automotive technology, tires, autonomous driving and ContiTech (rubber and plastic businesses for non-tires).
If this matter is successfully carried out, it will be the third round of structural adjustment of the mainland after 2018. It should be pointed out that Weipan Technology, which will be split and successfully listed in 2021, is not within the scope of the new adjustment. The latter focuses on powertrain technology and includes electric mobility solutions.
Even if the mainland tasted the sweetness in the IPO process of Weipan Technology, as the world's second-ranked parts giant, it is too diligent to adjust three rounds in four years, right?
1
Reactions under transformational pressures
The problem is in this "once upon a time"
In the summer of 2021, Automotive News magazine ranked Continental sixth among global parts suppliers based on revenue, almost the most regressive in the top ten.
Today, Continental's market capitalization (€17.5 billion) and revenues (around €40 billion) are very mismatched. Because of emerging businesses (such as lidar startups), the market capitalization is usually 20-30 times the revenue. The mainland believes that it is undervalued by the capital market, and there is a realistic driving force for how to do high market value.
In recent years, among the world's top tier 1 suppliers, the game of splitting business and IPO is becoming popular. In addition to Bosch's unmoved (in fact, it has also spun off the chip business on a small scale), several other giants intend or are in the process of implementing splits and mergers.
Obviously, this is a strategic response to the pressure of accelerated transformation of the automotive industry. Tier 1 suppliers' customers and their needs are changing dramatically, and suppliers must follow suit or risk being eliminated. Emerging businesses (autonomous driving, connected vehicles, and public cloud) are constantly creating new competitors, and OEMs are also seeking to climb the technology ecosystem, making it difficult for Tier 1 suppliers to continue to sit firmly on the Diaoyutai Platform.
Mainland China itself estimates that if the autonomous driving business is independent, the valuation will reach twice the sales, that is, about 6 billion euros, which is the same as Aptiv. However, it has been pointed out that the mainland does not take into account the "consumption" of valuations by the twists and turns of the IPO process.
2
The first round of adjustments died prematurely
From the analysis of the direction of the mainland's many adjustments in recent years, the two CEOs of Continental have different views on the new business and the future of Continental.
In July 2018, under the leadership of its previous CEO, Dr. Elmar Degenhart (then 59), Continental launched the largest organizational realignment program in history, splitting the Powertrain business group into Weftsoft and seeking an independent listing.
But at that time, Degenhart did not expect that the listing process of WeftyTech was so tortuous that it was forced to suspend in 2020, ostensibly because of the "epidemic", but in fact, in the summer of 2020, the continental power business was experiencing the lowest financial season in 20 years, when the listing may encounter a large decline in valuation.
It was not until September 2021 that Weipan Technology was successfully listed, claiming to focus on the direction of electric drive. Interestingly, the Schaeffler family became the majority shareholder (46%). By this time, Degenhardt had been ousting office for almost a year.
In Degenhardt's plan, the Chassis & Safety Division and the Body Electronics Division will be reorganized into the Autonomous Driving Technology and Connected Vehicle Technology Division. This part of the plan has not yet been adjusted, and the supervisory board has lost confidence. In 2020, Continental lost nearly 1 billion euros and laid off 30,000 employees.
In November 2020, the Supervisory Board quickly hired Dr. Nikolai Setzer, who had been in the position for a long time, as CEO, while Degenhardt resigned for "health reasons."
As soon as Situ Che took office, he ordered the dissolution of the two new business units that were still in the process of adjustment and reorganized into 5 business units corresponding to 5 business directions: safety and dynamic control, autonomous driving and travel, smart travel, user experience, architecture and Internet of Vehicles, plus a forward-looking technology research and development center.
The industry has never seen such a scene, the first round of structural adjustment plan is not completed, it is directly demolished into "ruins", and the second round of plans is rapidly advanced, directly built on the "ruins".
3
The "new positioning" theory of the second round of adjustments
The new CEO has almost completely abandoned the strategic thinking of the previous management and thrown it into the wastepaper basket.
Why is it "almost", because the weft Technology split plan continues to advance. However, the credit is also credited to the new management, because the split of Weipan Technology, from the suspension to the restart, the sprint success, is just the opposite of the group's large-scale structure adjustment process.
The new structure in the second round means that Continental consists of three subgroups, namely the Automotive Technology subgroup, the Tire subgroup and the ContiTech subgroup. The five business units just mentioned belong to the Automotive Technology subgroup. The second round of structural adjustments took effect on January 1, 2022.
