AAH #791 - BorgWarner: Go To China To Get In Shape

Speaker 1: I'll online after hours is brought to you by bridge Stone Tires Solutions for your journey.

Speaker 2: All right, Gery, we're here to do another show.

Speaker 3: We are, John, how are you doing.

Speaker 2: I'm doing great? I mean g r E A T wow.

Speaker 3: And I suppose that that's because of our guests.

Speaker 2: Well, we got to let everybody know. We've got Joe Fidoul,

the chief executive officer of Board Warner, on the show.

And Joe, great to have you here.

Speaker 4: Yeah, great to be here, John, what a pleasure to be here.

Speaker 2: And we've got Chris Socks from the Wall Street Journal.

Thanks great to have you back.

Speaker 3: Yes, thank you for inviting me back.

Speaker 4: Joe.

Speaker 2: Let's talk about the fun, exciting stuff to begin with Indy five hundred because you've got the lapel pin there of the Board Warner Trophy that you've been handing out so.

Speaker 5: Now over eighty years, so since nineteen thirty six, we've been awarding the winner of the Indy five hundred the trophy.

And some of the forerunners to the company were part of Indy, So when we were formed in nineteen twenty.

Speaker 4: Eight, we were just fortunate they thought about it.

Speaker 3: And yeah, was at the time or were they here in Detroit.

Speaker 5: They were in India at the time. The race of course,

been there since the beginning.

Speaker 6: So they saw what was going on down the street and they figured this is a good thing.

Speaker 5: Apparently it was a smart marketing play. So yeah, it's

just ten days away. We can't wait for the weekend

to come.

Speaker 2: Yeah, and then you guys hand out little baby Borg trophies to the race winner.

Speaker 4: We do.

Speaker 5: That was something we started back in nineteen ninety. So

the trophy itself, which has the face of each of.

Speaker 4: The winners, the winning drivers.

Speaker 5: Going back to nineteen eleven, it does so that stays at the museum.

Speaker 2: It's a monster of a trophy, right, So it's not like the.

Speaker 3: Run out of room.

Speaker 5: Well, it's not like the winner can take it home and put it on their mantle, right, So we had the idea to award these baby Borgs to the driver and to the owner, so they receive that every year and it's something they can take with them and keep it home.

Speaker 2: My understanding is baby Borgs are extremely popular with the drivers.

Speaker 4: They love it.

Speaker 5: They love it, and it's in fact, a few of the drivers, you know, they if they won more than one race, they've gifted it to their son or their daughter, and they're really possessive about it. And so yeah, it's

a it's a great thing that they can take with them, you know because the trophy, although they get to take it to their hometown and celebrate, and the trophy makes its rounds, at the end of the day, it ends up in the museum versus that baby borg.

Speaker 3: Okay, Joe.

Speaker 6: So for our audience who might be thinking that you're a trophy company, what Board Warner is all about?

Speaker 5: Sure, So, Bard Warner is a one hundred and twenty year old propulsion company, right, so we make everything to move cars from point A to point B, or trucks or buses.

Speaker 4: So when you think about.

Speaker 5: Turbochargers, timing systems all the way down to electric motors and inverters, things to drive electric cars.

Speaker 4: You know, we show up in nearly all the OEM's vehicles.

Speaker 5: So we've we've been around for a long time, you know, the last ten years we've been making this transition toward electrification.

And you know, for many of our products, we're number one or number two in everything we do.

Speaker 4: So it's really a great company.

Speaker 5: I'm fortunate to be a part of it, and yeah, we got a lot of great things coming. Have you

been murdered though.

Speaker 2: With all the cutbacks and EV programs.

Speaker 4: Oh my god. EV has been brutal.

Speaker 5: So you know, if you unpack EV, start with the success stories, which is really China. You know, China is

playing out like everyone expected. Half of the vehicles are ANYV,

so that means advanced plug in or pure BEV and we're competing well there. That's a big part of our

business twenty percent. But the rest of the world, you know,

the policy makers were ahead of the customers. Everybody wanted

to go in this direction, but you know, the vehicles weren't very affordable and the infrastructure wasn't there as well, So it's coming. We're big believer in electrification. I know

folks in this country think it's dead. It's not dead,

it's hibernating. But long term, we're a big believer in it.

We think the cars, once they become more affordable, they're great to drive, they're good for the environment, and anyone who jumps into an EV ninety percent of them want to buy another one.

Speaker 6: So you know, so if you're doing business in China, you have a sense of how things are going there and two things strike me.

Speaker 4: It's like a how do you compete?

Speaker 6: There? Can be what was different about that market than

the rest of the world when it came to.

Speaker 5: EV's sure, So you know, like many Western suppliers, we've been in China for over thirty years, so we know how to do business there. It's all local people there,

Borg Warner folks, and over the last ten years has gotten super competitive. So the bottom line is why are

evs selling there. They're the same price as a combustion

vehicle and they're very affordable.

Speaker 4: You know.

Speaker 5: The secondary thing is they've got reasonable infrastructure. It's not

great in fort structre, but they got reasonable infrastructure when it comes to charging. So you know, people see that

they're compelling and if you look at the cars now in China, whether it's combustion or pure ev uh, they're amazing.

Speaker 4: They're beautiful.

Speaker 5: I mean, the especially the insize of these vehicles and all the connectivity and displays they have. The quality of

the vehicles are terrific. So yeah, affordability is a big

topic in China, and that's why the Chinese have been so successful.

Speaker 4: They make an affordable EV.

Speaker 3: I mean to bring it bring it home here. I

saw that in North America, looks like production was down about one percent year over year in terms of volume uh or or it's trending that way for the first half of the year. Curious what position does that but

suppliers and how how you guys are managing that because I know that's still you're branching out to other businesses, but that's still the core of.

