Continental is ready to go. The international automotive supplier, tyre manufacturer and industrial partner that provides sustainable, safe, comfortable, individual, and affordable solutions is approaching the most fundamental transformation in the history of vehicle drivetrain technologies in the next 15 years with confidence. Its attention is focused on two parallel efforts.
The first is full value creation from the growing demand for the most efficient combustion engine technologies that also guarantee the lowest emissions. The second is to benefit from the prospective growth in environmentally friendly, electrified and fully electric drive systems. This is why Continental will spend an additional Euro 300 million on its business with electric drives alone by 2021. This step and additional plans are part of the company’s new global ‘Powertrain Strategy 2020+’.
Jose Avila, Board Member and Head of Powertrain Division at Continental AG, discusses more on the new strategy and the emerging trends in powertrain in this interaction with APF.
What is the objective of ‘Powertrain Strategy 2020+’?
We have a new strategy for the powertrain division that is focused on efficient combustion engine technologies, hybrid and electric drive systems. The increasing share of electronics in combustion engine drive systems allows growth-oriented transition towards business with electric drive systems. Through this process we will deploy additional expenses of Euro 300 million to exploit multi-billion-euro business opportunities related to hybrid and electric car technology.
How will it help Continental to grow its business?
We now will proceed with the gradual implementation of our new strategy. In doing so, we will be guided by our customers’ demands and strategies. In this context, we have to expect gradually falling demand for newly developed mechanic and hydraulic engine components. This is why we will reduce our expenses into these technologies step by step as well. On the other hand, we expect excellent new growth opportunities for our innovative electronic, sensor and software systems due to increasingly stringent emission requirements. We will consistently strengthen the growth of our business with electric drive systems. With our total investment of Euro 1 billion in electrification during the past five years, we have already laid the foundations for this development.
Our Hybrid Electric Vehicle (HEV) business is already experiencing a rising order intake. Here, we expect a growing turnover from Euro 130 million today to up to Euro 1 billion by 2020-21. And this is not the end of it: We plan to open up additional business opportunities of Euro 2 billion by 2025 with further expenses in research and development of HEV-related technologies. For this purpose, we intend to spend Euro 300 million more than had previously been planned by 2021, particularly into research and development.
With the presentation of the new powertrain strategy, Continental concludes its review process, which had been announced in the fall of 2016. What has become clear is that we have made a great deal of progress over the previous years and are well-positioned to successfully surmount the future demands on automotive drive systems. Our timing is right. Backed by our strength and our new strategy, we are in an even better position to play a leading role in shaping the upcoming highly demanding transformation of the respective technologies – successfully, and with utmost flexibility.
So what is your prediction about the cars of the future?
Cars of the future will feature electric drives, which will be fully connected and automated. In 2025, we expect a market share for pure electric drive systems of around 10%, and for hybrid drive systems of probably almost 30%. This means that the combustion engine is actually yet to have its peak. We do not expect to see a slow decline in volumes until after 2025. Up until this point, we can make it even more efficient, for example with our people’s hybrid for wide-ranging vehicle segments. Our 48-volt system is making the combustion engine quieter and the air cleaner. We are a trailblazer in this respect, having been the first to bring this system onto the market for standard production and will therefore grow quickly and profitably.
The automotive supplier therefore continues to expect significant business opportunities for fuel efficiency technologies in internal combustion engines over the next decade. They are the only means to comply with even tougher emission legislations around the world.
As a result of ever-increasing shares of electronics, sensor systems and software in combustion engine drive
systems, Continental expects a continuous growth-driven transition towards the business with electric drive systems.
How will this balance out your business proposition?
The additional HEV-related sales will more than compensate for the expected business at risk from the combustion engine drive systems after 2025. The current decline in the diesel market for passenger cars and light commercial vehicles has a very limited impact on our business because diesel-related sales only account for less than 2% of sales for the whole corporation. Order intake in the powertrain division totaled Euro11.5 billion in 2016. In 2017, the company expects continued growth. We are receiving particularly large numbers of orders for our products and systems for hybrid and electric vehicles. Last year, the lifetime value was more than Euro1.2 billion. This amount was up 17% on 2015.
For the ongoing fiscal year, Continental expects powertrain sales of approximately Euro 8 billion. This projected sales increase of 9% would significantly outperform the estimated market growth related to an increasing production rate of light vehicles of just 1%. For 2019, the company confirms expected sales by powertrain of around Euro 10 billion. Powertrain’s profitability (adjusted EBIT margin) in fiscal 2017 is expected to reach 9% followed by around 10% in the years to come, excluding HEV.