Supply chain disruption attributed to price disputes, as per Continental China's CEO Enno Tang's statement.

In the ever-evolving automotive landscape, Continental AG, a leading German automotive parts manufacturer, is adapting to changes by enhancing the flexibility of its factory capacity to cater to shifting production plans. This strategic move is a response to the dynamic market demands, particularly in the burgeoning new energy vehicle (NEV) sector.

The NEV market poses unique challenges for tier-one suppliers like Continental. The rise of Chinese competitors, price wars, and the rapid advancement of electrification technology are just a few of the hurdles the company is navigating. Despite these challenges, Continental remains committed to the Chinese market, with 23 production bases and 28 R&D centers in China, employing 17,600 people.

Continental's latest investment comes in the form of the fourth expansion of its tire factory in Hefei. This expansion is a testament to the factory's success, which can be attributed to its market share, strategic positioning, local employees, cooperation with partners, and the supportive business environment provided by the local government. Once the latest expansion reaches full capacity in 2027, the annual output is expected to reach 17 million units.

The success of Continental's Hefei factory is not solely focused on volume. The company is also addressing the specific needs of the NEV market. For instance, the strong demand for extended driving range in NEVs has led to the utilization of heavier battery packs, necessitating larger tires from Continental. To meet this demand, Continental has introduced new tire patterns like eContact, focusing on reducing rolling resistance, which is closely related to increasing electric vehicle range.

However, increasing tire sizes is not a simple task. It reduces durability and shock absorption while consuming more range. To address these concerns, Continental is also focusing on improving tire technology to ensure better braking safety under high torque conditions, a crucial aspect for NEVs due to the instant high torque generated by electric motors.

Beyond tire size, Continental is localizing the entire industrial and value chain, encompassing everything from upstream raw material supplies like rubber and steel wires to technology R&D and production equipment manufacturing. This localization strategy aims to directly reduce costs and enhance flexibility.

Enno Tang, the President and CEO of Continental China, emphasized the importance of localization, stating that price pressure from vehicle sales to end users directly impacts the supply chain. As such, localization of the entire industrial and value chain is necessary.

In 2023, Continental's sales in China achieved an 11% year-on-year increase. This growth is backed by excellent products, reliable quality, a mature and complete system, and continuous investment in China over the past 15 years. The company is also looking to leverage its R&D efforts in Hefei to meet the needs of more niche markets, not just in the OEM sector, but also in the aftermarket.

Data from the China Passenger Car Association (CPCA) shows that, in 2023, the total volume of compact passenger cars in China increased by 9.2% year-on-year, while domestic tire sales reached 393 million units, a 20.7% increase. This growth in the Chinese market has pushed Continental to continually reform, with existing production capacity reaching its limits.

As Continental continues to expand and adapt, it remains committed to its mission of enhancing mobility solutions in China. With its extensive presence in the country and its focus on localization, Continental is well-positioned to meet the evolving needs of the Chinese market and the global NEV sector.

Supply chain disruption attributed to price disputes, as per Continental China's CEO Enno Tang's statement.