From horseshoe buffers to connected mobility, can Continental make the transition to win the next 150 years for itself?
▲ Image source IC
Wen | Guo Huaiyi
Editor| Lee Woo-yin
As one of the world's most important automotive suppliers, Continental (ETR: CON), with a history of more than 150 years, has reached a new crossroads.
Recently, the German "Manager Magazine" reported that Continental is considering splitting into four independent companies, namely tires, autonomous driving, automobiles and Contitech, which provides technical solutions for the industry. In the future, these four independent companies may be sold or listed separately.
Commenting on the news, Continental told Caijingqiche: "There are no further plans at the moment. "Behind the surface of the one-split-four plan, under the influence of the new crown pneumonia epidemic, multinational automobile manufacturers have suffered a serious impact, and the supply chain has become extremely fragile, which has dragged down the performance of Continental in recent years." In the context of the iteration of the new four modernizations of the automobile industry, the mainland is trying to transform itself.
The impact of the epidemic has put pressure on performance and urgently needs to be transformed
In Q3 2021, Continental's sales of 8 billion euros fell by 7.4% year-on-year, and began to revise down the year's performance forecast: from 33.5 billion to 34.5 billion euros to 32.5 billion to 33.5 billion euros, and the EBIT margin was also reduced by 1.3 percentage points.
In 2020, when the epidemic was raging, Continental's annual sales of 37.72 billion euros, down 15.2% year-on-year, a net loss of 9.6 billion euros, the second consecutive year of a significant loss.
In response, Wolfgang Sch fer, then Chief Financial Officer of Continental, said: "The global market will continue to fluctuate in the coming months. In view of the continued supply shortage of semiconductors, the uncertainty of supply chain and customer demand, we have adjusted our 2021 forecast. ”
Continental forecasts that global production of passenger cars and light commercial vehicles will grow between –1% and +1% year-on-year in 2021, compared with the previous forecast of 8% to 10%.
Continental has made a series of internal adjustments, and autonomous driving is seen as a key area for future development.
On March 9, 2021, Continental CEO Nikolai Setzer said that it would invest an additional 200 million to 250 million euros in autonomous driving, while integrating the Group's resources to develop advanced driver assistance systems and autonomous driving systems.
On March 16, Continental announced that from January 1, 2022, advanced driver assistance and autonomous driving systems will become separate autonomous driving and mobility business groups. At the same time, the powertrain division (i.e. Weipan Technology) was spun off and listed independently.
In September of the same year, continental's Supervisory Board made further adjustments to the group's organizational structure. From 1 January 2022, Continental will consist of three subgroups: Automotive, Tire and ContiTech. From a business and structural point of view, tires and ContiTech subgroups have changed less, while automotive subgroups have changed more. The previous IoV and Autonomous Driving division was dissolved and replaced by five business groups: Safety and Dynamic Control, Smart Mobility, User Experience, Architecture and Connected Vehicles, and the aforementioned Autonomous Driving and Mobility Business Group.
For this series of adjustments, Situ Che said: The growth of the autonomous driving and mobility market in the next 3 years will exceed 2 times, the future is bright, and the mainland will strengthen its focus on key technologies, give more freedom to each business group, and focus on core business.
Under the wave of separation, there is still a need to balance the present and the future
In the context of the electrification and intelligent transformation of the automotive industry, many auto parts suppliers are reshaping themselves through splitting, and now Continental also regards autonomous driving as the focus of future development.
In 2016, automotive seating supplier Johnson Controls (NYSE: JCI) announced the divestiture of its automotive seating and automotive interiors businesses, with a future core focus on automotive batteries.
In 2017, automotive wiring harness system manufacturer Delphi completed the split. The split companies are divided into Aptiv (NYSE: APTV) and Delphi Technologies, with a focus on autonomous driving and electric vehicle technology, respectively.
In 2018, Honeywell (NASDAQ: HON) spun off its transportation systems business and the new independent company was named Garrett. In addition to the previous turbocharging technology for internal combustion engines, the main business will also focus on electric supercharging products and connected vehicle software solutions.
Similar to Continental, most component suppliers, including Bosch, Magna (NYSE: MGA) and ZF, experienced a decline or loss in net profit in 2020 due to the impact of the pandemic.
▲ Data source, official website of the enterprise
At the same time, the long-term trend of the automotive industry to a new mobility ecosystem is becoming increasingly clear, and the government has also accelerated the process of electrification and intelligent transformation of the automotive industry. In Roland Berger's Global AutoMotive Suppliers Study 2020, roland Berger argues that for future growth areas, parts suppliers must look for ways to sustain investment needs, such as through co-investment partnerships, divestiture financing, or public/special purpose entities (SPAC).
In addition to traditional parts suppliers, traditional car companies also intend to seek better development in the industry change through splitting. It is reported that Ford and General Motors are interested in splitting the electric vehicle business, and Volkswagen in Germany is interested in splitting Porsche to raise more funds for its electrification transformation. In addition, Volkswagen also plans to partially sell or list the battery division.
Both traditional parts suppliers and traditional car companies are actively realizing their own transformation. But it should be noted that traditional businesses often remain the largest source of revenue for these businesses.
Volkswagen will sell 8.882 million new vehicles in 2021, of which only 452,000 are pure electric vehicles, accounting for only 5.1% of total annual sales.
Continental faces a similar situation. In Q3 2021, as Continental's traditional dominant business, the Rubber Technologies subgroup, which is dominated by tires, increased sales by 1.2% to EUR 4.4 billion, contributing to sales above average in the quarter and an adjusted EBIT margin of 11.3%.
The Automotive Technologies subgroup, which is seen as the future direction, saw sales fall by 15.9 percent to 3.5 billion euros, and the adjusted EBIT margin was -2.3 percent. Judging from these two key financial indicators, Continental still relies heavily on the traditional tire business.
Autonomous driving has a large investment, a long development cycle, and is still not really commercialized. But capital markets tend to give these companies relatively high valuations. Traditional suppliers and car companies can reshape their businesses through splitting and other means, and can better achieve transformation from obtaining more financing.
Auto analyst Zhang Xiang told Caijingqiche (ID: caijingqiche) that in the process of electrification and intelligent transformation, traditional suppliers and car companies also need to balance the existing business and future development, because they are different from Tesla or companies that have been engaged in autonomous driving at the beginning, and the revenue of traditional suppliers and car companies is still mainly from the traditional parts and fuel vehicle business. They need to strike a balance between traditional business and future growth.