Regensburg, March 25, 2021. Vitesco Technologies, Continental’s Powertrain business area, has reached the next milestone on its path to a spin-off from Continental Group, towards a listing and subsequent independence. Following approval of the spin-off by Continental AG’s supervisory board on March 16, 2021, Vitesco Technologies is presenting its strategy and taking questions from investors and analysts at its first Capital Market Day today.

A leading international supplier of modern powertrain technologies and electrification solutions, Vitesco Technologies is determined to become a global electrification powerhouse. The spin-off and subsequent listing are planned for the second half of 2021. The shareholders’ approval at Continental’s Annual General Meeting on April 29, 2021, is the next important step in this process.

Electrification: from vision to mass market

Driven by increasingly ambitious environmental standards, societal changes and rising customer demand, global automakers are electrifying their model ranges and building a broad offering that spans mild hybrids, plug-in hybrid vehicles (PHEVs) and battery electric vehicles (BEVs). This trend has been visible even throughout the ongoing Covid-19 pandemic. In 2020, registrations of new electric passenger vehicles (BEVs and PHEVs) in Europe increased by 144 percent compared to 2019.^[1] Experts expect that electrified vehicles might account for around 60 percent of the total light vehicle production by 2030.^[2]

Longstanding partner with comprehensive systems expertise

Vitesco Technologies has well over ten years of experience in the development and manufacturing of hybrid and electric drive systems and has equipped more than two million vehicles with its e-mobility solutions within that time. Today, the company is contributing components or systems to the majority of globally leading BEV platforms. Vitesco Technologies is one of the few suppliers worldwide that offer flexible solutions for all electrification scenarios covering the full range of electronics, mechatronics, software, and integrated systems. This broad offering allows the company to supply high-quality individual components as well as sophisticated complete systems – all from a single source.

Profitable core enables bold expansion of electrification business

Despite the impact of the Covid-19 pandemic, the company has successfully demonstrated its resilience in 2020 and advanced its transformation. Vitesco Technologies was also able to significantly increase its sales in electrification components and systems compared to previous years.
In addition, the order backlog in the electrification sector had a total value of over 13 billion euros at the end of 2020. The order book also includes a multibillion Euro order for a High Voltage Box in the Electronic Controls business unit from a leading auto manufacturer.

Vitesco Technologies has three business units: Electrification Technology, Electronic Controls and Sensing & Actuation. All three business units already contribute to electrification sales. Electrification Technology develops and produces electric motors, integrated axle drives, power electronics, battery management systems and 48-volt systems. The portfolio of Electronic Controls includes integrated electronics architectures and software and covers control units for electric, hybrid and combustion drive as well as integrated high voltage boxes. Sensing & Actuation offers customers intelligent solutions for precise measurement and control, e.g., in the area of thermal and energy management.

In total, Vitesco Technologies generated sales of just over €8 billion last year, including the remaining sales from contract manufacturing between Continental and Vitesco Technologies. In 2019, the company announced that it would concentrate the Electronic Controls and Sensing & Actuation divisions on profitable core technologies. Achieving adjusted EBIT margins of 6.3 percent and 8.1 percent respectively in 2020, these generate stable cash flows to drive further growth in electrification technology. The Electrification Technology business is fully dedicated to electrified mobility. The adjusted EBIT margin of the Electrification Technology business unit was still negative due to high ramp-up costs in connection with the dynamic business development. For the full-year 2020, Vitesco Technologies’ adjusted EBIT margin was -1.1 percent. Without including the Electrification Technology business, the adjusted EBIT margin was 3.3 percent.

Vitesco Technologies targets Electrification Technology to be profitable in terms of adjusted EBIT in mid-term. In the past two years alone, the division's gross margin increased by more than 55 percentage points. Additionally, a continuously growing market will lead to economies of scale. In the future, Vitesco Technologies expects improved production efficiencies due to higher capacity utilization. The trend is clear: by early 2021, more than 150,000 electric axle drives of the third generation have been supplied successfully to global customers – a milestone for electromobility. And only recently, Vitesco Technologies was able to win a major order for 800-volt power electronics from Hyundai Motor Group.

Solid balance sheet and stable cash flows allow for substantial growth with attractive cash generation

Vitesco Technologies has a solid balance sheet with an equity ratio of 32.9 percent as of December 31, 2020, providing the financial foundation for Vitesco Technologies' transformation and ensuring financial flexibility for the future.

Leverage is targeted at maximum upper limit of 1.0x net debt/adjusted EBITDA. Despite the investments in electrification, the capex ratio is expected to remain constant or decrease slightly compared to 2020, as Vitesco will shift its capital expenditures from ICE businesses to boost electrification growth.

Vitesco Technologies targets to generate more than 30 percent of its sales from electrification across all business areas in the mid-term.

Vitesco Technologies' product portfolio offers excellent growth opportunities for any future technology scenario. The future sales potential that the company has identified and developed is much greater than that related to internal combustion engines (ICEs): compared to ICEs in 2018, Vitesco Technologies’ potential value contribution (content per vehicle opportunity, CPV) for battery electric vehicles is estimated to be around five times higher in 2025.^[3]

Sustainability at the core of the company’s mission

Vitesco Technologies not only is dedicated to solutions for emission-free mobility, but also on meeting highest ESG standards. "We are striving for a leading position in ESG and have set ourselves ambitious goals for 2030, whether in terms of using renewable energy or a 100 percent carbon-neutral production worldwide," says Andreas Wolf. "At the same time, we support our customers in achieving their sustainability targets with our electrification solutions." Since 2020 the production facilities of Vitesco Technologies have been supplied exclusively with electricity from renewable energies.

Further key milestones include a product lifecycle certification and a 95 percent waste recycling rate. Vitesco Technologies is aiming for admission to major ESG indices such as DAX50 ESG or MSCI ESG Leaders and will proactively engage with ESG rating agencies in the near future.

^{[1] Source: ACEA New Passenger Car Registrations by Fuel Type as of 02/2021
[2] Source: Roland Berger, 12/2020, “Powertrain Market” Study
[3] Source: Roland Berger, 12/2020, “Powertrain Market” Study}