And gentlemen, and welcome to the Continental AG Analyst and Investor Call Q3 Results 2026. The conference will be recorded. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Max Westmeyer, Head of Investor Relations.
Thank you very much, operator, and welcome everyone to our Q3 2026 results presentation. Today's call is hosted by our CEO, Christian Kötz, and CFO, Roland Welzbacher. The press release and presentation for today's call are available on our Investor Relations website, as you are used to. Before we begin, please note that this call is for investors and analysts only. If you do not belong to either of these groups, please disconnect now. The presentation will be followed by a Q&A session for sell-side analysts. To give everyone the opportunity to ask questions, we kindly ask you to limit yourselves to no more than three questions. Christian, over to you for the Q3 key messages.
Yeah. Thank you, Max, and welcome to everyone online. Before diving into the quarterly results, let me begin with two examples that demonstrate what Continental stands for: innovation, premium technology and measurable customer value. First, as you can see on the left-hand side of the chart, we are continuing to strengthen our position in ultra-high-performance tires. By the end of 2027, we plan to add more than 650 UHP tire sizes to our portfolio. Demand is supported by larger and more powerful vehicles, including SUVs and electric vehicles. Our commercial progress is already visible. UHP tires represented 64% of year-to-date 2026 passenger car tire sales under the Continental brand, an improvement of two- percentage points compared to 2025. One of our most important products in this field, the SportContact 7, achieved 27 podium finishes in 29 independent international tire tests.
Second, as you can see on the right-hand side of the chart, we are very proud of what we achieved together with Volkswagen. Continental supported Volkswagen's Mission Efficiency concept vehicle in setting a new world efficiency record. The concept tire, based on our production EcoContact 7, achieved a rolling resistance performance around 25% below the threshold for the class A rating under the EU tire label. A strong illustration of how advanced tire technology can extend electric vehicle range without requiring a larger battery. Together, these developments reinforce our confidence in the strength of our brand, technology and product mix. Turning to the third quarter overview on slide four, we delivered another strong operational performance despite continued weakness in several tire markets. The sales from continuing operations amounted to EUR 3.5 billion in the third quarter. The reported year-on-year decline primarily reflects the sale of OESL.
Adjusted for consolidation effects, the underlying business was broadly stable year-on-year, highlighting the resilience of our core operations. The main reason for the resilient sales performance is our replacement business for Continental-branded tires. In fact, we managed to improve our premium volumes in the replacement business in the first nine months of 2026 by 3.5% compared with the first nine months of 2025. This also contributed to the strong mix we have seen throughout the last quarters. Adjusted EBIT increased to EUR 514 million, corresponding to a margin of 14.9%. PLT price mix, particularly from UHP tires and the improving truck business, continued to offset lower volumes in the quarter. In addition, material costs still provided slight support on a net basis for the quarter. Adjusted free cash flow came in at EUR 31 million.
Our strong operational performance is contributing to cash flow in Q4 right now. As usual, we are still seeing the seasonal buildup in working capital. The strong business performance is also the basis for our updated full-year guidance, which Roland will explain later. Also on the balance sheet side, we are making the expected progress. Our equity ratio increased by 4.3 percentage points year-over-year, and we brought our net debt down by more than EUR 500 million during the last 12 months. Finally, on this slide, let me use the opportunity and give you a short update on the additional milestones that we have achieved on the ContiTech sales process. You may have seen on the financial tickers that the acquisition financing was finalized a couple of weeks ago on the buyer side. In addition, the majority of the required regulatory approvals are already in place.
Progress is being made both on our end, but also on the Lone Star Funds side. Therefore, we continue to expect closing around the turn of the year. We are doing everything within our control to support the process and facilitate timely approvals, while obviously, ultimately, the timing of those approvals is in the hands of the relevant authorities. Nevertheless, right now, it looks very positive. Turning to slide five. As already announced at the beginning of September, and starting with the third quarter, Continental now reports its operating business by region: EMEA, the Americas, and APAC. ContiTech, as long as it is still part of Continental, is presented as a discontinued operation. From our point of view, the regional breakdown provides greater transparency on market dynamics and business performance, and it reflects the way we are driving our business.
Therefore, just a logical next step in our transformation. Looking at the regions on page six, the results underline that effective price mix management, operational execution and portfolio measures are very important factors to support profitability in a difficult volume environment, clearly highlighting the resilience of our tire business. EMEA, in particular, has performed very strong in Q3, delivering organic growth of 2.2% and an adjusted EBIT margin of 18.7%. APAC maintained a similarly strong margin despite slightly negative organic growth, which was driven by our portfolio measures, among other effects. While organic sales in the Americas declined noticeably, also because of proactive right-sizing of our OE business, as well as very weak South American markets, we managed to keep the adjusted EBIT margin broadly stable at 8.7%.
