Continental's profit almost halves as lockdowns hit car production

FILE PHOTO: Flags of German tyre company Continental are pictured before the annual news conference in Hanover, Germany,March 7, 2019. REUTERS/Fabian Bimmer

FRANKFURT (Reuters) - Auto parts supplier Continental CONG.DE will deepen cost cuts after its operating profit almost halved in the first quarter as coronavirus lockdowns caused global car production to fall 25%, the company said on Thursday.

The German manufacturer’s earnings before interest and taxes dropped 47% to 436.5 million euros ($471 million) in the first quarter of 2020 from 823.3 million a year earlier and its operating margin narrowed to 4.4% from 7.5%.

Continental warned its second-quarter results would be worse as lockdown measures hit large markets including the United States. As a result, it will aim to cut investment by 20%, following a 26% fall in the first quarter.

Investments in new information technology projects, or to expand production capacity at factories, have been put on hold, as has some spending self-driving technologies, the company said.

“If you delay autonomous investments for level 4 and level 5 capability by six months, you have not lost the market, since this market will only emerge in 10 years,” Chief Financial Officer Wolfgang Schaefer told Reuters.

Asked whether Continental faced liquidity problems and might apply for state-backed loans, Schaefer said: “No.”

Last month, Continental postponed the planned spin-off of its powertrain business Vitesco Technologies, citing ongoing economic uncertainty.

Vitesco warned in January that it faced pressure on its margins as it shifted its business beyond combustion engines, which make up 90% of its revenue, to capture growth from electromobility.

Reporting by Edward Taylor and Jan Schwartz; editing by Thomas Seythal, Michelle Martin and David Clarke