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Continental has cut its full-year sales forecast as one of Europe’s largest suppliers to the car industry warns of a further fall in vehicle production in the region.
The German company — which this week announced it was considering spinning off its core automotive division — said it expected that slight growth in vehicle production outside Europe this year would be offset by a slump in its home region, where sales growth of electric vehicles, in particular, has stalled.
Continental said it expected car production in Europe to fall 4 to 6 per cent this year, against its previous estimate of a 1 to 3 per cent decline. Its new estimate of full-year revenues is in the €40bn to €42.5bn range, compared with previous guidance of €41bn to €44bn.
“The current market environment is difficult,” chief financial officer Olaf Schick told the Financial Times.
Germany’s car suppliers have done well thanks to the success of their biggest customers: BMW, Volkswagen and Mercedes-Benz. But they have been squeezed by the transition to EVs and the requirements for heavy investment in new technology.
Like a number of its rivals, Continental is cutting jobs as part of efforts to improve margins. Schick said that 20 per cent of the company’s research and development sites were being considered for redundancies or closure, and added that about half of the 2,800 employees the company has laid off in the past year had worked in R&D.
The substantial cost-cutting programme helped Continental boost its second-quarter adjusted earnings before interest and tax margin to 7 per cent, compared with 4.8 per cent in the same period last year.
Investors reacted positively to the improved margins, sending Continental’s share price up by almost 5 per cent in morning trade.
Continental spent decades building its car parts business through acquisitions — including a 2007 deal to buy Siemens’ auto supplies business for €11.4bn — but its announcement this week signals a change of direction.
On Monday, Continental said it was considering a spin-off of the auto business, which with annual sales of €20.3bn and about 100,000 staff accounts for half the total group. Continental would retain its 153-year-old tyre business and a smaller division that supplies rubber products and technology to other industries.
Schick said it was “the right step now to separate and for both sides to be fully focused”.
