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Continental Powertrain: dual focus on electrification and efficient ICE; boosting electric drive spending by €300M by 2021

Continental’s Powertrain division is strategically focused on two parallel efforts. The first is the full value creation from the growing demand for the most efficient combustion engine technologies that also deliver the lowest emissions. The second is to benefit from the prospective growth in environmentally friendly, electrified and fully electric drive systems.

Continental will spend an additional €300 million (US$327 million) on its business with electric drives alone by 2021. This step, as well as additional plans, are part of the new global “Powertrain Strategy 2020+”.

We now will proceed with the gradual implementation of our new strategy. In doing so, we will be guided by our customers’ demands and strategies. In this context, we have to expect gradually falling demand for newly developed mechanic and hydraulic engine components. This is why we will reduce our expenses into these technologies step by step as well. On the other hand, we expect excellent new growth opportunities for our innovative electronic, sensor and software systems due to increasingly stringent emission requirements.

We will consistently strengthen the growth of our business with electric drive systems. With our total investment of €1 billion [US$1.1 billion] in electrification during past five years, we have already laid the foundations for this development. Our Hybrid Electric Vehicle (HEV) business is already experiencing a rising order intake. Here, we expect a growing turnover from €130 million [US$142 million] today to up to €1 billion by 2020/2021. And this is not the end of it: We plan to open up additional business opportunities of €2 billion [US$2.2 billion] by 2025 with further expenses in research and development of HEV-related technologies. For this purpose, we intend to spend €300 million more than had previously been planned by 2021, particularly into research and development.

—José A. Avila, member of the Executive Board and President of Continental’s Powertrain division

Dr. Elmar Degenhart, Chief Executive Officer of Continental, said that his company expects a market share for pure electric drive systems of around 10% in 2025, and for hybrid drive systems of probably almost 30%.

This means that the combustion engine is actually yet to have its peak. We do not expect to see a slow decline in volumes until after 2025. Up until this point, we can make it even more efficient, for example with our ‘people’s hybrid’ for wide-ranging vehicle segments. Our 48-volt system is making the combustion engine quieter and the air cleaner. We are a trailblazer in this respect, having been the first to bring this system onto the market for standard production, and will therefore grow quickly and profitably.

—Dr. Degenhart

The automotive supplier therefore continues to expect significant business opportunities for fuel efficiency technologies in internal combustion engines over the next decade.

As a result of ever-increasing shares of electronics, sensor systems and software in combustion engine drive systems, Continental also expects a continuous growth-driven transition towards the business with electric drive systems.

The additional HEV-related sales will more than compensate for the expected business at risk from the combustion engine drive systems after 2025.

The current decline in the diesel market for passenger cars and light commercial vehicles has a very limited impact on our business because diesel-related sales only account for less than 2 percent of sales for the whole corporation.

—José A. Avila

Order intake in the Powertrain division totaled €11.5 billion (US$12.5 billion) in 2016. In 2017, the company expects continued growth.

We are receiving particularly large numbers of orders for our products and systems for hybrid and electric vehicles. Last year, the life-time value was more than €1.2 billion [US$1.3 billion]. This amount was up 17 percent on 2015.

—José A. Avila

For the ongoing fiscal year, Continental expects Powertrain sales of approximately €8 billion (US$8.7 billion). This projected sales increase of 9% would significantly outperform the estimated market growth related to an increasing production rate of light vehicles of just 1 percent. For 2019, the company confirms expected sales by Powertrain of around €10 billion (US$11 billion).

Powertrain’s profitability (adjusted EBIT margin) in fiscal 2017 is expected to reach 9% followed by around 10% in the years to come (excluding HEV).

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