ContiTech, which you can see in the discontinued perimeter on this slide, continues to navigate a very challenging market environment too, which has left its mark on the operating result. However, the order books look healthy, and we are confident that it will materialize over the coming quarters. With that, over to you, Roland, for the tire market developments and a closer look at the regions.
Hello, everyone. Thank you, Christian, and welcome from my side. Let me directly start with passenger car tire markets on page seven. Light vehicle production developed broadly in line with our expectations and remained weak overall. North America was particularly challenging for us as a company. In China, production declined from a very high, which still benefited from subsidies. For our own business, however, the well-established position for export volumes helped us and smoothened the trend. In replacement tires, and according to most recent data, Europe was down year-on-year. However, with the current low visibility on import volumes, this trend may also change with the next update, even though driven by market volumes which are less relevant for us. China and North America were broadly stable in the quarter, with the latter showing a continuously positive trend over the last two quarters.
Turning to slide eight, in commercial vehicles, North American OE production recovered strongly, although from a very low comparison base. European production remained positive, but growth moderated from previous quarters. The replacement picture continues to differ. European truck tire replacement demand remained robust. North America was still below the prior level and continued to be influenced by import activity. Nevertheless, the sequential trajectory has improved slightly, which gives us some reason to hope for a further gradual recovery. Turning to the sales bridge on slide nine. Reported sales decline is largely due to consolidation effects from the sale of OESL, just like Christian has said in the beginning of the call. On the underlying tires business, volumes declined by 4.5%, as expected. Passenger car tire volumes were weaker in both OE and replacement, mainly due to the Americas.
Truck tires, however, developed more positively, with a solid growth in EMEA and strong North American OE growth, while the North American replacement market remained weak, as you saw on the previous page. The main offset to this was price mix, again, which contributed a positive 2.9%. The main drivers were product and channel mix, strong truck tire business, and a pronounced UHP contribution, particularly in EMEA and APAC. Foreign exchange provided a positive contribution of around 1.3%, leaving the overall tire sales on a like-for-like scope, basically on the level of the comparison period. Summing this up, our business again demonstrated that strong mix management can cushion a significant part of the volume pressure. The adjusted EBIT Bridge on page 10 tells a similar story. In fact, the negative volume offsets were more than offset by our healthy price mix.
On the material side, gross raw material costs increased by a mid-double-digit million euro amount year-on-year. However, this was more than compensated by positive inventory valuation effects. Production-related costs, which include both variable and fixed costs directly related to production, are mainly reflecting the overall inflation in wages and salaries. This is also true for the non-production fixed costs, which include R&D, SG&A, as well as holding costs, among others. Summing these effects up, we have generated an adjusted EBIT of EUR 540 million in Q3 2026 for our continued operations, which we consider to be a strong result. Let's now look at EMEA on slide 11, which was the main contributor. Sales stood at EUR 1.9 billion, organically growing by 2.2%. Adjusted EBIT increased to EUR 351 million, resulting in a margin of 18.7%.
The performance was supported by another healthy price mix contribution, especially since UHP volumes increased also in winter tires. This supported mix strongly, despite lower overall passenger car tire volumes and a demanding comparison base from last year's Q3. Truck tires also contributed with solid growth in both OE and replacement. The recent portfolio measures we announced in EMEA had a low- double-digit million euro negative impact on sales, but made a positive contribution to profitability. The result demonstrates the value of our premium positioning and continued effective cost management. At the same time, we cannot extrapolate this particularly strong quarter, especially given the volatile market environment and the expected continuous increase in raw material costs, which will come with a significant sequential headwind in the upcoming quarters. Over to page 12.
In the Americas, sales amounted to EUR 1.1 billion and an adjusted EBIT of EUR 97 million, which means that we managed to keep earnings broadly stable despite the organic sales decline. Reduction in sales primarily reflects significantly lower passenger car OE volumes in general. However, this was even more pronounced for us due to active portfolio measures to rebalance our OE exposure in the region, and an effect that we will certainly also see throughout 2027. In addition, replacement volumes came in below the prior year, in which we benefited from some extraordinary volume pull from one of our larger customers. Truck tire OE recovered strongly, while replacement remained below prior year. In both PLT and truck tire replacement, regional market trends remain divergent. While demand in the U.S. and Canada is rather stable, South America remains particularly weak. Despite the decline in sales, profitability was broadly stable.
