30th Annual Automotive Insights Symposium

THOMAS KLIER: 1:45 Eastern time. So welcome back. Thank you very much. It is time for the first panel after lunch. I know it's a tough ask to pry people away from conversations in the hallway, but we want to stick with the schedule. And so that's what we're going to do.

Thank you for being here today. My name is Thomas Klier. I work for the Chicago Fed on the other side of the lake. And I work a lot on the auto industry. So I love being in Detroit, especially in this beautiful building. So thank you for being here today.

The panel that we're about to start is about the supplier side of the transition. I have been asked to make an announcement beforehand, though. I believe somebody has lost a brown purse. Is that right? Or is looking for a Brown purse, or maybe we found a brown purse. Look for somebody on the support staff to reconnect you with your lost item. OK, there's that.

Now, I'm going to sit down. So just like in the previous panel, we're going to keep this conversational. Transition towards electrification is a big topic. Most of the discussion and conversations are typically conducted from the perspective of the original equipment manufacturers.

So we're going to change that a little bit, in this panel, at least, where we bring in a couple of reps from the supplier industry. And we chose pretty carefully. We went to companies that are intimately involved within their business units to having to straddle this transitional divide or this transitional gap. So let me just quickly introduce the two panelists.

In case you looked at the program more than 24 hours ago, we had to make some Texas two-step because one speaker wasn't able to come. And then we had some fallout from CES. So we're down to two panelists.

And let me start with Jeff, who is joining us remotely from Ohio, I believe-- Jeff Hemphill, who is with Schaeffler, where he is the CTO, the Chief Technology Officer. And Jeff's an engineer by training, and has been with Schaeffler for quite some time.

And the in-person panelist to my right is Andy Clemence, who represents DENSO, where he is an SVP. And he heads up the green business group out in-- did you say Southfield, I think, right? So we're looking at top shelf tier 1 suppliers who have business activities both in the ICE and in the EV space.

And that's, I think, where we're all interested in-- how this transition is shaking out from these on-the-ground perspectives. And so the way I'd like to run this panel-- very similar to how Martin ran the previous panel, I have a few questions in my back pocket. And I'm going to kickstart the conversation with Jeff and Andy that way.

And while we're doing that and while we're getting started into this subject matter, I strongly encourage all of you to do what you've done in the previous rounds. Submit your questions through the Pigeonhole app. If you are new in the room, if you weren't here this morning, there's a QR code on all the tables here where you can connect to Pigeonhole.

For the audience that joins us virtually, you're on equal footing with anybody here in the room. The questions come to me through an iPad. And if you'd like to upvote somebody else's question, it gets moved up further up on the list. All right, so let's begin. Let's get right into it.

So let me start with a big picture question for both of you. I mentioned already that both Schaeffler and DENSO, within your business units and within the company for sure, there is the straddling of the old and the new world. So I wonder if you could speak to this as general as you like, or as specific as you want to be-- what the challenges and opportunities are that you see when you look at that transition from where you stand. So let me start with Jeff. And then we'll go to Andy.

JEFF HEMPHILL: OK. Yeah, thanks. Thanks for the introduction. And thanks for having me. I really wish I could be joining you in person. They say that what happens in Vegas stays in Vegas, but I can assure you that's not true for COVID. It's right on the airplane with you and goes home. And so you see me in my isolation room here. Otherwise, I would love to join you guys there.

Yeah, definitely challenges and opportunities. To some degree, that's not new for us. Even looking back in my own career when I started as a mechanical engineer, I was working on manual clutches. And the installation rate in the country was 42% manual transmissions. And now, of course, we it's under 2%.

And so in our plant in Wooster, Ohio, we had to figure out how to use our manual transmission expertise to make parts for automatic transmissions, which we did. And now, we're, gosh, I think, 10 times the size we were then. So it can be done. I think the challenge right now is the pace at which it's happening.

I've worked on at least hybrid applications for a good 20 years. And we've always been waiting for the EV revolution to happen. And now, the last couple of years is really the first time that the order volumes are as high or higher than the forecast volumes for e-mobility products.

So it really is definitely happening now. And that certainly presents a challenge. And one thing-- my personal area as CTO, is how do you deploy your R&D? So still, the bulk of the production is combustion engines, transmissions. But you need to develop these new products for the e-mobility.

So certainly, you have a challenge there to either transfer people, but still support the old business, or reskill people. So that's been a big program for us. Obviously, how do you deploy your investments? That's where the timing is probably the trickiest element, but the way I look at it, what I always say is, when you're having a transition, you have to start by looking at your core.

