Continental AG, a prominent German automotive supplier, has announced a major corporate restructuring aimed at refocusing solely on its core tire manufacturing business.

As part of this strategic shift, the company plans to divest its Contitech division, which specializes in plastic and rubber technologies.

This transition is intended to streamline operations and is expected to be completed by 2026.

The restructuring comes after Continental has developed several strong business units over the past three decades, primarily through acquisitions and expansions.

According to CEO Nikolai Setzer, these units have now matured to the point where they can operate independently.

The tire segment has been identified as the primary profit driver for the company, and the decision to refocus aims to enhance its global standing in tire manufacturing.

In response to the announcement, Continental's shares saw an increase of more than four percent, making them one of the largest gainers on the DAX index.

Investors have shown a growing preference for 'pure-play' companies, which is driving a trend of conglomerates like Continental spinning off diversified operations.

However, the decision has faced significant criticism from labor unions, including IG Metall and the Industrial Union of Mining, Chemicals, and Energy (IGBCE).

IGBCE board member Francesco Grioli expressed concerns that the restructuring represents a culmination of a long-term trend towards dismantling corporate structures, warning of the interconnectedness of the tire and Contitech sectors.

He described the separation as socially irresponsible and potentially risky from an economic and technological perspective.

Union representatives on the company's supervisory board have indicated they will only approve the plan if substantial employment and site guarantees are provided for affected workers.

Concerns have been raised regarding potential job losses and the impact on employees' welfare.

Hasan Allak, chair of the works council, voiced fears that the restructuring may reduce employees to mere tools for profit maximization.

Despite the criticisms, management at Contitech stated that discussions with labor partners are ongoing, and they are actively seeking solutions.

Currently, there are no additional job cuts anticipated beyond an existing reduction of approximately 1,200 positions.

As of last year, Continental's global workforce stood at 190,000 employees.

The restructuring comes as Continental, the third-largest automotive supplier in Germany, faces pressures from a downturn in the automotive sector and the costly transition to electric mobility, with overall job losses projected to exceed 10,000 across the company.

Other competitors, such as Bosch and ZF Friedrichshafen, have also reported job losses but have thus far undertaken restructuring to a lesser extent.

In addition, Continental is preparing to take its automotive division public in September.

This division is notably its largest segment, which has reported annual revenues of approximately €19 billion with a workforce of 92,000; however, it has experienced net losses for several years.

Contitech is involved in the manufacturing of belts, hoses, and related products utilized across various industries, including mining.

The segment is projected to achieve around €6.4 billion in revenue with a six percent margin for the year 2024. A strategic decision has already been made to separate the majority of automotive-related rubber products this year, affecting approximately 16,000 employees in Contitech's current workforce of 23,000.

The company aims to position itself as a global leader in material solutions post-separation, with recent revenues reported at roughly €4.5 billion and an 8.1 percent margin.

Potential buyers for Contitech have been indicated to include strategic competitors and financial investors, according to CFO Olaf Schick.

The remaining tire division currently employs around 57,000 individuals and generated roughly €14 billion in revenue last year, achieving a profit margin of 13.7 percent.

Furthermore, the restructuring will bring leadership changes, with Chief Human Resources Officer Ariane Reinhart leaving the company by June 30 and Ulrike Hintze slated to succeed her.

CFO Schick also plans to exit in October to join Mercedes-Benz as legal counsel.

CEO Setzer has committed to guiding the company through this restructuring process until its successful completion.