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5. MAHLE GmbH Business Report FY ended Dec. 2019

MAHLE GmbH Business Report FY ended Dec. 2019

 
Factors
1) Net Sales
-The Company’s sales in the fiscal year ended December 31, 2019 decreased by 4.2% from the previous year to EUR 12,049.2 million. The Company’s organic sales decreased by 3.0% compared to the previous year. In addition, changes in the consolidated group decreased sales by EUR 331 million, while positive currency exchange rate effects partially offset these declines by increasing sales by EUR 176 million.

2) Engine Systems and Components
-The Engine Systems and Components business unit had sales of EUR 2,617.4 million in the fiscal year ended December 31, 2019, a decrease of 5.9% from the previous year. Sales from passenger vehicle engine pistons, piston rings, commercial vehicle steel pistons and bearings decreased. Sales of steel pistons for passenger vehicles and assembled camshafts both increased due to project ramp-ups in Europe. Sales declined across all of the business unit’s operating regions due to events such as the trade dispute between U.S. and China, or government regulations.

3) Filtration and Engine Peripherals
-Sales for the Filtration and Engine Peripherals business unit in the fiscal year ended December 31, 2019 totaled EUR 2,092.2 million, a decrease of 7.3% from the previous year. While sales of tank ventilation modules grew, sales of air intake modules and air filter decreased enough to offset those gains. Notably, the business unit’s Asia-Pacific operations generated organic growth, though most of the other regions had declining sales.

4) Thermal Management
-The Company’s Thermal Management business unit diminished by 1.6% in the fiscal year ended December 31, 2019, to EUR 4,556.6 million. Excluding currency exchange effects and changes in consolidation scope, the business unit’s sales decreased by 3.6%. Battery cooling products and systems had higher sales, but could not offset a general decline across the business unit. Regionally, sales increased in North America and South America due to high sales volumes of air conditioning and cooling systems in North America, and a market recovery, especially for commercial vehicles in South America. Sales declined in the other regions.

5) Mechatronics
-Sales for the Company’s Mechatronics division increased by 8.6% in the fiscal year ended December 31, 2019 to EUR 491.7 million. One primary contributor to the increase in sales was the acquisition of Mahle Ebikemotion S.L.U. Both Europe and the Asia-Pacific region had significant increases in sales during the fiscal year.

Acquisitions

-The Company’s Mahle Powertrain subsidiary announced that it is expanding its expertise in gear optimisation with the acquisition of ZG-Zahnraeder und Getriebe GmbH (ZG). ZG was founded as a spin-off from the Technical University of Munich in 2008 and works closely with several major vehicle manufacturers and Tier 1 suppliers. ZG will be part of the Mahle Powertrain family. The acquisition complements the Company’s dual strategy for optimizing the internal combustion engine while focusing on new developments in alternative drive technologies. The deal is the latest investment in future powertrain development facilities. Mahle Powertrain has also expanded its award-winning GBP 8.3 million Real Driving Emissions Centre to help customers meet stringent future efficiency targets. (From a press release on March 5, 2019)
 

Restructuring

-The Company will establish a mechatronics business unit for the fields of electrification and new powertrains on January 1, 2020. In order to respond to increasing needs for the efficiency of powertrains and electrification, the Company will consolidate its operations for pumps and other rotating systems that will be key to new powertrains, as well as power electronics products under the new business unit. The Company plans to make the mechatronics field a new business pillar to expand its electric vehicle-related business. The Company aims to improve the ability to deal with customer needs for electrification through the new mechatronics business unit by combining technologies for the evolution of powertrains, such as oil pumps, water pumps, heat pumps, electric drive systems and electric actuators. (From an article in the Nikkan Jidosha Shimbun on December 13, 2019)

