Started in 2015, the aftermath of the "emissionsgate" incident, which involved all major German automakers and parts manufacturers, has not yet settled.
Recently, the prosecutor's office in Hannover, Germany, fined Continental a total of 100 million euros for negligence in the supply of engine control units and software, in violation of regulatory duties. It is reported that the fine includes a corporate fine of 5 million euros, as well as a fine of 95 million euros for "economic interest". Continental accepted the fine and said it would not appeal.
01
"Emission Gate" reappears in the ticket
It is not difficult to find from the fine issued this time that although it has been 9 years since the first exposure of Volkswagen's "emission gate" incident, regulators in various countries, including Germany, have not stopped there. The root cause of this fine is the Volkswagen EA189 series 1.6T and 2.0T diesel engines. Unauthorized cheating software is installed on these engines to detect exhaust emissions, and the vehicle's pollutant emissions under normal driving conditions are significantly exceeded. After the incident came to light, the Volkswagen Group admitted that the "emissionsgate" involved about 11 million diesel vehicles worldwide, and was subsequently prosecuted and fined hefty in many countries.
As the investigation deepened, more truths surfaced, and it was not only the Volkswagen Group that was involved in the "emission gate", but also German car companies such as Mercedes-Benz and BMW, as well as large German parts suppliers such as Bosch and Continental. It is understood that the core of the "emission gate" involved in the 2.0T diesel engine control software from Bosch, while Continental mainly provides technology for the Volkswagen Group's 1.6T diesel engine in Europe.
Subsequently, prosecutors in Hannover, Germany, intensified their investigation of Continental, and in 2020 searched Continental's offices in various locations in Germany. Prosecutors suspect that Continental helped Volkswagen cheat in emissions tests. In 2021, prosecutors searched Continental's compliance department in Frankfurt, as well as the home of a former employee of the department, and seized data and documents from the lawyer's office representing Continental. Shortly thereafter, Continental abruptly announced the dismissal of then-CFO Wolfgang Schaeffer and his expulsion from the executive board due to the "emissionsgate" investigation conducted by the Hannover prosecutor at the time, as well as the "deficiencies" revealed in the company's internal investigation. In addition to Wolfgang Schaefer, Durgenhatt, the former CEO of Continental, and several other executives are also being investigated by prosecutors.
More than two years later, prosecutors in Hannover, Germany, finally issued a 100 million euro fine to Continental. Prosecutors allege that the company sold more than 12 million engine control devices to Volkswagen and other car companies, which carried illegal control software that caused the vehicles to emit nitrogen oxides in excess of regulatory requirements during normal driving. However, prosecutors also said that the company only negligently violated its duties and cooperated with the investigation. That's why the prosecution didn't issue a higher ticket. In response, Continental chose to accept the fine after intensive negotiations with the prosecutors, waived the appeal, and said that it was in the company's interest to end the proceedings.
02
Experiencing transformational pains
It is worth noting that Continental's division involved in the "emissions gate" is the former Powertrain division, which was spun off in 2021 to form Vitesco Technologies. Continental stressed that the fine will not have a significant impact on its 2024 performance, as it has previously set aside funds for prosecution investigations to cover any possible fines. In a statement, Continental also stated that under the agreement at the time of the split, Vitesco Technologies was obliged to indemnify Continental for the costs and liabilities incurred as a result. This means that there may be some negotiations between the two sides around this fine, and Scheffler may even be involved. Schaeffler's acquisition of Vitesco Technologies is currently underway. Not long ago, Vitesco Technologies and Schaeffler held annual shareholders' meetings to approve the merger.
Judging from the performance, Continental, which has experienced a painful period of transformation, has been quite unsmooth in recent years. Compared with peers such as Johnson Controls, Delphi, Autoliv, Honeywell, etc., which have long since completed the spin-off or sale, Continental's transformation plan is progressing a little slowly. Announced in 2018 and approved in 2019, Vitesco Technologies, which was planned to be spun off and listed in the second half of 2019, was not listed on the Frankfurt Stock Exchange until two years later. The outbreak of the new crown epidemic in early 2020 has also had a serious impact on car companies and parts manufacturers, including Continental.
