Continental Cuts Margin Target Over US Tariffs Ahead of Breakup
Continental AG lowered a profitability target for the year due to rising costs from US President Donald Trump's tariffs as the German automotive supplier forges ahead with a plan to dismantle itself.
Continental now sees an adjusted Ebit margin of as much as 11% for fiscal 2025, from as high as 11.5% previously, it said Tuesday ahead of an investor meeting in Frankfurt. The change reflects currency fluctuations as well as lower revenue expectations at its ContiTech industrial unit and the impact of US levies on the tires business.
'We have imports from Europe hit by tariffs since the beginning of May, and also need to consider steel and aluminum duties,' Chief Executive Officer Nikolai Setzer said during a call with reporters. 'That leads to higher production costs in the US.'
Continental is tempering its earnings ambitions as it prepares to list its car parts division Aumovio in September and sell its industrial unit ContiTech next year to focus solely on tires. The plan reverses decades of acquisitions and is one of several strategic shakeups reordering Europe's automotive industry, which is contending with tariffs, intensifying competition from China and high labor and energy costs in Europe.
Its peers ZF Friedrichshafen AG and Robert Bosch GmbH are cutting jobs and closing factories, while automakers including Porsche AG and its parent Volkswagen AG are reducing production capacity to deal with muted demand in their home region.
Continental said Tuesday it may use proceeds from the ContiTech sale for special dividends and share buybacks, and announced new sales and profit ambitions for the combined tires and ContiTech operations.
In the next three to five years, Continental sees potential for consolidated sales of as much as €22 billion and a consolidated adjusted earnings before interest and tax margin of as high as 14.5%. The most recent mid-term targets, announced in 2023, forecast that sales at the tires unit could reach €18 billion, and €9 billion at ContiTech. Those figures still included the contribution from OESL, a business that generated €1.9 billion in revenue last year and will be sold in the second half.
'The markets are weaker than what we expected back then,' Setzer said, citing slowing demand for cars and tires in Europe. 'In America we need to see how the tariffs play out.'
As a smaller and more nimble manufacturer, Continental intends to grow its business selling high-performance tires while expanding in Asia and North America and leaving less promising sectors. It has already announced it's exiting agricultural tires and ending truck tire production in India.
ContiTech employs almost 40,000 people globally and makes an array of rubber and plastics products. The listing of Aumovio, announced last August, followed years of struggles with high investment needs, waning demand and stiff competition. The tires business — Continental's most profitable division — generates most of its sales supplying passenger cars.
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