Behind the break-up of Continental is the collective anxiety of European parts and components

The Continental Group has finally made decisive progress on the much-hyped break-up of its business.

Earlier this month, Continental announced that it would spin off the auto group, and the details of the split and listing will be decided in the fourth quarter.

If approved, this will be the latest round of restructuring of the Continental Group.

After the spin-off of the Automobile Group, only tires and ContiTech will be left under the group.

In the past five years, Continental’s market capitalization has fallen to 13 billion euros from 50 billion euros in 2018.

In order to boost its share price, the group has adopted a series of restructuring in recent years in an attempt to improve overall profitability.

Within the group, the management has sharpened its knife and thought of restructuring and change as early as last year.

Continental plans to cut 7150 jobs, or 3.

6 per cent of its global workforce, in February and wants it to be completed by the end of 2025.

In fact, the restructuring of Continental Group is a microcosm of the transformation and upgrading of established European parts giants.

According to German authorities, 20 German auto parts suppliers with annual revenues of more than 10 million euros went bankrupt in the first half of this year, a 60 per cent increase over the same period last year.

In the golden age of fuel cars, these European and American parts giants are used to “addition” and “multiplication”.

Tactically, they tend to “combine vertical and horizontal”, eat small fish, integrate technology and business plates, as long as the customer base is there, the business is getting bigger and bigger like a snowball.

Now the golden age of fuel-fueled cars has become amber and the advantages of the past are likely to turn into negative equity.

How to survive in the new industrial logic? We have found that the former “addition” and “multiplication” may not work, we should learn to do their own “subtraction” and division, for different business sectors, while integrating, while “using the knife”.

At present, the organizational structure of Continental Group is divided into three parts: automobile Group, Tire Group and ContiTech Group, which are independent of each other.

Among them, it is strongly related to the automotive business, mainly the automotive group (including safety and dynamic control business group, vehicle networking and architecture business group, user experience business group, smart travel business group and self-driving and travel business group) and part of the automotive business of ContiTech sub-group, such as automotive belts and sealing systems.

So, a key point needs to be drawn here– once Continental Group spun off the Automotive Group, the rest of the automotive business will be mainly the automotive part of ContiTech subgroup.

mainly shockproof, sealing system products, hoses, belts and interior components.

These businesses mentioned above are all very traditional parts business, and it is very difficult to create new value increments.

it is the kind of business that is “tasteless and a pity to be abandoned” in the era of automobile intelligence.

The profitability is limited, and there is no broad room for innovation.

According to industry insiders, this business will not rule out the possibility of being spun off, sold, or merged by other companies in the future.

The mainland is faced with a problem of uneven internal profits.

At the market level, the established strong business tires maintain high profit margins all the year round, but the money earned is also continuously transferred to other loss-making sectors, such as the automobile business.

On paper, in fiscal year 2023, the revenues of Continental Group’s automobile business, tire business and ContiTech were 20.

3 billion euros, 14 billion euros and 6.

8 billion euros respectively, with the auto business sector accounting for the highest proportion of revenue.

But it is worth mentioning that this sector has been losing money for a long time in the past few years, with the auto group losing money for four consecutive years from 2019 to 2022.

The loss-making Automobile Group has undoubtedly seriously dragged down the overall performance of the Continental Group, and this sector costs a lot of money, and R & D expenditure alone is a real money-burning pit, and only when new travel and new technology orders increase significantly, with economies of scale, can the stubbornly high R & D costs be gradually amortized.

Under the heavy pressure of the transformation of the new four modernizations, another century-old spare parts store, Bosch Group has also taken a key step in seeking change.

In May last year, Bosch adjusted the automotive business structure, reorganized the automotive and intelligent transportation technology business, and officially changed its name to Bosch Intelligent Travel Group in January this year.

At the same time, Bosch Intelligent Travel Group China Board was officially established to manage the business department and related teams in China as a whole.

The top adjustment followed, Xu Daquan took over Chen Yudong as president of Bosch China, and Wang Weiliang was appointed president of Bosch’s intelligent transportation business board of directors, reporting to Xu Daquan.

Bosch has always had a keen sense of smell in the face of changes in the industry.

Chen Yudong once mentioned in an interview that although Bosch is essentially a traditional parts company, the management hopes that the new era can be regarded as a “new force” by the industry.

to this end, China has been changing in recent years from organizational structure to technological innovation.

to adapt to the development of the new era.

The anxiety of the established manufacturing powers was also at the beginning of this month when an article entitled “did German carmakers hit a brick wall” pointed to the real crisis of Germany’s established manufacturing powerhouse auto industry.

For one thing, profit.

German carmakers once made a lot of money with the glory of the age of fuel cars.

However, such a grand occasion is long gone.

Compared with the same period last year, Volkswagen Group is the only company in Germany with a slight increase in sales revenue in the first half of this year, other companies have experienced varying degrees of decline or stagnation, and profits are generally lower than in previous years.

Second, electrification transformation.

According to the data, only BMW is the winner of the electric car track, and BMW group’s pure electric vehicle sales increased by about 25% in the first half of this year compared with the same period last year.

Volkswagen, which has no dust in terms of sales, has the most serious problem, and the German industry generally believes that it is difficult for the group to make a long-term profit from the pure electric sector.

The ducks in the warm water of the river are the first to feel the smell of spring, and when the crisis comes, the ducks in the upper reaches can also experience the cold of the river.

The country’s parts giants have the best experience of the plight of German auto companies.

In the first six months of this year, a total of 162 German companies with turnover of more than 10 million euros filed for bankruptcy, an increase of 41% over the same period last year, with auto parts accounting for the highest proportion of bankruptcy filings, according to Falkensteeg, a leading German business restructuring consultancy.

Those giants that dominate the Top10 list of parts and components revenue for a long time, such as Zaifu and Bosch, also face greater pressure of transformation, in the face of huge pressure to reduce costs and increase efficiency, have to choose to lay off employees, or strategic contraction.

ZF has previously announced that it plans to cut most of its local staff by the end of 2028, and the number will be reduced from 54000 at this stage to 1-15000, which meansAs a result, tens of thousands of people will lose their jobs.

Another set of data shows that Germany’s direct investment in China has shown a sharp upward trend this year.

The Bundesbank revealed to the Financial Times that Germany’s direct investment in China reached 7.

3 billion euros in the first half of this year, compared with only 6.

5 billion euros in 2023.

It is worth mentioning that most of the soaring investment is driven by large German automakers, and the investment of these automakers in China is basically a reinvestment of the profits earned in China.

It can be seen that at a time when the German automobile industry chain is collectively facing cold weather, the Chinese market has become the top priority for most companies.

However, luxury car manufacturers represented by the BBA still face new problems in China.

“Süddeutsche Zeitung” analyzed that the general anxiety of German high-end car manufacturers about the Chinese market lies in the declining willingness of wealthy Chinese to buy and the gradual development of Chinese car brands.

It is not just the BBA that is in trouble.

Even if the Volkswagen Group is located in the mass market, competition from Chinese manufacturers is fierce.

Experts from the German Automobile Management Center even pointed out that even if Chinese manufacturers can survive the bloody price war, it will be difficult for Volkswagen’s models to launch competitive models in the foreseeable future to counter the fierce competition of the Chinese army.

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