Lower tariff costs provided a year-on-year tailwind in the low to mid-double-digit million euro range. This included further IEEPA refunds, which amounted to a low double-digit million euro amount in the quarter, and the prior year comparison, which still reflected a higher tariff rate of 29% in July and less mature mitigation measures. Commercial measures and effective cost management, as well as a continued slight increase in our UHP share, also supported the results. Nevertheless, lower volumes and weaker fixed cost absorption remain a burden. We're therefore focused on market recovery, operational discipline, and further mitigation of material cost effects. Let's turn to slide 13. APAC generated sales of EUR 476 million and an adjusted EBIT of EUR 89 million, corresponding to a margin of 18.6%. Organic growth was -1%, while reported sales benefited from a substantial positive currency effect, mainly driven by Chinese RMB and Australian dollar.
The underlying mix remained healthy. UHP volumes grew solidly, and our exposure to Chinese OEM export business supported OE volumes. At the same time, the higher OE share resulted in some mix dilution. Profitability was further supported by the portfolio measures we have already implemented in the region last year. Due to the closure of our plant in Malaysia, however, we also temporarily had to reduce volumes, particularly in the secondary brands, while ramping up our plant in Thailand. Over to slide 14. Turning to ContiTech, organic sales were slightly down year-on-year. This has also left its mark on the adjusted EBIT, which, before the IFRS 5 effect, declined to EUR 47 million. Market recovery was slower and also less pronounced than we initially expected. At the same time, the encouraging order intake did not yet translate fully into sales and earnings.
The main issue was realization of the order backlog. Following capacity adjustments made during the period of underutilization, the ramp-up created temporary production inefficiencies. The teams are implementing the necessary measures to bring production back to the required level, however, and we are confident that the situation can improve in a timely manner as execution stabilizes. At the same time, this has led to additional costs in the third quarter, which was one of the main reasons for the EBIT decline. Margins were also affected by an unfavorable product mix and raw material inflation that was not yet fully covered by the commercial measures we have implemented in the market. Over to slide 15. Looking at the continued operations again, we can clearly say that our strong operational business has also resulted in a decent cash generation for our third quarter, which you can see on page 15 now.
Our adjusted free cash flow amounted to EUR 31 million in the quarter. EBITDA improved substantially. In addition, CapEx was slightly lower due to investment phasing, as we have also seen in the first half of the year. Also, seasonal working capital buildup was slightly less pronounced than last year. These positive effects were largely offset by other cash effects, which were mainly impacted by the Aumovio spin-off in the year-on-year comparison. Overall, the cash flow development is consistent with the seasonal pattern of the business and the improved operational performance. You can see on page 16, working capital increased sequentially to EUR 4 billion. This primarily reflects the typical seasonal buildup ahead of the winter season. In addition, the value of inventories increased because raw material costs rose. Nevertheless, we managed to bring the net debt down by around EUR 500 million compared with the third quarter 2025.
We expect the normal year-end working capital release and stronger operational cash generation in the fourth quarter to further support the deleveraging process. Turning to the market outlook on page 17, we continue to expect the market development to remain unfavorable, with challenging and uncertain conditions in the market we operate. We have slightly adjusted our replacement market expectations in Europe. This primarily reflects an updated assessment of import trends rather than a change in the underlying demand. Due to the continued volatility in import patterns, estimating underlying market development remains challenging. For passenger car OE, North America and China remained weak. Commercial production is more supportive, especially in North America, while truck tire replacement demand remains mixed. Overall, our guidance does not assume a broad-based market recovery and is pretty in line with our H1 assumptions. Finally, let me turn to our updated full-year guidance on slide 18.
With just some months left in 2026, we've now narrowed the sales range for continuing operations to around EUR 13.5 billion-EUR 13.9 billion. We have also raised the adjusted EBIT margin guidance to around 13.4%-14%, reflecting another strong quarter in tires and the greater visibility for the remainder of the year. The same stronger operational performance is the principal reason for raising the adjusted free- cash flow guidance to around EUR 1.0 billion-EUR 1.3 billion. CapEx assumptions remain broadly unchanged, and we continue to apply strict working capital and cash discipline. For the first time, we're also providing guidance for the tires regions. We expect EMEA sales around the previous year level and margin slightly above the prior year. Americas sales are expected slightly below prior year, with margin around the range of the previous year.
APAC sales and margin are expected to be slightly above the prior year comparison base. The definitions of around, slightly above and slightly below are provided in the backup section of this presentation. Essentially, we're looking to a 4%-5% sales corridor and a margin corridor of one percentage point for the respective definitions. The key element for us, however, will certainly be the group guidance moving forward. For ContiTech, we have narrowed the sales outlook to around EUR 4.2 billion to EUR 4.4 billion, and now expect an adjusted EBIT margin of around 6.5%-7.5% before IFRS 5 implications. Important to mention, the overall guidance upgrade reflects proven execution and greater visibility, not an assumption of stronger end markets. For Q4, we still expect volume pressure and sequentially higher raw material costs with a significantly higher drop on EBIT.
