Continental AG, a well-known German automotive parts manufacturer, is exploring a significant strategic shift that could reshape its business structure. The company is actively considering spinning off and separately listing its automotive division, a move designed to distinguish it from its thriving tire operations. This potential separation could have notable implications for the Continental Car Parts market and the broader automotive supply chain.
The evaluation, currently in a detailed phase, focuses on a complete spin-off and subsequent stock market listing for the automotive business. This division is responsible for producing critical vehicle components, including advanced brake systems and automated driving technologies, key elements in modern continental car parts offerings. A final decision is expected in the fourth quarter of this year, with the ambitious goal of implementing any approved changes by the close of the following year.
Continental has publicly stated that the primary objective behind this potential restructuring is to “fully exploit the value and growth potential of the two then-separate groups.” The company intends to retain its highly profitable tire and ContiTech units, indicating a strategic refocusing of its automotive parts business.
This strategic review comes at a challenging time for automotive parts suppliers. Automakers are currently adjusting production volumes in response to a slowdown in the electric vehicle market’s growth rate. Continental’s automotive unit has faced challenges in keeping pace with industry peers, leading to an internal review of potential divestments and partnerships. The pressure within the sector is further highlighted by ZF Friedrichshafen AG’s plan to reduce its German workforce by approximately 25% by 2028, directly linked to the ongoing EV transition and its impact on traditional continental car parts demand.
Continental’s announcement suggests a significant strategic rethink within one of Europe’s leading automotive suppliers. For some time, investors have voiced concerns about the company’s conglomerate structure, questioning the tangible benefits of combining its diverse operations and their contribution to overall efficiency and profitability in the continental car parts sector and beyond.
Based in Hanover, Germany, Continental is currently navigating headwinds from increased labor costs and protracted negotiations with clients regarding pricing adjustments. However, the company recently indicated that the benefits of previously implemented cost-cutting measures began to materialize in the second quarter and are expected to have a more pronounced positive impact on profits during the latter half of the year, potentially bolstering its continental car parts business segment.
Continental’s automotive business is a substantial entity, employing around 100,000 people and generating approximately €22.3 billion in sales in the last fiscal year. Despite its scale, the division has been grappling with substantial investment demands and fluctuating market demand for continental car parts and related technologies. Rising interest rates are impacting car purchasing decisions, and sales in China, a crucial market, remain below expectations. German automotive brands are facing increasing competition from domestic Chinese manufacturers like BYD Co., further intensifying the pressure on continental car parts suppliers operating in that region.
CEO Nikolai Setzer emphasized the need for greater agility and entrepreneurial freedom in the face of “sharply fluctuating regional developments in the markets as well as the software-driven technology transformation.” This statement underscores the rationale behind considering the spin-off, aiming to create a more focused and responsive entity for its continental car parts operations.
Under the proposed plan, Continental shareholders would receive shares in the newly independent, listed automotive entity, proportionate to their existing holdings in the parent company. This would allow investors to directly participate in the future performance of the focused continental car parts business.