Speaker 5: Your Yeah, so this mark it, you know, probably be around sixteen million plus vehicles. This market has not really

grown substantially over the last ten years. You know, we've

been stuck in that fifteen to seventeen million mark. I

think that's what most suppliers expect. The big growth story

and automotive has been Asia, specifically China, especially with the exports now. So you know, I think in this market

what's important is, you know, making sure you're close with your customers and you're providing the products that they want.

Speaker 4: I think that was the problem with EVS.

Speaker 5: Everybody's getting ahead of themselves and the business plans were disasters.

You know, we we made a lot of investments, we bought companies to reposition our company, but you know a lot of these had volumes that were ten percent of what was planned. So fortunately thing for Board Warner, we

have a portfolio that serves all the needs. So if

you want more combustion, like is going to take place in this market, we're in a great place because we're number one or number two and things like turbo chargers and so yeah, as the customer's pivot here, it's also about making sure you get the right mix of products to support them, even though the end market's not growing.

Speaker 3: Really curious from your perspective, those business plans for high rates of VV adoption, and it's really easy to see in retrospect how that didn't happen. But I'm really curious about,

you know, if you went back to twenty twenty, twenty twenty one, to like how there was such a belief in the industry that it would And I think maybe part of what happened is early adopters were mistaken for a long term trend. But I'm curious, Joe, did you

ever have any personal, you know, thoughts at that time that like, are we getting ahead of ourselves? Were people

saying that at the time.

Speaker 5: So, you know, I got to take us back. You

really got to go back to earlier in the decade, when Tesla really started put evs.

Speaker 4: On the map.

Speaker 5: You know, they were the real disruptor, and they were taking market share, especially from the premium guys. You know,

you think of Mercedes, Cadillac, BMW. They were eating their lunch,

you know. So that was the beginning. Then diesel Gate

happened twenty sixteen, which put a lot of regulators on you know, this path of hey, we can't trust any of the OEMs anymore, so they doubled down on clean clean, you know, carbon clean cars. So that was the accelerator

to push more evs in both Europe and here. So

you know, it was a combination of those things. So

I think we're all sitting here in twenty eighteen nineteen feeling like, Okay, this it's going to come this time, because this is.

Speaker 4: Our third start, this is our third run of it.

Speaker 5: I remember being another company in two thousand and two, people thought EV's were about to take off. It didn't happen,

but I think most people felt it was real this time, were becoming more mainstream.

Speaker 4: Everyone saw Tesla's the test case.

Speaker 5: So yeah, a lot of companies, like us, we faced an existential threat if we didn't really transition the portfolio and make big bets towards EVS.

Speaker 4: So we did that, and I never had an inclination in.

Speaker 5: The back of my mind that, oh, this is never going to happen, even though I'm kind of a combustion guy.

I grew up with small engines and goat carts and lawnmowers and tearing them down, and so at my core that was, you know, stuff I was pretty familiar with.

But no, if someone sits here and tells, you, oh, I knew this was never going to fly, I wouldn't believe that.

Speaker 4: I think the whole industry was leaning forward that hey, this is the future, and you know, it's not playing out like everyone expected.

Speaker 3: Was it too big a.

Speaker 6: Growth curve that they had anticipated, you know, like the hockey stick of like boom evs probably.

Speaker 5: You know a lot of consultants always like to paint these hockey stick moments that are similar to the iPhone.

You know, the adoption rate's going to happen like that.

If you don't get on board, you're done. So, you

know a lot of companies, of course, you have to act.

You can't sit still and just bet against the common thinking.

But Yeah, as we see now looking back, affordability is a big topic. So affordable battery systems probably the number

one topic. China got that right, you know, I have

to admit China started investing many years ago, and battery technology start with mobile phones and a company like DYD they pivoted to vehicles, you know, from batteries to vehicles, so they got a lot of it right, and that's why they have the affordability that.

Speaker 4: Doesn't exist elsewhere.

Speaker 5: But long term, you know, those costs are coming down, and I think what it's important for companies now is to realize each market's going to play out a little bit differently, especially for a powertraining company. It used to

be Germany and Japan and somewhat here the powertraining technolog you got set and then it swept.

Speaker 4: The world over time, you know.

Speaker 5: But now these markets are going to play out a little bit differently, and we have to have a shorter planning horizon than we did and also have flexibility in our systems and our supply chain that didn't exist before, because you know, at the end, the customer decides. The

customer buys the car, not a politician, not somebody else who's opening about you know, the world needs to become more green. Real people buy them, so you know that

that's I think the lesson we all got, and I think most companies are now more in tune with Okay, let's pay more attention to what people are buying in China.

Speaker 2: And all the foreign automakers have gotten their clocks clean, I mean every single one of them. Some are backing

out of the market right now. But one of the

things that you preach that I'd like to have you go into more detail in is you're saying, no, you got to be in China. That's like going to the

gym and working out and getting compete, you know, fit to.

Speaker 4: Be able to compete. Yeah.

Speaker 2: Uh, explain a little bit more of what you're thinking is on that.

Speaker 5: Yeah, so you know China and I didn't make this turn up. I heard it somewhere and I thought, oh

my god, that's the perfect analogy. It's a fitness center.

It's really become a fitness center. And you know, first

of all the Chinese OEMs, they've really caught up on quality and technology. In some places, they're passing the Western automakers.

The speed there that it operates is two times the Western world. So you got competitiveness, speed, and great technology.

So in our view, if you can compete in China, you can compete anywhere in the world. So a couple

of years ago, we, of course we see how it's playing out, and it's brutal. China is tough. It's not

a walk in the park at all. But we realized, okay,

we need to adapt to that market. It's so important

for us as a company. And as we're successful there,

we are going to be able to, you know, adopt some of those practices elsewhere. We're going to renovate our

supply chain. We're going to speed up the clock internally

on product development.

Speaker 4: We're going to.

Speaker 5: Reuse more products rather than invent everything new for every OEM, and the OEMs are much more open to that there.

