Electrification push remains strong despite pandemic, BorgWarner CTO says

BorgWarner Chief Technology Officer Hakan Yilmaz says the shift toward electrified powertrains is happening at full speed, especially in Europe and China, despite challenges created by the coronavirus outbreak. The former Robert Bosch executive, who joined BorgWarner in 2018, also discussed the future of globalization and what type of recovery the supplier would prefer to see as Europe and the U.S. get back to work. He shared views on these topics and more with Automotive News Europe Managing Editor Douglas A. Bolduc.

Will the crisis negatively affect the global shift toward electrified powertrains?
The main driver for electrification today is CO2 legislation. Will it change? I don't know. As of now, however, the Chinese government plans to extend its NEV [new-energy vehicle] credits for another two years. In Europe, the CO2 legislation is still there so electrification is going ahead at full speed.

What about development programs launching in two to three years?
I haven't seen any major indication that our customers are going to pull back on electrification.

The European, U.S. and Chinese markets appear to have different goals when it comes to electrification. How will you best serve all three?
The direction is clear in the U.S., Europe and China. It's all going toward electrification but at different rates. In China, we have had electric drive modules in production with two EV companies for the last two years and our P2 hybrid modules are launching there. We strengthened our position in Europe based on the scale and the capabilities we built up in China. That has helped us win European business on high-volume hybrid programs at well-known automakers. We are also still seeing electrification through hybridization in the U.S. market. Although the CO2 targets in the U.S. are less stringent than in Europe or China, the vehicle footprint and the weight are a lot more because there are a lot of SUVs and pickup trucks there. That drives a lot of electrification, especially with hybrids, in the U.S.

What's the future of globalization in the aftermath of the pandemic. Will it force the industry to shorten supply chains?
That's a very complex question. My answer is: It depends. To operate successfully in the automotive industry as a Tier 1 supplier, you need to be in the U.S., continental Europe and Asia, but you need to decouple those plants from each other as much as possible. That is what we do as part of our LAGS [local accountability, global strength] business model where we mostly isolate those regions from each other. It's not 100 percent. There are some areas where parts are being shipped. Our regional units are in charge of their businesses. That really gives us a tactical advantage when responding to a regional situation. The industry has been going in that direction for a long time.

What if a customer doesn’t want parts from China or any other place hit hard by the pandemic because of fears they could have traces of the virus?
We need to avoid mixing emotions with facts, which is difficult because there are a lot of emotions as we encounter a situation that we have never lived through before. I think things will be more clear in the next couple of months as we come out of this crisis in a managed and controlled way. Then we can go back and reflect on what happened. After the earthquake in Japan in 2011 there were brief talks about not investing in earthquake zones, but we still do. In the end, we need to be pragmatic. It's all about risks and opportunities. We need to look at the facts to make business decisions.
 

What kind of recovery do you foresee?
We are trying to figure that out. Is it going to be a V-type recovery like in 2008, with a big decline and a rapid rise? Is it going to be a U-type recovery because of the extended lockdowns with a quick ramp up? Is it going to be an L-type recovery with a deep recession and a long recovery? We don't know, therefore, we are updating our forecast constantly. What we know is that there is going to be an impact and the numbers show it's not going to be a V-type recovery, unless there's a vaccine that comes out quickly and is immediately globally available and you are back online in a matter of weeks.

What have you seen so far in China?
In China we have seen a U-type recovery. There was an extended lockdown but things have recovered pretty quickly. China will provide some data points on what we might be able to expect in Europe and the U.S. We are hoping and preparing for a U-type recovery so that once the lockdowns are lifted we will be back online going full speed ahead. This is what our customers expect from us. And, this is what we are telling our supply base so they are ready for action.

What if this doesn’t happen?
We are not being naive. If this drags on and we are locked down for a longer period than anticipated in Europe and the U.S., or if consumer confidence doesn't come back for several months, this will have an impact on the automotive market. We are preparing for these more pessimistic scenarios as well. We hope they won't happen. We would prefer a U-shaped recovery.

What’s the status of your operations in China
All 10 of our plants in China are running.

Does that include your technical center in Wuhan, which was the epicenter of the initial outbreak of the virus?
Yes. By the way, the Wuhan plant was our only factory in China that had to be temporarily shut down. The other nine continued to operate at different capacity rates based on customer demand.

Does the current crisis make turbochargers a more attractive solution to cut CO2 in Europe?
We were already seeing a strong move toward turbos. This is not only for conventional turbos but also for electrified turbos. We have an e-turbo and an e-booster. Our e-booster is already in production and we have announced our first e-turbo will launch in 2022 with a European automaker. With our e-turbo, we take our most advanced turbocharger and, on the same shaft, add a motor and an inverter between the turbine wheel and the compressor. It spins the turbo faster, eliminating turbo lag and providing additional boost and low-end torque. This solution helps downsize the engine even further, providing higher peak torque at lower rpms. It's a great synergistic product for 48-volt mild hybrids.

What other products have strong potential to grow?
As automakers shift toward more efficient gasoline engines our EGR [exhaust gas recirculation] systems are growing quite fast. We also are one of the few companies that can build entire DCT [dual-clutch transmission] systems, which used to be mostly a European solution, but they are really growing fast now in China. With demand for all-wheel drive and SUVs growing around the world, we are in a good position because of our transfer cases and all-wheel-drive couplings. These conventional products for combustion driven propulsion systems will also grow quite fast in the next decade.

If CO2 legislation gets tougher because of the pandemic, which of your emissions-reducing products could gain?
The P1 and P2 type of hybrid architectures, where you package the electrical machine between the engine and transmission, are where we see a lot of growth because this is where you can create a lot of agility in your architectures. You can start with a P2-on-axis 48-volt mild hybrid now and get to 2025 legislation. And then, you keep the same architecture, increase the power to 400 volts, add more battery packs and maybe attach a dedicated hybrid transmission and, voila, you have a plug-in hybrid that can get you to 2030 legislation. So, especially in a situation like this [the pandemic], that type of agility and flexibility is definitely a winner for a lot of automakers.

Has BorgWarner’s partnership with battery module and pack supplier Romeo Power Technology led to any additional business?
The Romeo Power Technology joint venture is our entry point into battery packs. We are initially focusing mostly on commercial vehicle applications with the Hermes Module coming from Romeo Power. We don't have anything to announce at the moment, but we are in discussions with multiple commercial vehicle and niche customers around the world about battery packs that would be manufactured by our joint venture.

On March 30, BorgWarner issued a release saying it hoped to reach a takeover deal with Delphi Technologies this year, but said there is “no assurance” the transaction will close due to Delphi’s credit drawdown. Is there anything new to say here?
We still believe in the deal and continue to work on a daily basis to prepare for a closing in the second half of the year.