At present, Continental's business is divided into three segments, namely the automotive subgroup, the tire subgroup, and the rubber business ContiTech subgroup. Continental's profits come mainly from the tire business, while the automotive business, which accounts for the largest share of revenue, has been in the red for several years before turning a profit last year. In order to improve the competitiveness of the automotive business unit, Continental announced in February this year that it would start a layoff plan to lay off about 7,150 employees by the end of 2025. At the same time, Continental has also taken measures such as reducing R&D expenses, streamlining its organizational structure, and integrating R&D bases to strictly control costs.
Entering 2024, Continental had a weak start, with a net loss of 53 million euros in the first quarter, compared with a net profit of 382 million euros in the same period last year. However, Continental expects earnings to improve over the next three quarters, especially in the second half of the year, so it remains unchanged from its full-year forecast.
For the 100 million euro fine, Continental closed the prosecutor's investigation of the company by pleading guilty. But that's not the end of it. Prosecutors in Hannover, Germany, said criminal proceedings against former Continental employees are still ongoing.
03
Green Transition "Catalyst"
The "emissionsgate" scandal is considered the biggest industrial scandal in Germany since the war, and the Volkswagen Group has paid more than 30 billion euros in fines and compensation. It is also this major event that has caused a sensation in the global automotive industry that has prompted major German car companies to accelerate the pace of electrification transformation. Volkswagen Group, Mercedes-Benz, BMW and other German car companies play an obvious role in the global auto sector. They have also led other European and American automakers and large parts manufacturers to switch to electrification.
At the same time, the status of diesel vehicles in the European market has plummeted, from the "clean diesel cars" praised by the public to the "main culprit" of air pollution in the mouths of European politicians, which has been suppressed by policies, and the ban on diesel vehicles has "blossomed everywhere" on the European continent. Before the "emissions gate", diesel vehicles accounted for more than 50% of new car sales in Europe, but in 2019 it fell to about 30%, and in the first quarter of this year it has only 11%.
Sales of electric vehicles are increasing rapidly. Especially after the outbreak of the epidemic in early 2020, many European countries such as Germany, France, and Spain have spent a lot of money to support the automobile industry, and low-emission and even zero-emission models have been given priority care and received more subsidies and policy support. In the EU's bailout plan for the automotive industry, clean cars, including hybrid and electric, are also the biggest beneficiaries. It was in this year that European electric vehicle sales "exploded" and continued to grow rapidly after that. As a result, Europe and China are the two largest and most watched electric vehicle markets in the world.
In addition, the emergence of the "emission gate" has, to a certain extent, given the European Green Party more reasons to promote its own political ideas, and its influence has been expanding, and the requirements for environmental protection in Europe have been continuously raised, and paying attention to environmental protection issues has even become a kind of "political correctness". Since 2016, after the "emission gate", the Netherlands, Norway, Germany, France, the United Kingdom, California, Japan and other countries and regions have successively heard the sound of "banning combustion".
At the political level, in recent years, the European Union has tightened its environmental requirements for automobiles. On the one hand, it is reflected in the Euro VII emission standards, especially the original Euro VII proposal announced by the European Commission in November 2022, which put forward very high requirements for pollutant emissions, exceeding the expectations of car companies, attracting countless objections. Even so, Euro VII is an improvement over the current standard, introducing for the first time emission limits for ultrafine particulate matter from brake and tyre wear, and electric vehicles are also included.
With the strong support of the Green Party, the European Union passed a "ban on combustion" in 2035 last year, although due to the opposition of Germany, Italy and other countries, it has to provide exemptions for internal combustion engine vehicles using synthetic fuels, but this political trend still prompts the European automotive industry to continue to promote the electrification transformation. From a fundamental point of view, the "emission gate" can be said to be a major "catalyst" for the green transformation of the European automotive industry.
Text: Zhang Dongmei Editor: Pang Guoxia Layout: Wang Kun
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