-The Company is planning further adjustments to its locations in Italy, France, and Luxembourg. Volatile markets, the flattening of economic growth curves, and political imponderables, such as trade policy conflicts or the uncertainty surrounding Brexit, are causing the economic situation to deteriorate significantly. The Company is therefore planning to relocate its R&D center in Foetz, Luxembourg. By mid-2021, all activities there will be discontinued and integrated into other locations. The organizational merger of the main competences in the areas of mechanics, electric motors, and electronics is already under way with the creation of the new mechatronics business unit as of January 1, 2020. The existing profit center for compressors will also be integrated into this business unit. In addition, the Company is planning to close plants in La Loggia and Saluzzo, Italy. The production plant in La Loggia and foundry in Saluzzo exclusively produce diesel engine pistons. For the production and development location in Rouffach, France, the Company is planning a strategic realignment with the aim of safeguarding the plant’s long-term prospects. As such, the production of air conditioners in Rouffach will be discontinued and its aftermarket activities relocated. This would result in the loss of approximately 240 jobs. (From a press release on October 23, 2019)

-The Company is planning the closure of its Oehringen location in Germany. All on-site operations will be closed in phases through the end of 2020. The location currently has 240 employees manufacturing air management systems for combustion engines. The location has already been under increasing price pressure for several years, particularly due to competition from best-cost locations. Its cost structures do not allow for the acquisition of new projects, and most recently, follow-up orders for existing products with low investment expenditure could no longer be placed. The Company’s efforts to generate a sustainable outlook for the Oehringen location with new products and technologies were also unsuccessful. (From a press release on June 25, 2019)

-The Company anticipates a downward trend in sales development for 2019. This is due to the large number of uncertainties that still exist in the market, such as questions over tariffs and trade disputes, raw material prices, and the lack of clarity over Brexit. The necessary cost savings for 2019 and 2020 require an adjustment to the personnel capacities in indirect functions at the Stuttgart location. Of the planned staffing level of around 4,300 employees in 2019, the Company aims to cut approximately 380 jobs through partial retirement and severance agreements.  The Company has won a number of orders from well-known manufacturers. The acquisition of ebikemotion has enhanced the Company’s expertise in integrated drive systems, apps and connectivity. The internal start-up chargeBIG has developed a charging solution for electric vehicles based on a centralized, scalable charging infrastructure concept for short-term parking lot users and fleet operators. This has the advantage of requiring significantly less infrastructure investment. (From a press release on May 13, 2019)

-The Company’s subsidiary, Mahle Engine Components USA, announced plans to shut down its York, Pennsylvania facility and relocate assembly to its location in St. Johns, Michigan. It also plans to bring a new line from the recently-acquired Brainbee currently located in Italy. The project is expected to generate total investment of USD 2.9 million. The move allows Mahle Service Solutions to have its industry-leading brands located under one roof and a centralized location for efficient customer service and support. (From Michigan Economic Development Corp. article on April 10, 2019)

-The Company will respond to the deterioration in the general economic conditions with an internal cost reduction program. The cost reduction measures include a cut in general expenses such as travel, trade fairs, events, and international meetings, as well as savings in purchasing and a decrease in personnel costs. In Germany, an agreement safeguarding employment, which precludes compulsory redundancies, is applicable until the end of 2019. A review is being carried out regarding global production footprint and personnel capacities available in individual regions and countries. Locations or product areas that show no signs of sustainable profitability are being restructured at an accelerated pace. Besides optimizing costs and improving profitability, the Company will focus on taking the technological opportunities arising from current industry trends. The Company has recently won a number of series projects for electric vehicles. (From a press release on March 25, 2019)

Joint Ventures

-The Company increased holding in the former Mahle Letrika Roots India joint venture from 50 % to 90%. The future unit, Mahle Electric Drives India, based in Coimbatore, Tamil Nadu, will initially focus on the development and production of electric traction motors and control units for the ne market segments of electric two- and three-wheelers. The first components are expected to leave the production line in April 2020. Production of these systems will be extended to other vehicle segments in the future. The shareholding increase in Mahle Letrika Roots India comes at a strategically favorable time. In the summer of 2019, the Indian government announced its plans for a comprehensive subsidy program that will drive forward the expansion of e-mobility. (From a press release on November 5, 2019)

