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5. Rheinmetall Automotive AG (Formerly KSPG AG) Business Report FY ended Dec. 2019

Rheinmetall Automotive AG (Formerly KSPG AG) Business Report FY ended Dec. 2019

Factors
1) Net Sales
-The Company’s net sales in the fiscal year ended December 31, 2019 decreased by 6.6% over the previous year to EUR 2,736 million. Excluding currency translation effects, sales in the division decreased by 7.4%.

2) EBIT before special items
-In the fiscal year ended December 31, 2019, the Company’s EBIT before special items totaled EUR 184 million, a decrease of 29.8% from the previous year. Its operating margin fell from 8.9% in the previous fiscal year to 6.7% for the fiscal year 2019.

3) Mechatronics
-In the fiscal year ended December 31, 2019, sales in the Mechatronics division decreased by 8.4% over the previous year to EUR 1,525 million. The division’s decrease in sales was driven by significant declines in the Automotive Emission Systems and Solenoid Valve business units. These sale decreases were partially offset by slight gains in the Actuators business unit. Sales of pumps overall also declined despite improved sales of electrical vacuum pumps and electrical vapor pumps.

4) Hardparts
-Sales in the Company’s Hardparts division totaled EUR 937 million in the fiscal year ended December 31, 2019, a decrease of 5.2% from the previous year. Sales in the Small Bore Pistons business unit declined, particularly in North America and Brazil. The Bearings business unit also had declining sales.
 

Acquisitions

-The Company has acquired a 24.9% stake in Carbon Truck & Trailer GmbH, (CarbonTT) Stade/Germany through its subsidiary KS Kolbenschmidt GmbH. CarbonTT develops and manufactures innovative load-bearing structural components made of carbon fiber-reinforced plastic (CFRP). CarbonTT is focused on the cost-effective series-production of CFRP chassis for light commercial vehicles. CFRP is up to 70% lighter than steel and 30% lighter than aluminum. This weight reduction decreases fuel consumption, increases payload, and enables a longer range for battery electric vehicles. The Company’s aim for the cooperation is to industrialize the production process to OEM standards and to organize the corresponding quality system. In addition, the contribution of other company materials and products opens up a strategic option for the development of additional lightweight applications as well as integrated modules and systems. (From a press release on September 11, 2019)

-The Company announced that its subsidiary, Rheinmetall Canada, took over a 100% stake in Provectus Robotics Solutions Inc. Provectus Robotics Solutions is a Canadian company specialized in the development of advanced robotic systems and software. The takeover expands the Company’s technological capabilities in the fields of robotics and autonomous driving. The Company has already been working closely with Provectus in an unmanned ground vehicle project. This vertical integration gives it a decisive advantage in the field of autonomous mobility technology. The buyout is part of the Company’s strategy of positioning itself as a preferred supplier of cutting-edge technology. (From a press release on July 26, 2019)

Contracts

-KS Huayu AluTech, a joint venture between the Company and Huayu Automotive Systems, has extended its business to include the fields of structural components and electric mobility. As such, KS Huayu AluTech has collaborated with a German OEM for the developed of a battery housing for an battery electric vehicle. Other systems developed by Huayu AluTech include an aluminum electric motor housing with complex water cooling system.

-The Company’s Kolbenschmidt Huayu Piston Co. Ltd. (KSHP) received an order from one of the world's biggest car producers. The order is for modern lightweight pistons for gasoline engines with ring carrier and coolant gallery technology. Developed by Company subsidiary KS Kolbenschmidt, the components will go into production at KSHP in Shanghai starting in 2022. The order runs through 2028. Made for a 1.5-liter turbocharged engine, these pistons will be used in all of the customer's future four-cylinder series in China. The pistons are lightweight and have reduced friction. They meet strict requirements for reduced fuel consumption and emissions, enabling them to meet the latest exhaust emission standards in China. (From a press release on November 13, 2019)

-The Company’s subsidiary Pierburg, Swoboda, BASF and General Motors (GM) have developed the first all-plastic fuel vapor pump assembly in serial production. It is currently produced at Pierburg’s facility in Fountain Inn, South Carolina and installed on the 2019 Cadillac XT4. The assembly is mounted on the engine and directly transfers evaporated fuel emissions from the evaporative emission control (EVAP) system into the engine, thus reducing vehicle emissions and improving engine efficiency. The design incorporates enhancements such as an integrated pressure sensor that provides real-time performance feedback to the vehicle and adds a purge pump that enables the OEM to perform more complex leak diagnostic checks on the EVAP system. The use of BASF’s Ultramid polyamide 6 and 66 grades were crucial to enabling a leak-proof seal for gasoline vapors. (From a press release on November 11, 2019)

