Continental AG is exploring the possibility of spinning off and listing its troubled automotive division, aiming to separate it from the company’s thriving tire business.
The German manufacturer is conducting a thorough evaluation of this potential spin-off and subsequent full listing of the automotive unit, which produces items such as brakes and automated driving systems. The company plans to make a decision in the fourth quarter and aims to finalize the process by the end of the next year.
Continental’s intention is to “maximize the value and growth potential of the two distinct entities,” according to a statement made on August 5. The company will retain ownership of its lucrative tire and ContiTech divisions.
Automotive parts suppliers are currently under strain as automakers scale back production due to a slowdown in electric vehicle demand. Continental has been examining options for its automotive unit, which has been lagging behind its competitors, including potential divestitures and partnerships. Similarly, ZF Friedrichshafen AG plans to cut approximately 25% of its German workforce by 2028 in response to the EV market shift.
The announcement indicates that Continental, one of Europe’s major automotive parts suppliers, is considering significant restructuring efforts to enhance profitability. The company’s complex conglomerate structure has been criticized by investors for lacking clear cost synergies across its varied operations.
Based in Hanover, Continental Tire faces challenges such as rising labor costs and slow progress in renegotiating prices with clients. The company recently reported that the positive effects of recent cost-cutting measures began to appear in the second quarter and are expected to have a more substantial impact on profits in the second half of the year.
The automotive division, employing around 100,000 people and generating sales of approximately €22.3 billion in the last fiscal year, has been struggling with high investment needs and decreasing demand. Higher interest rates are impacting car purchases, and automotive sales in China have not met expectations, with German brands falling behind local competitors like BYD Co.
CEO Nikolai Setzer stated, “The significant regional market fluctuations and the software-driven technology transformation require increased flexibility and entrepreneurial freedom.”
If the spin-off proceeds, Continental shareholders would receive shares in the newly listed automotive entity proportionate to their holdings in the parent company.