Positive price mix, commercial measures and operational efficiencies should provide support, but we do not expect that Q4 can repeat the strong margins we have seen in Q3. With that, I hand back to the operator for the Q&A.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star, nine, and pound key on your telephone keypad. If you would like to revoke your question, press star, three, and pound key. You can also use the dial-in function in the webcast and raise your hand if you would like to ask a question by phone. I repeat, to ask a question, please press star, nine, and pound key on your telephone keypad. The first question is from Harry Martin from Bernstein. Please go ahead.
Morning. Thanks for taking my questions. The first one I had just on pricing. From the EBIT bridge, it looks like a very high 94% drop-through on price mix, that usually would mean a large amount of the 2.9% would be pricing rather than mix. Is that the right read, or is there any other reason for that? Then I had a couple of questions on free cash flow and the guidance for the full year here. The first one, can I clarify if that includes the planned sale of the mycar business in Australia, or if that would be an inflow on top of the free cash flow upgrade? Then more broadly, does higher 2026 free cash flow effectively reduce the amount needed from the ContiTech sale for deleveraging, and would that allow a larger cash return next year? Thank you.
Harry, first of all, thanks for the questions. Christian here. Let me go first with the price-related question, and then I think Roland will comment on what is considered within the free cash flow and what does this mean for our potential utilization of the expected proceeds from ContiTech. On the price mix side, I mean, I hope you understand I'm not going to comment on the individual price effect. As we always said, it's our responsibility to find the right balance between price mix and volume. You've seen we continue to see volumes being under pressure, partly due to market weaknesses, but also partly due to conscious decisions like rightsizing of OE in North America. Overall, the strong price mix performance you see throughout this year, I mean, Q3 doesn't stand out. It's in line with what you've seen throughout the course of the year.
It's mainly driven, though, by the positive mix effects.
Yep. Quick adder to what Christian just said, because you were asking for the drop-through, Harry. I think price mix usually one of the bridge items with the highest drop-through, it is not uncommon to see a very high drop-through within isolated periods, as in Q3. The positive EBIT mix exceeding sales mix in Q3, that means we're not shifting merely toward higher-priced products, but toward disproportionately higher-margin business, driven by individual article mix, channel mix, customer, and regional mix. It's not just important how many more UHP tires we sell, but also which articles we sell, who we sell it to, and where we sell it. This, in addition, because of the couple of mix effect, is then leading to the high drop-through. That was on number one. Number two, free cash flow.
I think the upping the free cash flow guidance was more driven by the guidance upgrade on the earnings side, plus more visibility on the CapEx year-end, and also a slightly higher expectation on the working capital swing. mycar is not yet part of our free cash flow guidance because we are still waiting for the closing. The third part was now with the upgrade on the free cash flow guidance, does it mean now shareholder return on the proceeds coming from the ContiTech sale could also increase? No, because we said from the EUR 3.1 billion we are expecting now, that we would return EUR 2.5 billion to the shareholders, either at the share buyback or special dividend or a combination of both, and then EUR 600 million would be used for deleveraging.
Then anything else, then basically coming from a higher earnings outlook, would then be subject to a decision on the regular dividend, right? And not much on the special dividend.
Great. Thank you very much.
Much. The next question is from Thomas Besson from Kepler Cheuvreux. Please go ahead.
Thank you very much. Good afternoon. It is Thomas Besson with Kepler Cheuvreux, and I will have three questions as well, please. I would like to start with the two relatively unusual items that supported the Q3, the tariff reimbursement and the valuation effect. Is it possible to get a precise number for Q3 and year-to-date for both, please? Does one of them repeat in Q4? More likely eventually tariff reimbursement, because I think valuation effect will no longer be a support. That is the first question. The second question, you have now had negative volumes for the last five or six quarters. Should we anticipate volumes to stay negative? I think that is more or less what you are suggesting with your comments about volume pressure continuing in Q4, and do you believe that you could turn that in 2027? Basically, just a broad volume comment on the outlook.
Lastly, I am not sure I understood your comments about winter tires. I think you said the comparison base was high, and there was a boost from UHP in winter tires. But I wanted to have your comment about your overall European winter tire volume, and eventually North American winter tire volumes versus 2025, and whether you expect this to be a net contributor to both regions or, at the opposite, something that will be a detriment to your margins in 2026 versus last year. Thank you very much.