Recent Developments

-The Company has acquired a license package from WiTricity for its magnetic resonance technology. With the acquisition, the Company can work towards becoming a supplier of wireless charging technology for electric vehicles. The magnetic resonance technology offers a further advantage. In contrast to the currently available inductive charging method which requires careful positioning, the Company’s system is far more robust. The Company will continue to build on this advantage ahead of series production development. The parked vehicle will act as buffer storage and will be able to feed its energy back into the network, providing an advantage when efficiently utilizing electricity from renewables. A high level of overall efficiency will also be achieved. (From a press release on February 6, 2019)

Contracts

-By purchasing a chargeBIG charging system, the Stuttgart Airport has opted for a low-cost solution from the Company for the electrification of its employee and vehicle fleet parking spaces. It thus makes optimal use of its existing infrastructure rather than needing to invest extensively in the expansion of its network. chargeBIG is a corporate start-up from the Company with the specific objective of decreasing bottlenecks in the power supply and enabling the rapid development of an extensive charging infrastructure. (From a press release on April 17, 2019)

 
-While the Company invested the same amount in research and development, EUR 751 million, during the fiscal year ended December 31, 2019 as the previous year, the total represents a ratio of 6.2%, a 0.2% increase.

R&D Structure

-As of December 31, 2019, the Company has 6,167 employees working in research and development.

R&D Facilities

-As of December 31, 2019, the Company has 16 major research and development locations located as follows:

• Europe: Northampton, UK; Sempeter pri Gorici, Slovenia; Stuttgart, Germany (2); Valencia, Spain; Foetz, Luxembourg.
• North and South America: Amherst, New York, U.S.; Lockport, New York, U.S.; Farmington Hills, Michigan, U.S.; Troy, Michigan, U.S.; Jundiai, Brazil
• Asia-Pacific: Numazu, Japan; Kawagoe, Japan; Okegawa, Japan; Pune, India; Shanghai, China

R&D Activities

-The Company is examining the resistance of components and materials when using fuel blends with e-fuels that can be admixed under current fuel standards as well as alternatives such as oxymethylene ether (OME) for heavy-duty commercial vehicles, dimethyl carbonate (DMC) for passenger cars, or methane (CH4) as a gaseous alternative. The admixture of e-fuels can produce great savings potential. If allowed, this could mean a decisive step toward achieving the 37.5% CO2 savings mandated at EU level relative to 2021. The Company is also investigating what fuel proportions outside of the current standards can be used without changes to hardware or software. The tests have demonstrated that engine performance comparable to the use of purely fossil fuels is possible with specific admixtures, while maintaining series production data sets and injection systems. This potential should be considered as a supplement to future electric mobility. From a thermodynamic perspective, the Company assumes that these e-fuels will be technically backward compatible for the admixture of up to 20%. (From a press release on September 12, 2019)

-The Company is transferring expertise from a wide variety of research and development areas of conventional mobility to the fuel cell project house, enabling thermal, air, and liquid management and filtration to work together purposefully. The team at the fuel cell project house analyzes the results and defines the design of the peripheral components, which leads to a cost-optimized vehicle. An example of the interaction among development centers is the joint development of heat exchangers and ion exchangers, which produce a durable cooling system and reduce the load on the ion exchanger, ensuring high-voltage safety under all conditions. The exhaust air pathway in the fuel cell vehicle also requires extensive expertise. In order to prevent water from freezing in certain locations, such as parking garages or urban areas, an intelligent system ensures that water disposal occurs only at high speeds. The Company is creating agile internal structures and bundling the expertise of various development fields to respond quickly to changing conditions. (From a press release on August 8, 2019)