It's going to lower our cap x, it's going to lower our overall investment. So, you know, some of the

things that we're having to do in China be successful.

We're starting to bring back to the rest of board Warner where we can where it makes sense. So, you know,

we feel that's a good strategy, although it's it's challenging at times because at some point, you know, you don't want to destroy capital. You can't buy business. We're not

a big believer in buying business. But nevertheless, I think

it's making us a better company.

Speaker 2: What if you learned about China speed that enables you to keep up at this clock speed that the OEMs they are run at. I mean internally, what have you

changed to be able to move that fast?

Speaker 5: Yeah, I think a couple of things that we learn.

First of all, the power of reuse.

Speaker 4: We've relearned.

Speaker 5: You know, it's been talked about a lot in the past platform, so let's just explain that in sure. So

you know, if you take a an inverter, which is a pretty complex power device, that power is an electric vehicle, right.

It moves the energy between the battery and the motor.

So the more you can reuse between customers, then you don't have to innovate or test that component anymore. So

you know, just trying to maybe design the package for a customer and some tweaks rather than all new inverter, which the OEMs are much more open to. It also

leverages our capital equipment, you know, ordering capital and installing it and testing it is.

Speaker 4: A long lead item.

Speaker 5: So if you can eliminate that and reuse a lot of your existing capital. Then you know you don't you

can shorten the development time and the time to get to market.

Speaker 2: The Chinese open to that, and the Americans, the Europeans.

I would even argue that the Japanese don't do reuse within their company, but not across the industry.

Speaker 4: Yeah.

Speaker 5: I think part of it is the Chinese really appreciate speed to market. So instead of a four or five

year cycle for a car or a truck, you know, they're freshening vehicles every two years. So that means they

need to compress their product development cycle and they value that.

They value beating jilely to market or beating bidd or so it's really ingrained in their thinking versus the you know, most of the Western OEMs, they don't think about speed.

They think about process. They think about quality all the

time and innovation, new new technology, so but speed is not at the top of their list. So I think

that's the main difference. And so when the Chinese appreciate

one of those attributes, then that's what they spend all their time and effort on and you know, pushing their people on.

Speaker 6: So so John mentioned the OEM is getting their clock cleaned over there.

Speaker 4: I mean, I can't use those words customers of mind.

Speaker 6: Okay, but I'm wondering, Okay, how do you guys do it?

I mean, what is it that allows you to continue presumably profitable in that in that market without you know, some local company coming in taking it to you guys.

Speaker 5: So you know, there's a few things that I think are playing to our strengths right now. So one of

them is how we're organized, so different than most suppliers.

We're not very centralized. We're very decentralized. So I mentioned,

you know, we have a great team in China. I

can count on two fingers how many expats we have in China, and in two months.

Speaker 4: One of them will be back home. Well one, I bet.

Speaker 5: So you know, we have thousands of people there that operate within their home country, so they're very used to the style, a very you know, understanding of what our customers want. We've been there for over thirty years, so

we're very intimate with our customers. We've been bringing them

Western technology for years now. They're developing their own technology,

so we know how to get stuff to market quickly.

So we've had to embrace this whole idea of speed, and it leans in a little bit to our operating model being decentralized. We're not trying to make decisions in

Detroit for what they need. We basically say, look, you

can meet the return on investment, go for it.

Speaker 4: It's yours, you.

Speaker 5: Know, and they have to live and die with the success and failure. So that's playing a little bit in fact,

this whole regionalization of power trains. You know, what's needed

in China is different than Korea, and it's different than Europe, and it's definitely different from here. And so you know,

the way we're organized is to kind of leverage that, and so we've leaned more into it. You know what

decisions can we push more into those markets so that they can and make them make sure they got the competence, you know, even like innovation, being an engineer, you know you're trained that, okay, you need this center of excellence and it's usually somewhere in the West, you know, it's in Germany, or it's in Detroit or somewhere, and they hold all the keys to what you can bring to market and when right, they do all the innovation and these center of competences, and then the regions just adapt and make small changes. That needs to get blown up

because that doesn't work anymore. You know, first of all,

China is innovating for what China needs now, so we've had to let them run.

Speaker 4: We've had to let them go.

Speaker 5: Luckily, we've built that team up for a long time.

It's not like we have to go hire a bunch of engineers. That team's very capable. So we're starting to

bring some innovations back the other direction, which really emboldens and empowers your people. Imagine if you're hired as an

application engineer ten years ago. Now you're the innovation hub

and Detroit's going to adopt some of the things you're doing. Wow,

your people get super excited. So, you know, we think

also how you think about product development has to change.

Speaker 4: It has to be.

Speaker 5: Regions that are connected and learning from each other, rather than one central group that's kind of dictating what all the regions have to use.

Speaker 2: You know, one of the things I've heard about China speed is that Chinese OEMs give their suppliers many fewer specifications for the component or product that they're working on, versus the many thousands of specifications that non Chinese companies work with. And you know, the Americans, the Germans, the

Japanese are equally guilty on this. Have you encountered that,

you know, because what I'm told is that Chinese OEMs will tell their suppliers here's what the product is, what we want it to be, you know, here's the outcome that we want, the size, the way to it. You

go figure out how to do it.

Speaker 4: That's absolutely true.

Speaker 5: And this adds to the speed, by the way, because every requirement a customer gives you, you have to rewrite that into a specification for your own product, and then you have to test against that requirement, measure the results, have a countermeasure plan if something went wrong. So if

you only have six hundred requirements for a system versus twenty thousand, and those are real numbers by the way of a Chinese OEM versus a Western om, think about how many more specifications you have to first go through and then write for yourself for your own products, and then you have to test again. So that also plays

into this time to market. So yeah, they do tend

to specify.

Speaker 4: At a higher level.

Speaker 5: It's not that they have lower quality requirements. You know

a lot of OEMs.

Speaker 4: Will say yeah, but the quality is not there, and that's not true.

