(Bloomberg) -- Continental AG shares declined after the company warned that its sales and profits are getting squeezed by weakness in the European automotive market and price negotiations with carmakers.

The margin on adjusted earnings before interest and taxes was about 2% in the first quarter, the German auto parts maker said, citing preliminary figures. That’s less than half what analysts expected, according to estimates compiled by Bloomberg. 

Continental shares fell as much as 5.5% in early Wednesday trading, helping fuel a 9.9% drop over the past 12 months.

Auto parts makers are under pressure as car manufacturers navigate the transition to electric vehicles amid weakening demand. Continental is trying to cut expenses while having to invest in new technologies, with a review underway to explore possible divestments, joint ventures and partnerships at the auto unit, which has fallen behind peers. 

Read More: Continental Faces Tough Auto Unit Overhaul in Slowing Market

The company had flagged earlier this year that global auto output will likely be flat and warned of higher personnel costs that will weigh on earnings.  

Sales are expected to be €9.8 billion ($10.4 billion), below analyst guidance of €10.1 billion, according to an unscheduled release Tuesday after markets had closed in Europe. The company nonetheless confirmed guidance for the full year, saying conditions will improve later in fiscal 2024.

“Expectations were low, but not this low,” Jefferies analyst Mark Aspinall said in a note. “The risk to guidance is now clearly higher, with much to do in the remaining nine months of 2024 — there are positive actions underway, but the visibility and timing of when these actions may create value are still up for debate.”

The Hanover-based company is overhauling its flagging automotive unit, including more than 7,000 job cuts as well as site closures. Slowing demand in its core European market is complicating the effort, adding uncertainty on costly investments in the wobbling shift to electric cars.

The company flagged a one-off expense of €500 million for the reacquisition of shares in its ContiTech unit. 

(Updates with shares in third paragraph.)

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