Thomas, first of all, once again, thank you. Do you want to cover the tariff impact and the inventory impact? I think there were two questions. One is the exact amount. Second was, is it one time or is it repeating? So, one question with two subcategories.
Okay. Let me start with the first one on the tariff side. In Q3, what we have seen is two effects basically. First of all, a normal year-on-year effect on the tariffs were positive in the low to mid-double-digit euro million amount. On top of this, we got a second wave of IEEPA refunds, again, a low double-digit euro million amount. It helped us obviously in the region Americas in Q3. That is the end of the story basically on the IEEPA refunds. There is no additional posting now foreseen for Q4, and we do not see any legal change now helping us in this regard. On the raw material side, the gross headwind from raw materials was a double-digit euro million amount in the third quarter. On a net basis, we still see minor support from raw materials providing a benefit in a low double-digit euro million range.
You are seeing EUR 15 million we have shown in the EBIT Bridge. This is the net effect. Gross effect mid-double digit, but full offset by the inventory valuation effect, which led to the EUR 15 million. Is this going to continue in the fourth quarter? No, it is not. What we see in the fourth quarter coming through now is the full effect from the increased raw material costs, and there is no offsetting effect now from the inventory valuation. What we expect for the fourth quarter on the material side is a mid to high- double-digit euro million amount hitting our P&L.
Okay, then let me talk about the volume-related questions. I think first question was obviously, do we expect Q4 to be comparable in terms of negative volume impact versus Q3? What we said and what we always said, we assume and put our guidance and predictions on the expectation that markets would not recover quickly. I think we have proven to be right in Q3. We are also cautious in terms of our outlook, therefore, in Q4. Year-over-year, we still believe that volumes in Q4 will be down, but it is getting sequentially quarter-over-quarter now a little bit better. You see, we talked about the truck tire effect, truck OE in our two relevant regions is really up. Truck replacement in Europe is, let me say, at least stabilizing, slightly improving.
In the Americas, it is still down, but the deterioration is getting less and less. So, we should be really at a certain point in time, then going into 2027, turning into a positive development year-over-year. On the OE side, we continue to estimate and believe that markets will continue to be weak. This is valid for Q4, and we also do not really see strong signs of recovery for 2027, we continue to be cautious there. On the PLT replacement side, we see a relatively stable environment in Europe. We continue to believe that this will also be the case in 2027. We continue to see weak environment in South America. We do not really have any beliefs or reasons to assume that this is going to change quickly.
In replacement North America, if you continue to follow sell-in versus sell-out, sell-in is clearly on a lower basis for quite some time now versus sell-out. This suggests that at least on the PLT replacement North American side, we should see an also continuous stabilization and maybe also at a certain point in time, some improvement. For your questions, Q4, year-over-year still down, but less down compared to Q3, we see a positive trend. Nevertheless, we are cautious. For 2027, very early to tell. We continue to be cautious, but at a certain point in time, there should be a positive volume contribution. Specifically then on the winter tire side, winter tires in line with the overall situation in absolute volume so far are slightly down year-over-year, but the mix is very, very healthy.
We have added UHP portfolio, especially on the winter tire side. We continue to see in Europe very, very positive references and press test results for our tires, and this does really support the mix on the winter tire side, which looks very strong for 2026, and that should definitely continue to be a positive contributor to our results also in Q4. One additional word, then in North America, we are adding, because it is not such a relevant winter tire market for us compared to Europe, we continue to be nevertheless a strong player there, but we are also adding here products to our portfolio. The SecureContact All Weather is now our really first all-weather tire line for North America, which will only bring relevant positive volume impact in 2027, not really a subject for 2026, but definitely something we count on for 2027.
Very clear. Thank you very much, both.
Thank you, Thomas.
Question is from Stephen Benhamou from Bank of America. The floor is yours.
Yes. Thanks for taking my question. I have two questions. The first one is on raw mats. You provided some indications regarding Q4. Based on the spot price, what is your first assumption for H1 2027? My second question is regarding the holding costs. It is around EUR 20 million-EUR 30 million per quarter. Following the ContiTech disposals, what would be your assumption for 2027? Thank you.
Roland, take this.
Yes.
Let me start with the raw material assumption for 2027. As you know, it is pretty early, right? We are trying to come to a basic assumption about the oil price development, which has been the baseline for the rest to follow. We expect the raw material headwind to be almost entirely concentrated in H1 2027, with a peak in Q1. By H2, we expect the impact to be broadly neutral to slightly positive. For the full year, the headwind is expected to be, again, in the low to mid-triple-digit million euro range. Even if prices fall in the second half, if they would, the relief would come with a delay. So, that is on the raw mat side. Holding cost, I think the assumption still stands EUR 30 million-EUR 35 million. We do not see this coming down quickly next year.