Speaker 5: You know, I think that Chinese are just a little bit more into the find and fixed mode rather than twenty thousand requirements. That really slows down the process. So

you know, it doesn't work for every OEM. You know,

there's some OEMs and we share this data with our customers.

In fact, I just had a meeting two weeks ago in our headquarters with a customer to share that and here's a couple areas you guys, maybe you want to consider.

You know, some look at it and they take it seriously and they're like, okay, we can really learn some feel Hey, we're happy to have twenty thousand requirements.

Speaker 4: Our engineers are proud. That's why we have great products.

Speaker 5: So you know, you have to kind of break through the why and offer up specifics so that they can grab it and ask their people to take a look at it.

Speaker 2: You know, I saw the head of Space Force Space.

You know, we've got Army, Marines, Air Force, we got space now two. So I saw the head of Space

Operations talking about this. They're running into the exact same problem.

They're giving their military contractors boatloads of specifications and what they're doing now, which I thought was fascinating that instead of giving them specifications, he said in a few phrases or a few sentences, we're telling them what we want the outcome of this product to be and letting them go and run with it. So it's this whole concept

of reducing specs is spreading beyond the auto industry.

Speaker 6: You might not want to be on that rocket those genres.

Speaker 4: Yeah, a second one. Yeah, No, it does make sense.

Speaker 5: You know, the more you specify, you can control quality, and that's what these specifications have become. Imagine if you're

a company that's fifty years old, that's been every year launching products, you put into your next generation specs the lessons from that last launch, Well sometimes those specs, you know, they don't matter in the new environment, but you still got to live by it. So, you know, finding that

balance of Okay, what do you really need to specify to maintain the quality and the intent of the performance versus hey, that and that environment doesn't exist for that specification anymore, but we still have it in our tech book.

So you know, I think that's smart, you know, opening it up again, you just got to find ways to make sure you're doing it in a quality way because some of those specs are there for a reason.

Speaker 6: You know, you mentioned how the powertrain needs are different in different markets. I mean, isn't the dream always been

that the world would all come to one and therefore, you know, we'd all have the same sort of powertrain and you get all this wonderful scale versus this idea of no, it's.

Speaker 3: Different here as it is.

Speaker 6: I mean, you guys have a lot of hybrid technology which is not as accepted here as it is in other parts of the world, which I think is a shame, but reality of it. So, I mean, can you talk

a little bit about the regional differences in terms of powertrain technologies?

Speaker 5: Sure? So, you know I would start with the end

products because that's what drives the powertrain the most.

Speaker 4: So you know, in China you have smaller vehicles.

Speaker 5: You have bigger cities, more stop and go in those cities, you have policy that penalizes anything over a one point five liter engine.

Speaker 4: So you know, the power trains there tend to.

Speaker 5: Be if there's a combustion, tend to be boosted turbos because that's how to get more power out of a one point five liter engine. Electrication I mentioned is extremely affordable,

so you see a lot more electric cars around, even small cars you can buy for eight thousand dollars. You

can buy an electric car that's a pretty high quality car.

People don't tow or carry around eight people or move a boat around, you know, in China, So that's a big difference on a powertrain versus here. You know.

Speaker 4: Now it's the other extreme. You got very very big vehicles.

Speaker 5: Heavy people love to tow stuff, even if they don't what the vehicle has to be capable of toning it.

How many of your friends own an F one fifty or F two fifty, you know, you can tow fourteen thousand pounds or more.

Speaker 4: They've never towed a day in their.

Speaker 5: Life, but they can't if they want to. So you know,

the design requirements for the vehicle is probably the biggest impact of the powertrain. So yeah, electric trucks, for example,

have been a disaster here, right And if you really think about the use case for a truck where it needs to tow, ABEV is not a good application for a truck that needs to tow fourteen thousand pounds.

Speaker 4: You know, you bury the battery in a matter of minutes.

Speaker 5: So you know, those are the I think the biggest influences Europe. Somewhere in between, you know, China and here.

The other big influence is the policy. You know, it's

what the governments are asking.

Speaker 4: For by law.

Speaker 5: So you know, China never specified by law they want to have a certain number of BEVs. Now, they did

create several five year plans in a row that said we're going to be leaders in BEVs, partly because they don't want to be, you know, in a choke hold by the Western OEMs anymore. They wanted to kind of,

you know, find their own way, and that's one of the ways they did it. Versus you know, Europe is

still sticking to their ban of ice vehicles by twenty thirty five.

Speaker 4: Let's see if that sticks.

Speaker 5: So, you know, I expect the policy in Europe to be a lot more stringent than it's going to be anywhere else in the world when it comes to propulsion.

Speaker 3: Speaking of policy, there's a new effort here in the United States to hermitically seal I believe is the term the country from Chinese cars. Curious number one, do you

have a dog in that fight. And number two, what's

your assessment, your opinion of what that would mean for the industry if we did let them in.

Speaker 5: Yeah, so first time I've heard hermetically sealed in that context.

But yeah, it's probably accurate. You know, here a couple

of things. Generally speaking, companies like US who operate globally.

You know, we like free markets, we like free trade, low duties, low taxes, you know, and that's been how the global auto environment has been set up for years.

So you know, every market has its own dynamic, but we set up our supply chains that way. And so

now with this kind of stealing off the US from Chinese cars, you know, part of me says, okay, that's not very free market oriented.

Speaker 4: Okay.

Speaker 5: On the other hand, I have to respect what the administration is trying to do in terms of reindustrializing the country.

You know, I think countries like the US we probably went a little too far with outsourcing important industries, know how, things that are critical. I mean, if you just look

at the magnet situation from a year ago, it was a disaster for the world, you know, so giving away the core of you know, an industry that another country can shut you down in a minute.

Speaker 4: Not good.

Speaker 5: So you know, when I put it in that context, and I can see why the Trump administration wants to reindustrialize and bring back more car manufacturing, which helps a defense industry and military.

