Continental sees German carmakers shifting away from diesel

BERLIN (Reuters) - German carmakers are likely to stop developing new combustion engines in as little as six years as they focus investments in electric cars and self-driving technology, auto supplier Continental CONG.DE said.

Wolfgang Schaefer, CFO of German tyre company Continental poses for the media before the annual news conference in Hanover, Germany March 2, 2017. REUTERS/Fabian Bimmer

Companies such as Volkswagen VOWG_p.DE, Daimler DAIGn.DE and BMW BMWG.DE face pressure to clean up their diesel engines two years after VW's emissions test-cheating scandal broke.

German politicians and car bosses agreed on Wednesday to overhaul engine software on 5.3 million diesel cars to cut pollution. However, environmentalists vowed to press ahead with legal action aimed at banning polluting vehicles.

Continental, which makes regulators for exhaust gas cleaning systems in diesel cars and nitrogen oxide-measuring sensors, expects German carmakers to abandon efforts to develop combustion engines from about 2023.

“A new generation of combustion engines will again be developed but after that (around 2023), a further development will no longer be economically justifiable because more and more work will switch into electric mobility,” finance chief Wolfgang Schaefer told Reuters in an interview on Thursday.

Britain and France have announced plans to eventually ban sales of new diesel and petrol vehicles and Tesla TSLA.O has launched its first mass-market electric car.

Separately, the CFO said he does not expect German carmakers to push for price cuts to help contain the costs of upgrading diesel engine software and offering scrapping incentives.

Volkswagen, Daimler and BMW are preparing for software updates to cost at least 500 million euros (449.72 million pounds) and for scrapping incentives to be even more expensive, Germany’s VDA auto industry lobby said.

“We always have price pressures in our industry,” Schaefer said.

“We expect no particular changes this year from what we are used to,” he said when asked whether he expected carmakers to seek price reductions in the wake of the diesel agreement.

This somewhat contrasts with Continental stakeholder Schaeffler SHA_p.DE, which in June cut its annual profit guidance, citing increased price pressures in the automotive sector and higher development costs related to electric cars.

Hanover-based Continental earlier on Thursday reported a 10 percent drop in second-quarter adjusted operating profit to 1.16 billion euros, citing higher raw material costs at its tire-making division.

Continental has had a “reasonable” start into the July-to-September business period, the CFO said, even as the company braces for world car production to slow in the second half of the year, especially in the United States.

“Continental put up a solid quarter with some small puts and takes but on the whole was roughly in-line,” said Evercore ISI analyst Chris McNally who has an “Underperform” rating on the stock.

Reporting by Andreas Cremer and Ilona Wissenbach; Editing by Maria Sheahan and Keith Weir