Continental forecasts ongoing growth for tire business

HANOVER, Germany—Citing growth opportunities tied to "megatrends" such as sustainability, e-mobility and digitalization, Continental A.G. is forecasting growth for its tire business of roughly 5 percent a year over the coming six to seven years.

During a presentation at the firm's Capital Markets Day event in Hanover on Dec. 4, Conti Tires Head Christian Kotz told shareholders and the financial community that Conti expects the tire business' revenue to grow to close to $19 billion by 2030 while generating an adjusted operating earnings margin of 13 percent to 16 percent of revenue.

That compares favorably with the business unit's performance over the past five years—average annual growth of 4.3 percent—as well as with the fiscal 2022 performance: sales of around $15 billion and an earnings margin of 13.1 percent.

The performance in recent years was supported by "operational efficiency," Continental executives said, noting the unit "continually adapted its capacity and production technologies to market requirements [leading to] major economies of scale and scope."

This strategy, it added, resulted in more than 80 percent of the group sector's global production capacity being bundled in so-called "megafactories"—those with annual production capacities of 100,000 metric tons or more.

Conti anticipates its business units in the Americas and Asia/Pacific, which represent 35 percent and 14 percent, respectively, of tire unit revenue now, will grow faster than the core European business, based on economic growth projections for the various regions.

In the past five years, revenue generated by the Americas and Asia/Pacific regions together has grown to 49 percent of the tire business unit's total sales, up from 42 percent.

To prepare for the anticipated growth, Conti has invested over $1.7 billion in recent years in manufacturing capacities in the regions, including the firm's newest factories, the car and truck tire plant in Clinton, Miss., and car/light truck tire factory in Rayong, Thailand.

Reflecting these investments, Kotz said Conti expects the tonnage volume of tires produced in its Americas factories to rise 8 percent through 2028, versus 6 percent in Asia/Pacific and 3 percent in Europe/Middle East/Africa.

Over the medium-term (next three to five years), Continental execs said they expect megatrends such as sustainability, e-mobility and digitalization to offer a wide range of opportunities for further profitable growth in the tires group.

Furthermore, Continental expects a recovery of the current weak demand, particularly in the European tire-replacement business as well as "continuous increases in efficiency" to help margins within the tire segment.

The ongoing trend toward larger and higher-performing tires as well as cost-discipline in the sector will further contribute to higher earnings, added the group statement.

Overall, Continental aims to achieve sales of between $55 billion and $60 billion over the next three to five years and an adjusted earnings (EBIT) margin of around 8 percent to 11 percent.

The targets mark a significant step-up from the sales of $43 billion and an adjusted earnings margin of 5 percent reported for 2022.

Summarizing Continental's groupwide strategy, CEO Nikolai Setzer said the goal is to "increase our value-creation. This will allow us to continue to develop into the mobility and material technology group for safe, smart and sustainable solutions."

"There are good reasons to invest in Continental," he continued. "We have a clear strategy to achieve our mid-term targets."