Dusseldorf The capital market day of the automotive supplier Vitesco is dominated by the crisis: rising raw material and energy prices are causing problems for the industry. Vitesco boss Andreas Wolf has to answer questions from investors on Tuesday. And ideally provide answers for the future.
That’s not too difficult for Wolf. In contrast to many other suppliers, the Vitesco CEO appears self-confident. His drive company has full order books in future business with electromobility. “Our order backlog worldwide is over 20 billion euros,” says the 62-year-old in an interview with the Handelsblatt.
Within a year, the portfolio had grown by more than ten billion euros. “We have to set up new, competitive production lines for this,” explains Wolf. By 2026, Vitesco plans to increase sales in the electrical sector from currently less than one billion euros to around five billion. By 2030 it should already be ten to twelve billion euros. Free cash flow will increase eightfold by 2026 from the current 50 million to around 400 million euros. The company is promising shareholders a dividend from 2023.
When Vitesco went public a little over a year ago, the drive company had a flaw: the spin-off was considered the “bad bank” of the parent company Continental. Vitesco earned a large part of the money with components for the combustion engine. The electromobility business: high deficit. By March of this year, the stock rushed deep into the red.
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The stock has since recovered. The minus is still seven percent compared to the initial listing. Vitesco is one of the strongest stocks in the SDax small-cap index for the year as a whole.
The opposite trend can be seen at the former parent company Continental. The core business continues to make losses. In addition to ongoing proceedings by the public prosecutor’s office in Hanover regarding the manipulation of exhaust emissions from diesel engines, in which Conti and Vitesco are involved in an expensive legal dispute over who has to pay for possible fines, there are also manipulations of air conditioning and industrial hoses. This year alone, the price has almost halved. Hardly any value in the Dax has developed so badly. The supposed bad bank has overtaken in stock performance.
However, Vitesco’s success is conditional. Because the company makes around 40 percent of its sales in Europe, where high energy prices could become a problem for many suppliers. “We have a risk list of suppliers at risk of bankruptcy from all over the world. There is a high double-digit number of companies on it,” says Wolf. In order to avoid an interruption in the supply chain, solutions are being sought together with these companies.
Customers grant the necessary financial leeway. “We can pass on around 80 percent of our higher costs to the car manufacturers,” says Wolf. In the end, the smaller suppliers would also benefit from this. The Vitesco boss therefore considers the warnings of a wave of bankruptcies in the German supplier sector to be exaggerated. “We don’t see that risk,” he notes.
According to Wolf, the strong commitment in China is not a problem for the automotive suppliers. Since Russia’s war of aggression against Ukraine, Beijing’s claim to the island of Taiwan has been viewed with suspicion in the West. The internal handling of the Uyghur ethnic group is now openly criticized by politicians.
Wolf sees the car manufacturers as responsible here. Vitesco simply follows its customers to China. It is true that such components could also be manufactured in other Asian countries for the Chinese market, for example in India. But Wolf does not see the need to move works there.
>> Read also: Industrial hoses also manipulated at automotive supplier Continental
Even the economic downturn in Europe is not dampening his optimism. He sees no drop in demand in the electromobility business. The sometimes very long waiting times for some electric models would prove this.
Analysts at the Swiss investment bank UBS assess the situation differently. The bank’s auto experts assume that the industry will run into oversupply in three to six months. The lack of chips is currently causing a lack of supply and thus higher car prices. In view of the high inflation in Europe and the USA, however, this demand is likely to cool down significantly in the near future. The forecasts of mass manufacturers and suppliers who are in the process of transforming themselves into electromobility are overly optimistic. As a result, UBS downgraded numerous car manufacturers and suppliers, including Volkswagen and Continental.
Electronics business continues to make losses
Vitesco has promised shareholders that it will make money from electromobility by 2024. So far, the sector is burning money. With a turnover of almost 310 million euros in the first half of the year, the loss was almost 140 million euros.
In order not to jeopardize the so-called break-even point, Vitesco is not stopping at cuts at the Nuremberg site, which itself has praised as a “work for the future”. Among other things, the company has inverters for electric motors manufactured there. In the medium term, 800 jobs are to be cut there.
The Vitesco boss assumes that despite increased inflation and energy prices, demand for electric cars will remain high.
(Photo: Vitesco )
This caused outrage in the works council. So far, savings measures have only affected locations that exclusively produce components for combustion engines. With the decision to also save costs in Nuremberg, “the only one of the eight German Vitesco plants that is not affected by the technological phase-out with the prospect of closure is now also falling into a Kahlschlag brand reduction scenario,” said Vitesco General Works Council Torsten Buske immediately afterwards the decision at the end of June this year. By “phase-out” he means the foreseeable end of the internal combustion engine in mass production.
Wolf justifies this step. “Nuremberg is no longer competitive when it comes to labour-intensive products,” he says. Production in Germany is still possible given the increased energy costs. However, this is limited to high-tech products that are manufactured in a highly automated manner. In the long term, production areas with a high proportion of manual work will no longer be able to be kept in Germany, regardless of whether combustion or electric components are involved, according to Wolf.
For Nuremberg, this means that employment figures cannot be maintained at the current level. It may mean for Germany: the initial phase of de-industrialization. Experts are already warning that the high production costs in Germany would jeopardize competitiveness as an industrial location.
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