Megasupplier Continental is preparing to spin off its powertrain business to create Vitesco Technologies, a stand-alone, publicly listed company that aims to capitalize on the industry's rapid move toward electrification. By 2025 Vitesco expects 40 percent of all powertrains to be electrified because of a combination of tougher global emissions regulations and rising consumer demand. CEO Andreas Wolf wants the company to play a leading role in the transition. He explained how in an interview with Automotive News Europe Managing Editor Douglas A. Bolduc
Why does spinning off Vitesco Technologies from Continental make sense?
According to current market studies 40 percent of all powertrains will be electrified by 2025. With initiatives such as the European Green Deal [an effort by the EU to have no net emissions of greenhouse gases by 2050], there could be an even steeper increase in electrification. We decided we wanted to drive the change in the market for electrification.
Does the spinoff change how you will operate in Europe, the U.S. or China?
No, because we will continue to be active in all the major regions. One big advantage of being a stand-alone company, however, is the flexibility we gain. Clearly, at a company the size of Continental, with 45 billion euros in annual sales in 2019, doing things can sometimes take more time. While we are still a big company, with nearly 8 billion euros in annual sales in 2019, we will be more agile and can react faster to changes in the market. In addition, as a stand-alone company, we have more options if you want to join forces in the market.
How do you see the markets developing for Vitesco in 2020 and beyond?
Several public market studies forecast significant growth due to electrification and emissions regulation. Independent from the overall vehicle demand, they forecast that the value of the content of a typical powertrain will increase significantly. In the electrification area, the market for many products is expected to grow 20 percent to 30 percent a year over the next decade. We expect our electrification products to grow at an even faster pace.
How much of a boost do you expect from the EU's emissions targets dropping to 81g/km in 2025 and 59g/km in 2030 from 95 g/km this year?
Electrification is the only short-term solution to meet these targets. The faster electrification comes and the higher the level of electrification that is needed, the bigger our market opportunity. Compared to our 2018 combustion offering, our potential content per vehicle in 2025 is expected to be twice as high for a 48-volt mild hybrid. It's a factor of three for a plug-in hybrid and up to a factor of four for a battery-electric vehicle.
How long will it take for EV and hybrid components to have a larger share of your sales than parts for gasoline and diesel powertrains?
It's impossible to say when these components will exceed the size of our combustion products. Many of our core products such as electronics have a universal purpose. They can be applied in traditional combustion engines, hybrids or full-electric vehicles. For example, our central electronic control unit which regulates the propulsion of a full-electric car has the same DNA as the engine control unit that controls the injection in a combustion engine. This crossover usage also applies to several sensors, thermal management systems and other products.
How much of your current business is e-components?
In 2019, components for hybrids and electric vehicles accounted for about 200 million euros of our sales. But if you factor in a solid annual growth rate for us, which we target to exceed the forecast growth rate for the entire electrified car market, you end up with a much bigger business rather quickly.
The European and U.S. markets appear to have different goals when it comes to electrification. How will Vitesco best serve both?
In Europe, there is a strong regulatory push that is linked to fines that, according to Bloomberg estimates, could reach $39 billion for the automotive industry, if the 95 grams per kilometer CO2 fleet average is not met. Regulations are also pushing the technology in China. In the U.S., current CO2 regulations are expected to remain more relaxed, but we see another factor pulling electrification there: the fun-to-drive aspect. People appreciate the torque offered by the electric motor and the immediate acceleration they get when they step on the pedal. That is driving the demand there.
Should the fun-to-drive factor be emphasized more in Europe?
It's always better to excite people about a technology, because they will then ask for the products. The fun factor that people experience with these cars gives me hope that the move toward electrification will accelerate. It's mobility without regret.
How will the creation of the new company help you in traditional internal combustion powertrains?
That portion of our core business accounts for 80 percent to 90 percent of our sales today, and we see a lot of growth potential here for the next 10 years. However, a key issue we focused on when we defined our vision and mission was to look beyond 2030. The combustion engine is forecast to die around 2035, which means the last development on those engines will be in 2025-26. That will have a huge impact on the next five or six years. Therefore, we knew we had to understand what would happen beyond 2030. Our goal is to make sure we are well equipped for success beyond 2030.
Reports say Vitesco has already won business with Volkswagen Group on the ID family for power electronics. How crucial is that for Vitesco?
That information is inaccurate with regard to the power electronics. What I can confirm is: If you look at the top 10 electrified platforms for 48-volt mild hybrids, plug-in-hybrids and battery-electric vehicles for the coming years [according to IHS Markit], we supply products in the majority of them -- be it electronics or electrification components.