Continental Opens $55 Million Auto Electronics Plant in India

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Researched by Industrial Info Resources (Sugar Land, Texas)-- Continental AG (OTC:CTTAY) (Hanover, Germany), one of the top five global suppliers of automotive parts and components, recently inaugurated its new automotive electronics manufacturing facility and research and development (R&D) center in Bangalore in the Indian state of Karnataka. Riding on the country's automotive boom, Continental has invested $55 million to cater to the Indian auto electronics market and plans to invest an additional $22.5 million over the next two years to expand the facility by 2012 subject to sustained growth results. The company has set itself a target of achieving a compounded annual growth rate of 60% in India by 2012 and plans to boost sales in Asia to 25% of its aggregate global sales by 2015.

Production at the new manufacturing facility commenced in May this year, and the new R&D division is expected to become operational in September. The plant has four pre-assembly cells, three surface-mounting technology lines and 16 backend units. The facility will develop and manufacture products for the three auto electronic divisions of Continental: chassis and safety, interior and power train. These products include body control units, bluetooth car kits, central locking systems, electronic control systems for power steering, embedded phones for cars, engine control units, engine management units, immobilizers and instrument clusters for commercial vehicles, passenger cars and two-wheelers. The Bangalore plant will also manufacture a new line of products and will help curb importation of automotive goods. Local manufacturing will enable Continental to ensure faster turnaround times and eliminate logistic costs and import tax expenses, which account for nearly 5% to 10% of its product price.

With Indian headquarters in Bangalore, Continental has manufacturing facilities in Bangalore, Gurgaon, Calcutta, Manesar, Pune and Sonepat, and three R&D centers located in Bangalore, Gurgaon and Calcutta. The existing R&D facility at Bangalore functions as an offshore development center for Continental's offices worldwide and provides engineering, testing and validation services.

The Indian automotive industry has a present turnover of $35 billion and contributes 5% of the country's gross domestic product (GDP). The industry aims to achieve $145 billion in turnover, representing a fourfold increase, and account for 10% of the country's GDP by 2016. India is expected to see 5 million cars on the road by 2015, 3 million of which will be from the small car segment. In 2004, domestically manufactured passenger vehicles contained less than $1,000 of electronic components per vehicle. This is expected to increase to $1,500 per vehicle by 2012. The Tata Nano, a $2,500 car with full electronics, was launched by the Tata Group (Mumbai) earlier this year and is expected to revolutionize the automotive electronics market in the country.

The Indian automotive electronics market is likely to be more than $7 billion in 2016. Emission and safety regulations and rising customer demand for safer, fuel-efficient and highly equipped vehicles are the most significant drives in the automotive market. Automotive sensors and automotive body electronics, which account for 1% and 6% respectively of the total automotive electronics market in India, are expected to register the fastest growth in the next decade. The power train electronics market is likely to have a compounded annual growth rate of 17.3% by 2010 with electronic engine management systems and fuel-injection technology accounting for 45% of this segment.

The safety electronics segment is expected to grow rapidly with the government promoting initiatives in vehicular and passenger safety. Indigenous safety system manufacturers, Sundaram-Clayton Limited (BOM:520056) (Chennai) and Sona Koyo Steering Systems Limited (BOM:520057) (Gurgaon, Haryana) expect to benefit the most from this growth.

Foreign aftermarket companies like Pioneer Electronics Incorporated (TYO:6773) (Tokyo) and Sony Corporation (NYSE:SNE) (Tokyo) dominate the automotive entertainment segment, especially CD, DVD, and MP3 players. However, this is likely to change with major Tier I suppliers planning to manufacture original equipment fitted with audio systems. Global players like Avnet Incorporated (NYSE:AVT) (Phoenix, Arizona) and Arrow Asia Pac Limited, a subsidiary of Arrow Electronics Incorporated (NYSE:ARW) (Melville, New York), continue to maintain a significant presence in the Indian market.

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