Another round of layoffs!
On February 18, Continental AG, a well-known German automotive parts and tire manufacturer, announced plans to cut about 3,000 jobs by the end of 2026. These jobs are concentrated in the research and development department, of which less than half will be in Germany.
Continental also said it plans to reduce its R&D investment to less than 10% by 2027. The group said these measures are key initiatives for the company to further enhance its competitiveness and achieve sustainable development in the face of industry transformation and market challenges.
A sudden domino effect of layoffs
In recent years, "layoffs" has almost become an unavoidable keyword in Continental's development process.
As early as November 2023, Continental said it had laid off thousands of employees.
The Financial Times reported in August 2024 that Continental AG's Chief Financial Officer Olaf Schick said that 20% of the company's research and development bases are considering layoffs or closures, and about half of the 2,800 employees laid off in the past year had worked in the research and development department.
According to Continental's ten-year large-scale restructuring plan, in order to cope with the impact of the downturn in major global automobile markets, Continental will subsequently respond by layoffs and factory closures. The total number of layoffs is expected to exceed 20,000, accounting for 8.1% of Continental's total 244,000 employees in 60 countries and regions.
At the beginning of 2024, Continental once again launched a layoff plan in its research and development department, aiming to improve R&D efficiency, focus on the development of cutting-edge technologies with high growth potential, and reduce costs. The layoffs affected a total of more than 7,150 people, higher than previously expected, including 1,750 R&D positions and 5,400 administrative positions. About 40% of the layoffs will take place in Germany and are scheduled to be completed by the end of 2025.
Large-scale layoffs have significantly increased Continental's revenue in the second quarter of 2024. The group's sales were 10 billion euros, down 4.1% from 10.4 billion euros in the second quarter of 2023; net profit was 305 million euros, up 46.2% from 209 million euros in the second quarter of 2023.
Research related to Leadership IQ shows that although layoffs can help companies reduce costs in the short term, the uncertainty, anxiety and pressure on employees who are not laid off about the future will lead to increased turnover, reduced work enthusiasm and organizational loyalty, which may lead to a decline in service quality and an increase in employee errors, ultimately affecting the company's efficiency improvement.
"Slimming down and stopping bleeding" under business pressure
Layoffs are often the most direct external sign that a company is in operational difficulties.
Continental suffered a net loss of 1.2 billion euros in 2019, a major turning point in its financial performance and a sign of the challenges the company faced in the face of market changes and internal transformation. It continued to lose money in 2020, with a net loss of 962 million euros. The outbreak of the epidemic has further exacerbated the company's operating difficulties in the global market.
In 2021, Continental's sales fell by 12.7% due to the impact of the epidemic and changes in market demand. Continental continued to increase investment in areas such as autonomous driving and chips, although these investments failed to bring sufficient profits in the short term. In September 2021, Continental announced the adjustment of its organizational structure. The two business groups of Internet of Vehicles and Information and Autonomous Driving and Safety in the original Automotive Technology Sub-Group were disbanded and reorganized into five business groups in the Automotive Sub-Group.
In 2022, the new organizational structure officially came into effect, but the company continued to lose money for the fourth consecutive year, and the profitability of the automotive sub-group remained weak. In 2023, Continental achieved sales of 41.4 billion euros, a year-on-year increase of 5.1%. Adjusted EBIT was 2.5 billion euros, a year-on-year increase of 31.6%, and net profit increased significantly by 1,635% to 1.2 billion euros. This shows that the strategic adjustment has begun to take effect.
The 2024 financial report has not yet been released, but it can still be seen that the operating pressure faced by Continental has not been relieved. In the first half of 2024, Continental's total sales were approximately 19.8 billion euros, a year-on-year decline of 4.5%. Adjusted earnings before interest and taxes (EBIT) were 900 million euros, a year-on-year decrease of 16.2%, while net profit was 252 million euros, a sharp year-on-year decrease of 57.4%.
To this end, Continental lowered its forecast for group sales in 2024 from about 41 billion euros to 44 billion euros to 40 billion euros to 42.5 billion euros. After the third quarter, it was adjusted again to 39.5 billion euros to 42 billion euros, and the adjusted EBIT margin is expected to be about 6% to 7%. During this period, Continental's market value also shrank significantly from 50 billion euros in 2018 to about 13 billion euros in January 2025.
Layoffs and transformation are difficult
Declining profits and shrinking market value directly point to Continental’s transformation difficulties.
Zhang Quanhui, the current CEO of Suzhou Haizhibo Electronic Technology Co., Ltd., who once worked for foreign-funded auto parts giants for many years, analyzed that many foreign-funded auto parts suppliers, including Continental, "once relied on the Chinese market to support many people."
The Chinese market plays a pivotal role in the revenue and profits of these multinational companies, and any disturbance in the Chinese market directly affects the performance of the group. For example, a well-known foreign-funded auto parts company has even used the profits from its Chinese production lines to make up for losses in other markets for a long time.
"However, times have changed," Zhang Quanhui pointed out. The rapid development of China's intelligent new energy vehicles has changed the market's demand for products. The rapid iteration of terminal products has also put forward unprecedented new requirements for the transformation speed of parts suppliers. Although Continental has invested a lot of resources in the field of intelligent driving, its product development speed and ability to adapt to market demand are far behind those of domestic emerging companies.
Continental's R&D expenditure in 2023 accounted for 12% of the group's revenue in fiscal year 2023, and the R&D expense rate is quite considerable. It intends to invest heavily and a lot of resources in the automotive business to catch up with the trend of intelligence and electrification. In 2024, Continental still invested a lot of resources in the automotive business sector to catch up with the wave of intelligence in the field of high-performance vehicle processors, autonomous driving, advanced driver assistance, etc.
However, Continental's decision-making mechanism is mainly based on collective decision-making, emphasizing that every major decision must go through a long discussion and approval process. The group emphasizes information research, full discussion, collective decision-making and gradual progress according to the timetable. This mechanism is particularly slow during the transformation period. Even in the face of market opportunities, the company's decision-making process is still full of obstacles.
Time waits for no one. In this global competition for new energy vehicles, on the surface it is a competition between different car companies, but behind the scenes it is a new round of reconstruction of the entire global automotive supply chain. In the new era of new energy intelligence, can Continental maintain its glory in the era of fuel vehicles by continuously laying off employees? Time will tell.