Product Development

New 48V battery for mild hybrids
-The Company’s subsidiary Mahle Powertrain presented a new 48-volt battery optimized for use in mild hybrid vehicles. It will maximize recuperated energy that can be stored and released. This can significantly increase the efficiency of mild-hybrid vehicles, allowing fuel savings between 12% and 15%. Optimal battery cooling guarantees strong charging and discharging performance and battery durability. Mahle Powertrain settled on a robust cooling strategy, with simulations showing cooling performance to be on target. The Company’s engineers focused on the design of the busbars and electrical connections within the battery, as high resistance in these components can form an additional heat source and limit the system’s power capability. Testing of the first prototype is underway to verify that it can meet performance targets. The next step will be to install the prototype pack into Mahle Powertrain’s 48V eSupercharged extreme downsizing demonstrator vehicle. (From a press release on November 7, 2019)

Traction motors
-The Company offers traction motors in voltages ranging from 48 to 800 volts, with high power density, a robust design, and optimized cooling. The traction motors are available in various designs, thus enabling optimal packaging. They cover a performance range of up to 250 kilowatts. The replacement of the 12-volt electrical system by a 48-volt system is already underway for passenger cars. In addition, the Company’s 48-volt drive motors are suitable for both urban mobility applications and heavy vehicles. It will thus be possible to use 48-volt drives in high-performance or heavy vehicles as a mild hybrid in the future. The major advantage is that the 48-volt drives remain below the voltage limit of 60 volts, eliminating the need for various safety precautions and complicated connector plugs. Further expanding the application of 48-volt systems, the Company has developed a traction motor that has an output of up to 40 kilowatts and can deliver up to 80 kilowatts to the wheels from a drive unit consisting of two motors. (From a press release on October 10, 2019)

Mahle Modular Hybrid Powertrain
-The Company has developed a new, modular hybrid drive that can be tailored to suit a range of vehicle applications. The Mahle Modular Hybrid Powertrain (MMHP) is a fully integrated, plug-in hybrid drive that incorporates a highly efficient 2- or 3-cylinder, turbocharged gasoline engine. The hybrid drive is suitable for a variety of applications, from B-segment through to large J-segment SUVs. The engine itself has achieved ultra-low specific fuel consumption figures of 207 g/kWh in early stage testing. The combustion engine offers potential cost savings of up to 30%. It generates hot radical jets, which create a very short combustion event, thus enabling a high compression ratio and a high exhaust gas recirculation rate. The use of port fuel injection (PFI), a single overhead camshaft (SOHC) without variable valve timing control, and simple two-valve per cylinder technology minimize costs. The dual-mode hybrid arrangement allows for flexible vehicle operation, while providing optimal NVH behavior. Options for 1-, 2-, and 4-speed transmissions are available, depending on application requirements. (From a press release on August 29, 2019)

Battery housing concept with integrated thermal management
-The Company has developed a new battery housing concept with integrated thermal management to increase the rapid charging capability of the battery. This allows traction batteries to be 40% smaller and thus reduce recharging times. The housing thereby not only reduces the CO2 footprint of the electric vehicle, but also lowers the demand for raw materials in battery production. In order to ensure the required cooling performance during the rapid charging process, the battery cells are surrounded by dielectric fluid. The fiber-reinforced plastic design is not only lightweight, but also extremely robust. The concept also provides massive weight benefits in the vehicle due to the smaller battery. (From a press release on August 14, 2019)

Intelligent engine components for mass production
-The Company is considering mass production of intelligent engine components that monitors operating conditions in real time. The Company’s intelligent engine components are currently used as development tools during development. As a development tool, intelligent engine components facilitate the precise analysis of temperature and pressure conditions for moving components, such as pistons, valves, or bearings. If large-scale production is successful, the use of intelligent components in mass production engines can also be considered. Intelligent components can explore the component limits in an engine or quickly recognize an emerging damage scenario to and enable a prompt response. In the future, intelligent engine components could be used as early warning systems for monitoring operating conditions and ensuring a long service life. (From a press release on August 1, 2019)