-The Company’s subsidiary Pierburg GmbH is currently processing the largest project in its entire history thanks to orders booked for its new Electric Vapor Pump (EVAP). The company currently has an order volume totaling more than EUR 700 million, which entered series production only last summer. Pierburg received orders from renowned American and Chinese automobile manufacturers, which will initially run until 2026. Once the corresponding vehicle series have been ramped up, Pierburg will produce up to 3.5 million EVAPs a year worldwide for these orders alone. The EVAP is produced for the respective markets in Fountain Inn, South Carolina, part of the automotive supplier's North American manufacturing base, and at PHP, Pierburg's Chinese joint venture for pumps in the Shanghai region. The EVAP purges the activated carbon canister without the previously required vacuum in the intake pipe and is therefore particularly suitable for modern engine generations. It is equipped with an integrated pressure sensor for reporting the system pressure to the vehicle's control unit. (From a press release on September 25, 2019)

-The Company’s subsidiary Pierburg has won an order from a German vehicle manufacturer. Pierburg is supplying the electric cathode valves that will be used in future fuel-cell vehicles from this manufacturer. This innovative generation of electric flap systems was developed at the Pierburg site in Berlin and will be used to control fresh and exhaust air mass flows as well as for the extremely tight shut-off of the fuel cell stacks. Production of the vehicles is scheduled to begin in 2022. The new cathode valve contains an electric-motor drive with plenty of reserve power. On the water-enriched exhaust-air side of the cathode, it offers the necessary operational reliability so that no functional impairments will occur even in frosty conditions. (From a press release on August 14, 2019)

-The Company’s subsidiary Pierburg GmbH of Neuss has developed an innovative 2/2 coolant valve, which has just won its first major European order from a premium German carmaker. It can be used in vehicles powered by conventional internal combustion engines as well as in battery-powered electric vehicles. Developed and produced in series in Neuss, it will be installed in the customer’s vehicles starting in 2021. Total order volume will come to around EUR 50 million. Pierburg will supply valves for a complete engine series of this OEM, including 3-, 4- and 6-cylinder gasoline engines where the valve will control the coolant flow to the degas bottle and the transmission. The valves will control cooling of the high-voltage battery for the OEM’s new battery electric vehicles. (From a press release on July 15, 2019)

-The Company’s Pierburg subsidiary a received a major order from a Chinese manufacturer. From its production plant in Kunshan, Pierburg will supply one of the world's largest producers of heavy-duty trucks with exhaust-gas recirculation and reed valves. The order has a lifetime volume of EUR 155 million. On a new production line currently under construction at the Kunshan plant to the northwest of Shanghai, Pierburg will start series production for the final assembly of the components next year. They are designed for newly developed diesel engines for on-road and off-road vehicles with 13- and 15-liter displacement. A double-flow exhaust-gas recirculation valve with integrated electronics has been developed especially for the requirements of the Chinese heavy-duty sector for further optimized EGR system performance. In conjunction with the reed valves, which have also been ordered, the configuration enables an improved reduction of nitrogen oxides within the engine. (From a press release on June 14, 2019)

-The Company’s subsidiary Pierburg GmbH has received an order worth over EUR 90 million for its new variable valve control system UpValve. Production of the valve trains, which are also manufactured at Pierburg’s Neuss plant, will start in 2019. The start of series production of the corresponding vehicles will begin in 2020. UpValve will be used by several Chinese automobile brands at the same time, and the new valve control system can achieve fuel savings of up to 5%. The ordered system will be installed in a 4-cylinder turbocharged gasoline engine co-designed with Pierburg engineers. (From a press release on May 15, 2019)

-The Company’s subsidiary, KS Kolbenschmidt GmbH, announced it has been awarded a contract by a major European and North American truck manufacturer that follows up on already delivered steel piston assemblies and cylinder liners for 11- and 13-liter heavy-duty engines with a lifetime value of over EUR 290 million. Starting in 2020, components developed by KS Kolbenschmidt will go into production at Kolbenschmidt's European headquarters and at Kolbenschmidt de Mexico S. de R.L. de C.V. for the NAFTA markets. The contract will continue until 2025. (From a press release on January 24, 2019)

Awards

-The Company’s Pierburg China Co., Ltd. was awarded the honor of “High Unit Productivity Enterprise” and prize money of RMB 1.2 million by the Kunshan municipal government. The government is promoting the effective use of industrial resources in terms of unit production and innovation. Pierburg China, founded in 2009, is the market leader in some segments of automotive components such as EGR valves. (From a press release on April 4, 2019)

Outlook

-The Company estimates that its sales in the fiscal year ending December 31, 2020 will decline between 2% and 3%, disregarding the potential effects of the COVID-19 virus.