Speaker 4: And with good jobs. You know, those are good paying.

Speaker 5: Jobs that at least build cars and trucks, So you can see both sides of it. I don't know the

long term impact. I'm a little concerned about the long

term impact of freezing out such a major competitor like the Chinese OEMs, because I think companies sit back on their laurels if they can, you know, I think people do in general. It's a human nature. If you're forced

to compete, it kind of goes back to your question about China. If you're forced to compete, think about how

fit you are versus if you're not really forced to compete, you get a little lazy, get a little soft.

Speaker 4: You know.

Speaker 5: I don't think that's healthy long term, So we'll have to see what the long term implication is makes sense.

Speaker 2: Hey, look, we've got to take a very quick commercial break right now to our sponsor, Bridgestone. Let's go to

that and we'll be back talking more about the industry.

Speaker 1: Knowing that a little rain won't slow down your day.

Speaker 5: That's what really matters.

Speaker 2: Bridgetone torntso quiet tract tires, confident control in wet conditions.

All right, we're back with Joe fidul CEO of Board Warner.

Speaker 5: Joe, this move to.

Speaker 2: Software defined vehicles and zonal centralized compute architectures and the like, automakers are talking about bringing all the software back in house.

I don't know where Borg Warners stood in terms of developing its own software, but a lot of suppliers put a tremendous amount of capabilities into being able to do that.

Where do you think this is going is are the OEM is really going to bring it all back in house?

Do they have that competence? And how does this affect

Borg Warner?

Speaker 4: Yeah?

Speaker 5: So software defined vehicles. You know, we're not in the

central piece of that argument.

Speaker 4: You know, we do our own.

Speaker 5: Software development for our powertrain controllers, especially if the customer is you know, if that's part of the specification.

Speaker 4: But this whole idea of software defined.

Speaker 5: Vehicles, which again Tesla brought to the market first, makes a ton of sense.

Speaker 4: You know, if you think about.

Speaker 5: Your phone, right, this thing is a hardware device, but at the end, it's the software that creates all the value.

So you don't have to change out your phone to get new features or to get a patch for cybersecurity or some bug you have, you know, boom, it's just over the air. And that's what a software to bind.

That's the biggest advantage of a software to bind vehicle. So,

you know, I grew up in the automotive space on the electronics side, where every module just kept getting added onto the vehicle and it had its own software. The

only thing these modules had in common at the end was they spoke to each other on a CANbus.

Speaker 4: That was about it. So to replace all that with

you know, more central.

Speaker 5: Computing and the ability to stay in touch with those customers or the lifetime of the vehicle and you know, pull more revenue out as you had more features, I think it's an awesome idea. So now with respect to

who's going to capture that value, I think it's a little early to say. The OEMs obviously are in one

of the strongest positions to capture that value, and that's why they want to do a lot of it in house.

You know, you also got these third party folks like Microsoft and Google and others.

Speaker 4: Apple for sure.

Speaker 5: You know, they're trying to create sticky products that work with your stuff at home, can be your consistent interface whether you're in your car or somewhere else.

Speaker 4: So it'd be.

Speaker 5: Hard to see, you know, if the tier ones are the winners at the end who are investing in this, or if they just become the hardware player that has a more commoditized product and the value is in the software and the features.

Speaker 6: You know, I want to get back to the technology that you guys do in terms of hybrids and so as evs have gone down, hybrids are going up. How

is the demand for your products being expressed by some of your customers.

Speaker 4: Yeah, so, you know, we do some on hybrids.

Speaker 5: We're mainly in the combustion space for what they call a full hybrid, so that's a hybrid that's not plugged in at the end, there's a.

Speaker 4: Very small hybrid engine on there.

Speaker 5: Where we see the bigger benefit where we play a bigger role, are these advanced hybrids. So the ones you

plug in, so this would be a plug in or a reeve, a range extended vehicle, pretty good sized battery on those, so they can run eighty to one hundred miles just on pure EV so they're good for the environment, and some people never have to fill their tank up because if they're just going back and forth to work and they're charging at home, it's in essence an EV but they've got the backup ICE engine in case they need it, so it solves that range anxiety issue. So

you know, for us, what does that mean for board Warner?

You know, we don't really care if it's a combustion or a hybrid.

Speaker 4: Or an ev.

Speaker 5: Our products serve all those architectures because an inverter, let me give you an example, an inverter on an advanced hybrid doesn't look that much different than on an EV.

A turbo on a combustion engine doesn't look that much different than on a hybrid, So you know, there's a little bit of adaptation, but the core technology is the same.

So for us, there's really no impact. We love hybrid,

especially advanced hybrids, especially those that have turbos for druning a great board Warner product. But you know, we see

the advanced hybrids is probably a much longer bridge than people had thought originally. I don't think, especially in this market,

we're going to jump to evs overnight. I think it's

going to happen over time, and I think the plug in hybrids and possibly range extenders can play a long role before we get to BEV.

Speaker 2: Going to more of the e reps, the range extenders.

Because a year ago, I was, as Gary knows, I was really really bullish on it, and now I'm starting to have second doubts for this market in pickup trucks because pickup buyers are so conservative. Are they really going

to go for something that they've got to plug in?

Speaker 4: That's a great question.

Speaker 5: And you know, we got to be careful not to run to these advanced hybrids like.

Speaker 4: We ran to the BEVs. You know. So this is

where we really.

Speaker 5: Are counting on the OEM our customer and make sure they get it right.

Speaker 4: Like know your.

Speaker 5: Customer, know the use case, and you know there's pros and cons for a truck application. I think you know,

if you're using your truck drive around the city and you just want to sit up higher, but you're never towing anything, Okay, there's much better use case for it.