Of course, there are always chances, being a smaller company, to reshape the organization, becoming more agile, taking costs out, but it is going to take some time. First of all, we also need to deal with the closing of the transaction of ContiTech, and then we can look into this more closely.
That is very clear. Thank you.
Next question is from José Asumendi from JP Morgan. The floor is yours.
Thank you very much. Couple of questions, please. On the first one, in the U.S. or Americas margins, can you describe a bit what are the initiatives to improve the profitability in the region? Also whether you are seeing some signals of price increases coming through the market or not, maybe in comparison to what you are seeing in Europe. The second question, please, on the profit bridge, if you could go through again a bit through the buckets of the headwinds we saw on production-related, non-production, fixed costs, and the other bucket, and how should we think about these three categories into the fourth quarter? Thank you.
José, then let me probably start. You asked for the initiatives to improve our profitability in the Americas, specifically in North America, because that is obviously the major contributor to our overall business in the Americas. I mean, it is probably fair to take a look at the reasons why we are less profitable in this region compared to the other region, because that clearly also then demonstrates what we need to work on in order to improve the profitability. To highlight or to mention only the major highlights, one reason is a higher share of the OE and truck tire business versus other regions.
Countermeasure is, and we have mentioned this in the presentation a couple of times, one of the reasons why we have a negative volume effect is our conscious decision to optimize our OE portfolio, specifically on the PLT side in North America, and this will continue to be also one of the subjects in 2027, which will help us to improve the value creation performance. Second reason why we are weaker is a difference in the operational performance, especially on the manufacturing side. We talked also in the past about the effects out of the corona pandemic, which has really left its marks on our operational performance. We are improving now continuously quarter-over-quarter, but this will also continue to be one of the major subjects for next year.
Third, we have capacity utilization challenges more in the U.S. and in North America compared to other regions, specifically on the truck tire side. So, how do we close those or improve this capacity utilization? On the one side, obviously, via hopefully recovering volumes, but on the other side also via adjusting capacity where it makes sense, is a third focus point, besides obviously our continuous focus on efficiency and cost measures. We are rightsizing our organizations in South America in line with the reduced volume and the reduced business scope. But those are, I would call them rather minor contributors. The major contributors are the clear focus on price mix. I highlighted the OE portion, but obviously also size mix is decisive. That is why we are adding, I mentioned the SecureContact AW. We are also investing heavily into our AT SUV portfolio.
I mentioned the operational performance, which we have to continue to work on, and capacity utilization and potential portfolio measures will also need to help us to restore profitability in North America.
I will take the question, Roland here, on the EBIT Bridge, and give you a little bit more flavor on the expectation for the fourth quarter. I mean, Christian already explained the expectation on the volume side. I think in general, it is fair to say that volumes will remain under pressure in the fourth quarter, whereas the impact will not be as heavy as in the third quarter. So, improving sequentially versus the third quarter a little bit, year-over-year. Going on with the expectation on price mix, we continue price mix to come in again strong, but potentially slightly lower than the effect we have seen in Q3 on the sales side. FX, again, expected again slightly positive, rather similar to the third quarter. Fixed cost buckets, again, I would say similar picture than in third quarter.
Raw mat, we already touched upon this, we expect a big raw mat headwind now coming through, mid-double digit or potentially even mid to high- double digit, falling now into the fourth quarter. Oil prices, 2026 average now expected rather well above $90 per barrel, and you heard me saying earlier that the assumption was on 85 in the fourth quarter when we made our first estimate on the P&L impact. It doesn't mean that the cost in total or the cost assumptions were wrong. The cost assumptions basically turn out to be exactly or pretty much what we used to anticipate, but the average oil price now came in significantly higher as the oil prices did not go down so far in the fourth quarter as we anticipated.
Tariffs, basically the impact, as I said earlier, there is no refunds to be expected anymore, so tariff impact will be rather flattish.
Apologies, does this lead to a sequentially lower Q4/Q3, or there's some opportunity for some up or seasonality fourth quarter, third quarter?
No, I mean, as we said already going through the presentation, we believe the fourth quarter would be, on the profitability point of view, lower than the third quarter. It was a very good third quarter, and now the big change basically sequentially is now to hit on the raw mat side where there is no offset from valuation effect anymore.
Super. Thank you so much.
Hopefully we will get at a certain point in time, as mentioned earlier, on top of the continuous strong mix, at a certain point in time also a volume support. We don't believe that this is going to happen in Q4, but that is definitely something we anticipate at a certain point in time.
