Allow me to begin with the bad news first. We are not satisfied with our results in the past fiscal year. Despite the enormously challenging environment, we had expected much more from a purely operational perspective.
Our performance was certainly not due to a lack of dedication on the part of your global Continental team. Quite the opposite, in fact. As they have done so often before, Continental’s employees gave their all during this challenging period. On behalf of my colleagues on the Executive Board, I would like to thank all our employees for their extraordinary hard work and commitment.
Nonetheless, the automotive industry is currently weathering a storm, the effects of which will continue to be felt for years to come. Since 2018, a major production and sales crisis has been unfolding across global markets. Instead of around 94 million passenger cars and light commercial vehicles, fewer than 89 million vehicles were manufactured worldwide in 2019. This year we are expecting a further decline, which is likely to be exacerbated by the effects of the coronavirus. As a result, production figures will fall for a third successive year. We do not anticipate a significant improvement in global production in the next five years, which is why we have revised our assumptions for the medium-term market development accordingly. Unresolved trade conflicts, drastically more stringent emission regulations in Europe and the rapidly developing digitalization of business processes and products are also creating turbulence. All adjustments required as a result are now being made in parallel: reorganizing structures, reducing capacities, reducing or ceasing production, realigning portfolios, expanding staff training and accelerating the transition to new technologies. Backed by our strategy and strength, we have what it takes to successfully shape and spearhead the current transformation.
It is the most far-reaching transformation since the advent of the automobile, affecting everything that makes up our business – from products and processes to business models, operations and structures. While it poses major challenges for your Continental, it above all presents major opportunities – opportunities we will seize from a leading position. Because we are the transformation! We are pushing ahead with it in a timely and targeted manner. Over the next five years, we will make your Continental more competitive than ever before – globally and with a focus on the long term – and ensure its future viability. By 2030, we aim to achieve a leading position in three areas within the industry: in the quality of our products and services, in innovation and in financial strength.
This involves reducing costs, increasing efficiency, creating flexible structures and processes, and focusing fully on high-growth, future-oriented technologies and accelerating their development. These technologies make driving and roads safer, cleaner, more intuitive and intelligently connected. They protect all relevant environments: ecological, economic and social. They are affordable, accepted and form the backbone of a healthy mobility ecosystem.
The basic elements of increasing digitalization can open doors for us, for example in electronics, software and sensors. Your Continental is very well positioned here. We currently generate 70% of our sales in the automotive business and, as the value of electronics in the vehicle continues to rise dramatically – for airbag controls, brake systems, navigation and many other features – this figure will soon increase to 80%. By 2030, the processing power of microchips will be 50 times what it was in 2015. The scope of software for the vehicle drive system will increase tenfold over the coming years. Our job is to reduce complexity. In the future, around 10 control units will do the work of up to 100 of the control units seen in current cars. We are bundling these units into high-performance computers and supporting the integration of function packages from various software suppliers. Only a few system suppliers will be able to consolidate such huge quantities of software, and your Continental is one of them. We are increasingly marketing software as an independent solution as part of this approach and aim to achieve further strong growth by issuing licenses.
The standardization of operating systems in cars is another area of focus. Like iOS or Android for smartphones, these operating systems serve as a basis for applications – or function clusters – in the vehicle. They can, for example, make level-2 automated driving features possible (i.e. partial automation, hands-free steering and constant driver monitoring). The operating system also ensures connection to the cloud, with the benefit of program updates via satellite and internet. Some of our more than 20,000 software and IT experts are working to ensure that we stay ahead of the competition in this future business. We are also increasing our profitability with the help of digitalized business processes, for example by using artificial intelligence in our supply chain and collaborative robotics in our production line. Today, more than 1,000 collaborative robots have taken over repetitive and tedious tasks.
We are growing profitably with digitalized products made from plastic and rubber. From tires to surfaces and conveyor belts, these products gather and transmit data wirelessly using sensors and chips. Operating times are thus optimally controlled, any need for repairs is quickly detected, and costs are reduced. Service as a product.
The foundation for our success is always our first-rate competitiveness worldwide. To this end, we are implementing our Transformation 2019–2029 structural program in a fast and systematic manner. We expect gross costs to decrease by around €500 million annually from 2023 as a result. We will take the necessary measures responsibly and with a focus on the future. We will support our employees as much as possible, for example, through the expansion of our internal job market as well as our global training initiative. Using tailored programs, we will boost the employability of individual employees. With our own training provider, we will address semi-skilled and skilled workers in Germany in particular.
We firmly believe that if you want the mobility of the future, you need Continental.
We are very well positioned in this regard. Our balance sheet is very solid. Our entrepreneurial freedom makes a host of opportunities available to us. We are pioneers when it comes to shaping a healthy mobility ecosystem. By doing so, we are securing our and your long-term success.
Thank you for placing your trust in our performance.
Dr. Elmar Degenhart
Chairman of the Executive Board