Compact economical version of Integrated Thermal System
-The Company has developed a compact and economical system based on its Integrated Thermal System (ITS). The system not only reduces the loss of cruising range, especially at cold ambient temperatures, but can be adapted to future vehicle architectures. Test vehicles equipped with the ITS improved their cruising ranges by between 7% and 20%, depending on the design. The ITS combines various thermal components into one system with several function modes. Central to the architecture is a semi-hermetic refrigerant circuit, comprising a chiller, a coolant-cooled condenser (i-condenser), a thermal expansion valve, and an electric drive compressor. In addition to the low cost and environmental benefits, the ITS features design flexibility and adaptability. (From a press release on July 22, 2019)

E-mobility product range
-The Company offers a broad range of e-mobility products with its power electronics, traction motors, and charging infrastructure solutions. Noise filters cover a frequency band of 150 kHz to 300 MHz with a voltage of 400 volts and are extremely robust and compact. The Company’s onboard chargers have a high-power density and are protected against under and overvoltage, overcurrent, and overheating from both a software and a hardware perspective. DC/DC converters reliably and safely separate the high- and low-voltage electrical systems. The converters are flexible in terms of installation space and design, and are also protected against under- and overvoltage, overcurrent, and overheating. The Company’s inverters are modular and scalable, cover a voltage range from 400 to 800 volts, and are compatible with all common types of traction motors. (From a press release on June 6, 2019)

System to utilize tap water for engines with water injection
-The Company is developing components to make it possible to use tap water for engines with water injection. Existing systems use a water tank that requires regular refills with de-ionized water to protect engine components at high engine speeds and loads by preventing mixture enrichment and reduce pollutant emissions in partial-load operations. The Company is developing a combination of activated carbon filter and ion exchanger to simplify the refill process. This treatment module allows the dedicated tank in the vehicle to be filled with tap water. As part of ongoing tests, the Company is also investigating the treatment of water that is obtained during vehicle operation. (From a press release on May 29, 2019)

Oil management module
-The Company has developed a new oil management module. The unit is comprised of a filter, electric oil pumps, and a thermostat. The new module enables vehicle manufacturers to manage the increasing requirements associated with the development of high-performance electric drives. The pressure-side filtration concept offers a high degree of flexibility in the type, size, and power rating of the pump. This reduces the risk of foaming and cavitation on the suction side of the oil pump. Thus, high-volume flows can be pumped, and low-volume flows can be controlled efficiently. The Company’s new oil management module supports the trend of increasing output and required cooling performance while also meeting demands for maximum efficiency. The reduced interfaces to the powertrain also mean less assembly effort, fewer mounting materials, and reduced assembly times and costs. (From a press release on May 22, 2019)

Melamine cyanurate polymer coating
-The Company’s new polymer coating with melamine cyanurate improves the characteristics of bearings in combustion engines. Melamine cyanurate has unique lubrication properties thanks to its low friction coefficient on account of its multilayered structure. This enables a quicker transition of the bearing to a hydrodynamic lubrication region. At the same time, melamine cyanurate has a high thermal stability, enabling it to ensure a more robust operation of the bearing under conditions of inadequate lubrication. This allows a 20% increase in the load limit at which the bearing shell starts to seize. The new bearings can therefore easily withstand the elevated loads that are becoming more prevalent due to emission control measures such as stop-start systems and hybrid or coasting operations. (From a press release on April 16, 2019)

48V battery design shown at Future Powertrain Conference
-The Company’s new 48V battery design launched by Mahle Powertrain at the Future Powertrain Conference in February 2019 looks to boost the performance of mild hybrid vehicles. It is able to provide CO2 benefits between 12% and 15%. The key component in the system is a small battery pack that is capable of high power charge and discharge cycles. The Company identified this as providing the greatest potential for advancing mild hybrid powertrain technology. The Company’s engineers also focused on circuit and bus bar design and materials to minimize the chances of a short-circuit. The new design will enable better energy recovery and a faster charge, which boosts efficiency. (From a press release on March 5, 2019)

