Nemak, the giant global casting company that churns out engine blocks and cylinder heads by the millions on four continents, isn't sitting around waiting for the electric motor to replace the internal combustion engine, says Armando Tamez, CEO of the Monterrey, Mexico, company.
Tamez, in a rare interview, explains that chassis components and parts for electric vehicles are already in Nemak's product portfolio and are expected to account for $1 billion in revenue annually in just four years. Tamez, 63, a 34-year veteran of Nemak and a lifelong fan of muscle cars and Ford Mustangs, spoke with Staff Reporter Richard Truett.
Q: Are EV components a growth area for Nemak?
A:We are a company that started making aluminum cylinder heads, then engine blocks and then other components, such as transmission housings, out of aluminum alloy. That's our specialty. Four or five years ago, we identified the trend of the industry moving into lightweighting, and we established a plan to grow not only by making powertrain components, but also to diversify into structural components.
We have already captured more than $300 million worth of structural component business. We also identified that most of our customers are also moving into electrification. We are already producing electric vehicle components, namely vehicle battery trays, electric housings for electric motors. We can say we have a 20 percent European market share of plug-in-hybrid motor housings. This is something that takes advantage of our technology and know-how and we are helping OEMs, mainly European and North American, launch these products. We think in the future these products will have a significantly higher penetration than they do today.
Is Nemak also doing some of the design work for these new products, or does the automaker hand off the completed design and say, "Build this for us"?
Based on our technical capabilities, we are working together with our customers, helping them design better products. For instance, on the battery tray, we are helping them design so that there is less metal distortion and to have an integrated cooling system to cool the battery housing.
Will the shift to EVs around the world happen gradually or quickly, now that battery-powered EVs can travel more than 200 miles on a charge?
We have 38 casting plants in 16 countries. We mainly operate in North America, Europe, South America and Asia. What we are seeing is that there is going to be different penetration in these main markets. China, in our opinion, will have the highest penetration, with government policies there playing an important role. Second, we see that due to regulations, Europe will need to move a little bit faster than anticipated. European automakers, in order to meet the 95 grams per kilometer requirement by 2021, need to introduce electric vehicles faster. I think they will go first with plug-in hybrids and then go full electric.
How much does Nemak expect the EV part of its business to grow in the next few years?
We are integrating structural and electric vehicle components. What I can tell you is that we already captured $380 million in annual revenues for these segments. Revenues at Nemak today stand at about $4.7 billion, so it is a little bit less than 10 percent today. We believe that by 2022, we'll meet our target to reach about $1 billion in revenues from structural and electric vehicle components. We're receiving a significant number of requests to quote today. We have a pipeline of between $600 million to $700 million worth of new business. So we're trying to be very selective on the products we choose to participate in.
Is Nemak interested in working with startups?
Nemak is open to working and participating with existing customers as well as new ones. We are already developing relationships with companies that we have never done business with. For example, we're now working with some Korean companies and we're very happy with the relationship so far. We look at what the challenge is, how it fits with our technologies and capabilities and at the business case. At the end of the day, we analyze whether a potential project will make sense for our customers and our company.
Is there an opportunity to grow Nemak's business outside the auto industry?
We're a very focused company and we like to be in the automotive sector. We are open always to look at new opportunities, but our focus is to always remain in the automotive business.
In your 30-plus years at Nemak, have you ever seen a time when technology, politics, the business climate — basically everything — has been changing so quickly?
Short answer: No. We're facing interesting times that are challenging and creating uncertainty. But also, in my opinion, there are opportunities for new business and to reinvent ourselves. We're seeing more changes move at a faster pace than before.
Does that environment make it more difficult to manage r&d investments and future investments?
To some extent. We are reviewing our strategic plans more frequently than in the past. In the past, we'd establish our strategic plan and then stay the course for the near to midterm basis. Now we review our plan and adjust every year to the way the industry is moving.
We reported about the heat-tolerant alloy that Nemak developed in conjunction with Fiat Chrysler and Oak Ridge National Laboratory. That looks like a real advance in the science of thermal efficiency. Is Nemak very active in r&d?
We haven't been very vocal about some of the projects that we develop. But we have a very strong r&d area in our company that's located in Europe as well as North America. We've been cooperating with different partners.
A lot of big suppliers have sold business units lately that are marginally profitable or in areas where they no longer want to invest. Is Nemak looking to acquire or form a joint venture with another company, or is the plan to continue to grow organically?
We're open and always looking for opportunities to create value. We've grown at the compounded rate of 20 percent annually over the last 20 years. It was a combination of organic growth and acquisitions. But I can tell you that we're very selective in the companies we target to acquire. And we review opportunities, and if those make sense we will certainly make acquisitions when we have to.
We are hearing a lot about 3D printing to make tools. How interested is Nemak in this?
We have some of the industry's most advanced 3D printing equipment. As we speak, we are printing cores, tools and fixtures, and we have the capability to print with silica sand and other materials such as aluminum and steel. We have great cooperation with universities and that's one of the things that differentiates Nemak. We can produce very rapid prototypes for our customers — sometimes in a matter of hours. In the past, it took us a lot of time to modify the tools. Now we can make the tools in a matter of hours.
News about trade changes often. How has the possibility of tariffs affected planning? Can Nemak move production among the U.S., Mexico and Canada, perhaps, to avoid tariffs?
First, fortunately we have not seen any effect on the duties on our products. We are the only independent producer of cylinder heads in the U.S. We have plants that produce engine blocks in the U.S. as well as Canada. So far we have not seen any effects in relation to our parts. Based on the information we have today, that we have been hearing from Mexican and American negotiators, this will be good overall for the industry, especially the auto parts for the region. Hopefully, Canada can join the agreement. It will make the North American region stronger.
Because Nemak is so large and important to Mexico's economy, has the company had a voice in helping negotiators understand the issues that affect the industry?
I am personally part of the board of directors of INA (Industria Nacional de Autopartes) and the OESA (Original Equipment Suppliers Association). I think participating in the two trade areas helps us understand. I think the OESA and INA have done their homework and are helping not only our company but the entire industry and the region.
Nemak has kept a low profile considering the size and importance of the company. Why?
Basically, we are a very focused company. We are a company looking at how we can satisfy our customers, keep them happy with competitive technology, deliveries and cost. We work very hard inside our company, and we participate in things that help us understand the trends of the industry and that help us satisfy our customers. We are not a company that likes to be in the spotlight.