I don't know about a truck towing something of significance because at the end of the day, most of these range extenders, if you run out of battery, then you're not able to get the full performance out of the combustion engine. It's I don't want to use the word

limp home, but some of them are designed to have sub performance but still give you the ability to get wherever you're going. So I think that's the rub on these,

you know, full truck range extended vehicles. It comes down

to the end, can you get the full performance that you're expecting on just the ice engine or is it less performance but a way to get you home and get you through the range anxiety.

Speaker 4: So you know, I'm with you.

Speaker 5: I think for a powertrain company, we have to bet on all these technologies.

Speaker 4: We just have to be careful in.

Speaker 5: Not to overinvest or bet on a customer that you know, we feel is not doing their homework, which is one thing we learned in the BEV scenario. You know, some

customers got it more right than wrong, and other customers, you know, they really struggle. So you know, we've started

to get smarter around which customers were willing to really make bigger bets on versus you know some that maybe have lost their way a little bit.

Speaker 3: That's interesting because, like I imagine, you're probably really happy to get a sale and some new business right and you're like, hey, we've got something in hands here, But then you have to go through a second sort of thought process about how real is this volume and do we really want to do this?

Speaker 5: Yeah, So it's you know, the time you win the award, which is when all the excitement happens, and then you realize, oh shit, now we've got to do something to the time you get into production. You know, it can be

three years, so a lot of product development and launch and so forth. So you know, the real volumes you

don't see for a couple of years later, and how the product does after you've made all that upfront investment.

Speaker 4: So that's the part that.

Speaker 5: You know, we hope the OEMs get more right this time, especially in these advanced hybrids, because there are some question marks where will it make sense and you know, where will customers kind of shun it because hey, it doesn't fit their needs. Well.

Speaker 3: Speaking of the ev hangover, I thought we might talk about the biggest business in the auto industry right now, which is not the auto industry. It's battery, energy storage,

And I was listening to your earnings. I think it

was what a week ago, and you might be surprised.

The whole call is about data centers and the new businesses that you're that you're getting into, and Ford, you know, just announced there for energy division where they're going after this stationary battery opportunity. So curious about that pivot.

Speaker 5: Yeah, So if you listen to that call, you would have wondered, do we still have an auto business? You know?

Speaker 4: Of course we do, and it's.

Speaker 5: Very important, very important the industry. But no, we did

start a pivot a couple of years ago into the data center space, and just February we announced our first product, which is a turbine generator. The two issues in data

centers right now is power and water. There's not enough

of either, so of course we're trying to solve the power issue, and bord Warner we are. Fortunately, we have

a lot of competence around combustion engines, high speed rotating electric machines, electric motors, all these things are important for a complete turbine system. So we're partnered with innovation company Endeavor.

They've been building data for many, many years and they're like us. They see the future of the world cleaner

and lower carbon. So we've got a shared view of

the world, and together we're bringing these turbines to market and we're going to start shipping product early next.

Speaker 4: Year, so excited about that.

Speaker 5: Last week we announced also battery storage for the data center space and power conversion products. So think about inverters

like Gritti inverters, and we have a right to play here because as you see with Nvidia announcements, their chips are moving towards this eight hundred volt system and higher.

That's exactly where automotive plays. So we have a lot

of great, scalable, competitive technology to go disrupt the data center market. So we're super excited about it. The auto

space is still very important to us, very core. But

I think it's good you see companies in the auto space offer their knowledge and comp outness also like forward to these growth areas because let's face it, auto is not growing like it used to be, and you know, we're all chasing growth, so I think it's a great fit.

Speaker 3: The turbines is interesting because I when I was doing a story about the Great Pivot from you know, all these players that had ev battery capacity that didn't turn out, and so they pivoted, like Tesla into the stationary storage business. Well,

one of the things I heard is that to get power to you know, a utility or a data center, if you want a new gas turbine, there's like a five or six year.

Speaker 5: Back right on that.

Speaker 4: That's right.

Speaker 3: How were you guys able to turn this around so quickly and get into this space because you're going to be delivering them what next year?

Speaker 4: Right right?

Speaker 5: So this is part of the piece that is really the secret weapon of automotive companies. US included is our

ability to scale quickly, leveraging our automotives suppliers and our know how exceeds that of the traditional industrial players. So

if you think about automotive products, you know we try to stay away from really high end materials, difficult processes, and hence you know our supply chain the same. We

can scale them very quickly. They know how to produce quickly.

In fact, our turbine generator, eighty percent of our suppliers on that are already automotive suppliers to Borg Warner, so they know how to turn things on quickly, they know how to get up to high volume quickly. We know

supply chain as a business better than any business in the world. You know, I'm talking about vertical. The automotive

space is second to none. So that is what is

able to help disrupt this energy crisis that the data center market is in. So right, by the way, did you.

Speaker 2: Know data centers use about the same amount of water as the average golf course in Michigan.

Speaker 4: I didn't know that.

Speaker 2: You know, everybody's got this idea that you know, they just consume vast amounts of water, and they use a good amount, but it's the same as a golf course in Michigan. And that's in Michigan, and we got water

all over the place, right, so I don't know what you know, golf courses out in Arizona or places like that use it's probably more than the average data center.

Speaker 5: Well, in the new data centers, you know, we're moving from edge and cloud computing, where data centers were maybe fifty megawat requirements for power to one gigawatt. You know,

the hyperscalers now to address this GENAI market, they need gigawatts at a time of AI farms. So you know

the amount of power and the amount of water requirements is going up exponentially, so that's a little bit what's creating also this gap between what exists and what they need.

Speaker 2: For the gas turbine engines. Can you take your turbocharger

technology or know how and apply it to that we are.

Speaker 4: That's exactly what we're doing.

Speaker 5: So it's differ different than a traditional you know, axial turbine you would find from ge or Siemens. We're using

a radio turbine, multi stage radio turbo together with our own combustor and recuperator which you know recuperators fancy for an e GR system.

Speaker 3: I'm going to pretend I know what all this means.