That's clear. Thank you.
Thank you, Jose.
Very much. The next question is from Ross MacDonald from Citi. The floor is yours.
Thank you very much. Look, firstly, I think the bridges that you provide are really helpful, and Roland, I think that commentary around the fourth quarter from my perspective is very clear in terms of the headwinds Q4 versus Q3. Maybe just two questions from me. On the bridge firstly, the buckets around production-related headwinds obviously running around EUR 50 million in Q3. You mentioned it will be in a similar range in Q4. Maybe more into 2027, because we don't have the history of EBIT bridges at Conti, can you maybe give a soft steer on what's in those buckets specifically? I assume there's wages, there is marine shipping, that kind of thing, but how should we think about a sort of steady state run rate across those two buckets into 2027? Is EUR 50 million sort of an average headwind that we should expect across those two buckets next year?
My second question just on the tax rate, noting you're guiding for 24%. I think you're running more like 28%, 29% in the nine months to date. Can you maybe just give us some flavor on what's driving the tax rate materially lower in the fourth quarter? Thank you.
Yeah, let me start with the tax rate. Very much depending on the country mix, this is driving the tax rate right now. This is why it's also lower than what we've recorded previously. I cannot give you the exact details on why it's now turning in the fourth quarter. We may be a little bit off with this, but we didn't want to change without giving you a solid background on this. On the buckets for the production-related costs going into 2027, but in general, let's look what's into this bucket. It's all variable and fixed costs, which is production-related, including transport costs and energy. This is the portion which is very much driven also by the oil price development, right? The visibility on this one is pretty low right now, to be honest.
And then it is capturing the operational cost effects down to the gross margins. A large portion of this is then obviously also salaries and wages. Here we are basically, I think a fair assumption would be that we are following inflation in the different locations where we are, and this is making up a larger part of this bucket.
But then I think the question is the EUR 50 million a fair assumption moving forward? I think you clearly expressed that is very much dependent also on external factors. I mean, salary and wages is one, but energy and logistics or transportation are a major contributor, which are hard to estimate for the total year next year.
Thank you. Maybe if I can just sneak in a quick follow-up just on the Q4s then. If those two buckets are to remain about EUR 50 million of headwinds Q4, let us assume the volume is still negative but improves slightly, call it a EUR 40 million headwind in Q4. Pricing, I think you said price mix slightly down versus Q3, let us say EUR 100 million. That would imply, let us say, a raw mat headwind in a sort of EUR 75 million-EUR 80 million type range. I know you mentioned mid to high- single digit, but should we be taking the midpoint? Is that the best guess for Q4 right now on raw mats?
Yes, I think it is. You are not entirely off with the equation you just did. I think this is exactly what we are expecting. It also depends then how much material gets consumed, how much tire getting produced is why there is always a little volatility in this, but it is a fair assumption.
Thank you.
Thank you. The next question is from Tobias Willems from LBBW. The floor is yours.
Hello, Tobias Willems from LBBW. I have two questions. First, on your solid performance in the APAC region, could you give us a little bit more color on that, hearing a lot about challenges in the Chinese markets, especially for European OEMs, but you seem to be doing quite well here. Do you expect to change that significantly going forward, or do you hold, let's say, a strong market share also by the Chinese OEMs? The second question would be about your overall performance in the tire market. I mean, you seem to be benefiting quite effectively from the EV ramp-up. Could you give us an idea of what share of your tire business comes from tires for EVs versus tires for ICE? Do you expect that mix to develop significantly in the near-term future? Thank you.
Tobias, let me take these two questions, and Roland, you add in. First question was on our APAC performance and why is it strong. I mean, first of all, thank you for calling it strong, because we really believe it's a strong performance. I mean, in the APAC region, and you referenced the weakness of the OE manufacturers or the overall OE industry in China, contradicting to our, or not being in line necessarily with our strong performance. I mean, in the APAC region, as within the other regions, we are not much dependent on the overall light vehicle production volume.
We generate the majority of our business in the aftermarket business, even though in the APAC region, our OE share of the total business is higher than in the other regions, because it's still an area where, let me say, we invest into OE in order to generate a follow-up or follow-through replacement business. Number one, the dependency on the OEM volumes or the light vehicle production overall for us is not, let me say, pronounced, and this makes us more resilient versus those vehicle production trends. Second, yes, we are having the majority of our OE business in China is with the Chinese OEMs and not with the Western OEMs.
