Continental's Vitesco expects margins to take a hit from electric shift - Metro US

Continental’s Vitesco expects margins to take a hit from electric shift

REGENSBURG, Germany (Reuters) – Vitesco, the powertrain division of auto supplier Continental , faces margin pressure as it shifts its business beyond combustion engines, which make up 90% of revenues, to capture growth from electromobility, Chief Executive Andreas Wolf said.

“Electrification is a huge change for the company but also a massive opportunity,” Wolf told Reuters in an interview. “2019 and 2020 are transformational years for us.”

As a result of an industry-wide shift toward electric and hybrid cars, margins are still under pressure because of higher costs, he said.

“Profits are impacted by two factors: investments into development and production of electromobility components, our ticket to the future, and we are pulling back from some product areas like hydraulics. This hits our balance sheet,” Wolf said.

Despite the company’s heavy dependence on combustion engine components, Vitesco expects to keep headcount at roughly 43,000 staff, thanks to rising demand for electric and hybrid powertrains which are higher value components, Wolf said.

“Assuming that we supply 100 euros ($110.99) worth of combustion engine components, if the customer takes all our components, that would translate approximately into 200 euros for a mild hybrid, up to 300 euros for a plug-in hybrid, and up to 400 euros for battery electric components,” the executive explained.

The market for electric cars is growing at roughly 20% a year. “The market is booming and we stand to profit from this.”

Vitesco is preparing to spin itself off from parent Continental, and Wolf expects this step to be completed this year.

“In the autumn we want to be an independent business,” he said.

(Reporting by Joern Poltz; Writing by Edward Taylor; Editing by Michelle Martin)

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