One of Toyoda's ‘Seven Samurai' is recreating Aisin

KARIYA, Japan — Japanese mega- supplier Aisin Corp., a company that gets the lion's share of its global revenue from old-school gearboxes, knows it's time for a full model change.

The oncoming age of electrification means that even Aisin's biggest customer — its part owner, Toyota Motor Corp. — will largely ditch automatic transmissions by the end of the decade.

The vexing question facing Aisin — like other legacy powertrain suppliers around the world — is not just how to shift to a new lineup of electrified products, but when to do it.

Shift too soon, and you could be left holding the bag on a lot of premature investment in technology for which the market isn't ready. Act too late, and suppliers put their very survival at stake.

That delicate balancing act is playing out right now at Aisin, and the outcome is critical not just to Aisin but to Toyota. The automaker is Aisin's biggest shareholder, with a 25 percent stake, and it relies on Aisin for the bulk of its powertrains. At the same time, Aisin relies on Toyota as its top client.

This situation means that Aisin President Moritaka Yoshida must continue promoting sales of yesterday's internal combustion products to grow profits. But he must plow the proceeds into potentially risky future products geared around electricity, such as motors and regenerative braking.

Aisin ranks No. 5 on Automotive News' list of the top 100 global suppliers, with worldwide parts sales of $31.94 billion in 2020, and it makes a slew of components poised to sunset with the advent of electric vehicles. Besides its mainstay automatic and manual transmissions, it churns out crankshafts, pistons, engine head covers, oil pans, and intake and exhaust manifolds.

The dawn of EVs throws that entire legacy into limbo.

"I need to put this company through a full model change," Yoshida told Automotive News during a visit to Aisin's global headquarters here in the suburbs of Nagoya.

"With a healthy sense of crisis, we must take steps forward."

It's not the first time Aisin has had to remake itself.

The company traces its roots to Tokai Hikoki Co., founded in 1943 to make airplane components during World War II. After the war, the company rebooted to make sewing machines. Aisin Seiki Co. was formed in 1965, and last year Aisin Seiki subsumed its transmission subsidiary Aisin AW to become Aisin Corp.

Yoshida, who took the Aisin helm in June 2021, knows his top customer Toyota better than most. A Toyota Motor veteran, he climbed the ranks to executive vice president, and was CEO of Toyota's Mid-sized Vehicle Co., overseeing such nameplates as the Camry sedan.

Yoshida was one of the inner clique of confidants to Toyota President Akio Toyoda, known as the "Seven Samurai."

Now dispatched to modernize Aisin, Yoshida is motoring ahead with a transformation.

"I've earmarked money and resources and dedicated it to leading-edge development and investment in the future," Yoshida said. "Aisin itself had to change dramatically to survive."

For starters, Aisin will invest ¥270 billion ($2.1 billion) through 2025 to rework production for a new product range of electrified drivetrains and regenerative brake systems.

By 2025, Aisin wants a factory footprint capable of producing 4.5 million electric drive units a year. The plan covers so-called e-axles for EVs and electrified powertrains for hybrids, as well as the regenerative braking systems and thermal management systems for battery-powered vehicles.

Aisin introduced its first e-axle, which integrates an electric motor, gear and inverter, in 2020. That motor setup is used in the Toyota Mirai fuel cell vehicle, Lexus UX 300e and the Toyota Izoa and C-HR EV, two all-electric subcompact crossovers offered in China.

This year, Aisin launched a new e-axle made through a joint venture with fellow Toyota Group supplier Denso Corp. called BluE Nexus Corp. Aisin makes the motors and gears; Denso makes the inverters.

That e-axle goes into the Toyota bZ4X all-electric crossover and Lexus RZ, the first Toyota Motor Corp. vehicles riding on the automaker's new e-TNGA dedicated EV platform.

The e-axle comes in two layouts. The front e-axle is upright and thin to maximize legroom for the driver. The rear e-axle, in all-wheel-drive offerings, is low and wide to deliver more cargo space.

