Automated Vehicles

Revving Up For the Future

  • Why it matters

    Why it matters

    The German car industry, a pillar of employment and corporate profits, is at risk of losing its leading position if fails to keep up with technological innovations from U.S. and Asian rivals.

  • Facts

    Facts

    • Electric cars and self-driving vehicles are seen as major disruptions to the automotive industry.
    • Google’s Waymo, U.S. car hail service Uber and Tesla have developed new cars or technology, emerging as new potential or real rivals to the German industry.
    • ZF Friedrichshafen bought U.S. rival TRW in 2015 for $12.4 billion, or €11.6 billion, to acquire technology for self-driving cars.
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    Audio

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main 66659039 source obs ZF Friedrichshafen AG – CEO Stefan Sommer ZF Sept 2016
CEO Stefan Sommer Source: obs / ZF Friedrichshafen

The $12.4-billion acquisition of U.S. car parts supplier in 2015 hasn’t ruined ZF Friedrichshafen’s appetite for more takeovers, on the contrary. The German car parts maker, the world’s third-largest after Bosch and Continental, Thursday announced it had bought a 45-percent stake in radar maker Astyx.

ZF’s Chief Executive Stefan Sommer, a 54-year old engineer, did not say anything about how much the stake cost, but industry experts estimate it being in the double-digit millions. The investment follows last year’s acquisition of laser maker Ibeo and fits into ZF’s strategy to build up its stable of expertise in self-driving technology.

“If you merge data from radar, laser and camera sensors, you get a perfect view of the immediate surroundings and this is the prerequisite for autonomous driving,” Mr. Sommer said in Friedrichshafen, a town in the southern state of Baden-Württemberg at the German-Swiss-Austrian border where he presented the company’s annual report.

ZF’s acquisition of TRW was part of the same aim to automate parking, braking or steering cars away from a potential crash. Ultimately, ZF’s technology should be able to fully drive a car without human interference, something Google’s Waymo, ride hail service Uber and carmakers including BMW and Mercedes are also experimenting with. Tesla already has a semi-autonomous driving through “Autopilot” installed in certain models.

“ZF is using the automotive industry’s profound changes in to transform into a technology company.”

Stefan Sommer, CEO, ZF Friedrichshafen

German carmakers and their suppliers are pouring billions of euros in software and hardware to develop or acquire the expertise to make self-driving cars, which is seen as a major transition to the industry, in addition to electric vehicles. Without the necessary investments, the German automotive industry risks losing market share, hitting employment and earnings.

“It is not predictable whether today’s top companies will also be the world’s top companies in 10 years’ time or whether these will completely different ones,” said Germany’s Transport Minister Alexander Dobrindt last year when he presented to hand out up to €4,000 to entice consumers to buy electric or hybrid cars.

Mercedes-maker Daimler, VW’s luxury car subsidiary Audi and BMW bought digital map maker HERE in 2015 for €2.8 billion, or $2.9 billion, from Nokia in a bid to create a rival to U.S. navigation systems and keep the technology out of the hands of the likes of Google, Apple, TomTom and other tech giants. Digital maps are seen as a crucial building block to let cars drive automatically on the road. Two weeks ago, Intel announced to buy Israeli digital camera and software maker Mobileye for $15.3 billion. Mobileye is cooperating with carmakers such as BMW to develop self-driving cars.

ZF’s CEO Mr. Sommer said the company’s newest investment was to “fill technology gaps” as autonomous driving features became more widespread. “ZF is using the automotive industry’s profound changes in to transform into a technology company, which will play a leading role in the future segments of e-mobility and autonomous driving,” said Mr. Sommer.

31 p17 Car Parts Maker ZF Friedrichshafen-01
ZF Friedrichshafen Revenue Net Profit Sales

Thanks to TRW’s takeover ZF, a company owned by the Zeppelin Foundation and controlled by the German town of Friedrichshafen, propelled itself to the world’s third-largest car parts maker. It took foundation-owned rival Bosch as well as the entire auto industry by surprise that the traditional transmission and chassis specialist ZF could buy the U.S. firm and in such a short time be at the front of the pack with its future-oriented technology.

However, Bosch has been flexing its muscles as well. On Thursday, the Stuttgart-based company announced it wants to hire 20,000 specialists and managers globally for the digital conversion of its product portfolio. Bosch, which also makes dishwashers, power tools and security systems, plans 3,400 new jobs for Germany, 3,100 in India and 2,500 in China.

Automobile suppliers and IT firms are all searching for digital experts, who are highly in demand with carmakers as well. It is by no means a given that carmakers will entrust suppliers with the development of central control modules for the future. In fact, a bitter battle for supplying carmakers in the future is already brewing. ZF, for instance, can already deliver a complete drivetrain with e-motor that costs only half that of a combustion engine with the same output. If the e-car does actually achieve a breakthrough, then ZF will be part of this as supplier of complete drivetrains.

ZF CEO Mr. Sommer has no problem pushing further into the hereditary terrain of Bosch. At CES, the world’s largest electronics trade fair in Las Vegas at the start of this year, ZF announced a cooperation with Nvidia, a U.S. specialist for artificial intelligence who will build a control module for autonomous driving. Bosch was also interested in Nvidia, but ZF came to an agreement with the Americans faster. Mid-March, Bosch announced its own cooperation with Nvidia “The brain of the self-driving car will come from Bosch in the future,” said Bosch Chairman Volkmar Denner in Berlin with confidence.

31 The World’s Biggest Car Parts Suppliers-01

At ZF, Mr. Sommer is focusing more and more on participation and cooperation when it comes to its autonomous driving plans because “Autonomous driving will not be accomplished alone,” said Sommer. The supplier founded a subsidiary for this purpose with bundled participation, called Zukunft Ventures GmbH. Focus of the company will be to quickly implement key technologies.

ZF has also started cooperating with Bosch, technical universities and the government to develop a German Cyber Valley in the state of Baden-Wurttemberg. Using Silicon Valley as model, the area around Stuttgart is supposed to become a center for artificial intelligence and machine learning. This cooperative effort cannot hide the fact, however, that competition for the brightest minds in this sector has intensified. ZF, for instance, lured American Mamatha Chamarthi away from carmaker Daimler and appointed her head of its Digital Division. She was born in India and will build a software facility for ZF there with 2,500 data scientists by 2020. She has already hired 1,000 specialists. She will also adapt the entire ZF corporation to a new digital structure, enormous tasks that nobody thought ZF could even do five years ago.

Money for these big plans is being earned in ZF’s daily business. For 2017, Sommer’s expects revenue of about €36 billion euros. Last year, revenues rose 20.6 percent to €35.2 billion euros as TRW’s operations were included for the first time for a complete year since the 2015 purchase. Last year’s revenue, however, was at the low end of the original targeted range between €35-36 billion. ZF’s operating profit before interest, tax and one-off items grew from €1.6 billion to €2.2 billion last year, which represents an adjusted EBIT margin of 6.4 percent.

 

Martin-Werner Buchenau reports from Stuttgart as Handelsblatt’s Baden-Württemberg correspondent. Gilbert Kreijger, an editor with Handelsblatt Global, contributed to this article. To contact the author: buchenau@handelsblatt.com

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