Continental AG, a German automotive manufacturing company, recently saw a rise in its shares following improvements in returns at its struggling car-parts unit. The company is considering spinning off this division in what would be its biggest-ever restructuring move. The division’s adjusted earnings before interest and tax margin increased to 2.4% in the second quarter, a significant improvement from -0.5% in the same period last year. This positive development was attributed to cost-cutting measures and renegotiated prices with customers.
Despite the positive momentum in the second quarter, Continental still lowered several of its annual forecasts due to a weak European automotive market. However, analysts at Citi noted that the new outlook „is not as bad as feared,“ indicating that the company is on the right track towards improvement.
In a strategic move, Continental unveiled plans to potentially carve out and list its automotive unit, which produces products such as brakes and automated driving systems. This restructuring would leave the company with the more profitable tires and ContiTech industrial divisions, which together account for roughly half of group sales. This shift in structure could have a significant impact on the company’s overall operations and financial performance.
The automotive industry is currently facing challenges as automakers adjust production to meet the slowing demand for electric vehicles. Continental’s automotive business, which employs around 100,000 people, has been struggling with significant investment requirements and waning demand. The company is also facing challenges in China, where auto sales remain below expectations.
Continental’s next steps for the auto division include increasing business from Asian customers, achieving significant cost savings, and reducing production costs by the end of 2025. The company is focused on implementing efficiency measures that will have a greater impact on profit in the second half of the year.
Continental, known for its tires, has expanded its auto-parts division through a series of acquisitions over the years. Its ContiTech division produces a range of industrial products. During the second quarter, Continental’s adjusted Ebit margin improved to 7%, up from 4.8% in the same period last year, thanks to cost-cutting initiatives and price renegotiations.
Overall, Continental’s restructuring efforts and focus on improving the performance of its automotive unit reflect the company’s commitment to adapting to the changing dynamics of the automotive industry. By streamlining its operations and focusing on more profitable divisions, Continental aims to strengthen its position in the market and drive sustainable growth in the future.