Dusseldorf Wolfgang Reitzle wants to get everything out of Continental. The head of the supervisory board of the Dax group is aiming for a higher stock market rating and more capital. His plan: to separate the Conti division for automated driving from the overall group and thereby make the real value of the most important future business visible to investors. They could then also participate in the high investments. One hears that anchor shareholder Schaeffler does not seem to be averse to the plan. The Handelsblatt reported in early February.
The financial logic behind the master plan is impressive. From an industrial point of view, however, it is a risk. In the company and on the supervisory board, there are not only many supporters but also opponents of this strategy. “What’s left of Continental then?” asks a member of the Supervisory Board. This makes Conti as a group only vulnerable. Competitors could take over parts of the company. In the end, Conti would again be predominantly a tire manufacturer with a comparatively small software business.
In addition, the economic arguments have so far been missing. “Where is the growth story that would justify such a spin-off?” asks an insider with regard to the cooperation between Bosch and Cariad.
Continental’s competitor recently entered into a long-term cooperation with Volkswagen’s software unit Cariad in the development of automated driving. So far, Conti has not had a similar cooperation at this level.
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Continental is weak on the stock exchange, the employee side also admits. The Schaeffler family, with 46 percent Conti’s largest shareholder, is therefore interested in a higher valuation, according to financial circles. “But I haven’t had the impression so far that she wants to achieve this through a spin-off,” reports a member of the supervisory board. In addition, the Schaefflers would not be inclined to make hasty decisions.
>> Read about this: That’s what Conti is planning for automated driving
In short: Conti’s interests are opaque. One thing is clear: When Continental presents its annual figures on Wednesday, the analysts expect a familiar picture. The tire business will show double-digit margins, the car business will remain a balance sheet tragedy. The most important division of the supplier, in which the business with the car software and automated driving is bundled, has hardly contributed to the group result for years.
This discrepancy has direct consequences for the tire division, which is actually doing well. Because although business is going brilliantly, the division gets caught up in the whirlpool of restructuring that the group initiated in 2019 and which is referred to internally as “Transformation C”.
The impatience of those responsible for the tire business and the employees grows with every quarterly balance sheet in which the car business delivers weak results. “The tire division has been financing a significant part of the restructuring of the automotive business for years,” says a group insider. The interim highlight was the decision to close a profitable tire plant in Aachen. In the tire division, there is therefore sympathy for Reitzle’s plan.
For large suppliers, fragmentation is dangerous
Separated from Conti, the division for automated driving could reach a valuation of seven billion euros. For comparison: the entire group is worth around 16 billion euros on the stock exchange. This is one of the most important arguments for the supporters of the spin-off plans at Continental.
But from the point of view of the industry, the arguments of the opponents on the supervisory board and in the company are also understandable. Because the filleting of such a large supplier as Continental would have the potential to shake the German automotive supplier industry to its foundations. Once big names threaten to disappear in times of complex hardware and software.
Experts are already advising traditional car companies to cooperate directly with tech companies such as Google, Amazon, Nvidia or Qualcomm when it comes to software. “We doubt that traditional automakers and auto suppliers will be able to keep up with the tech companies in a timely manner and at competitive costs,” says UBS analyst Patrick Hummel.
Alex Koster, partner at the strategy consultancy Boston Consulting Group, also sees a change coming to the industry. “The dismemberment of the old model of cooperation between car manufacturers and suppliers is one possible scenario,” says Koster. Since the individual functionalities in the car are becoming more and more complex, it could happen that traditional suppliers specialize in certain areas of the car. “That would simplify financing and cooperation with tech players,” says the car expert.
Tech companies see their chance. Many still lack experience in the special automotive business. By taking on specialized suppliers, they could practically “buy” this experience. Opponents of the spin-off plans fear a scenario that could also threaten Conti’s automated driving division, since it becomes “more transferable” detached from the group.
There is already an example of this. Chip giant Qualcomm acquired Veoneer, a Swedish automated driving specialist, for $4.6 billion last year. The explosive thing about it: With its bid, the US chip company had outbid the traditional supplier Magna, which was also interested in Veoneer, by over a billion dollars.
Setzer works with a “sworn team”.
Conti boss Nikolai Setzer has not yet commented on the spin-off speculation. At the same time, he is currently also a member of the Board of Management of the Automotive unit. Insiders report that he gathered companions from his time in the tire division there. In his tire time, it was a “sworn team” that brought the division into shape. Setter now wants to apply this model to Automotive independently of the spin-off speculation. “But if this team still doesn’t deliver any results worth mentioning in two years, Setzer is risking his reputation.”
In view of the new competition from the tech environment, the Conti boss faces a major task. Some employees in the automotive department apparently see this as too big a task.
It is said that many engineers, especially at the Lindau site on Lake Constance, would leave the company and switch to direct competitors. Applications from employees from Continental’s automotive division are already piling up at Bosch and ZF.
More: “Faster on the road”: How Stellantis could overtake VW thanks to Alexa.