Continental AG's executive board has provided an outline of a sweeping reorganization for the 147-year-old company. Continental's rubber business, which includes tires and ContiTech, will remain, though the tire division will get a new name: Tire Technologies.
In the big picture, Continental AG will be the umbrella for three business sectors. The company's current Powertrain division will be transformed into an independent legal entity with a new name and management by the beginning of 2019.
The reorganization change still needs to be approved by the company's supervisory board, but it's expected the new structure and new names will be used beginning in 2020.
The three sectors underneath the Continental Group umbrella will be:
Continental Rubber: This will include tires and ContiTech.
Continental Automotive: The current chassis and safety and interior divisions will be reorganized into Autonomous Driving Technologies and Vehicle Networking Technologies. Both of these reorganized divisions will be supported by a new Automotive Research and Development function as well.
Powertrain: This unit will continue to lead business involving hybrid and electric drive systems, all current battery activities, and the combustion engine business. This will include a recently announced joint venture for 48-volt battery systems. In this new sector, Continental envisions it could produce battery cells made of solid materials (solid-state technology,) though a decision regarding this isn't expected until after 2020.
A partial IPO for the new Powertrain company is in the works, and could take place starting in mid-2019, though Continental does not plan to relinquish control of the Powertrain business in the medium or long term.
CEO Elmar Degenhart: “These changes strengthen the competitiveness of Continental and its successful values alliance for top value creation in the long term.
“In the next decade and after, the global automotive industry will undergo the largest and most profound transformation in its over 130-year history. We are looking ahead and taking on this transformation at an early stage. Strong and confident, we are doing our part to shape and guide this transformation.
Details on the rubber business:
The Tire division will be known as Tire Technologies, and ContiTech will retain its name. Both will be reported as a group sector, under the Continental Rubber name. "The two business areas will continue to specialize in the development of technology products based upon rubber and plastics."
The business will continued to be owned by Continental. The issuance of an IPO is not planned "at present, but is an option for the future.
"Several years ago Continental already undertook preparations, making it possible to create a new legal entity out of this business. No further steps need to be taken for this at present."
Why spin off the Powertrain business?
Here's how Continental explains it: "The foreseeable change in the drive systems business is the reason why a new independent legal entity is being created. The way the market evolves will largely be determined by political demands regarding emission limits. The pace at which political decision-makers are pushing regulations varies, particularly in key markets, including Europe, North America and China, as well as Japan and South Korea, and growth markets such as India. This requires a great deal of flexibility on the part of the industry in order to be able to react quickly to the individual needs of the various markets, regulatory authorities, societies and customers."
"With this reorganization, Continental is above all pursuing the goal of gearing its business with pioneering technologies toward continuing profitable growth, while exploiting this and future growth opportunities faster and more efficiently.
"In its new automotive business (without the Powertrain division), the technology company expects to increase sales from about 19 billion euro in 2017 to approximately 30 billion euro in 2023."
Changing needs and future opportunities are also driving the reorganization of the chassis and safety and interior divisions. Continental says the new Autonomous Driving Technologies business area will comprise automated and autonomous driving, plus the familiar chassis functions like electronic and hydraulic braking, stability and chassis control and electronic air suspension.
The new Vehicle Networking Technologies business area will focus on a vehicle's internal connectivitiy, as well as its external connectivity with other vehicles and traffic infrastructures. (Those details are to be worked out and announced by mid-2019.)
A new central R&D center
The creation of a central automotive R&D function will support the realignment of the automotive business. In this new function, the development activities of the current interior and chassis and safety divisions as well as the R&D activities of the current central functions will be integrated and strengthened at the operational level.
Approximately 12,000 to 15,000 software and hardware engineers will join together in a global Continental powerhouse for advanced development and application engineering.
In the two new business areas Autonomous Driving Technologies and Vehicle Networking Technologies, there will be an additional 17,000 engineers.
The company says, "The goal of this integration is to maximize R&D productivity and achieve a smooth, speedy product launch, which is crucial in the industries relevant for Continental. This will be made possible primarily by concentrating R&D faculties on the functions in the vehicle and its surroundings, regardless of which electronic assemblies and systems these are assigned to later on. This focus on functions will facilitate the creation of pioneering solutions for greater safety, comfort, convenience and connectivity on the roads."
Degenhart says, “We are heading into the future of mobility at full speed. Our proven readiness and capacity to change give us an outstanding competitive edge which we want to use to the fullest. Our realignment will make us exceptionally flexible and agile. In Continental’s successful values alliance for top value creation, we are growing to meet upcoming challenges, remaining competitive now and in the future. This continues to require pioneering and innovative excellence. With this alliance, we are opening up new, promising perspectives for our customers, employees, investors and all other stakeholders."