Continental cuts annual forecast: Automotive production in Europe declining

The German automotive supplier Continental has lowered its annual sales forecast. The company, one of the largest suppliers in the European automotive industry, anticipates a further decline in vehicle production in the region. The company is currently considering the spin-off of its core automotive division. Despite slight growth in vehicle production outside Europe this year, this is more than offset by a decline in the home market. Specifically, the sales of electric vehicles have stalled. Continental now expects a production decline in Europe of 4 to 6 percent, compared to the previous forecast of 1 to 3 percent. The new annual sales forecast is now between 40 and 42.5 billion euros, compared to the previous estimate of 41 to 44 billion euros. Chief Financial Officer Olaf Schick told the Financial Times, "The current market environment is challenging." German automotive suppliers like Continental previously benefited from the success of their largest customers such as BMW, Volkswagen, and Mercedes-Benz. However, they are now under pressure from the transition to electric vehicles and the need for significant investments in new technologies. Like many competitors, Continental is cutting jobs to improve margins. According to Schick, 20 percent of the research and development sites are being reviewed for potential layoffs or closures. About half of the 2,800 employees laid off last year were from the R&D sector. The extensive cost-cutting program helped Continental increase the adjusted EBIT margin to 7 percent in the second quarter, compared to 4.8 percent in the same period last year. Investors reacted positively to the improved margins, causing Continental's share price to rise by almost 5 percent in early trading. For decades, Continental has built its auto parts business through acquisitions, including a deal in 2007 to buy Siemens’ automotive supplier business for 11.4 billion euros. However, the recent announcement indicates a change in direction. On Monday, Continental stated that it is considering the spin-off of the automotive division, which accounts for half of the entire group with annual sales of 20.3 billion euros and about 100,000 employees. Continental would retain its 153-year-old tire business and a smaller division that supplies rubber products and technology to other industries. Schick said, "It is now the right step to separate and allow both sides to fully focus.