Musings on the Motoring World

Tipping point approaches as Continental AG mulls turbo division sale

2020 is the year the world got turned upside down, particularly for the automotive business. If General Motors reviving the Hummer name as a flagship all-electric sub-brand was not odd enough. News of Europe’s second-largest car parts supplier, Continental AG, contemplating the sale of its turbocharger division will make you do a double-take.

According to Automotive News, Continental is looking to stem its financial bleed from ongoing restructuring efforts by pawning off its turbocharger unit. The company cites “lacks the scale required to compete globally” and no longer sees turbos as a “strategically important”, as reasons for the sale.

Spinning off the turbo business

Continental AG isn’t alone in abandoning its turbocharger operations. German rival, Robert Bosch sold its turbocharger joint venture with Mahle to a private equity firm in 2017.

On a related note, renowned turbocharger maker Garrett Motion, filed for bankruptcy last month. The ongoing pandemic, slumping sales, and mounting debt from its separation from Honeywell International forced the company into administration.

The uncertainty of the turbocharger business seems at odds with industry predictions. Industry players believe that the turbocharger adoption rate will increase from 51% of vehicles last year to 56% by 2023.

However, with emission regulations getting tough around the world, that increase is a modest estimate. One would think that it should be much higher. Especially when one considers how many manufacturers have realigned its product strategy to meet these emission targets.

A new game in town

Continental’s reasoning that turbochargers are no longer “strategically important” speaks volumes of the industry’s adoption of electrified drivetrains.

Ever since the early-2000 asset bubble, manufacturers favoured downsizing and turbocharging as a solution to improve efficiency and reduce emissions. While the concept worked, discrepancies between laboratory testing and real-world results caused legislators to introduce a tougher WLTP testing standard.

Aimed at replicating more real-world throttle inputs, the new format didn’t favour turbocharged engines. As a result, many models were forced from sale in Europe after the test was implemented.

Coupled with the surging interest in electric vehicles and the fallout from the Dieselgate scandal that forced Volkswagen towards electrification, it was clear where the future is heading.

This shift towards electrified vehicles has started a veritable gold rush, with car parts suppliers looking to establish a foothold in the market – Continental being one. Over the past decade, the company has been gearing itself towards electrified drivetrains by expanding its power unit offerings.

The fate of Continental AG’s turbo division would be a sign of things to come. As many more manufacturers adopt electrification solutions, so too will engines enter a steady decline. After all, business considerations usually dictate change louder than the collective preference of strangers.