At the CAR Management Briefing Seminars held in Traverse City, Michigan recently just-auto’s Calum MacRae met with Nathan Bowen, Yanfeng Automotive Interiors’ Vice President and General Manager, and Jeff Stout, Executive Director Research, Technology & New Mobility at Yangfeng to discuss the changing automotive environment and Yanfeng’s role in it.
just-auto: Do you think it’s fair to say that if tier one and tier two suppliers don’t have a CASE strategy, that they’ll struggle to survive?
Jeff Stout: I would say yes. It’s pretty clear that the industry is changing. It’s clear that mobility as a service is going to be a dominant impact on the industry. The only question is when does that happen? When does that transition take place? Really aggressive targets put out there are between 2025 and 2030. More conservative estimates have it out to about 2040. So in the next 20 years, whoever you believe, there’s going to be this transition that is going to have an affect on everybody’s business, not only from the tier one and tier two, but also the OEM. If you’re not ready to adapt to that, somebody else will and your world will get disrupted.
Autonomous is here. It’s not a futuristic thing now. That’s going to change the experience of the interior of the vehicle and the less you adapt to that, you’re going to get marginalised for just being a low commodity provider.
Nathan Bowen: I would just say that to be a significant employer in the industry, for sure. You have to adapt to the fact that the environment, the industry, is changing significantly. Autonomous is here. It’s not a futuristic thing now. That’s going to change the integration, the experience of the interior of the vehicle and the less you adapt to that, you’re going to get marginalised for just being a low commodity car provider.
j-a: Do you think the volume is going to be that significant for autonomous and shared and such like…you could be investing in unicorns.
JS: I guess my answer to that would be I think you’re absolutely right. My favourite expression somebody gave me a couple years ago is that economists have successfully predicted 13 of the last three recessions. It’s easy to say this time for real things are going to change, and you’re wrong sometimes. But, I think the reality is as we soak this in and Nathan said it, it’s now no longer speculation as to whether it’s going to happen. It’s going to happen. Will it come at volume? I think the expectation that we have is that, in total, there’s a very high likelihood that the total volume ends up going down because of autonomous. Fewer vehicles are needed. But the thought that the amount of autonomous vehicles will be trivial to the impact of the business, we’re fairly confident that that’s not the case.
j-a: What sort of impact are you seeing that’s going to be on total industry volume? Do you see it substantial or marginal?
NB: We see there’s a couple different things, a lot of different paths it can go. Some of the different things we’ve looked at, from a share mobility concept, okay yeah, you could have the same vehicles going many more miles, but then the interiors will need to be replaced more frequently. What we need to be able to have is business models that adapt to the environment or the industry as it changes and be much more flexible to them so that whether we’re doing things like replacing interiors or whether we’re building small platforms of vehicles, that we can adapt and be flexible to those. I think that’s one of the key points that we’ve really got to adapt to in the industry as we move forward is much smaller platforms and programmes that we were used to in North America.
j-a: When you say smaller platforms, do you mean smaller in volume or smaller in footprint?
We’ve got to be prepared to supply to much smaller volume platforms in the future. The number of OEMs continues to proliferate, that adds to that reduction in the size of the volume opportunity for platforms and programmes.
NB: Smaller in volume, just because there is going to be so many more. Even if you just think about where the markets are going now, you introduce an AV version, an EV version, and a base version. Each one of those will have different components on the interior of the vehicle and so, we’ve got to be prepared to build much smaller programmes, and be more flexible in use of our capital. Even within this region, the number of OEMs continues to proliferate, that also adds to that reduction in the size of the volume opportunity for platforms and programmes. North America, historically, has been really focused on the need for 100,000-300,000 units to really be profitable on the business – I think that point is about to be much lower in the future.
j-a: Conversely, there have been a couple of examples in the industry in the last decade where there have been a universal skateboard platform for electric vehicles shown. So, you’ve got your electric vehicle and you can put whatever top hat you want on it, you don’t see that happening?
JS: We do see that happening, but that doesn’t happen in our world. So, in interiors, the interior is going to be the customisation of the application, whether it’s a specific use-case application and all of those have distinct interiors that define them, even though the rolling chassis is common and shared.
j-a: Do you have any booked business for any of these shared mobility concepts?
NB: Yes, we do have business that’s been booked around EV and autonomous.
j-a: If everyone is looking at the same strategy – I’m sure Yanfeng, Adient, Lear, Magna etc are all looking at the same thing in interiors – how do you differentiate yourself?
NB: A couple of different things. First, we have sole focus on the interior of the vehicle. That’s a change from us when we were Johnson Controls. We have a global footprint and certainly, when we’re starting to look at EV, AV, CASEs with major OEMs, they need a partner that can work with them on a global footprint. We have that capability. We bring all the experience across all major product zones on the interior, so we’re able to have the experience to integrate all of those together, along within the new smart technology, but then an interface with those more traditional components that gives us the flexibility and ability to adapt those to a new interior environment really focused more on the experience in the interior of the vehicle versus just the functionality. It really becomes form, function, feel, and look.
j-a: When you mentioned smart technology, can you give me a few examples of what you mean by smart technology?
