ZF shifts gears to focus on EV technology

ZF Friedrichshafen, best known for its transmissions, has quietly become a force in high-voltage electrification. It has done so by building on its expertise in electrified gearboxes for plug-in hybrids, which already have electric motors and power electronics. More important, this new business will more than compensate for an expected decline in combustion-based drivetrain components, ZF says. Automotive News Europe Managing Editor Douglas A. Bolduc and News Editor Peter Sigal recently spoke with Stephan von Schuckmann, the ZF board member responsible for electric powertrains, about how the supplier is navigating this fundamental shift.

How hard was it to transform ZF from a driveline specialist to an expert in electric mobility? 

We have been in the electrification business for quite a few years, but a lot of people don’t know that because we have traditionally been a transmission supplier. One example to explain why this transformation was possible is our well-known 8HP transmission, which we are now industrializing the fourth generation of. This has been electrified for years for mild hybrid and plug-in hybrid applications. In the front of the transmission is an electric motor; we also have expertise in power electronics. So, if you take the mechanical side of the transmission, and you dramatically reduce it, and you enlarge the electric motor and leave the high-voltage power electronics -- that is what you would call an electric powertrain today. The transformation is challenging from a product perspective, but it’s something we have been working on for years.

ZF’s CEO, Wolf-Henning Scheider, says he anticipates that by the end of the 2030s ZF will be only supplying full-electric vehicles. How is that changing your business?

A year and a half ago we stopped the development of all applications that are directly linked to the internal-combustion engine. At this point, we are purely focused on developing products for vehicles with electric powertrains. We are busy closing our last (combustion-only) transmission project; most of our engineers are already working on e-mobility. When it comes to plants, our traditional transmission plants are still fully utilized; they deliver to global markets, where the shift to electric mobility is moving at different speeds. They will be filled up with orders through roughly 2025. After that we expect a gradual decline in the traditional [nonhybrid] transmission business. We have an order pipeline of roughtly 25 billion euros for high-voltage electric mobility [plug-in hybrids and full-electric]. With a bit of growth, we will compensate for the downturn in combustion drivetrains. Of course, it not easy. You have to reskill people and you have to keep everyone motivated, but it's manageable from our perspective.

How are you reconfiguring your factory network?

Our big plants in Saarbrucken [Germany] and Gray Court [in the U.S. state of South Carolina] are in the midst of transformation. They are taking a lead role in that transformation, which means they will industrialize certain projects first; for example, Saabrucken is leading in powertrain systems; Schweinfurt [Germany], with more than 9,000 employees, will take the lead in components for electric motors; Auerbach [Germany] takes the lead for power electronics. We are also building new plants. We just built a plant in Shenyang [China], for three customers, where we will be producting powertrain systems and electric motors. We will be building a high-voltage power electronics plant in Mexico, and we are building a similar factory in Serbia. In parallel we are digitizing our plants and making them more sustainable.

What are ZF’s revenue targets for electric mobility?

We don’t publish detailed divisional revenue numbers, but under the current regulatory framework, we are capable of compensating for the downturn in combustion-based business with electric mobility, and even show a decent growth rate. That is our ambition. We are going to try to win more business in the next five to seven years, beyond the 25 billion euros in high-voltage projects that we have already won through 2025 and beyond. We think 2025-26 will be the tipping point for electric mobility -- that is when the business for BEVs [battery-electric vehicles] will be higher than the combustion business.

Are customers looking to ZF for new electric mobility projects because they have relied on you in the past?

We are masters at integrating systems into vehicle architecture, on a very high level. It has been our job to improve the vehicle from an efficiency perspective year over year. Every transmission generation, we have improved emissions and CO2. We are doing the same for electric mobility. We fully understand an application where you integrate three components (mechanical parts, electric motor, power electronics), so we can produce the most efficient powertrains. That is why they believe in us so much. For the end customer, it means less range anxiety because you have a very efficient powertrain.