-The Company’s recent research and development focus is primarily on electromobility systems, specifically in electric drives and energy storage. The Company has also started development work in the fields of connectivity and advanced driver assistance systems.

R&D Structure

-As of December 31, 2019, the Company has a total of 1,275 employees working in research and development.

Product Development

Fifth-generation piston systems for high-performance engines
-The Company’s Hardparts division has developed the fifth product generation of piston systems for high-performance gasoline engines. The piston systems further reduces friction within the system compared to previous generations, thus improving fuel consumption.

Low-friction piston rings with diamond-like carbon coatings
-The Company has worked with Riken to develop low-friction piston rings with coating such as Diamond-Like Carbon (DLC). Combined with various smooth cylinder surfaces which the Company has developed, the system provides additional reduction of CO2 emissions.

Electrically driven coolant pumps
-Pierburg’s electrically driven coolant pumps can be used both for cooling conventional combustion engines and for fuel cell stacks. Their non-reliance on the mechanical drive system also makes them ideal for hybrid and fully electrical applications. The pumps are used to enable optimum thermal management for applications including a combustion engine, electric motor or other components such as batteries or power electronics. Pierburg has developed a three-phase sensorless commutated water circulation pump for use in electric vehicles in which the noise emission of the pumps is minimized. Other pumps include the CWP 35, 50, 65, 150 and 250 which deliver 35 to 250 watts. They use a sensorless 3-phase EC engine and are mainly used for cooling auxiliary units. Pierburg provides the CWA 400 and CWA 950 pumps for higher performance ranges. Both also have a sensorless 3-phase EC motor and are rated between 400 and 950 watts. (From a press release on December 13, 2019)

Multi-talented electrically driven oil pump
-The Company has developed a multi-talented electrically driven oil pump. It can be employed as auxiliary for an internal combustion engine as well as for other purposes in the powertrain such as electric motors. An electrically driven oil pump has three subsystems: pump, motor, and electronic controller. On wet dual-clutch vehicles, electric oil pumps have a cooling purpose. Irrespective of the type of transmission, they can also be used as a scavenge pump to reduce splashing losses caused by the gearwheels in the oil pan. Basically, the family of electric oil pumps consists of three pump types with small to medium outputs. Type 1 pumps are mounted outside the oil sump and fitted with a three-phase EC motor and a gerotor. Type 2 pumps are installed to the oil pan and are also fitted with a three-phase EC motor and submerged below the oil level. Type 3 radial pumps are driven by a single-phase EC motor, and are also mounted outside of the oil sump. (From a press release on December 10, 2019)

KS R535L1 polymer-coated thrust washer
-The Company’s KS Gleitlager GmbH subsidiary now offers a new polymer-coated thrust washer KS R535L1 with high resistance to wear caused by start/stop modes of operation and excellent mixed friction stability. The thrust washer, through its polymer coating, helps to compensate mixed-friction drawbacks. The new polymer-coated thrust washer KS R535L1 is based on a more wear-resistant composite, but is also provided with a polymer coating after the part is manufactured. The L1 coating consists of a polyamide solid lubricant composite applied by transfer pressure. Only the washer’s running surfaces are coated with the composite. KS R535L1 shows a significant reduction in wear with an increasing number of start-stop cycles. (From a press release on December 4, 2019)

Products for fuel cell vehicles
-The Company’s subsidiary, Pierburg GmbH, is applying its accumulated combustion engine expertise in pumps and valves to offer special products for fuel-cell vehicles. The Multi-Purpose Valve control valve developed by Pierburg has a particularly compact package with low weight and is suitable for use on the cathode side of the fuel cell. It is resistant to de-ionized water and hydrogen and allows proportional and precise control. It combines low leakage with a high flow rate and low pressure loss at the same time. Pierburg has also developed coolant pumps specifically for fuel-cell applications, which are suitable for 400 volts or 800 volts. These high-voltage coolant pumps are driven by a brushless EC motor with sensor less control. Pierburg has developed a hydrogen recirculation blower based on a side-channel blower without dynamic sealing elements to ensure ultimate hydrogen tightness over lifetime. The hydrogen recirculation blower is available in both high- and low-voltage variants. The blower has effective cold start properties and excellent NVH characteristics. (From a press release on November 28, 2019)

