Continental prepares for demise of combustion engine

Continental AG will scale back investments in traditional motor components and allocate more funds for hybrid and electric powertrains as the auto-parts maker prepares for the eventual decline of combustion engines.

Europe’s second-largest component supplier will invest an additional €300 million to develop and expand its offering of electric- and hybrid-car technologies by 2021, the company said on Tuesday in a statement. While Continental, which is based in Hanover, Germany, won’t entirely abandon fine-tuning traditional motors, it sees electric and hybrid vehicles accounting for 40 per cent of the car market by 2025.

“We have to expect gradually falling demand for newly developed mechanic and hydraulic engine components,” José Avila, head of Continental’s powertrain unit, said in the statement. “This is why we will reduce our expenses into these technologies step by step.”

Tipping point

Global automakers and their components suppliers are investing heavily to develop electric-car technology to comply with tightening emission rules across the globe. Balancing these investments is key to mitigating the financial burden of having to pour money into both electric and combustion engines for years to come as the tipping point at which battery-powered cars overtake petrol and diesel engines remains difficult to predict.

"Large chunks of today's powertrain revenue streams are simply obsolete in battery-electric vehicles," Victoria Greer, an analyst with Morgan Stanley said in a note to clients. "We continue to struggle with the companies' message that electric vehicles will be a content multiplier."

In a sign of the disruptive potential of the shift, Continental held talks with Delphi Automotive earlier this year about merging parts of their powertrain divisions, sources said. Negotiations ended without a deal to combine the operations, which make components including transmissions and fuel and exhaust systems for petrol and diesel cars.

Diesel has been particularly hard hit in the aftermath of Volkswagen's cheating scandal, with consumers gradually turning away from the technology in Europe, its main stronghold. Continental said it had limited exposure to the slumping diesel market, which accounts for less than 2 per cent of overall sales. – (Bloomberg)