ZF transforms itself for a new world

FRIEDRICHSHAFEN, Germany -- The founders of auto supplier ZF Friedrichshafen AG would not recognize their company today.

Formed in 1915 to make gears for zeppelins and long known as a maker of transmissions and suspension components, ZF is amid a radical transformation from its origins as a specialist in metal gears and cogs to the world of bits and bytes.

"ZF is grasping the opportunity of fundamental change in the automotive industry to transform into a leading technology company in e-mobility and autonomous driving," CEO Stefan Sommer said in a statement accompanying the supplier's late March release of financial results.

Since acquiring TRW Automotive Holdings in 2015 for $12.4 billion, ZF has been hunting for new technologies to reinvent itself as a major force in self-driving vehicles and active safety. The company has adopted a mantra, "See-Think-Act," to build a portfolio of what Sommer calls "intelligent mechanical systems" that enable vehicles to gather information, process that information and issue commands resulting in action.

The TRW acquisition made ZF the world's second-largest component supplier, with 2016 sales of 35.2 billion euros ($37.89 billion). But ZF is now ready to play in the self-driving car game with other heavy hitters such as Robert Bosch, Continental AG, Delphi and Denso Corp.

ZF incorporated TRW into a new Active and Passive Safety Technology Division, now the springboard for its transformation.

At a late-March event at the company's airy new lakeside headquarters building, Chief Digital Officer Mamatha Chamarthi oversees a fast-moving effort to take the company into artificial intelligence. 

"We at ZF are thinking about bringing 100 years of our experience of doing mechanical components and putting intelligence in them," said Chamarthi, who came from TRW. 

"We started as a manufacturer of zeppelin components. Our future is all digital." 

To prepare, the company last year opened a software center in Hyderabad, India, with 1,000 software engineers. By 2020, the company expects to have 2,500 engineers there. 

"We plan to digitize all aspects of our business," she says.

Epitomizing the new mission is Zukunft Ventures, a ZF subsidiary formed last year to scout new technologies and quickly link ZF to them without burying their developers' innovative and entrepreneurial energy in corporate bureaucracy.

Translated into English, Zukunft means "future."

The latest Zukunft endeavor, announced here March 30, was ZF's acquisition of a 45 percent stake in Astyx Communication & Sensors GmbH, which develops and produces ultra-high-frequency radar sensors and modules.

The Astyx deal expands ZF's capabilities in environmental and object recognition necessary for autonomous driving.

The acquisition follows moves last year to snap up 40 percent stakes in Ibeo Automotive Systems GmbH, a lidar and sensor fusion company in Hamburg, Germany, and double-Slash Net-Business GmbH, a Friedrichshafen company involved in software for vehicle networking. Lidar, an acronym for light detection and ranging, uses laser pulses to sense objects in the area.

Radar and lidar sensors are needed in autonomous vehicles to predict a crash. They could enable another technology ZF is developing: an external side airbag that would cushion the force of a side-impact collision. 

Torsten Gollewski, a cheery, extroverted former Audi engineer who is managing director of Zukunft Ventures, said ZF will not invest in small companies to earn big profits, but rather to accumulate technologies. 

"Even if we get into significant stakes, we want to keep the entrepreneurial relationship and entrepreneurial responsibility within the tech company or startup company," Gollewski said. "Because we know they can act faster, they can react very quickly. We are not planning to integrate these tech companies."

On March 10, 57 startups visited ZF to show their capabilities at an event called Pitch Night. Two winners earned collaboration contracts to further demonstrate the viability of their technology. Gollewski identified 10 others that showed promising potential.

ZF is doing more than just acquiring stakes in small companies.

At the CES technology expo in January in Las Vegas, ZF announced the launch of ProAI, a self-driving system that uses the Drive PX 2 AI computing platform created by Nvidia, a Santa Clara, Calif., company specializing in computer graphics and artificial intelligence.

ZF is also working with Plug and Play, a Sunnyvale, Calif., technology forum that connects startups with corporations.

Next on ZF's shopping list will be vehicle-to-vehicle communication expertise.

"We will need this technology for autonomous driving," Gollewski said. "You will come up with traffic scenarios where you have to have information from a vehicle before you see it. This is one technology we are assessing in a special way."

Chamarthi, ZF's chief digital officer, says the world ZF knew in the past will not be the ZF of the future.

"We are trying to create an open innovation ecosystem," she says. "People familiar with the auto industry know it is really not normal for us to collaborate on intellectual property and being open on intellectual property. This is huge change and huge transformation."