All-aluminum diesel engine parts for four-cylinder diesel engine
-The Company’s KS HUAYU AluTech GmbH joint venture is producing its first all-aluminum four-cylinder diesel engine parts for a diesel engine series from a major German OEM. This is the transverse version of the engine series that is now in volume production. For the engines developed with a displacement of two liters, die-cast housings are used on the lower-performance models. A second more powerful unit uses low-pressure die casting. This uses inorganically produced cores and a special cooling technique to develop the complex geometry of the component as well as mechanical requirements and operating specifications. Production for both orders started in autumn 2018 and is planned to run until 2027. On both models, the cylinders feature a special lining applied by the OEM to deliver significant frictional advantages, thus improving fuel consumption and lowering emission. (From a press release on November 26, 2019)

Electric climate compressor for electric vehicles
-The Company’s Pierburg GmbH has developed an electric climate compressor (eCC) for electric vehicles. The new unit serves the regular HV2 and HV3 voltage levels. The eCC consists of three modularly integrated systems: a mechanical compressor unit, electric motor and power electronics. By using a heat pump to heat the driver's cab, the energy flow from the high-voltage storage unit can be reduced, thus increasing the vehicle's range. During development, particular emphasis was placed on reducing weight and increasing operating efficiency. This ensures economical power management with the limited electrical energy available in the vehicle. A further development focus was reducing compressor noise. The Company has also developed an electronically controlled expansion valve for the refrigerant circuit. (From a press release on November 14, 2019)

KS P180 maintenance-free plain bearings
-The Company’s KS Gleitlager GmbH has developed a new maintenance-free plain bearing called KS P180. By reducing the stick-slip effects, it lowers noise and increases load-bearing capacity under edge-wear conditions. KS P180 uses a new bronze structure and a tribologically optimized PTFE compound which, in combination, significantly exceed the load-bearing capacity, in particular the edge load-bearing capacity. On the axial test bench, the new bearing offers significant advantages over standard PTFE materials. The coefficients of friction of the KS P180 remain at a consistently low level throughout its entire service life. With its new bearing, KS Gleitlager offers a wide range of customized plain bearing solutions for the challenges of electromobility. The application potentials of KS P180 are not limited to shock absorbers, and can be used for example, for fluid pumps, compressors, actuators and steering systems. (From a press release on October 24, 2019)

Technologies showcased at formnext trade fair by Solidteg
-Solidteq GmbH, expert in 3D printing in metal and Company startup, announced that it will be presenting solutions for 3D printing with metallic materials at the Frankfurt trade fair formnext. The main emphasis will lie on general mechanical and plant engineering, special plant and equipment, tooling manufacturers and product development offices, as well as the automotive industry and its related sectors. The presentation shows details of customer projects implemented in a wide variety of industries. The project phases that the company offers from a single source will also be exemplified. These range from consulting to the development of a 3D model, from printing to perfecting and finalizing workpieces. (From a press release on October 21, 2019)

EVP40 vacuum pump for brake boosters
-With Pierburg’s current EVP40 vacuum pump model for brake boosters, it is offering an electric option that operates on-demand and sets high standards in terms of robustness, temperature resistance and noise. It can be used in hybrids and electric vehicles as well as in vehicles with conventional drivelines. EVP40 production facilities include the Pierburg plant in Hartha, Germany, and the Pierburg Huayu Pump Technology joint venture in Shanghai, China. In the design of the EVP 40, particular emphasis was placed on reliability and longevity, as vehicle operability must be guaranteed at all times, with the braking system having the highest priority. Durability and constancy were also key development issues. As such, the pump underwent an extensive testing program under a variety of conditions, including temperature tests from -40 °C to +120 °C. (From a press release on October 17, 2019)

Compact door actuator
-The Company’s subsidiary Pierburg GmbH has developed an actuator for the automated operation of side doors in vehicles (Compact Door Actuator), which is scheduled to go into series production in 2022. Door automation will be used to enhance future autonomous vehicles. The actuator is simultaneously integrated into a safety and security system with sensors for monitoring the immediate surroundings. With its BLDC motor, the new actuator has ample power density while remaining compact. Functions for detecting obstacles and an integrated function for immobilizing the door under zero-current conditions are part of the package. There are also functions for selecting the door closing force as well as an integrated rotation angle measurement of the door opening. The system will also offer integrated protection for pedestrians and cyclists. (From a press release on September 26, 2019)

