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Continental chief outlines plan to boost EV, software expertise, cope with tariffs
Elmar Degenhart, who has been leading Continental since August 2009, embarked on his biggest project yet last year. That is when the supplier announced it would split itself into three units to adapt to industry trends such as electrification, autonomous driving and connectivity. Last month Continental announced a 10-year restructuring plan in an effort to lower costs by 500 million euros annually, in part by closing factories and trimming thousands of jobs around the world. Degenhart spoke to Automotive News Europe Correspondent Peter Sigal about the challenges ahead for the world's fourth-largest automotive supplier.
Continental may spin off its powertrain division as an alternative to a planned initial public offering. What are the pros and cons of each scenario?
For an IPO, you need to convince investors that the price you want to establish in the market is reasonable and attractive. As the capital market environment gets more difficult, it's harder to do an IPO at a reasonable price for us and for our investors. Now, unfortunately the current economic situation doesn't look very favorable. This will most likely continue into 2020. Consequently, we decided that it's a good idea to evaluate a Plan B, in case 2020 isn't a good time for an IPO. For a spinoff, we still need the support of Continental's shareholders, but if this is granted, then we can decide to do the split of the Continental stock and give each of our shareholders stock in Vitesco Technologies, our powertrain business.
Why make Vitesco a separate company?
Last year we had sales of 7.7 billion euros in powertrain that were predominantly dedicated to combustion technology. We are preparing our business for the transition to electrification. To meet ever-stricter emissions regulations, we expect that many vehicle manufacturers are going to move their share of full-electric drivetrains to above 40 percent over the next decade. Therefore, we have to move our resources from combustion technology to electrification. Fortunately, we already have a strong presence in electronics, sensors and software for combustion engines. Our goal now is to translate these competencies to better suit the future electrified powertrain market. To manage this transformation our powertrain division needs a high degree of independence to make its own decisions, to be agile, flexible and to be able to move very fast.
The other group sectors of Continental will be Rubber Technologies and Automotive Technologies. How will Automotive Technologies develop its business in the future?
We are using our established and successful businesses today to finance new opportunities, especially those that are focused on software. This is a huge market that will explode in the next 10 or 15 years, when the overall value of automotive software will go from $300 billion to potentially $2.7 trillion. Today, about 19,000 of our 49,000 engineers have a software background. We will get to a point where more than half of our engineers will be software experts. It's the fastest-growing competence community in our organization. The significant growth of software-based business is the reason why so many industries are trying to gain from this opportunity. The challenge for all is to monetize the opportunity.
In the United States, there is a divergence between what the government thinks emissions levels should be and what automakers think they should be. How does Continental plan for the future when this happens?
It's challenging, because we need clarity and transparency for at least the next 10 years. Unfortunately, we have different regulations in North America, in Europe and in parts of Asia. As the regional divergences get wider, it becomes more difficult to provide technologies that fulfill the expectations of our customers. The best for us would be a global standard. It would also be best for the environment.
We are also seeing the prospect of more tariffs. Can Continental pass along the costs of new tariffs to customers? Are you talking to regulators to make your position clear?
We are speaking to European politicians, and we have an office in Washington, D.C. The purpose is to provide background information so that politicians and governments can make reasonable decisions. If you raise tariffs on short notice, that's poison for the industry, because we are not able to react in a timely manner. It only generates an additional financial burden for the industry. This concerns everyone in every market because we are globally connected, regardless of suppliers or manufacturers. We are in favor of eliminating all tariffs completely. This is a clean, simple solution. Nobody should be at a disadvantage. With the imposition of tariffs, our products are getting more expensive, the vehicle is getting more expensive, and the losers are the consumers. And it's not the ones who have the means to afford a premium vehicle, but those who are struggling to afford a midsize or smaller vehicle.
In the last year, some automotive executives have backed away from their most optimistic predictions about self-driving cars. How do you see that market developing, and what part of that market does Continental want to own?
The typical development for a trend like assisted driving and autonomous vehicles is that people are very skeptical at the beginning, then they get interested, then they get over-interested, causing hype, then people try to make more aggressive statements than others about the timeline -- then all of a sudden it's cooling down, and finally you can have a realistic discussion.
So we are in the cooling-down phase?
That's exactly right, and this is a good development. In the next 10 years, the bulk of the business will be from driver assistance. Because of the safety benefits, advanced driver assistance systems will have higher and higher rates of installation in the vehicle.
Stuk niet voorbij zien komen en misschien interessant te lezen aangezien AND met Continental samenwerkt. Interessant te lezen hoe de CEO van Continental denkt over de automotive markt. In het laatste stuk wordt aangegeven dat we nu in de cooling down phase zitten waarin mensen realistischer worden over zelfrijdende voertuigen. Merken we hier ook gezien de geringe belangstelling. Ook interessant te lezen dat deze CEO verwacht dat de markt voor software op termijn gaat exploderen. Hopelijk weet AND zich met de nieuwe digitale strategie hier goed voor te positioneren.
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