Another e-axle for small cars will arrive next year.

Then in 2025, Aisin wants to launch a second generation of smaller, more efficient e-axles in three sizes, covering small, medium and large vehicles. A third generation is planned for 2027 that will make further advances in efficiency, miniaturization and performance.

The ramp-up parallels an upcoming EV surge at Toyota.

The automaker says it wants to be ready to sell 3.5 million electric vehicles a year by 2030, including 1 million for Lexus. That comes on top of millions more Toyota hybrids, which will also need electric motors.

Aisin's juggling act mirrors that faced by many suppliers in an industry under siege by new technologies, from electrification and automated driving to connectivity and programmable vehicles.

But the trick will be knowing when to scrap the old and when to build the new.

Of the 4.5 million electric drive units it targets for 2025, for instance, Aisin is still unsure what the breakdown will be among hybrids, plug-in hybrids, full-electrics and hydrogen fuel cells.

"It's very difficult to read the market and make an investment," Yoshida said.

"Dramatic fluctuation may occur within this mix. If the automatic-transmission business goes up, then electrification may not be proceeding as expected. And if automatic transmissions come down, it means electrification is proceeding faster. We have to prepare ourselves for any scenario."

The only way to cope is with flexible operations.

In North America, Aisin expects demand for hybrids to increase faster than for full-electric vehicles, at least in the short term. So last September, Aisin opened a new $400 million factory in Cibolo, Texas, to make both automatic and hybrid transmissions to supply the San Antonio-built Toyota Tundra pickup.

The FR1 Motor HEV transmission is based on a 10-speed automatic gearbox.

Longer term, Aisin will speed the transformation in several ways.

One is harnessing its employee and manufacturing firepower for new products in electrification. Another will be to end operations that are outmoded or don't fit the new direction.

When it comes to the first path, over the next two years, Aisin will shift 1,500 of its 40,000 employees in Japan to work on electrification. Its product range will expand to include not only e-axles but regenerative braking for EVs and thermal management systems that heat and cool the batteries.

Aisin will also make parts for aerodynamics, such as self-shuttering air vents for EVs.

Aisin is talking with 10 automakers about supplying these products — not just Toyota.

The transformation won't necessarily be radical or disruptive.

Aisin is the world's biggest supplier of electric water pumps for engine cooling. But executives see an opportunity to repurpose that effort into pumps that can cool batteries instead.

And as a top-tier global transmission maker, Aisin has deep knowledge of gears, lubrication and housings. All that know-how plays into making good electric motors, Yoshida notes.

Regarding the second track, Aisin will continue to streamline its business.

In March, for example, Aisin agreed to transfer its auto seat frame business that supplies Suzuki, Daihatsu and Mazda vehicles to the Toyota Group's main seat supplier, Toyota Boshoku Corp.

"In order to generate investment for the future," Yoshida said, "you need to continue to grow the current business. You have to scrap and build.

"By following this two-pronged strategy, I think the company can hedge its risk."

All the while, Aisin still wants to restructure in a clean, green way.

Aisin will spend ¥110 billion ($855.8 million) over the next 10 years on a factory footprint that cuts carbon dioxide by half by 2030 in a push to go carbon neutral by 2050.

Fortunately, Aisin's bottom line is cooperating with the strategy.

Despite disruption from the COVID-19 pandemic and global semiconductor shortage, Aisin reported a 25 percent surge in operating profit in the fiscal year ended March 31.

Annual R&D spending is down from the past two years but still totals more than $1.5 billion. And capital expenditure is up for the first time since the start of the pandemic, as Aisin eyes expansion.

"It's an enormous task, but we can do it," Yoshida said. "The biggest risk is doing nothing."

Editor's note: Aisin Seiki Co. was formed in 1965, and last year Aisin Seiki subsumed its transmission subsidiary Aisin AW to become Aisin Corp. The name of the subsidiary was misstated in an earlier version of this story.