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Continental AG SWOT & PESTLE Analysis

ID : 52424153| Jul 2018| 15 pages

COMPANY PROFILE -Continental

Business Sector :Tires, Automotive Components and Technologies

Operating Geography :Germany, Europe, Global

About Continental :

Continental is a German automotive manufacturer founded in 1871, Continental offers safe, efficient, intelligent and affordable solutions for vehicles, machines, traffic and transport. In 2017, Continental generated sales of €40.5 billion and currently employs more than 235,473 people in 61 countries. Continental AG is fourth globally as the supplier of Automotive spare parts. The company is the Europe's second largest in the same industry. They manufacture and provide services over a wide range of automotive parts. The company differentiates itself by giving prior importance to the safety and comfort of the consumers. It ranks #234 in Forbes Top Multinational companies and has more than 235,000 employees globally as of January 2018. Continental’s vision is ‘Your Mobility, Your Freedom. Our Signature’. They are targeting zero accidents, intelligent and affordable mobility. Continental’s USP is the smart technology solutions for mobility and data mining for different markets that add value to the brand.

Continental Revenue :


€44.00 billion (FY ended December 31st 2017) (y-o-y growth of 8.5%)
€40.54 billion (FY ended December 31st 2016)

Competitive Analysis of Continental

SWOT
PESTLE
The SWOT analysis of Continental is presented below in a nutshell.
Strengths
Weaknesses
1. Extremely strong presence in Europe and it is the market leader in some categories
2. Highly developed R&D unit
3. Specialized divisions for product differentiation
4. On path to be the market leader in fastest growing automotive technologies
5. Balanced sales distribution
1. Slow growth in Europe resulting in weak demand for tires
2. Overdependence on certain markets
Opportunities
Threats
1. High growth opportunities in passenger cars light commercial vehicle segment
2. Opportunity to become global market leader
3. Growth Opportunity in hybrid and electric vehicle wheel segment
1. Increasing costs & reducing profitability
2. Highly dependent on Rubber manufacturing unit in terms of revenue generation

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Detailed SWOT Analysis of Continental

Strength

1. Strong presence in Europe with market leadership in some categories: The Automotive Systems division continues to maintain its number one market position in the hydraulic foundation passenger car brakes category. Europe is its biggest market and formed 29% share in 2017 sales. The company is the Europe's second largest in the same industry. They manufacture and provide services over a wide range of automotive parts. It has nearly 25% market share in Europe automotive component market. One in every three cars delivered in Europe are fit with Continental tires.

2. Highly developed R&D unit: In the year 2017, the group spent 3.1 billion euros on R&D which is around 7% of its sales. On April 12, 2017, continental opened a new research and development centre in San José in Silicon Valley, U.S.A. Up to 300 experts from all parts of the company will be able to work at the site on pioneering solutions for the sustainable mobility of the future. The proximity of their R&D centres to the customer base helps the group adapt to new requirements more swiftly. The projects are related to automated driving, electromobility, connectivity and mobility services. With the growth of software-based solutions’ demand, the group can tap the strategic location’s advantage which has new start-ups and consumer base seeking data processing of large amounts using artificial intelligence.

3. On path to be the market leader in fastest growing automotive technologies: The group is on the way of gaining market leadership in automotive technologies as it leverages its digitized portfolio which is the highest among peers like Goodyear, Hankook, etc. Its revenue pool surged by more than a trillion euros and the revenue from electrification, automated driving and holistic connectivity is expected to grow by 30% till 2025 from less than 3% in 2017. Continental is targeting 15% market share in this new business of system integration. Its ergonomic human-machine interface and optimization of information flow through integrated system components will complete its product portfolio and create another USP. It has already connected more than 30 million vehicles in 2017 and is targeting more than 250 million vehicles by 2020. It is also well positioned in diesel-related, HEV related and BEV related business with 160%, 160-360% and 400% relative value in 2017.

4. Specialized divisions for product differentiation: Continental Corp has two groups under its umbrella, Automotive group and the Rubber Group. Automotive group has The Chassis & Safety division for the production of smart systems for transport recorded 19.9% ROCE, Powertrain division for innovative and efficient powertrains 13.2% ROCE & the Interior division which handles information management and offers network solutions for automobiles 14.9% ROCE in 2017. The rubber group has a tire division which is its best-selling segment and due to superior grip of its tires and fuel efficiency 35% ROCE. The other division is ContiTech for smart solutions with for machine and plant engineering, mining, agriculture, the automotive industry, and for other important sectors 13% ROCE in 2017. The group has been consistently posting strong results in these segments which supported the strong financials.

