Continental Auto Unit Margin Climbs Ahead of IPO

Bloomberg

a day ago

00:00
Overall, I think as Continental we post at Verizon a result of the second quarter and continue to our path from the first quarter if you look at automotive. And to your question. Automotive improved its earnings adjusted as much as 4%, which is a strong result in this difficult environment despite challenging automotive markets in Europe and North America. And what are the reasons for that? The reasons for that are, on the one hand, fixed cost reduction. The target for automotive total by year end 2025 is to reduce SG & A cost by 400 million. Euro. Debt is already safeguarded as of today, which also means the move your team will fight to achieve higher savings there. Second, commercial efforts very important and very successful and then also reduced our deep spent. These are probably the main factors. So that means automotive has positive momentum. We are targeting the listing, as you rightfully said, on September 18 and we are also on track there. We have a great management team, we have great products and you see that also if you look at our order intake for automotive, source orders are above sales. Our book to build ratio is 1.2, and that's maybe the most important. Our orders fulfill our criteria, whether it's the financial KPIs or the terms and conditions which are also very important in these trucks. And so there are a number of different spin offs that you're planning to do to turn Conti really into a pure tyre manufacturer. You have production in North America. Obviously tariffs is the word of the day. How are you insulating yourself? Because you still import a good deal from Europe. How are you insulating yourself to that? And are you going to have to expand your footprint in the United States? Yeah, well, first of all, we believe it's good that an escalation could be avoided between the US and Europe, and a trade war could be avoided. So a deal is good news. Of course, we now also need to look at the details. And of course, it's also clear that Europe and Germany have to focus on improving economic conditions only with stronger economic power. We will have a better negotiation position at the table. Now, if you look at Continental, you are right, we are importing if you look at our tyre sector, we're importing roughly half of the tires that we sell in the US. We are importing into the US. So that means also we have a good footprint in the US. What we are importing comes to a large extent from Europe, from Eastern Europe and Portugal. And so that means we had a negative impact in the second quarter and buy into tariff situation and the mitigating measures that we are working on, which are on the one hand increasing utilization rates in our US plan, increasing the share of premium tires that we manufacture in the US negotiations with the car manufacturers on the east side, but also then price increases that we have implemented as of the second part of June. So you can see the mitigation mitigating measures are coming into effect since the second half of June. Only that means you didn't see that effect yet really in the second quarter, which obviously then is different. If you look at the second half of 2025 now we have a reduced tariff of 15%, which means it's still headwind, but it's a reduced headwind. And then the mitigating measures that I mentioned would kick in. Okay. So mitigating measures due to kick in at some point in the remainder of the year. I want to talk about maybe another catalyst, which is President Trump's reversal of some environmental policies and emission standards. Do you see that as being a positive for perhaps anticipating selling more tires for those gas guzzling SUVs in the US? Well, first of all, we believe sustainability and competitiveness belong together. That's the continental approach. Now, if you look at the different trends that we see, that is on the one hand, as you rightfully say, in particular, the U.S. SUV's 4x4. But also electrification. Both are good trends for premium tire manufacturer continental. Right. Larger rim sizes, faster acceleration and weight of the vehicle. So that means you need a premium tire to be best equipped. So these are positive trends that we see and we're very prepared for that.