New production process enabling development of steel pistons with kidney-shaped cross section
-The Company developed a new production process with maximum design freedom for the piston gallery enables the use of steel pistons in powerful passenger car diesel engines. The special laser welding process allows for a kidney-shaped cross section of the piston gallery. Thick walls have poor heat dissipation and produce high temperatures at the bowl rim. However, thin walls can lead to undesired high temperatures. A piston gallery with a kidney-shaped cross section that guides the cooling oil flow in an optimal hydraulic path and ensures uniform heat dissipation that makes overheating impossible. The use of steel pistons in passenger car diesel engines saves fuel and thus significantly reduces CO2 emissions. The reason is the lower expansion of steel relative to an aluminum piston, which has a positive effect on frictional losses. (From a press release on February 4, 2019)

Mahle Efficient Electric Transport concept shown at NAIAS
-The Company will present its mobility concept, the Mahle Efficient Electric Transport (MEET) during AutoMobili-D, at the North American International Auto Show. The vehicle makes use of an innovative 48-volt twin-power drive unit. It combines two electric motors, a transmission and a 48-volt electronics system. The Mahle Interior Permanent Magnet Synchronous Motor (IPM) traction drive provides maximum efficiency and dynamics. The basic model of MEET accelerates from 0 to 50 km/h in five seconds. When using the new Company motors, each with a peak power of 30 kilowatts, the time drops to less than three seconds. The 48-volt approach requires fewer safety measures in comparison to high-voltage systems, reducing the cost of the drive by 25%. (From a press release on January 15, 2019)

Technologies shown at CES 2019
-The Company will showcase overall systems competence in the powertrain and in comfort technology at CES 2019. The Company will be exhibiting a mobility concept that has been developed to meet the needs of the urban population in the MEET, the Mahle Efficient Electric Transport, which brings together a variety of Company technologies. The 48-volt vehicle concept features an efficient and dynamic drive unit with integrated power electronics. With the corporate start-up ChargeBIG, the Company is offering a new approach to intelligent charge management in electric vehicles. ChargeBIG is rolling out low-cost charging infrastructure on a grand scale. Intelligent charge management distributes the available power equally between the vehicles needing to be charged. (From a press release on January 8, 2019)

Patents

-The Company registered 345 new patents, along with 600 records of inventions during 2019.
 

 
-The Company invested 52% of its total investments in tangible fixed assets in Europe, or approximately EUR 286 million. While the Company focused most of its European investment in Germany, it also expanded production facilities and plants in Poland, Spain, Romania and Slovenia.

-The Asia-Pacific region accounted for 28%, or approximately EUR 154 million of the Company’s total investment. Similar to the previous year, the Company spent the majority of its investment in the region in its Chinese locations. Specifically, the Company expanded and developed additional production lines at its plant in Taicang.

-The Company decreased the percentage of its investment to North America in the fiscal year ended December 31, 2019 from 18% the previous year to 15%, or approximately EUR 82 million. Its investment in South America remained at 5%, or approximately EUR 27 million.

Investments outside Germany

<India>
-In a company newsletter, the Anand Group informed that the Mahle Anand Thermal Systems (MATS) joint venture has increased its manufacturing footprint with the addition of a new plant in Pune. The plant will have a workforce of 120 people. The new plant, called Plant II has been built as part of the LIFT special project which stands for Lean production, Industry 4.0, Fit for Safety and Transformation. The project was completed in a record time of six months. Plant II is situated in the vicinity of the MATS existing plant, Plant I, in the Chakan Industrial Area, Pune. HVAC production parts line from Plant I will be relocated to Plant II. Plant II will thus specialize in HVAC production. Plant II is expected to contribute around 25% of the total revenue of MATS, and will feed four key customers: Volkswagen, Mahindra, Tata Motors and VE Commercial Vehicles. Plant II has been built per Company guidelines. One of the key highlights in the new plant is the Replenishment Warehouse System. Currently, the topmost priority is achieving zero accidents and zero defects. This plant is also focused on women empowerment, with over 50% of its employees being women. (Based on Anand Group newsletter)