What are you really good at? You have to look at the trends. What do you think is really coming? And then you can't be afraid to innovate boldly. So you've got to recombine that core, maybe with partners with some outside ideas to make new inventions, new products to go along with how the market is changing.

And I'd say, so far, so good. We're pretty happy with our progress. We were even a little bit surprised to find some of the things in our core that could be applied to this new world-- even for example, electric motors. We've been able to make some inventions there. Electric motors are almost 200 years old.

So we're pretty happy with that. It comes from our broad base. We're very vertically integrated, so we basically bring steel coils in, or these days, electrical wires in the back of the plant, do all the work on them, and ship them out the front as new products. And over the years, we've hung on to all those things.

So for example, electric motors-- when we make an electric motor, we stamp our own lamination stacks. So that means we have the tool designer sitting next to the motor design engineer. And they can talk about things like, hey, can I run some coolant through this part of the motor? Can you stamp that feature?

And we don't have to go through NDAs and stuff like that. So by recombining things like that, we've been pretty happy with the results. And then also, you have to keep your eye out for new opportunities. One example is electric vehicles, because of the configuration of the battery pack-- we're pushing out wheelbases more and more.

And that means it gets more and more difficult to park the vehicle. So we were able to take actually some technology from our industrial side. Didn't even start in automotive, but turned out to be a perfect ratio-creating element for a rear steer application. And we just launched that into production to make an electric car able to go around a corner better.

So definite challenges, definite opportunities. As I said, the adrenaline's a little higher in these transitions in the past because the speed is a little bit higher, but we're enjoying the ride so far.

THOMAS KLIER: All right. Wow, Jeff, that was pretty wide-ranging. So there are lots of points we can touch on with follow-up questions. So no shortage of material there. Andy, please. What's your take?

ANDY CLEMENCE: Yeah, well Jeff's said it all. I'll try to add a few different points. As Jeff said, speed is probably the biggest change. For those that don't know DENSO, as Thomas introduced us, we're a global company actually celebrating our 75th anniversary this year in 2024-- over 50 in the US.

So we've got a large presence as well as a large obligation to contribute to this really revolutionary shift to electrification that we see happening in the automotive market. But speed is the big change. Over the last 75 years, we haven't seen anything like what we're experiencing right now.

The technology is really diversified. There's not a standard approach. There's not one way that all the OEMs are moving. They're all looking to create their own differentiation. That requires unique developments, unique investments. There's a lot of opportunity, but a lot of risk. With innovation comes a lot of risk.

So the other thing I'll add-- Jeff talked about integration. Of course, that's really important to be able to bring value throughout the supply chain, but I'll reemphasize the point he made, which is diversification of disciplines. With the shift to electrification, we're seeing there's no longer just mechanical parts or just electric parts.

It's a merging of those disciplines into highly integrated solutions. And so one of the things that we really pride ourselves on is we have strengths in many of those areas, whether it be thermal management, electrification, electronics, software. So we can bring all those to bear to develop these integrated solutions to bring a new level of value to the electric vehicles of the future.

So that's something we're striving to do. To help keep up with the speed, one of the things that we've done as a company is we've really refined our mission and our vision down to two great causes. So if you go and you look up DENSO online, you'll see we're about green and peace of mind.

So our entire organization is now separated and organized around those two great causes-- green, carbon neutrality, and peace of mind, safe, seamless transportation. And that does a couple of different things. Number one, it allows us to organize, but two, it allows us to really stay laser-focused and focus on where we can bring value towards those two great causes and not get distracted by all of the other requests, ideas that could be neat ideas.

But they might be ideas that we, DENSO, can't contribute uniquely to. So that way of really refining our vision and structuring our organization, I think, has allowed us to be really laser-focused and prioritize the product portfolio transformation necessary for us to be able to become an electrified system supplier.

THOMAS KLIER: Well, thank you. Thanks, Andy. So one point I'd like to follow up on is you both touched on that. And that's the question of speed, right? So we're talking about transition. And I think what's really important to have this discussion in it's the fact that both the companies-- the two companies that the two of you represent-- internal to the company, you see the old and the new.

So as one new piece of the industry ratchets up, the other one ratchets down-- maybe not at the same rate. And then the rate at which these changes happen can change. So both of you suggested that speed has picked up somewhat, or noticeably in the not-too-distant past.

I think Jeff mentioned that orders are possibly running ahead for some products in the new space ahead of your production plans. So I want for both of you to follow up on this speed question a little bit. Because when I think about this from an economic point of view, so it's the challenge and opportunities question.

