DETROIT — Germany's ZF Friedrichshafen is a clear example of the transformation that global suppliers seek as they prepare for a world of autonomous driving and electrification.
Only a few years ago, ZF was closely identified with transmissions, axles, steering systems and other 20th-century vehicle hardware.
Today, after a series of strategic acquisitions in advanced electronics, ZF is positioning itself to supply the technologies critical for autonomous vehicle control and safety.
But nobody said the transformation into a 21st-century automotive supplier would be easy. In December, ZF CEO Stefan Sommer, who engineered the $12.4 billion buyout of U.S. safety systems supplier TRW, resigned after friction with the company's main shareholder.
The ZF board tapped Konstantin Sauer, ZF's CFO, to be interim CEO. Sauer, 58, continues as ZF's CFO and expects to remain CEO. He spoke just before the Detroit auto show this month with Staff Reporter Richard Truett about what's ahead.
Q: Given ZF's business structure, what changes are coming?
A:Stefan Sommer unfortunately stepped down. But I think it is important in all these discussions to recall that he developed this strategy we call ZF 2025, which is a strategy in which we are able to meet the megatrends in our industry.
Autonomous driving, as you know, is important for us. This was developed and implemented under his leadership. There will be no change in the direction and speed of this strategy.
Why is ZF pushing so hard to be a provider of components and technologies for self-driving vehicles?
One thing was clear when we made this strategy. We knew these megatrends would show up — the only question was how fast. Some of these trends are coming faster than we expected four or five years ago. That's why there is no change.
Will ZF continue to pursue acquisitions of smaller companies?
ZF has made acquisitions in the past and will continue to do so in the future. As CFO, I can tell you ZF has quite a strong financial base. The figures in 2017 have been good and have exceeded our targets.
In addition to acquisitions, would ZF pursue partnerships and joint ventures as it works to transform its business?
We are creating joint ventures regularly, especially when you look at our strategy in China. We create joint ventures where they are needed, with equity. When it is necessary we also make transactions.
Volvo is building a plant and BMW is expanding its factory near ZF's transmission plant in Gray Court, S.C. Does ZF have enough capacity there to meet demand from Volvo, BMW and other customers?
The plan is to ramp up the facility in Gray Court to roughly 1.2 million units a year by the midterm. We will reach this with a mixture of eight- and nine-speed transmissions for the U.S. market, and a small portion for export. And so far, we are fulfilling our plans.
At least one major supplier's CEO, Magna's Don Walker, thinks the auto industry is too optimistic about when self-driving cars and electrification will arrive in high volume. What do you think?
What we have said is that we have to develop the technology, and there will be the first-use cases where there will be benefits. If you can save costs for the driver, there is a benefit. But also for cargo and people-mover applications in nonpublic, geofenced areas, we are also saving costs.
When will ZF announce its first customer for self-driving technology?
We have a contract and an understanding with a Chinese OEM. We don't look only to Europe and the U.S., but also to the Chinese market.
How will electrification affect ZF's transmission business? Electric cars won't need eight- and nine-speed transmissions.
We are aware that there's a transition from the conventional driveline to all electric. The 8HP transmission can be used in hybrid applications. We also have a bigger project to start production of [an] all-electric driveline.
We have some tradition in electrification from our purchase of Sachs. Technologywise, we serve all the different electrified technologies.
Is ZF missing any products that it needs to be competitive?
We want to serve the market when it comes to autonomous driving, and also when it comes to electrification. In this regard, there are some technologies that are not core competencies for us. With Nvidia [a producer of interactive graphics for use in self-driving vehicles], we have decided to cooperate in a partnership.
When it comes to software engineering, we are looking for targets. We're looking for targets so we can increase our engineering capacity.
But I also want to say what we are not doing. We are selling our body control unit because we decided not to invest in human-machine interface. If you want to stay in the HMI business you have to invest a lot.
What determines whether ZF will stay in a segment or get out?
From a strategic point of view, you have to select which areas you want to compete in. If we stay in an area, our target is to be among the biggest three, or maybe five, in the business.
Continental AG is reviewing its business structure and could sell some of its operations. Does ZF have any interest?
That's a question I can't answer today.
Has ZF reconsidered developing a 10- speed automatic transmission?
I think our engineers will tell you the benefit is not that big over a nine-speed.
Will ZF make major investments in next-generation eight- and nine-speed transmissions?
We will stay with them because our customers are asking for it. They have asked if we will go beyond the current generation and we have said yes. But we also have to serve all different technologies — plug-ins and pure electrics.
This is our strategy: to be flexible. You have to observe very carefully what is the tipping point. But we can judge pretty well because we are so close to our customers.
Does ZF envision manufacturing electric motors for hybrid transaxles?
The only question is which components we will make in-house. Some you make and some you buy. But we're investing in two additional factories that will make components for electrified drivetrains.