5. Balanced sales distribution for cost effectiveness: The sustainable value creation by the group reflects the balanced sales distribution and customer portfolio. The cost effective production measures are used to manufacture in geographies where cost is least. Its OEM is at 72% and non-original OE is at 28% and in medium to long term will go upto 60% & 40% resp. This is in line with their strategy to optimize costs given the rise in a few raw materials. Automotive Group and the ContiTech division’s production and sales are balanced across regions. Economies of scale is realised in tire production with concentration in Europe, the U.S.A. and China which have more production and vehicle numbers. It helps n achieving more volume with low production costs. The tire division sales grew by 26% in FY 2017 because of the rich dealer network worldwide.

Weakness

This section is available only in the 'Complete Report' on purchase.

Opportunity

This section is available only in the 'Complete Report' on purchase.

Threat

1. Increasing costs & reducing profitability: The EBITDA is decreasing over the years with increasing labour costs and other expenses as inferred from the P&L statement. EBITDA of Rubber group fell by 1.7% to €3,296.4 million in 2017. Even though the revenue of second quarter of 2017 has increased by 8% by Y-o-Y basis but the profits have decreased by 3 % whereas the capital expenditures have increased from 497 million euros in 2016 to 674 million euros up to June 2017. This was primarily due to increase in natural and synthetic rubber (which is important component of its Rubber Group) due to increase in crude oil prices, decrease in aluminium production due to supply cuts from source. It takes away the cost advantage that the group has over other international players due to close proximity to source. The company needs to produce or manufacture its product economically keep a check on its QCD and keep the corporate mission. It needs to check on its price of the products manufactured with the opposing products.

2. Highly dependent on Rubber manufacturing unit in terms of revenue generation: Rubber Group uses various types of natural rubber and synthetic rubber are used for the production of tires and industrial rubber products. Large quantities and direct purchasing of raw materials, their price movements, affect earnings of the Rubber Group’s Tire division. The Rubber manufacturing unit gave generated 5123.1 million euros of revenue which comprises of 25% of the total revenue. The doubling of natural rubber prices at the end of January 2017 due to the weather-related supply shortage. The price rise for the various raw materials led to considerable costs for Continental in 2017. The price burden was shifted to consumers but if raw material price fluctuation continues then its competitiveness and hence demand will be negatively affected and thereby earning. It could lead to plant closure and capacity loss as well.

Major Competitors :

Bridgestone, Goodyear, Michelin, Hankook, Pirelli, Sumitomo, Yokohama.

Major Brands :

Continental, Uniroyal (Europe), Barum, Semperit, Gislaved, General Tire, Viking, Euzkadi, Sime Tyres, Mabor, Matador, AmeriSteel, Novum, Simex, Astrum Blue and TecnoTread

Key Business Segments / Diversification :

Continental
Advanced Driver Assistance Systems Instrumentation & Driver HMI Intelligent Transportation Systems
Infotainment & Connectivity Hydraulic Brake Systems Passive Safety & Sensorics
Engine Systems Fuel & Exhaust Management
Passenger and Light Truck Tire

Recent Acquisition / Mergers / Alliance / Joint Ventures / Divestitures :

Name
Business Segment
Year
Type
Objective/Synergy Achieved
Quantum InventionsMobility Intelligence2017AcquisitionWill strengthen Continental’s growing intelligent transportation systems portfolio with its city data including next generation navigation systems
Argus Cyber SecurityAutomotive cyber security solutions2017AcquisitionSAcquisition to help in strengthening and enhancing Continental’s capabilities in automotive cyber security
Source: Company website and other reliable sources. The detailed table is available in the Complete Report.
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TABLE OF CONTENTS
DELIVERY AND FORMAT
WHY CHOOSE US?
References used in Continental Analysis Report

1. Annual Report- https://www.continental-corporation.com/resource/blob/125826/8941f2a22c3e87c4203c66bbe1fd4da5/annual-report-2017-data.pdf
2. Investors Annual Report- https://www.Continental AG.com/global/en/investors/library/annual_report/2016/pdf/CONTINENTAL AG_cover_E.pdf
3. Continental Tire Demand Growth- http://www.tirebusiness.com/article/20180409/NEWS/180409951/conti-sees-2-3-tire-demand-growth-in-2018
4. The Rise of Global Online Tires Market-https://www.techsciresearch.com/news/2973-the-rise-of-global-online-tires-market.html

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Continental SWOT and PESTLE analysis has been conducted by Kanupriya Sheopuri and reviewed by senior analysts from Barakaat Consulting.

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Continental AG SWOT & PESTLE Analysis
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