The fiercely competitive new energy vehicle (NEV) market has brought new challenges to tier-one suppliers, including German automotive parts manufacturer Continental AG.
On June 20, Continental officially commenced operations for the fourth expansion of its tire factory in Hefei.
As an international manufacturer of car components, Continental faces various challenges such as changes in electrification technology, the rise of Chinese competitors, and price wars. Additionally, the US and EU tariffs on Chinese electric vehicles have further increased uncertainty.
Currently, the strong demand for extended driving range has led to the utilization of heavier battery packs, necessitating larger tires to bear the increased load. Continental is focusing its R&D and production efforts on manufacturing larger tires. However, increasing tire sizes is not a simple task. From the initial 20-inch tires to the current 22-inch options offered on some vehicles, the inner walls of tires have become thinner, reducing durability and shock absorption while consuming more range. The instant high torque generated by electric motors makes vehicles accelerate faster, with more models achieving 0–100 km/h acceleration in under three seconds, posing new demands on tire braking performance.
While tire manufacturers face dual challenges in manufacturing and craftsmanship, the rapid growth in the market share of EVs presents an additional set of problems. In 2023, Continental’s sales in China achieved an 11% year-on-year increase. The fast-changing Chinese market has pushed Continental to continually reform, with existing production capacity reaching its limits.
Data from the China Passenger Car Association (CPCA) shows that, in 2023, the total volume of compact passenger cars (comprising sedans, MPVs, and SUVs) in China increased by 9.2% year-on-year, while domestic tire sales reached 393 million units, a 20.7% increase. Jeff Wang, manager of Continental’s Hefei factory, said that, before the fourth expansion of the plant was built, demand in China for Continental’s tires had already exceeded supply. Once the latest expansion reaches full capacity in 2027, the annual output is expected to reach 17 million units.
While capacity and sales are climbing, there remains uncertainty in the sales of Chinese domestic brands. Enno Tang, president and CEO of Continental China, said that few car companies can provide accurate forecast numbers—some can only give demand figures for the current quarter, necessitating increased flexibility and resilience in factory operations. Tang added that price pressure from vehicle sales to end users directly impacts the supply chain. To respond, Continental is localizing the entire industrial chain and value chain.
Currently, Continental has 23 production bases and 28 R&D centers in China, employing 17,600 people. Localization is just the beginning, encompassing everything from upstream raw material supplies like rubber and steel wires to technology R&D and production equipment manufacturing.
In 2023, leading tire manufacturers Michelin and Bridgestone reported positive financial results. In contrast, Continental, heavily investing in transformation, initiated layoffs, cut costs, implemented efficiency improvement measures, and divested parts of its automotive business to enhance the profitability of its main tire business. Meanwhile, domestic tire manufacturers are also rising. Data shows that some Chinese tire manufacturers’ sales have entered the top 20 in international rankings, with more price-competitive domestic suppliers gradually joining the competition.
In a market environment with constant new challenges, Continental must adapt more quickly to changes.
In an interview with 36Kr, Tang, Wang, and Xu Qiao, head of Continental’s original equipment business in China and Southeast Asia, shared more insights regarding Continental’s latest developments in China.
The following interview is translated and has been edited and consolidated for brevity and clarity.
36Kr: The tires and braking modules within Continental’s business scope are included in the Euro 7 emission standards. How does Continental plan to respond to the stringent requirements?
Xu Qiao (XQ): Actually, all standards are updated annually. Continental has extensive technical reserves, such as production processes, rubber refining, and the use of renewable materials.
Currently, Chinese brands are gradually going global, which not only requires products from original equipment manufacturers (OEMs) to meet different market requirements but also necessitates that component producers like Continental provide products that suit various markets. For a global enterprise like Continental, meeting local regulations is just the minimum standard.
Enno Tang (ET): Besides tires, we also have excellent technologies in braking modules to support energy saving and emission reduction. Let me give two examples:
- The one-box integrated braking system MK C2 has energy recovery capabilities, reducing energy consumption and extending driving range.
- Another example is a highly integrated drum brake system, the “E drum.” Disc brakes are commonly used in the industry, but drum brakes can better reduce particulate emissions. Additionally, since electric vehicles can decelerate by reversing the motor, smaller drum systems can meet braking needs.
