‘Humble and Hidden’ Auto Suppliers Driving Electric Vehicle Revolution | The mighty 790 KFGO
By Nick Carey and Christoph Steitz
WOERT, Germany (Reuters) – The shift to electric cars may pose an existential threat to combustion engine suppliers, but for auto parts companies such as TE Connectivity, the challenge is to keep up with demand.
It makes the connectors that connect miles of wires in cars to everything electrical, from sensors to fuel injection systems to infotainment – and if there’s anything cars of a electrical era will need, these are bigger and ever more complex connectors.
That’s why TE spent $125 million to open a new building in 2020 dedicated to electric vehicle (EV) parts at a factory nestled in a shallow valley in the small southern German town of Woert. .
And that’s why it’s looking for acquisitions or partnerships to continue to grow its automotive business, chief executive Terrence Curtin told Reuters: “We’re going to keep increasing capacity.”
While former auto parts suppliers determine whether and when to sell combustion engine businesses or buy electric vehicle parts makers, TE and rivals in connector or sensor businesses such as Sensata Technologies, Amphenol Corp and Molex seek to deliver higher value components and do more. development work with automotive manufacturers in transition.
“All of these automakers talking about going electric and making promises of range can’t do it without suppliers like TE,” said William Kerwin, a Morningstar analyst who covers TE, Sensata and Amphenol. .
Auto parts account for more than 40% of TE’s $15 billion in revenue, making it one of the biggest car suppliers most people have never heard of. Its $43 billion market value is well above that of Nissan and Renault combined – and more than three times the heavyweight supplier Continental.
TE has a price-earnings ratio of around 18, Amphenol and Sensata are in their 20s, while Continental is trading around 10.
EXPLOSION OF EUROPEAN DEMAND
TE’s Curtin said auto parts suppliers and automakers had been caught off guard by an explosion in demand for electric vehicles in Europe over the past two years – and everyone was playing catch-up, the new factory of TE was operating at double its planned production.
As a global shortage of semiconductors hit overall auto production, Curtin said automakers were using whatever chips they had to prioritize electric vehicles over fossil-fuel vehicles, which further puts in addition to pressure on suppliers such as TE.
The challenge TE faces is finding the right time and scale for its expansion, given that the transition from electric vehicles and the shift to self-driving cars could encounter speed bumps, such as the end of subsidies or problems safety, Curtin said.
Because for TE, electrification means going further.
The much greater power needed for electric vehicles means TE must develop larger and more complex components to handle the extra current, without causing fires.
TE’s conventional parts have up to five components, but its new EV parts have up to 50 components. The supplier also now buys tons of aluminum, which is lighter and cheaper than copper, to make up portions of these larger parts.
In the oldest part of the Woert factory, the machines spit out 16 connectors for fossil fuel cars per second. In the new building, more complex and expensive machines, some supplied by Germany’s Manz, make larger copper connectors with welded alloy springs for electric vehicle charging ports at a much slower rate.
TE also makes a large connector here that sits atop an EV battery module – an EV has up to 12 modules – and serves as the brain, measuring the performance of each battery cell while a tiny semiconductor measure their temperature.
The new factory in Woert can manufacture 2 million such connectors a year, but demand continues to soar.
“We’re going to need more,” said Matthias Lechner, TE’s head of Europe, Middle East and Africa, adding that TE plans to manufacture more at a factory in Hungary and elsewhere.
Chart: Up: https://graphics.reuters.com/ELECTRIC-VEHICLES/SALES/jnpwebrzwpw/chart.png
Lechner, who describes TE as “humble and hidden,” says its connectors can cut electric vehicle charging times by 10 minutes, a benefit automakers can sell to consumers.
CEO Curtin said electric vehicles and self-driving cars would double the value of parts supplied by TE, from around $70 now for the average fossil-fuel car. This means the gain could be huge.
Electric vehicles nearly doubled their global share of vehicle sales to 6% in 2021, according to research group JATO Dynamics, and that share is only expected to grow.
Europe’s automotive supplier market will reach 330 billion euros ($359 billion) in 2030, up from 216 billion currently, driven by software, electric vehicles and electronics, McKinsey estimates, as companies tackle chip bottlenecks and cost pressures while investing in growth.
“We are seeing a double transformation,” said McKinsey partner Timo Moeller.
TE’s Woert site employs 2,200 people and adds more engineers and technicians, as well as different machines to make connectors for data in self-driving cars – because unlike EV parts, small connections are better for moving data.
TE has three auto parts factories in Germany and five more in Europe. Worldwide, it has 29 factories dedicated to its automotive business.
Morningstar’s Kerwin said TE faces the same risks as others in a cyclical business such as the auto industry.
But he said TE had a “sticky” relationship with customers and had embedded engineers with automakers to develop products for vehicles in the electric age.
“The writing is on the wall that you have to play electrification if you want to be successful,” Kerwin said.
($1 = 0.9194 euros)
(Reporting by Nick Carey and Christoph Steitz; Editing by David Clarke)