Aug 19, 2022 Dieter Adam
When markets for our products change, we need to respond. Easy to say…
Most of us know Continental as a manufacturer of car and (motor)bike tyres. In reality, they make much more than that today. Founded in 1871, the company today has 191,000 employees globally, most of them in 58 countries outside of Germany. It is the world’s fourth-largest manufacturer of tyres, but also one of the largest automotive OEM businesses in the world. And yet, all is not well in the world of Continental. It used to employ more than 240,000 people in 2019, and its share price has been following the same downward trajectory.
The reasons for that are manifold, including a messy and protracted take-over battle with another German automotive OEM, Schaeffler Group, whose share price has shown a similar decline.
As the graphs show, some other German OEM’s are doing ok in terms of share price, others have similar problems. The main reason behind this lies in the fact that the EU has decided to (largely) stop the production of ICE cars in Europe from 2035. And while electric cars still require suspension components, many other OEM components will no longer be required, and not only for the drive train. A 2018 study estimated that “the share of EVs’ value added by component suppliers might total 35% to 40%, compared with 50% to 55% of an ICE-powered car”[1]
It is not that OEMs have ignored these trends. Continental, for example, have established themselves as a leading supplier of components and software for autonomous driving and other advanced componentry found in today’s cars. But, globally, the car industry is on the move: “Over the past 12 months, more than 15 automotive light-vehicle OEMs have announced plans to sell only zero-emission vehicles (ZEVs)—typically EVs—in the near future. The combined total output of those OEMs represents more than 75 percent of global vehicle production. Moreover, more than half of them plan a full transition to ZEVs before 2040. If those plans materialize, the growth of many ICE product lines could see double-digit declines.”[2]
It will be interesting to see how well the traditional OEMs will be able to follow suit, or to what extent there will be a ‘Kodak moment’. There are lots of investments required, capital and intellectual, and lots of manufacturing equipment retooled, or retired and written off. The most valuable componentry in EVs is the battery system, and here Chinese manufacturers are taking a lead role. For strategic reasons, however, both European and US governments and car manufacturers are now driving the establishment of battery factories at home.
It is not clear to what extent New Zealand manufacturers are connected into global automotive OEM supply chains, but even if this is not an issue for us in this instance, the writing is on the wall. Fortunately, we do have some brilliant examples in New Zealand where manufacturers are not only fast followers of changes in international markets, but actually driving these changes themselves.
[1] EVs and the impact on the automotive value chain Autocar Professional, March 29, 2018 [2] https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/ice-businesses-navigating-the-energy-transition-trend-within-mobility
Leave a Reply
You must be logged in to post a comment.