Dive Brief:
- Automotive supplier Continental AG is exploring a spinoff of its automotive business amid dynamic and changing markets in the industry, the company announced in a press release Aug 5.
- The automotive supplier’s executive team is currently conducting a strategic review of its business operations and will make a decision in Q4.
- The aim of creating two independent companies is to fully harness Continental’s value and growth potential for shareholders, according to the press release. The company’s profitable tire business ContiTech will remain under the umbrella of Continental if the company follows through on its plans.
Dive Insight:
Global automotive suppliers like Continental are facing an evolving automotive market as electrical and electronic systems continue to replace traditional vehicle mechanical systems, especially for electric vehicles powered by software. This has led some suppliers to evaluate their business strategies in order to remain competitive and profitable in a rapidly changing auto industry.
In 2021, Continental spun off its Vitesco Technologies unit due to what it referred to as “fundamental changes taking place in the automotive industry.” The independent company is also targeting the growing EV market with a portfolio that includes 48-volt electrification solutions, electric drive units and power electronics for hybrid and battery-electric vehicles.
“A spin-off of Automotive has the potential to create competitive opportunities, enhance agility and increase transparency,” said Wolfgang Reitzle, chairman of the Continental Supervisory Board, in the press release. “As a strong, independent entity, Automotive would be able to harness its full potential for creating value.”
Continental’s automotive business, which includes tires, reported sales of around 20.3 billion euros ($22.2 billion) in 2023 and employs around 100,000 people. The company’s parts business includes vehicle brake and comfort systems, sensors and display units.
But more recently, Continental has pivoted to developing software, architecture platforms and advanced driver assist system components to meet the future market for software-defined and autonomous capable vehicles. The company’s new automotive business areas include architecture and networking, autonomous mobility, safety and motion, software and central technologies, and user experience.
“Our strategy aims to increase our value creation. This involves systematically analyzing how we can best position our group sectors for success,” Continental CEO Nikolai Setzer said in the press release. “Looking ahead, sharply fluctuating regional developments in the markets as well as the software-driven technology transformation will require even greater flexibility and entrepreneurial freedom.“
The spinoff of Continental’s automotive business is subject to the approval of the company’s executive and supervisory boards. If approved, the plan will be put to a vote by the annual shareholders' meeting of Continental on April 25, 2025, and completed by the end of next year if shareholders vote to approve the deal.
The company has been reviewing its operational structure since last year. In August 2023, German business magazine Manager Magazin reported that Continental was mulling the sale or merger of the automotive business portion of ContiTech, which manufactures tires and rubber components such as belts and hoses.
In November 2023, Continental announced plans to reduce spending by 400 million euros a year by 2025 in order to improve its finances.