Jeff Wang (JW): Beyond products, our factories are also green and sustainable. For instance, our Hefei factory was planned with environmental protection as a core focus.
In 2014, we began installing solar photovoltaic panels on the roof of the Hefei factory. The total area of these panels has now reached 250,000 square meters, producing nearly 26 million kilowatt-hours of green electricity, reducing 25,000 tons of carbon emissions—a significant figure. By the end of 2023, we had also invested in an energy storage station with a design capacity of 42,000 kilowatt-hours, the largest in Anhui Province.
36Kr: In terms of industry trends, tire sizes are getting larger, and performance requirements are increasing. Electric vehicles have new demands for tires. What challenges does this bring to Continental?
XQ: New energy vehicles (NEVs) have unique characteristics. On one hand, larger battery packs increase vehicle weight. On the other hand, vehicle designs are becoming more avantgarde. As a visually exposed component, tires play an essential role in vehicle design, so their sizes are also increasing.
At the same time, EVs indeed place new demands on tires. The instant high torque of electric motors requires higher performance tires. The quietness of electric motors makes tire and road noise more apparent, necessitating improved tire quietness.
Under these conditions, we need sufficient technical support for continuous production of large-size tires. From the initial 20-inch to 22-inch, and possibly 23-inch in the future, the challenges in product R&D, manufacturing processes, and rigor are significant.
Beyond tire size, ensuring better braking safety under high torque conditions is crucial. While reducing noise and maintaining comfort, providing stable braking performance for different driving conditions requires excellent manufacturing processes and comprehensive strength in technical R&D, product process management, and quality control.
For new OEM demands, we have introduced new tire patterns like eContact. Besides performance, we focus on reducing rolling resistance, which is closely related to increasing electric vehicle range.
36Kr: What’s the purpose behind the fourth expansion of the factory? Is it an extension of the previous three phases or a completely new plan? Moreover, most tire manufacturers in China have at least two factories—why does Continental have only one, and only in Hefei?
JW: Continental CEO Nikolai Setzer mentioned that, due to supply shortages in both retail and original equipment markets, we decided to further invest and expand in the Chinese market. As for why Hefei was chosen over other cities, the success of a factory or enterprise depends on several factors.
Firstly, our market share and strategic positioning in China are critically important. Secondly, it depends on the hard work and dedication of local employees. Thirdly, the cooperation and support from partners are essential.
All of this is based on the local environment. We must commend the business environment in Hefei. Support from government departments has strengthened Continental’s determination to continue investing. We will continue to expand investment in Hefei in the future.
36Kr: Continental has 28 R&D centers in China. What is the layout for tire R&D? Are there any future plans, such as building more test tracks?
XQ: We have established a tire R&D center in Hefei and are leveraging other internal resources for more trials, such as using test tracks owned by Continental Automotive. In the future, we will also have more attempts in the aftermarket to meet the needs of more niche markets.
36Kr: At the Beijing Auto Show this year, 16% of new cars came equipped with Continental tires as standard. How did Continental achieve such results, and how will it expand its advantages in the future?
XQ: In the NEV market, we have indeed made significant progress, but it wasn’t easy. To give an analogy, supplying OEMs is like a triathlon—it requires patience, explosiveness, and long-term determination. This growth is backed by excellent products, reliable quality, a mature and complete system, and our continuous investment in China over the past 15 years.
36Kr: The highly competitive Chinese automotive market poses greater price challenges for suppliers. How does Continental respond?
ET: Price pressure from vehicle sales to end users directly impacts the supply chain. For Continental, we choose to continue enhancing our technological leadership, especially how high-tech products maintain high quality and consistency in mass production.
On the other hand, from product innovation, R&D, and production to services, we aim to fully localize our industrial and value chain. This not only directly reduces costs but also enhances our flexibility.
36Kr: For customers like Xiaomi Auto, where actual demand exceeds forecasted production, how does Continental prepare for delivery capabilities?
ET: The market is dynamic, and few car companies can give us very precise monthly production plans. Some can only provide current quarterly demand. We choose to enhance the flexibility of our factory capacity to cope with such changes.
However, from the perspective of the entire supply chain, like semiconductor chip suppliers, their capacity planning and delivery adjustments are slower. Enhancing delivery capabilities requires efforts from the entire industry, not just tier-one suppliers like Continental.
This article was written by Xu Caiyu in Chinese was originally published by 36Kr.
