FRANKFURT: Continental AG plans to eliminate jobs and is considering strategic options including the sale of some combustion-engine businesses as the disruptive industry shift to battery-powered vehicles picks up speed.
The company is holding talks with labor representatives about adjusting to a "very challenging” market environment, CEO Elmar Degenhart said Wednesday.
The world’s second-biggest auto parts supplier only sees "selective” future opportunities for some components used in combustion engines, while demand for electric vehicle parts is growing faster than expected.
Continental last month cut its full-year financial outlook, joining a host of of carmaking companies in lowering annual targets due to softening demand in key regions including China and Europe.
Overhauling operations
Continental’s latest move underscores the urgency for manufacturers to overhaul operations to compete in a rapidly changing industry.
Stricter emission regulations in China and Europe are forcing vehicle manufacturers to sell more electric cars in coming years, at a time of weakening global demand after a decade of almost constant growth.
While Continental has sufficient scale and a strong presence in the growing electronics components business, many smaller peers specialized in traditional combustion-engine technology are getting squeezed.
Signals for suppliers from major auto manufacturers point to a persistent market weakness. Volkswagen AG reduced production plans for this year by about 450,000 cars to adapt to cooling demand and avoid the build up of inventory. BMW AG also said it would align production plans with demand.
IPO plans
Continental continues to work toward a potential initial public offering of its powertrain unit Vitesco Technologies in 2020, chief financial officer Wolfgang Schaefer said in a telephone interview. A final decision will depend on market conditions.
The company had postponed the project after initially planning to complete preparations in the second half of this year.
Given the electric-car shift, Continental won’t grow its hydraulic components business any further. The unit makes injectors and pumps for gasoline and diesel engines. Existing orders will be fulfilled, but new orders will "play an increasingly marginal role,” the company said.
Continental is also reviewing operations that make components for exhaust-gas treatment and fuel-supply systems.
Schaefer said the plans will potentially affect jobs globally, but declined to comment on the magnitude and restructuring charges as talks with unions aren’t finalised.
Continental employs about 244,000 people in 60 countries across the globe. It also scrapped potential plans to start making solid-state battery cells. German rival Robert Bosch GmbH likewise abandoned such plans as too risky.
