Valmet Automotive CEO: Contract manufacturing an option for Chinese brands looking to enter N. America, Europe

Finland's Valmet Automotive, which manufactures cars under contract for Mercedes-Benz and has more than 1.8 million vehicles on the road, has moved into component manufacturing. The company assembles battery packs for electric vehicles and convertible top systems.

A dozen years ago, Valmet Automotive built the Fisker Karma under contract. It has also built Porsche and Saab vehicles.

Though the Fisker Karma was not successful, it taught Valmet Automotive valuable lessons about working with startup companies and assembling EVs, CEO Pasi Rannus, 53, said in an interview with Staff Reporter Richard Truett. Here are edited excerpts.

Q: The Fisker Karma failed in part because it had a lot of quality problems and was unreliable. Did that project hurt Valmet Automotive's reputation?

A: When I look back now, I can say no, because we learned a lot that we can utilize now. We learned what could be the basis with working with such companies. We had good and bad experiences, but did it hurt our reputation? No. We had already a long reputation [for quality] in automotive before that. And since Fisker, we have had a long relationship with Mercedes-Benz. With the Karma, we learned about electrification — we were one of the pioneers.

Tell us about working with a startup manufacturer. How is it different from working with an established automaker?

It varies quite a bit. What is the strategy of the startup? What is their business model? Some of them may be focusing only on the plan and marketing and the so-called asset-light approach to production. Then they will, of course, require more support in all of the fields of manufacturing, including supply chain management. Some are focusing on engineering and then marketing. They might need more help in industrialization and getting the product more manufacturable, which means simultaneous engineering work. It also requires flexibility from the contract manufacturer. It's a different way of working, let's put it that way, than with established automakers. With startups, some of their processes may not be mature. So that requires flexibility, to be able to support them, and patience to get them to understand what the automotive business is all about.

Would Valmet Automotive work with a startup automaker again?

Yes. Sure, we would work with a new original equipment manufacturer.

Will contract manufacturing someday involve Chinese automakers either in Europe or the U.S.?

At the moment, when you talk from the European point of view, the volume of Chinese products is not huge, either sold or produced. But they are definitely looking for opportunities to enter the European market in a cost-efficient way. And time to market plays a role. Contract manufacturing is one opportunity.

They are definitely coming. You need to be aware of that. I think the first wave of Chinese automakers utilizing contract manufacturers will take place in Europe. I think the U.S. could be pretty close in the next wave, but it is a bit more protected with the [Inflation Reduction Act].

Is Valmet Automotive talking to Chinese automakers?

Of course we are talking.

Is contract manufacturing profitable?

It's not a secret that [it] is a tough business. It is to some extent profitable, but a lot is volume related.

Are EVs less complex to assemble than vehicles with internal combustion engines? If so, would there be greater possibilities to grow profits in EV assembly?

The whole assembly work of EVs would be a little less [complex] than a normal combustion vehicle. At this moment, the whole world is in transformation and it is a bit of a process. So it is difficult to say which one is more profitable.

In the U.S., we are seeing slight growth in contract manufacturing, especially with commercial vehicles, long-haul trucks and last-mile delivery vehicles. Does Valmet Automotive see any opportunities for growth in North America?

As we speak today about contract manufacturing, North America has not been in our focus. We have been focusing only on Europe in the near future, where the contract manufacturing business model is more mature. But, of course, we keep our eyes open.