A year into the job, Continental CEO navigates chip crisis, evolving business

MUNICH — When Nikolai Setzer was named CEO of Continental last November, he was tasked with ensuring that the giant German supplier would evolve to remain nimble enough to stay ahead of the auto industry's electric and mobility revolutions.

But in his first year on the job, he's also had to navigate shorter-term challenges, such as the COVID-19 pandemic and a global microchip shortage, both of which have eaten into Continental's bottom line.

Setzer, 50, spoke with Staff Reporter John Irwin during the auto show here last month to discuss Continental's short-term and long-term challenges and goals, among other topics. Here are edited excerpts.

Q: What is Continental's financial outlook for the remainder of the year and 2022?

A: The second half is more difficult than the first half. What are we doing? Obviously, and you've seen this in particular on the tire side, we have to raise prices in order to get absorption of our costs. And we are following suit here and try to mitigate the impact as much as we can.

For 2022, we don't give guidance so far out. We just look into the coming year. But clearly now, the challenge is rising raw materials on one hand and managing the automotive side with the chip shortage in a way that mitigates the impact.

How long do you foresee the microchip shortage lasting?

The lead time to add sizable new capacity in the semiconductor industry is 18 to 24 months. And then it has to ramp up. We are now, basically since the fourth quarter of last year, more or less in this supply shortage. If you add 18 to 24 months to that, you'll see this brings you into 2023, when really sizable capacity additions are coming online.

How will this play out?

No crystal ball. It depends on demand and on how the industry is able to balance the capacity which exists and make the best use of it. Are consumer electronics growing? Home office appliances, as we know, have increased strongly due to the pandemic, and you see that in other areas. Vehicle content is moving upward. This situation has to be seen not just as a supply issue, but also as a demand issue.

Continental's new GreenConcept tire is made partly from renewable or recycled materials, such as plastic bottles, dandelions and vegetable oils. How close to production-ready are such tires?

The good news is everything we showed can be produced. What has to be done now is to industrialize it all on a level that you can use it in mass production. Some of those technologies are already there.

Using plastic bottles and making polyester out of that, and replacing traditional polyester yarn — this will go into production basically as we speak, to a certain amount, because we have to see how many plastic bottles we can generate and reuse. Same for recycled materials, which we are already using in tires.

When it comes to dandelions, we still need to grow more in order for it to be as efficient as the natural rubber that is getting produced. That is a longer-term project. We are talking, there, five to 10 years in order to get this into a sizable amount.

However, as we go, everything we can do to increase the percentage of renewable or recycled material, we will do. So the content in the tire of those materials is growing over time. We want to be at 100 percent by 2050, so it is a journey.

The concept tire is lighter than the typical tire of its size. Was the tire designed with the lightweighting needs of electric vehicles in mind?

We made the tire as light as we could. It is 40 percent less weight than an average tire in that size. This is a lot.

Rolling resistance has something to do with weight and mass, which creates energy losses, which increases rolling resistance. So the lighter the tire, the better, typically, the rolling resistance is.

We achieved 25 percent better rolling resistance than the best category. That 25 percent translates into 6 percent more range for electric vehicles.

For sure, in the requirement book of the OEMs, range is the criteria. However, at the same time, you have to balance that with grip and safety.

An electric car has a certain amount of torque — an even higher amount of torque than you have in combustion engines. So you have to make sure that the tire is not too light.

You have to guarantee the performance with the best light construction you can do, and it's a check-and-balance process. But we showed with this concept tire what you can achieve if you really focus on ultra-lightweight materials.