Speaker 5: Yeah, these are all you know competencies we use on the car itself.

Speaker 4: Inverters motors. We developed our own high speed motor.

Speaker 5: It turns at seventy five thousand rpm for this data center application.

Speaker 4: So yeah, we were designing.

Speaker 5: The system, putting it all together together with our partner Endeavor, and we're super excited about it.

Speaker 6: So the technology that you guys have in auto scales appropriately.

So there's there's no invention.

Speaker 4: Oh no, there's some new invention here.

Speaker 5: I mean, we have over fifty patents on this new system.

But we're able to leverage you know, thirty years or more of turbotechnolog the turbo know how. You know, it's

not the first turbine we've worked on as a company.

We've died and failed in the past. You know, these

are advanced projects that you have and sometimes that competence comes to life like it does on this project, and we're able to dust off some of the stuff we have, which also allows you to move quickly. You know, if

you're trying to invent everything, that's what you'll struggle with the lead time to get it to market. So no,

I'm really proud of our team. I think it's going

to be a fantastic product when it hits, and we think there's more to come, like the power electronics side, also the battery storage side.

Speaker 3: So forward to spending two billion, I think to get into the battery storage business, different kind of batteries than EV batteries. Sounds like you've been able to get into

this space more broadly with fairly incremental investment, given all of your competencies that you guys already have. But I'm curious,

do you see now the makings of the same sort of thing that happened a few years ago with everybody chasing this you know, AI battery storage space, and you know what happens if that's a bubble as well.

Speaker 5: Yeah, you know, first of all, you know, all businesses have to make bets. Yep, you know, you can't stand still.

You've got to be moving, You got to be looking for growth and innovation. We think the data market, the

data center market, is here to stay.

Speaker 4: And I'll tell you why.

Speaker 5: First of all, if you've ever used these tools like claud or chat GPT.

Speaker 4: On a regular basis, you realize how powerful they are.

Speaker 5: Will multiply that times a billion and think about what it does for an enterprise and all the all the people in the world that can use these tools. So

you know, the demand feels like it's there, even on a personal level.

Speaker 4: Sure, the power shortage.

Speaker 5: You know how many besides data centers, how many people are now talking about enter security. You know, eighteen months ago,

nobody was talking about energy security. You know, Europe had

a war as a war with Ukraine and they weren't taking energy security seriously. Well now it's a big topic.

So in addition to data centers, you've got this push for energy security, more power, more protected power. We already

know the grid in many countries is not that stable, so you know, from our view, even beyond data centers, there's a lot of demand for power generation that's off the grid storage, which storage. A lot of people don't

need this or know this. You need storage to make

sustainable power work. You know, when the sun's not shining

and the wind's not blowing, you're not getting any energy out of those assets.

Speaker 4: But if you have batteries, you.

Speaker 5: Can urge it well or turbine right, and this is a I should say, this is a turbine that meets the most advanced requirements from carb out in California. It's

much much cleaner than a diesel backup generator runs on natural gas in the future hydrogen clean hydrogen, so we think it's also future built to protect for you know, as the energy sources.

Speaker 3: You can run on hydrogen.

Speaker 5: With some adjustments, but it's not a replacement, you.

Speaker 2: Know, So Sean, I don't know if there's any questions coming in. We'll get to that in a minute, but

let's continue the discussion on AI boy. Transformational is truly

the word? Can you give us some examples of have

you been able to apply it at Borg Warner and what it's done for you?

Speaker 5: Sure, So you know, we kind of break it into two pieces. You got gen AI, which is a little

bit more for your back office processes, and then you've got the physical AI, which is what's playing out on the plant floor.

Speaker 4: So think about automation on steroids, you.

Speaker 5: Know, having a lot of murder tools and constant learning of the automation. So we started a couple of years

ago with some pilots to see what works and what doesn't work. We're not a company that likes to roll

out something big and bold from the beginning. We like

to test pilots and see what's working from there. You know,

about thirty percent of the use cases look like they have a good return, so we're busy now trying to span those out across the company across those eighty five locations.

The second thing we're trying to do is really accelerate our physical AI. So if you think about autonomous logistic

vehicles inside your plant moving material around, if you were going to go on a Board Warner plant today versus two years ago, you'll see a lot more machines moving material around you know in the future we're likely to see more humanoids in the plants. That's just getting started,

I would say. So we're busy trying to find ways

to implement it, whether it's on the factory floor to improve productivity or even solve a labor shortage issue which we have a lot of in this country, all the way to the back office where you can eliminate a lot of manual work by building agents and having your folks work on higher level things than just collecting data or reporting data. I think that's a great one for

people to get started on.

Speaker 6: So, so bringing this back to EVS, and you touched on some of these subjects. Today, JD Power announced the

results of their US Electric Vehicle Consideration study. Okay, and

so those who are against evs that they serve a JD Power want chargers as ubiquitous as gas stations, which you know, you were talking about the build out of the infrastructure, you know China sort of here not so good.

Fifty six percent won't pay a price premium to go to your point of affordability. And this is the thing

that I would like you to address. Seventy three percent

would like to have at least five hundred mile range in their evs. Is this is this conceivable without like

having a battery and a trailer behind you that you're pulling along.

Speaker 4: Yeah, so that's one of the higher numbers i've heard.

Speaker 5: You know, a lot of the OEMs they design for either three hundred or four hundred miles of range. That's

what the majority of people ask for. So hey, I

think a couple of things are changing quickly. You know,

first of all, the charging time of a battery is dropping dramatically, so instead of taking all night or even a few hours. You know, some of the new chargers

coming out and technology from the Chinese OEMs, you can charge eighty percent of your battery in eight minutes. That's

a game changer. So for a lot of people that

would be a reason to buy an EV. The capacity,

the power density of batteries continuously improved, so that's what helps you with the same size battery get more range.

So yes, I do think that will create more drivers and buyers in the end. You know, getting to five

hundred or six hundred, you know, that's pretty big step.

