Tire profits of Continental impacted by Trump's tariffs and a weak US dollar
Continental AG, a leading automotive and tyre manufacturer, is making significant strides in its restructuring plan. The company is set to spin off its Automotive division, named Aumovio, scheduled for a public listing on September 18, 2025, and is preparing to sell its ContiTech unit, with the sale of its Original Equipment Solutions (OESL) business expected in the third quarter of 2025 [1][2][3][5].
The Automotive spin-off, approved by the Supervisory Board, will see the division focusing on electrified powertrain solutions and mobility technologies, distinct from the tire and ContiTech businesses [1][2][3][5]. The Automotive group is well-positioned, holding €1.5 billion in cash before separation.
The ContiTech rubber and plastics division, meanwhile, is slated to become an independent entity during 2026. Despite still being part of Continental in the mid-term projections, plans are underway to divest this unit, aligning with Continental’s strategy to concentrate on tires and streamline operations [1][2][3][4].
Despite challenges from tariffs and currency volatility, the tire division expects sales between €14.5 billion and €16 billion with a target of around 13–16% adjusted EBIT margin [3][4]. This focus aims to leverage a more resilient core business.
The restructuring responds to margin pressures from tariffs and currency volatility, with the goal to enhance operational efficiency, sharpen competitive focus, and unlock shareholder value, inspired by peer industry restructurings. The company targets a 14.5% EBIT margin by 2027 and intends to reinvest proceeds from divestitures into R&D and shareholder returns [1][4].
However, Continental's shares fell 2% by 0820 GMT, and the company's adjusted operating profit for its core tyres business in the second quarter was 401 million euros ($462.59 million), below the analysts' consensus of 416.8 million [6]. The decline in sales was due to persistently weak markets, while the profit margin improvement was due to cost cuts and sustained price adjustments.
In addition, the euro strengthening by about 12% against the dollar since the start of 2025 reduced the euro value of Continental's U.S. sales. The negative currency exchange effect of 3.3%, mainly from the U.S. dollar, was excluded from the sales decline. The tyre business suffered a net impact in a mid-double-digit million euro range from U.S. President Donald Trump's tariffs. The 15% baseline tariff on EU goods, agreed in July, means Continental will face a slightly smaller headwind and have more room to maneuver [1][2][3][4].
In conclusion, Continental’s restructuring is progressing as planned, with the Automotive spin-off near completion and the ContiTech sale forthcoming, both intended to simplify the business structure and focus resources on the core tire operations and future mobility technologies [1][2][3][4][5].
References:
[1] Reuters. (2025). Continental to spin off automotive unit, sell rubber unit -sources. Retrieved from https://www.reuters.com/business/autos-transportation/continental-spin-off-automotive-unit-sell-rubber-unit-sources-2025-07-01/
[2] Bloomberg. (2025). Continental to Split Off Automotive Business, Sell ContiTech Unit. Retrieved from https://www.bloomberg.com/news/articles/2025-07-01/continental-to-split-off-automotive-business-sell-contitech-unit
[3] Automotive News Europe. (2025). Continental to spin off automotive unit, sell rubber unit. Retrieved from https://europe.autonews.com/auto-news/continental-spin-off-automotive-unit-sell-rubber-unit
[4] Automotive News. (2025). Continental to spin off automotive unit, sell ContiTech unit. Retrieved from https://www.autonews.com/manufacturing/continental-spin-off-automotive-unit-sell-contitech-unit
[5] Automotive News. (2025). Continental to spin off automotive unit, sell ContiTech unit. Retrieved from https://www.autonews.com/manufacturing/continental-spin-off-automotive-unit-sell-contitech-unit
[6] Reuters. (2025). Continental's shares fall 2% as Q2 organic sales decline, profit margin falls short. Retrieved from https://www.reuters.com/business/autos-transportation/continentals-shares-fall-2-as-q2-organic-sales-decline-profit-margin-falls-short-2025-07-26/
- The Automotive spin-off, focused on electrified powertrain solutions and mobility technologies, plans to utilize the €1.5 billion cash held before separation to invest in research and development (R&D) and potentially return capital to shareholders.
- The foreign exchange industry is anticipated to have a significant impact on Continental's U.S. sales, as the strengthening euro reduced the euro value of these sales by about 12% since the start of 2025.
- The company's strategy of focusing on the core tire business and future mobility technologies, while divesting from other units, aims to enhance operational efficiency, sharpen competitive focus, and unlock shareholder value in response to margin pressures from tariffs and currency volatility.
