* Sees FY sales above 43.5 bln eur vs 43 bln previously
* Eyes strong Q2 despite rising raw material costs
* Shares fall on plunge in free cash flow -analyst (Adds CFO comments, analyst comment, detail and shares)
BERLIN, May 9 (Reuters) - Car components maker Continental has slightly raised its sales outlook despite rising raw material prices but said free cash flow plunged in the first quarter amid the company's ongoing expansion.
The world's second-biggest supplier to automakers by sales, Continental is bolstering its expertise in electronics as customers such as Volkswagen, Daimler and Ford raise their investments in electric and self-driving technologies.
The group on Tuesday guided for a strong second quarter after reporting better-than-expected first-quarter results. It also predicted full-year sales would exceed a previous target of over 43 billion euros ($47 billion) by 500 million euros on strong demand for automotive components.
"Continental is well positioned in financial terms," finance chief Wolfgang Schaefer said in a statement. "We are able to act from a position of strength."
Rising costs of raw material prices will shave 175 million euros off sales in the April-to-June period before subsiding in coming quarters, though the firm will raise prices to cushion the impact, Schaefer told Reuters.
But Continental, which makes driver-assistance technology, fuel-injection systems and vehicle tyres, conceded that its free cash flow plunged to 133 million euros from 489 million a year earlier amid persistent spending on tyre plants and other production facilities.
Commerzbank analyst Sascha Gommel said the drop in free cash flow, essential in any business as it allows a firm to reinvest cash, make acquisitions, pay dividends and pare down debt, was the main point of criticism in Continental's results.
The shares were trading down 0.7 percent at 204.85 euros at 0933 GMT.
$1 = 0.9169 euros Reporting by Andreas Cremer; Editing by Maria Sheahan