Continental reshapes itself for its 150th anniversary

Munich — Continental AG bears little resemblance today to the company it was when it started 150 years ago this month. In truth, it is looking increasingly unfamiliar to the company it was even 20 years ago.

But if Continental management succeeds in its mission to create a new way forward, the German automotive megasupplier will look remarkably different just 10 years from now.

Speaking with Automotive News in Munich in September, Continental CEO Nikolai Setzer summed up the vision of what the old company is to become: As "strong in our hardware business and our heritage on one hand, but on the other, to become even more digital, more software-driven, more software-inclined."

"That's how we see the company in 10 years," Setzer said.

The parts and advanced vehicle systems producer no longer views itself as simply a maker of tires and other traditional automotive parts. The company is sharpening its focus on areas it sees as having high growth potential, particularly in software and self-driving vehicle technology.

As vehicles become greener and more high-tech, Continental's goal is to be an industry leader for high-performance in-vehicle computers, for the software that makes electronics components perform and for assisted- and automated-driving technology.

Setzer was named CEO of Continental in 2020 amid concerns from investors that the company was not being quick enough to keep up with the rapidly evolving industry. He's intent on changing that narrative.

"You have to be extremely fast in order to make your point, in order to develop your technologies," he said. "You have to change technologies swiftly because you find out, lessons learned, that certain technologies don't apply anymore or there are new technologies coming up."

But the makeover Continental is pursuing consists of a lot of moving parts.

Continental was founded Oct. 8, 1871, in the era before automobiles, as a rubber manufacturer. Today it is the world's sixth-largest automotive supplier on Automotive News' top global suppliers ranking, with 2020 sales to automakers of $29.68 billion. It employs 198,000 people in 58 countries.

Its operations include plastics for seals and sensors.

A little more than 10 percent of those employees are particularly mission-critical to the transformation Continental has in mind. They are the pool of 20,000 software and IT specialists, tasked with building out Continental's capabilities in information technology. High-performance computers and software are becoming core components — as compressors and fuel filters once were — while vehicles become more connected and advanced driver-assist systems become more commonplace. Continental wants to be at the center of those developments.

Horst Schneider, head of European automotive research at Bank of America, believes Continental's software capabilities are now among its greatest strengths. Its network of software engineers makes it an extremely valuable problem-solver for automakers, particularly German automakers that are looking to build their own operating systems but having trouble finding enough qualified people to work on them, he said.

There simply aren't enough engineers available for what automakers want to do.

"Where I think Conti has the biggest chance to succeed is software integration," Schneider said. "I think all the German carmakers are trying to get enough software engineers on board. There's just a lack of people with good programming skills. They're just not finding people in Germany."

Since Continental has the staff, it is likely that automakers will turn to it for support, he said.

"The carmakers want to do it themselves, but at some moment they need to recognize that they can only achieve that with the help of suppliers, and Continental has got one of the [largest] software engineer" bodies in the industry, he said.

Like one of its main competitors, Robert Bosch GmbH, Continental is betting heavily on in-vehicle computers that can control electronic and software functions inside the car.

In 2020, Continental began supplying the computing systems to Volkswagen for its ID3 and ID4 electric vehicles. The supplier said that just a "handful" of those computers can manage vehicle functions in the cockpit, chassis systems and for driver-assist capabilities. Until now, managing those operations has taken dozens, or even hundreds, of individual electronic control units.

By redesigning electronics systems, these high-performance computers can, among other benefits, make vehicles more secure and even reduce their weight since less wiring is required.

Setzer said Continental intends to expand its software capabilities now, even as it continues to produce high-powered computer hardware.

"We are more than happy to supply more sophisticated and more powerful computers in the future," Setzer said. "But the different functionalities in coping with all the complex needs of future systems — this is to be managed by software."

At the same time, Continental has adopted an approach on automated driving systems that is different than many of its competitors, Bank of America's Schneider said.

Continental was perceived in recent years to have underinvested in autonomous mobility, he said. In response, the company has turned to partnerships with smaller companies to move ahead.

Last year, it acquired a minority stake in lidar startup AEye Inc. Continental now plans to integrate AEye's sensors into its autonomous-driving systems.

"They want to become an integration specialist," Schneider said of Continental. "They have no other choice but to take some competitive, smaller player and integrate them into a larger system and try to sell that system to the OEM."

In another step to accelerate its transformation, Continental announced this month that it will restructure its automotive business, making its five distinct areas of technology more market-focused with distinct management teams.

The five key pieces, which go live Jan. 1, are: autonomous mobility, safety and motion, smart mobility, user experience and architecture and networking.

The reorganization will allow the company to make "the most of the potential presented by our unique, strong technology position in all of these fields," Setzer said in a statement.

Frank Petznick, head of Continental's advanced driver-assistance systems, said the launch of an autonomous mobility business next year will help to make the company more nimble and attractive to tech startups that it hopes to partner with.

Petznick, who will lead the unit, said the supplier is looking to pursue partnerships with companies that can complement its capabilities, rather than acquiring those businesses outright or taking the time to develop similar capabilities in-house.

"If there's a technology existing in the market, and you see that this is a benchmark, cutting-edge technology, why should we do that again and try to emulate them?" he asked.

"Why don't we use our integration power and our knowledge about the entire car and the environment to integrate and get it auto-grade ready? That would be much faster."

As Continental moves into new sectors, it is getting out of others entirely. Last month, the company spun off its powertrain unit, Vitesco Technologies, after two years of delays because of market conditions.

Carla Bailo, CEO of the Center for Automotive Research in Ann Arbor, Mich., said large suppliers such as Continental are likely to view spinoffs as an attractive option as more resources and personnel are sunk into advanced technologies.

"It allows them, if they sell their legacy business or a business that's not growing, to free up development dollars and manpower to work on other growth areas," she said. "You've only got so much manpower, so how much longer are you going to keep legacy manpower to support what's a legacy portfolio?"

But Setzer said he does not foresee spinning off other units, saying Continental's remaining businesses now complement each other and will become even more interconnected as vehicles become more high-tech.

That includes the company's tire business, long the center of Continental's identity.

But even that business has a bead on the changing auto industry. At the Munich auto show in September, Continental unveiled its Conti GreenConcept tire, which it said was designed with next-generation smart vehicles in mind.

Vehicle computers controlling various auto functions are a key growth target for Continental.

The tire, made in part from sustainable raw materials such as natural rubber from dandelions, includes a sensor that the supplier says can monitor temperature, pressure and tread depth.

Even as Continental looks to transform itself in an evolving industry, it wants to maintain its core business, Setzer said. Rubber manufacturing has been at the center of Continental's business since its founding in 1871, and its public image still largely revolves around tires.

"We want to continue being strong in those areas where we are strong today," he said. "There is a certain heritage for us. Tires have existed [for a long time]. So we want to continue that route, making even more difference than today on software and digitalization."

Reuters and Bloomberg contributed to this report.