We are benefiting pretty substantially from the fact that also the Chinese OEMs are redirecting many of the products they produce now for exports, and they're using extensively our tires for those exported vehicles, which is obviously good for our business in Asia, because we sell tires, but it's obviously also good for our business outside of China, because it creates potential follow-up replacement business also outside of China. EV share, yes, we've always mentioned the electrification of the powertrain is definitely a positive mix contributor, because those electric vehicles simply need bigger tires for technical reasons, which we've tried to explain a couple of times, I don't want to repeat myself here.
If you take a look at the share of how much of our total business we sell to EVs and how much we sell to combustion engines, without going now into percentages, because I also don't have them really on the top of my mind, but on the replacement side, the amount of the EV share of the total business is still absolutely minor, because we're only getting into the replacement cycle of these electrified vehicles. This is where the potential and the profitable potential lies, and where definitely the electrification helps us. On the OE side, it's also regionally, obviously, very, very different. I n China, we sell, from the top of my head, definitely 75% plus of our total volume to electric or at least hybrid vehicles.
In the U.S., the share of our business to electric vehicles is very low, because also the vehicle share of electrified vehicles of the total production volume is still relatively low. In Europe, our overall market share is slightly higher on the, or is higher on the electric vehicle side than on the combustion engine side. If you then compare basically the total light vehicle production, how much is EV, how much is not EV, it represents more or less also our share, but we are slightly or a little bit more exposed to the electric vehicles consciously for the reasons I've mentioned before.
Okay. Thank you, very clear. Thank you for my questions.
Thank you.
The next question is from Monica Bosio from Intesa Sanpaolo. The floor is yours.
Yes. Good afternoon, and thanks for the questions. The first one is on the dealers' inventory situation in Europe. If you can comment on what you are going to see now and here. The second question is just a check on the APAC. With the disposal of mycar, I am estimating roughly 200 million revenues less. Is it the case, or maybe the impact could be lower as you can recover in terms of revenues? It is not particularly sensitive because I believe that you are going to deconsolidate unprofitable business, but just to have an idea for 2027 for the APAC business. Finally, a more strategic question in NAFTA. You already mentioned that winter will be more important for NAFTA in 2027. Are there other white spaces or other areas where you see an opportunity in NAFTA passenger car business? Thank you very much.
Monica, let me start. First question was on dealer inventory, specifically in Europe.
Yes.
I mean, what we see is overall dealers since quite a while are not keen to invest into inventory and working capital. Tire availability was, and it is not a concern. Plus obviously uncertainty and the huge complexity, article complexity further drives the desire of most of the dealers not to build up unnecessarily inventory. Obviously, the anticipated and then finally implemented tariffs have driven some, let me say, pre-poned imports. But this is more on the tier 3 side, as you know, which is not really impacting the premium inventories. I would say overall inventories are rather therefore on a normal level. What we do see is that, and these are, I would say, some positive signs, at least as far as we can tell, for the winter season. I mean, we had good weather until, when was it, middle of October or end of October.
I think nobody was really thinking too much about the winter. We saw a good order book in terms of mix, but now we really see also the business picking up also in our own retail operations. The activity level is really increasing, and we see also increasing ad hoc orders, which do give us a little bit, let me say, of confidence that we definitely do not work against too high inventory. I would call them overall normal, and I am not really concerned that we get into 2027 facing unhealthy levels. There is no reason, at least from my standpoint, to assume this. APAC, mycar, well, and I think the revenue impact, obviously we do not sell a business, as you rightly said, which is over-proportionally profitable.
But in order to get an idea of the overall sales impact, I think something north of EUR 200 million, probably rather towards EUR 250 million, EUR 230 million is a fair assumption in terms of the top line impact. Your last question was in NAFTA, and let me say opportunities on the product side. I mentioned winter tires. I wanted to say all-weather tires because I assume them being part of winter tires because these are three-peak mountain symbol certified tires where we do add product portfolio, which should give us profitable growth opportunity. Besides the normal mix, let me say, enrichments we are doing, a clear focus is on the SUV AT 4x4 side. We mentioned this in some of our calls and also some of the discussions we have had. We are underrepresented in this area.
This is definitely an area where we do see for us specifically opportunity, and that's why we invest into product portfolio, but also production capacities and capabilities specifically in the area of 4x4 and AT.
Okay, perfect. Very clear. Thank you very much.
Thank you, Monica.
At the moment, there aren't any more questions in the line. I would like to thank everyone for your participation, and with that, would like to hand over to our host, Max Westmeyer, for the closing remarks.
Yes, thank you very much, everyone, for joining today's call. As always, we are happily available should you have any follow-up questions that you would like to discuss with the Investor Relations team. With that, let's conclude today's call. Thank you very much, and goodbye.