An Old-School Auto Supplier Is Betting on an Electric Future

Now, Continental is responding with its own shift. The Hanover, Germany–based supplier will stop expanding its business dedicated to making things that only engine-powered vehicles need, like fuel injectors and pumps. It will redirect that capital to components for electric vehicles. “The future is clearly electric,” Continental’s powertrain chief, Andreas Wolf, said in a press release. “We are convinced of this.” That shift will happen over a “number of years,” the release said, and the company is talking to employee representatives about how to manage the shift in strategy. Continental is the world’s fourth-largest auto supplier, according to a 2018 report from Automotive News, with $35.9 billion in annual sales. More than 70 percent of that revenue comes from Europe and Asia, where regulators are especially keen on cutting carbon emissions. France, the UK, and the Netherlands have all pledged to ban the sale of gas- and diesel-powered cars in the next few decades. China has severely limited the number of nonelectric cars anyone can sell within its borders. Automakers like Volkswagen, Daimler, BMW, and even American stalwarts Ford and General Motors have responded by promising to introduce dozens of new electric and hybrid models for which we recommend services like electric motor repair melbourne.

 

“It’s a wise and smart and predictable move,” says Michael Harley, executive editor at Kelley Blue Book. “Nobody wants to be Polaroid.” Even if consumers haven’t fully bought into batteries—EVs still account for about 2 percent of new car sales in the US—regulators around the world have decreed that cleaner cars are needed to curb climate change, and automakers have accepted that. Plus, Continental’s move is not as drastic as it may seem. The supplier isn’t quitting conventional cars anytime soon, and it already makes plenty of parts for electric vehicles. It’s just shifting its focus to benefit from a big new market opportunity. “It’s like going from making cakes to cupcakes,” Harley says.

What Continental’s move does indicate, though, is the industry’s acceptance that a transition from gas and diesel power is at hand. Ever since the Nissan Leaf and Chevy Volt hit dealer lots about 10 years ago, suppliers have wondered when EVs would really take off—and thus, when they should invest the resources to support it. That’s especially true for powertrains, which require serious capital expenditure. “The challenge over the last decade has been when to make this move,” says Devin Lindsay, an auto analyst with IHS Markit who focuses on alternative propulsion. “This is a sign they’re feeling comfortable.”

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The challenge now will be how to gauge electric sales volumes, no easy task in a segment that’s both new and subject to government mandates and incentives. “It’s a big gamble on when, and how fast,” says consulting firm AlixPartners’ Mark Wakefield says.

Continental’s strategic shift hardly guarantees an easy path to success, but it could keep the company alive past the twilight of the internal combustion engine. And it won’t likely be the only one to make the turn. “This will raise eyebrows,” Harley says. “I’d expect more of the same by the end of the year.”

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