Continental auto unit to become more agile, competitive after spin-off

LAS VEGAS—Continental A.G.'s planned spin-off of its automotive unit will make the business more nimble as it adapts to shorter vehicle development cycles and increased competition, executives said.

"We need to be more flexible, we need to be more agile, and we need to be able to make decisions fast," said Philipp von Hirschheydt, the head of Continental's automotive division, during a media briefing at CES, the giant technology conference here.

The spin-off is expected to be complete by the end of this year, at which point the newly independent automotive business will be publicly traded. The move will effectively cut the 153-year-old Continental in half, separating the 20.3 billion euros ($21 billion) automotive unit from Continental's tire and ContiTech industrial businesses, which had sales of 20.8 billion euros ($21.5 billion) in 2023.

The auto business includes plastic extrusions along with its larger rubber parts business.

Preparation for the spin-off comes as Continental, like other traditional parts suppliers, grapples with low profit margins, pressure to invest in new technologies for electric and software-defined vehicles, and competition from startups and Chinese companies that generally move at a faster pace than legacy companies in the West.

The spin-off will allow Continental's automotive business, no longer beholden to the needs of a larger organization, to make decisions faster, Continental CEO Nikolai Setzer said.

After the spin-off, if the automotive business "decides they are going for one approach, they can just do it," Setzer said. "Let the competent teams make the competent decisions. Speed matters."

That newfound speed will also help the automotive business partner with startups and tech companies quicker, said von Hirschheydt, who is expected to lead the spin-off company.

"We are doing a lot with partners, and we are very much convinced that this is the future," he said. "We need to work stronger together."

He pointed to the company's new partnership with self-driving truck company Aurora and chip giant Nvidia as an example of the types of deals the spin-off will pursue. The three companies plan to deploy driverless truck systems using technology from Nvidia and Aurora that will be mass produced by Continental in 2027.

"You need to be very fast in taking additional partners on in order to be at the forefront of technology," von Hirschheydt said. "That's much easier if you're a focused team that knows very much what you're talking about, rather than needing to get permissions and discussions with people that are a bit farther away from what we're doing."

Continental's automotive unit has long lagged behind its other businesses in profitability, and it plans to cut 7,150 jobs worldwide by the end of 2025 as part of a cost-reduction effort.

The company expects the financial performance of the automotive business to improve this year and saw some gains in the back half of 2024. In the third quarter, the unit's adjusted operating profit margin rose to 4.2 percent from 2.8 percent, despite sales falling from a year earlier.

Continental ranks No. 8 on the Automotive News list of the largest global suppliers, with worldwide sales to automakers of $28.7 billion in 2023. It is the No. 4 tire maker in the world, according to Rubber News' 2024 Global Tire Report, with tire sales of $12.5 billion in 2023. And it's No. 4 in Rubber News' North American Rubber Ranking for non-tire rubber product-related sales of $3 billion.