JS: This has been a trend even before you get into CASE, in that the joining of the trim and the electronics has been coming for a little while. We’re always looking for what do we need to invest in, in order to be relevant, in tomorrow’s car. Smart Interior Surfaces is usually the name that’s given to that topic and that got recognised four or five years ago. We have some electronics capability within Yanfeng, but not enough to really marry the trim to the electronics. We were able to do that design and research around what was needed there, but then recognised that we needed to have somebody that we could actually partner with to do some of the electronics integration but who didn’t have trim capability. We started working a couple of years ago with KOSTAL to jointly bring Smart Interior Surfaces to market and we’ll have a couple going into production this year. Next year you’ll see more and we’ll have wood, aluminium and decorative pieces in your interior that are capacitive and haptic and display integrated. They’ll all seamlessly be blacked out when you’re not using it, and then come to life when you are using it. It’s just an example of what we do to manage the change in the industry that we see.
j-a: Further ahead, do you see the need for any other joint ventures or partnerships to deliver the changes necessary?
NB: We’ve looked across all the various deco, electrical, lighting opportunities. When you look at that integrated interior environment, where our capabilities are, where those gaps are, and then part of our clear strategy is then to develop relationships, partnerships, delegations with experts in other parts of the industry that then allow us to go to market together to execute a full, integrated interior of the today as well as to the future.
j-a: What do you think the effect of the imposition of tariffs will be on the US supply base?
NB: We’re certainly watching it. As they get imposed we would make adjustments in our business cases and investments.
j-a: What sort of adjustments would you be looking at?
NB: It would all just be financially driven. If there’s increased costs of bringing a component from a different region, then certainly you would look at alternatives. We know OEMs are doing the same things, and so certainly, from a sourcing standpoint, they’ll have to decide where sourcing makes the most sense. Things really haven’t finalised. Things may even get announced and changed, so we just monitor.
j-a: How much headroom have you got in your sourcing footprint to adjust in an agile manner?
NB: Due to our global nature, we have a lot of flexibility in where we can be to support our customers and that’s really the focus around our footprint. We need to be where our customers are to support them. The majority of our plants are really focused on supporting business locally. You just look at the size and the nature of the component that we provide, they’re fairly significant in size, so logistics become prohibitive to shipping parts all around the world. Where the OEMs decide, hey, we want to put a footprint here, that’s where we need to be strategically to support and we’ve got that global scale to do it.
j-a: Generally, how is the Yanfeng business performing in North America and globally, at the moment?
We’ve got booked business to grow to $10 billion over the next few years, so I think we’re quite positive with where we’re headed.
NB: We just celebrated our three year anniversary and we’ve been well received by the market. We’re currently up to US$8.8 billion. We’re the largest interior supplier in the world. We’ve got booked business to grow to $10 billion over the next few years, so I think we’re quite positive with where we’re headed.
j-a: Where did that that growth in business mostly emanate from? Is it from a regional perspective or is it from adding value to existing customers?
NB: Certainly, growth within the existing markets, but I would call it really across the customer base. We really do business with all the major OEMs and those that have entered into the market as well. I would say we’ve had growth in all those areas. As we look forward, I would say most of our growth is from looking at organically within the markets that we serve, but then we also see this opportunity within CASE.
j-a: What keeps you guys awake at night?
NB: The proliferation of platforms that I talked a little bit about earlier. It does require a lot more flexibility in the manufacturing process, and again, from an old school industrial manufacturing, if we can just keep the machine, put a tool in the press and keep parts turning out, it’s pretty easy. Now, when you start adding proliferation and the number of times you’re changing tools, the number of designs that you have to create for the parts that go into the machines to run, that flexibility and agility is something Yanfeng as well as the rest of the industry has to adapt to. Then people I would say, and it’s not just North America. The availability of technical talent in this industry, as we transition from more of an industrial manufacturing process to more of a data driven process, the Industry 4.0 process, it requires changes in the workforce.
JS: From an innovation perspective, what keeps me up at night, and anybody who has read Clay Christensen’s The Innovator’s Dilemma will identify, is as this industry is changing is the ability for large organisations, which have a certain amount of inertia, to meet the changing demand. The reality is, it’s the beauty of the market economy that we live in, someone is going to meet that market need. It’s only a question of whether we are the person who’s going to be that someone. I’m positive that we’re heading in that direction, but knowing that we’ve been competing for years against the same competitors. We know each other. A lot of us have worked at multiple companies. We know each other. Then all of a sudden, this thing changes and there’s going to be new people that come in that we don’t know. So, what does that look like, to have a commercial electronics company come into our space? Well, we haven’t competed against them. It’s a whole new game with a new expectation against new competition and it’s a little bit scary and exciting at the same time.