Combustion engines took a symbolic hit this year when U.S. partsmaker Delphi said it would spin off its powertrain operations. Continental powertrain boss Jose Avila doesn't expect the same to happen to his division. The reason, he says, is that his unit already is winning more electronics-related business than many of its rivals. Avila discussed that, and why he sees a future for diesel engines, with Automotive News Europe Managing Editor Douglas A. Bolduc.
Q: Delphi has spun off its powertrain division. Is Continental next?
A:You have to react to what's going on in the business world, but we don't foresee that at the moment. Powertrain continues to be fully in the fold. We have some advantages: for instance, our percentage of electronics business is much higher than our competitors.
How dependent is your division on electronics?
Half of our sales come from electronics products [this includes actuators, controllers and mechatronic modules] and it will be even more in the future.
In what other areas?
One area is the domain controller, which acts as a supervisor to the other controllers. That means we are doing the next controller that, hierarchically, has more authority. We have booked business here. The electronics continue to be churned every four years or so as they are upgraded. This is a great fit for us because content is going up and these controllers are more sophisticated. While we're still going to grow with our mechanical and hydraulic products for the next four or five years, the electronics side is growing faster.
Electronics account for half of sales now. Would you expect another 10-point rise to 60 percent by 2020?
It will head in that direction. For electronics manufacturing you have the same basic machines and skills. At Continental, we tend to pull between all divisions when it comes to electronics systems. That means we can redeploy and readjust as the demand for electronics goes up.
How vulnerable is your business to the decline in diesel sales?
Our exposure to diesel on the passenger-car side is relatively low. We have some healthy volumes, but we are more active in light commercial vehicles.
Could you put a number on that?
Diesel accounts for less than 15 percent of revenues in Continental's powertrain division and about 2 percent for the entire company overall.
What vehicle sales level do you foresee for diesels?
Our projection is that it will go from 45 percent overall in Europe to something below 40. However, one should remain pragmatic because the situation has not changed dramatically. Our order book for the conventional powertrain is very healthy. With the strong move to hybridization, which is accelerating, the main power plant is still the combustion engine. That means the energy management between the electrical side and the combustion side is more and more important.
Are you seeing more interest in 48-volt mild hybrids since yours debuted in the Renault Scenic?
There are a lot of applications, but as the volume goes up, our challenge is to keep up with the orders and reduce the cost.
What is the potential for 48-volt?
It will become the base solution around 2021. Then there will be a huge adoption as Europe heads toward the 2025 emissions standards.
What about full-electric powertrains?
We're investing more in electrification with some emphasis on pure electric to make sure that we're prepared for that. Some examples include power electronics, electric machines and battery management. We're expanding our product line with a heavy emphasis on charging systems. We're also using our internal expertise in areas such as valves, motors and actuators and redeploying those skills into adjacent products [that are part of electrified powertrains].
Do you need to rush?
There is no panic. We're incrementally doing more because electrification really will accelerate after 2025. There's still time because a lot of these projects have not been sourced yet. If we go in an orderly, methodical fashion, there is no reason why we shouldn't take advantage of a lot of these opportunities.
Does the diesel still have a place in Europe?
Yes, the diesel remains one of the most efficient drivetrain technologies and will be needed to comply with future fleet emissions targets. I think diesel is necessary to achieve the short-term CO2 target of 95 grams per kilometer for 2021. In September 2019, we will have the second wave of [real driving emissions] regulation take effect. Then, every vehicle must be at the RDE level. I'm comparing the beginning of Euro 6 [emissions rules] with the end of Euro 6 with the RDE and there is a 6-to-1 difference [in the amount of nitrogen oxide produced by the vehicles]. Once we get through that wave and more sophisticated [selective catalytic reduction] technology is in the marketplace, diesel will remain because you can significantly cut NOx.
Would you still buy a diesel?
As a consumer, I would still buy the diesel. I have an SUV with a urea tank. The diesel is still a very attractive option, if the vehicle is bigger and heavier, if you want to go long distances and you are going to pull things. For those vehicle segments, it remains a very good option.