You need big batteries and a pretty light vehicle, so you know, probably that's on its way.

Speaker 4: But I think the majority of people in.

Speaker 5: Most countries, you know, they're not buying these massive vehicles where they want five hundred miles of range. It's something smaller.

And you know, most OEMs from all we hear are designing in that three to four hundred mile range, which serves the majority of the people. So I think you're

going to see that in the next five to ten years.

Speaker 2: Maybe we need to express range in kilometers.

Speaker 5: Yeah, I'm sure you do.

Speaker 4: Yeah, y uh.

Speaker 5: You know.

Speaker 3: The thing that is always uh that I've noticed about this discussion is in the whole ev adoption rhetoric, people will talk about, well, if you look at what you actually do on a daily basis, you know, you don't really need, you know, the range that that study says that people think they need. But but I think what

people miss is that it's really hard to ask people to give up a capability that they have with their current products.

Speaker 6: Right.

Speaker 3: It feels like going backwards or losing something. And even

if you never need it, even if you're never towing anything, you're just you're just you know, you're going to the mall with your with your f one fifty or whatever, you still have this notion that I can do that if I need to, and there's, like, you know, a security element about it. I just think people keep under

est like if you have to can evince consumers to give up something that they have currently that they never and convince them that they never needed it in the first place, that just feels like a tough place to be from a from a marketing perspective, I.

Speaker 4: Think that's true, you know.

Speaker 5: And I think if you go back to why are people not buying evs in this market, it's really affordability and it's range anxiety. Those are they don't want to

give up either of those, right to your point. So,

and it's interesting you ask about five hundred miles of range.

You know that number comes down. We've seen that number

come down as infrastructure improves and as charging times improve, because you know, people say I want five hundred miles because it takes a long time to charge an EV they don't know when they're going to see a charging station.

But as you address both those issues, like I get three hundred miles on my Mustang right doesn't sound like a lot, perfectly fine for me because I know I can stop at a gap station if I'm in trouble.

So you'll see that the range will come down as infrastructure improves and timing improves.

Speaker 2: We're getting down towards the end here. I just wondered, John,

are there any burning questions from the audience.

Speaker 7: I wouldn't say burning questions coming from the audience. I

mean there's a few if you'd like me to go through.

Speaker 2: Yeah, yeah, just let's hit a few.

Speaker 5: There is.

Speaker 7: George Cintron says, let me my picture in here. As

a Lucid Air GT and Tesla owner, I can tell you from real world experience, five hundred miles is the sweet spot. So someone does think that five hundred miles

range is the right thing for them, at least. Talking

about the start of the show, Oh, starting out with racing, don't mention F one racing because F One's staff as mad as hell at the IT layoffs this week.

Speaker 5: It's outrageous.

Speaker 4: That's from hof Run.

Speaker 3: I'm assuming that the reference to the general motors.

Speaker 5: Yeah, yeah, yeah, we only want to talk about any five hundred Yeah yeah.

Speaker 7: William Passano says, feels like May is going to be the highest EV sales, might get close to twenty percent market share in America and only assume that they're talking about with gas prices going up, but obviously by your faces.

Speaker 5: No, no, So we have seen a spike in Europe, a little bit in China do the energy prices.

Speaker 4: So you know, if we.

Speaker 5: Have a prolonged war and elevated pricing, you'll probably say that play.

Speaker 3: A little bit long taking to the war. I wonder

if we should hit this. I mean, I know there's

there's supply disruptions, there's commodity cost inflation. If any of

that on your on your radar, keeping you up at night, increasing costs.

Speaker 5: Yeah, so we have a few supply chains that flow through that.

Speaker 4: Part of the world.

Speaker 5: Unfortunately, I've been able to find, you know, mitigation for that or or some options.

Speaker 4: So it really hasn't affected us. We don't have any

employees in that area.

Speaker 5: Our heart goes out for the people that are really impacted by that.

Speaker 3: Any ships of inverters sitting in the streets of news.

Speaker 4: Right awarding that part of the world right now.

Speaker 6: So has a journal done any reporting on whether people are going to be going toward evs as a result of the high gas prices?

Speaker 5: Uh?

Speaker 3: Yeah, In fact, I did a story there.

Speaker 5: You go you right, guy.

Speaker 3: You know, I don't think that we are actually really seeing that yet in the in the in the data.

You know, you have some anecdotes, you have. The only

data that that I have seen that shows a movement in that direction is more soft data. It's like, you know,

edmund says, searches have increased, you know.

Speaker 6: But I'm sure any swing searches go up is.

Speaker 4: What we.

Speaker 2: Used evs because they are affordable. Okay, the residuals are

been horrible.

Speaker 3: Okay, let's I feel like there's a really important clarification with that. Okay, so people are like, well, new evs

aren't selling very much, but wow, look at used dv's. Well,

guess what, there's a whole lot more used evs in the supply than there used to be. There is going

to be this steady, incredible march up of used evs into the supply of used cars coming through twenty twenty eight.

So partially, you know, you can say, is this a demand thing driven by gas prices or is it just a mix a compositional effect of their just being more used evs available to buy.

Speaker 2: That's a fair point. But they're finding buyers, so I

think that's the best deal.

Speaker 3: In the car market, it is, for sure. I used

ev as the best.

Speaker 4: Because they're affordable.

Speaker 3: Yeah exactly, yep.

Speaker 2: Well, look we're at the top of the hour here, we're gonna have to wrap it up. Joe Fidul, it's

been fantastic, Thank you so much for coming on the show. Chris,

great having you back, Thank you very much. And Gary,

you and I are going to be back here next week.

Do we need it again? And of course we want

to thank all of you for having tuned in.

Speaker 1: I'll dontline After Hours is brought to you by bridge Stone Tires Solutions for your journey

AAH #791 - BorgWarner: Go To China To Get In Shape

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