Company Reports

In the second quarter, Continental reported flat tire revenue and significantly improved adjusted EBIT margin of 15.3% versus 12.1% the year prior, driving improved group free cash flow to EUR 216 million. The sale of ContiTech has been finalized at a 4 times enterprise value/EBITDA multiple.

Continental is optimizing its portfolio to unlock maximum value for its shareholders. This began with the spinoff of the group’s powertrain unit, Vitesco Technologies, in 2021. In 2025, Aumovio—the group’s automotive-parts division—was separately listed. The sale of the majority of ContiTech’s highly cyclical and margin-dilutive automotive-facing business was completed in February 2026, immediately improving the profitability of the remaining ContiTech business, which is also intended to be sold to a strategic buyer around the middle of 2026. Following this transformation, Continental will be a pure-play branded tire company.

Continental is going through a period of portfolio optimization to unlock maximum value for its shareholders. This began with the spinoff of the group’s powertrain unit, Vitesco Technologies, in 2021. On Sept. 18, 2025, Aumovio—the group’s automotive parts division—will be separately listed. The sale of the majority of ContiTech’s highly cyclical and margin-dilutive automotive-facing business was completed in February 2026. This will immediately improve the profitability of the remaining ContiTech business, which is also intended to be sold to a strategic buyer around the middle of 2026. Following this transformation, Continental will be a pure-play branded tire company.

Despite a 10% decline in sales, Continental increased first-quarter operating profit by 6% to EUR 522 million, surpassing market expectations. Management confirmed its full-year outlook ahead of expected raw materials and logistics headwinds tied to the Middle East conflict.

Continental’s fourth-quarter results were in line with preliminary figures. Tires’ adjusted EBIT margin rose 40 basis points year over year as ContiTech’s 3.2% margin fell short of guidance. Management expects continued top-line pressure in 2026, but higher profitability. The dividend was raised 8%.

Continental reported flat revenue growth, organic growth of 2.6%, a 15% decline in adjusted EBIT, while adjusted free cash flow rose 8%. Significant one-off effects resulted in a net income loss. Dividend payments remain linked to adjusted profits. The sale of OESL has been contractually agreed.

Continental's automotive parts business has been listed separately as Aumovio on Sept. 18. The remainder of Continental will include Continental Tires, its branded tire business, and ContiTech, its rubber solutions business, which is also expected to be sold in 2026.

Continental is going through a period of portfolio optimization to unlock maximum value for its shareholders. This began with the spinoff of the group’s powertrain unit, Vitesco Technologies, in 2021. On Sept. 18, 2025, Aumovio—the group’s automotive parts division—will be separately listed. Toward the end of 2025, we expect the sale of the majority of ContiTech’s highly cyclical and margin-dilutive automotive-facing business. This will immediately improve the profitability of the remaining ContiTech business, which is also intended to be sold to a strategic buyer by the end of 2026. Following this transformation, Continental will be a pure-play branded tire company.

In the second quarter, revenue declined 4%, organic revenue (excluding the foreign-exchange impact) decreased 0.4%, and like-for-like adjusted EBIT dropped 16%, or down about 10% excluding the tariff effects. Tariffs, restructuring, and spinoff-related costs resulted in negative adjusted FCF.

The European Union and the US have reached a trade deal, setting a baseline tariff rate of 15% for all imports from the EU, compared with the 25% previously applied to auto parts.

Headcount reductions and stable pricing in automotive boosted Continental's first-quarter profitability, with group adjusted EBIT margins improving to 6% from 2.1%. The automotive segment's organic sales outperformed the market by 3%. Full-year guidance, excluding effects of tariffs, is unchanged.

No-moat Continental announced on April 8 its intention to create an independent ContiTech business following completion of the automotive segment's unbundling and sale of the original equipment solutions business within ContiTech.

After taking a fresh look at Continental, we are downgrading our moat rating to none from narrow and adjusting our fair value estimate to EUR 93 from EUR 108.

Continental is going through a period of portfolio optimization to create a more agile company that can compete more effectively in the competitive automotive market. This began with the spinoff of the group’s powertrain unit, Vitesco Technologies, in 2021. The spinoff of the automotive segment planned for the end of 2025 will create two businesses—automotive and rubber (tires and ContiTech) of equal size. In addition, the group is looking for a buyer for the underperforming original equipment solutions automotive-exposed business within ContiTech. Following the automotive spinoff, there is also the possibility of carving out the automotive’s digital screens division.

US President Donald Trump implemented a 25% tariff on all imported goods from Mexico and Canada into the US on March 4, 2025. This is a material headwind for our European auto supplier coverage. Many auto parts suppliers have said that they will pass on the tariff costs to their customers, the automotive original equipment manufacturers, or OEMs, given their already thin margins and lower industry production volumes. Even if this is the case, we see secondary effects affecting their bottom lines and cash flows. We keep our fair value estimates for BorgWarner and Continental unchanged for now, given the uncertainty around the duration or permanency of these tariffs.

Continental reported a disappointing set of 2024 results led by the weaker-than-expected automotive segment with underperformance in North America and China. Customer mix, delayed customer ramp-ups, and lower-than-expected take-up rates were provided as reasons for the segment’s weakness. We believe that Continental automotive’s exposure to China’s domestic original equipment manufacturers, which drove a large portion of the market’s growth in 2024, is below that of peers. Moreover, its 2025 outlook for the automotive segment points to a weaker-than-expected profitability turnaround, missing the adjusted EBIT margin targets needed for the segment's spinoff, scheduled for the end of 2025, by a wide margin. The company now expects an automotive adjusted EBIT margin for 2025 of between 2.5% and 4% versus the 6%-8% range originally targeted. Without the support of the highly cash-generative tires business, we question whether the automotive segment can support its needed research and development and capital expenditure needs as a stand-alone at this thinner margin. Tires and ContiTech performed in line with expectations in 2024. The margin outlook for ContiTech in 2025 also points to a slower-than-expected turnaround in profitability, in line with our expectations. A dividend payout ratio of 42.8% has been declared; this is at the very top end of the company’s targeted range of around 20%-40%.

Narrow-moat Continental reported a strong third-quarter result that beat FactSet consensus EPS by 10%, driven by a significant improvement in profitability in the automotive segment despite weak industry dynamics. EBIT margins in the automotive segment increased to 2.5% in the third quarter from 0.2% in the second quarter, with double-digit margins implied in the fourth quarter given management’s full-year guidance. This is a faster turnaround than expected. Higher industry vehicle production and new product launches by Continental’s customers are expected to drive revenue in the automotive segment 11% higher in the fourth quarter relative to the negative 4% decline year to date. Management has also been working vigorously to reduce costs in the automotive segment as it gets ready for the spinoff of this business by the end of 2025.

Considering industry trends in connectivity, electronics, and safety, we think Continental's revenue can marginally outpace our estimated 1%-3% long-term average annual growth in global vehicle production. Above-industry-average research and development spending enables consistent product and process innovation, supporting Continental's revenue growth, healthy returns on invested capital, and our narrow economic moat rating.

Narrow-moat Continental will recall a portion of the integrated braking systems it supplied to BMW, costing Continental a mid-double-digit million (euro) amount. We estimate the size of the warranty accrual to only hit Continental’s bottom line by approximately 3%. We therefore leave our fair value estimate of EUR 108 per share unchanged.