BERLIN/FRANKFURT Car components maker Continental AG is set to invest an extra 300 million euros ($326 million) in electric drives by 2021 but also remains committed to its combustion-based powertrain business, the company said on Tuesday.
The world's second biggest supplier to vehicle manufacturers by sales, Continental is also strengthening its expertise in automotive electronics as customers such as Volkswagen (VOWG_p.DE), Daimler and Ford raise their investments in electric and self-driving technologies.
By raising spending on development of new products such as charging systems and battery management components, Continental may generate an additional 2 billion euros in sales by 2025, Chief Executive Elmar Degenhart said.
But the Hanover-based group also pledged to go on developing new products and systems for combustion-based power trains until at least 2025 when it expects demand for electric vehicles to start taking off on the back of continuing reductions in battery prices.
"Flexibility will be the name of the game in the next five to 10 years," Degenhart said on a conference call to outline its so-called Strategy 2020 plan for its Powertrain division.
Continental had said in January it was reviewing its strategy for the division after earnings at the business, whose products include transmission control units and fuel pumps, failed to meet expectations.
The company, which is also a leading supplier of tyres and other rubber products, expects the market share of fully or at least semi-electrified cars to grow to about 60 percent of all vehicles by 2030 from around 35 percent in 2025.
Demand for diesel cars has been declining across Europe, their main market, ever since the Volkswagen emissions scandal broke in September 2015, which led Continental to review strategy at the Powertrain division.
Some investors had hoped for management to make structural changes at the division such as a reduction in business lines or even a sale of some of the diesel-related products, which include common-rail fuel injection systems.
But Continental has refrained from making any radical changes even though the market share of diesel cars is falling faster than expected, pointing out that diesel-related sales account for less than 2 percent of the group's turnover.
"This is a slightly disappointing announcement for anyone who expected big change at Continental," Bernstein analyst Max Warburton said.
Continental's share price fell 2.7 percent to 201.15 euros, making the stock the biggest loser in Germany's benchmark DAX [0#.GDAXI] index.
The group said it expected the Powertrain business, which accounts for close to a fifth of the 40.5 billion euros of group revenues, to increase its annual sales to around 8 billion euros this year and 10 billion euros in 2019.
($1 = 0.9205 euros)
(Reporting by Andreas Cremer and Maria Sheahan; Editing by Greg Mahlich)