How does content per vehicle compare for internal combustion, hybrids and high-voltage electrification?

Let's call it value add, from our perspective. A full hybrid transmission compared with a BEV powertrain, we're looking at one to two. That means that the BEV powertrain has about 50 percent value add of a hybrid transmission. On a transmission, we have the mechanical side, including the gears and other components, plus the e-motor, plus the power electronics. The value add on a BEV is lower.

So, a plug-in hybrid is sort of the sweet spot for ZF?

Correct. It adds the highest content and value add at this point in time. But because we are transitioning to BEVs at different speeds in our global markets, we can compenstate for the downturn in the internal combustion drivetrain step by step with BEV applications.

What are the key electrification products that are driving orders?

Our order book is comprised of three components: One is systems where you integrate an e-motor, electronics and mechanical components; we have also won business for the individual components if a customer wants to produce a system themselves. And we can build mechanical components for the BEV business such as transmissions.

Are you talking with automakers about collaborating on developing and building electric components, or are you maintaining the traditional supplier-customer relationship?

Our relationships haven’t changed too dramatically. Some are making their own; others are using suppliers. A lot of these automakers are being challenged in the transformation processes, including electrification, central computing and autonomous driving, so they are sometimes quite happy to have a supplier such as ZF deliver the electric powertrain for them so they can concentrate on the rest of the transformation. It's also budget - or investment-driven - not all have the funds to cover all three aspects of the transformation.

With inflation and rising raw materials costs, questions are being raised about the pace of EV adoption, even as the EU mandates zero-emission vehicles by 2035. Are you still confident in your forecasts about the EV market? 

There are two aspects to that. We are seeing a spike in energy costs here in Europe that is making EVs less efficient to run than a year ago, but if those costs go down the transformation process will continue at the same speed. That also applies to production. There might be a slowdown, but there won’t be a halt. We have seen what platforms are being planned by our automaker customers, and none have said they won't continue to bring vehicles to the market.

What is your split between passenger cars, trucks/buses and industrial applications? Are a lot of your products compatible across all sectors?

Our split in revenue is roughly 70 percent passenger cars, 20 percent trucks and 10 percent industry. All these sectors are currently being electrified. With trucks, since they are heavy and big CO2 emitters, you can imagine the amount of savings you can generate. We are seeing a trend toward electrification for short- and medium-range trips, with a lot of manufacturers switching to fuel cell applications for long-range trips. It’s still an EV, but with another form of energy. From a timing point of view, the transformation could be slower on the truck side, but it's picked up dramatically and now is close to that of passenger cars. 

What are you doing to ensure a consistent supply of semiconductors?

At ZF we say, "The gears of the past are the chips of the future." It's really switching strongly toward semicondutors. Of course, we have had shortages in the last two years, but we have managed things quite well. What we are focusing on more and more is being in strong partnerships, such as with Wolfspeed, which will supply our silicon carbide chips in the future. It could even go a step further, to have our own chip design, with partners such as Wolfspeed.

Are you in direct contact with all your chipmakers to ensure supply?

We are in constant dialogue with them. One thing we are trying to do is if we know there will be a future shortage for a certain chip, we will consider a redesign. Maybe even the next step is feasible.

Could the next step include your own chip factory?

It's always been an interesting thought, and I wouldn't exclude anything.

With some big tech companies laying off workers, is this an opportunity for ZF to recruit some of them? 

Yes, and we are doing that. But we are trying to handle the transformation process within ZF, so that it's not seen as a threat. It doesn't help us if our employees feel threatened or scared or go into hiding. We are trying to involve them with initiatives that allow them to be part of the process and generate value, for example, digitizing our new plants and making them more sustainable. That attracts people from the outside as well as our own employees. There are certain skiils we need to build up from the outside, such as software engineering. But in designing electric powertrains we are using people who were designing traditional transmisions.