Situ Che once explained the idea of the second round of adjustments. That is, to maintain its insight and sensitivity to the industry, Continental must become more agile, market-oriented and future-oriented, and actively respond to changes in the mobility market.
This kind of statement sounds a bit official, but it does not deviate from the real intention. That is, Continental must rebuild its software research and development capabilities to respond more quickly to the needs of OEMs.
The demand for new technology solutions and cooperative research and development of Chinese OEMs has grown very rapidly, which has prompted Continental to rapidly increase its R&D layout in China and change the thinking of heavy production and light R&D in China.
During last year's Guangzhou Auto Show, Continental revealed that it was cooperating with GAC to develop a high-performance central computing unit hardware and basic software platform based on the E-E architecture. Situ Che even revealed that by 2025, this piece of business will become the company's main source of income in the future.
Almost all OEMs in China now have their own R&D teams in intelligent driving, so the mainland has strategically changed to "joint R&D" to replace the past direct provision of complete solutions. Moreover, the mainland must also have a more solid technical reserve than the main engine factory on the high-level autonomous driving hardware platform. The latter can develop some of their own software on this basis and integrate it into the system.
Under the new structure of Continental, both Continental itself and the OEMs will seek new cooperation models and new ways of interaction to avoid the serious distrust caused by "excluding each other's technical participation".
To put it bluntly, if suppliers want to find a new positioning, they need to quickly mingle with customers and form a new community of interests, otherwise it is likely that the traditional status of first-tier suppliers will not be guaranteed.
In the process, Continental management admitted that it had suffered "the pain of transformation", some traditional division of labor had changed, and previously inherent orders were now disappearing. The process of Continental's adjustment of its positioning in the industry is reflected internally, that is, structural adjustment.
4
The third round of adjustments is not the finish line
The third round of adjustments mentioned at the beginning of this article does not overturn the results of the second round, but serves as a continuation of the second round of adjustments.
That is, according to the business unit system sorted out by the business line, it will be further differentiated and realize corporatized operation, and the three major businesses will be completely independent. Autonomous driving, on the other hand, was spun off again from its automotive technology subsidiary to form a new company.
Continental management has not yet confirmed the existence of a third round of adjustments, which are still at the level of "informal news" but have some credibility.
Because from the first round of adjustments, autonomous driving has stood out from the business group and become the leading business of Continental's new business. This is not only the result of customers voting with orders, but also the current capital market is extremely optimistic about the valuation of the autonomous driving business.
Continental's vehicle-grade short-range lidar HFL110 has been mass-produced, and the new product HRL131 will be put into production in 2024, which will become the world's first mass-produced vehicle-grade solid-state long-range lidar sensor. The mainland has a hardware moat in the autonomous driving business.
There are no real signs of breakthroughs in autonomous driving technology, but the demand for assisted driving systems in OEMs is increasing day by day. To combat the asymmetric competition of new powers, they must integrate autonomous driving capabilities into every new vehicle as quickly as possible (if cost permits).
Although most of the software and hardware platforms of the new forces' autonomous driving technology do not rely on traditional suppliers, because of the aggressive competitive situation they constitute, they force the market to continuously press the "acceleration button", and even cannot wait for the actual deployment of high-level autonomous driving with commercial value.
In this way, whether from the perspective of the capital market or from the perspective of the customer market, the mainland needs to enhance the status of the autonomous driving business. Therefore, in this local position, the third round of adjustment ideas coincides with the first round. This also shows that indiscriminately and completely rejecting the previous line of thought is not the best choice.
Stutt argues that continental's global restructuring is part of a "change 2019-2029" strategy. He hinted that he did not expect a single adjustment to be in place, but to promote new reforms at any time according to the future development of the industry. It also reflects that all vendors in the industry are a bit confused about future technology and business trends. Even with that, the mainland is not sure how far the third round of the plan can go.
Judging from the historical stage that the development of the automotive industry is likely to enter the great turmoil and the great reshuffle, this understanding is still objective. However, this also means that the mainland will maintain a state of dynamic adjustment for several years, which puts new pressure on business stability.
Continental, Olitov, Delphi, BorgWarner and other companies continue to try to split and restructure and other toss-up structures, which seem to indicate that the large and highly complex operating structure of Tier 1 suppliers is no longer appropriate, replaced by clusters of companies that emphasize professionalism, flexibility and medium size. (Image source: Continental official website)
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