Technologies showcased at IAA 2019
-The Company will exhibit its Kolbenschmidt and Pierburg brands on IAA 2019 in Frankfurt. It will present solutions for efficient and low-emission combustion engines, electric vehicles and hybrids. In addition, components from the "Beyond Powertrain" segment will also debut. From the field of e-mobility, components for battery-powered driving and electric high-voltage traction units will be presented, as well as a 48V driveline for small commercial and other vehicles. Thermal management systems for electric vehicles and systems for modern fuel-cell drivelines will also be shown. The Mechatronics division with the Pierburg brand is presenting innovations in the field of electric coolant, oil and vacuum pumps. The Hardparts division with the Kolbenschmidt brand is presenting low-friction concepts for modern lightweight pistons. (From a press release on July 26, 2019)

Technologies showcased at Auto Shanghai 2019
-The Company will be exhibiting components and system solutions for emission reduction and efficiency enhancement on combustion engines and for the electromobility segment at Auto Shanghai with the Kolbenschmidt and Pierburg brand. An electric motor housing and a battery tray will be featured, each of which to be produced locally in China by the Company’s Chinese joint ventures. In addition to the cast parts for electric vehicles, the Company will also exhibit components for battery cooling as well as pumps and electric drive units. A heating/cooling module can also be seen as a component of the air-conditioning system of electrically operated vehicles. Products such as exhaust gas recirculation systems, throttle and other valves as well as on-demand pumps help to reduce emissions. Steel pistons and lightweight pistons with friction-reducing coating technologies and high-performance plain bearings will also be shown. (From a press release on April 1, 2019)

New casting process for complex engine block geometries and electric motor housings
-The joint venture between the Company and Huayu Automotive Systems, KS HUAYU AluTech GmbH, has introduced a newly developed casting process onto the market. This new production process was developed for the new Chinese plant in Guangde and is particularly suitable for highly complex engine block geometries and electric motor housings. The great advantage of this process is to enable maximum design flexibility with undercut geometries and all shapes of channels. In addition, the process uses less material and provides weight savings of between 3% and 5%. Due to the extremely low heat conduction of sand, lower wall thicknesses can also be obtained with the same filling speed and melt temperature compared to permanent-mold casting. The new high-tech sand casting solution is currently being used for a 4-cylinder in-line engine with cast-over gray cast iron liners. (From a press release on February 11, 2019)

-The Company’s capital expenditure in the Mechatronics division focused on the industrialization of new products and the expansion of production facilities in Asia and North America, particularly in China. Pierburg China developed and installed new facilities for various truck applications as well as new facilities for coolant valves, throttle vales and divert-air valves. The Company also launched a number of projects in India in preparation for the stricter BS VI emission standard, while investing to ensure that production capacities could meet the demands of these projects.

-In the Company’s Hardparts division during the fiscal year ended December 31, 2019, capital expenditure was focused on the Small Bore Pistons business unit. Specifically, the division focused its investment on the modernization of production facilities for steel pistons in locations in the Czech Republic and Mexico.

Investments in Germany

-The KS HUAYU AluTech GmbH joint venture announced that it is extending the Neckarsulm production capacities with a new 5,000 square meter production shop for structural parts in aluminum. The move is mainly in response to current orders in the product and driveline segments. At the new production facility, KS HUAYU covers the complete process chain from aluminum smelting via die-casting and heat treatment down to CNC finishing and final inspection. The new shop currently employs a workforce of 120. Together with the 1,100 other employees, the castings manufacturer now generates annual sales of EUR 320 million at the Neckarsulm location. The extension of the Neckarsulm production capacities costs approximately EUR 35 million and is required to satisfy additional orders for non combustion engine components including mountings for shock absorbers and suspension struts as well as aluminum cross members. The company is also manufacturing battery trays for electric vehicles currently entering production. (From a press release on January 28, 2019)

Investments outside Germany

<U.S.>
-The Company’s Pierburg US, LLC subsidiary announced plans to expand its existing operations in Fountain Inn, South Carolina. It will invest USD 27 million to install four new production lines in the facility over the next five years. The expansion is expected to be completed in 2024. Pierburg US, LLC's 100,000-square-foot facility produces exhaust gas recirculation modules, bypass valves and components for electric throttle controls. (From multiple sources on December 23, 2019)