Continental Invests More In Electric Car Propulsion, Less In Internal Combustion Engines

Continental is one of the largest suppliers to the world’s automobile manufacturers. It has built its business on building better internal combustion powertrains, but it can see that road coming to an end ahead, and so it plans to ramp up its investments in electric car propulsion systems. “We have to expect gradually falling demand for newly developed mechanic and hydraulic engine components,” Jose Avila, head of Continental’s powertrain unit, says. “This is why we will reduce our expenses into these technologies step by step.”

Continental says it will invest more than $300 million to develop and expand its electric car and and hybrid technologies over the next five years. It says it expects electric and hybrid car sales to account for 40% of the new car market by 2025. That’s a date that used to seem far away, but in the world of manufacturing where research and development often precede production by three to five years, it is just around the corner.

Ever tightening emissions standards in all markets around the globe are pushing vehicle manufacturers to plan for more electric and electrified products. Investing in both internal combustion engines and electric car technology is expensive. The announcement by Continental is the signal many electric car advocates have been waiting for. It suggests the pendulum is slowly swinging away from gasoline and diesel engines and toward a low- or zero-emissions future powered by batteries and electric motors.

That transition has stock brokers nervous. “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.”

But Continental says it is well positioned to benefit from the shift. It manufactures a range of the components, sensors, and sophisticated electronics systems that cars will need in the future. It expects that to generate about €3,000 in revenue for every electric car it supplies parts for by the time 2025 gets here. That is three times the revenue it received from supplying components for conventional cars last year.

Source: Bloomberg