Speed can be too slow. And it can be too fast. There are risks and opportunities in both overshooting, right? Because to the extent that you're expanding into the new business lines, combining software, mechanical, and electric parts-- that's capital-intensive. So you have to fund these operations.

You may have to build out new production facilities. You may have to expand existing sites. And the way I think about this-- and I may be totally wrong, of course. That's why I'm an economist. We can be wrong about so many things.

Presumably, then, the part of the world that you're writing out-- so the ICE world-- faces different challenges, much less of a risk of asking for new capital to be allocated internally, possibly more profitable going forward. But then if the adjustment happens too fast or too slow, you may not be ready for that.

So to make the question specific, all of us have noted the recent announcements by mostly the Detroit-based OEMs in the North American-- specifically, the US market-- to take a deliberate slowdown in this transition to battery electric vehicles. I'm going to start with you, Jeff.

On balance, does that help you catch up to your orders? Is that something where you say, I didn't see this coming that's going to hurt us? How does this work out as you're moving your activities from one side of the ledger to the other to the extent that you can talk about that?

JEFF HEMPHILL: Yeah. So far, for us, I think we've been fairly lucky, one, in that our start in electrification was in the area of hybrid modules. And as the full BEV maybe dials back a little bit-- although it was still a record year for electric vehicle sales in '23-- but the plans are pulling back a little bit.

But fortunately, that's resulting in a greater push toward hybrids. That and just the general driving usage in the US in many cases almost demands a hybrid given the current state of batteries. So that has helped us a lot. And then a lot of the programs that we're on have either not entered production yet or have not been scaled back yet.

So I guess in a lot of ways, we're lucky there. So yeah, so far, not a huge issue.

THOMAS KLIER: OK. Thank you, Jeff. Andy, I don't know.

ANDY CLEMENCE: Well, I'll share on the opposite side of it. No, the lack of acceleration of BEV did not allow us to catch up. It's definitely a difficult thing to manage. The supply chain resiliency is built on stable orders.

And when we see a sudden drop like that, it takes a village to react to it and to be able to both protect our customers, but also avoid the very negative impact of those sudden order cuts. That being said, exactly what Jeff said. When we talk about electrification, everybody focuses on BEV, but electrification is much broader than that.

It's HEV, it's PHEV. In the future, it's going to be fuel cell. And so where you see BEVs not slowing down, just not accelerating as quickly as some predicted, we're seeing some pickup in other electrified areas. And that's obviously something that we're very glad to see.

THOMAS KLIER: Yeah. So thank you, Andy. And so you opened the door to where I want to go next with where you went on your answer. So one risk or opportunity factor is the speed as it's driven by your customers, right? Another way to think about this is they, in turn, of course, respond, at least to some extent, one would think, to the mix of consumer demand, right?

And when we talk about the transition, we tend to focus on the bookends. ICE is the one that's the vanishing technology, even though it's probably going to be-- the intermediate period during which it's going to vanish is going to be longer than we think.

And then on the other side of the ledger, we think about the BEVs, the pure battery vehicles. But there's a bunch of technologies in-between that we typically refer to as hybrids. So I don't know.

Maybe I'm thinking about this naively, but because you're both straddling in terms of what DENSO and Schaeffler can cover in terms of the combination of electromechanical and then the parts of the vehicle that you're supporting with the parts that you're producing, be it thermal management and what have you, are you relatively insulated as a tier 1 supplier from noticeable changes in the mix?

BEV sales are slowing down, orders are slowing down. And in exchange, hybrid demand is picking up. So it's not going to impact ICE, particularly, but the mixture between hybrids and pure electrics is changing? Is that something that would keep you up at night? Or is that something that's easier to gloss over? I'm going to start with you, Andy.

ANDY CLEMENCE: I think it's case-by-case. As you mentioned, my responsibility is the green side of our business. And so that covers thermal management solutions, electrification solutions, powertrain motors. And so in some of those product areas-- for example, thermal-- an HVAC between BEV, HEV, a PHEV, an ICE vehicle fundamentally is the same product.

And so when we see a product powertrain mix, we might not see a big impact on our capacities or our ability to fill orders. But in the case of inverters or MGs, although you have an inverter and an MG in both a HEV and a BEV, the specs are very unique.

And the investment is dedicated. And so in one sense, you can flex based on product mix, but we can't suddenly double the production of a dedicated HEV inverter while absorbing the 50% or 80% drop in a BEV inverter. So I guess the answer would be, depending on the commodity, but it absolutely is a big challenge that we're working through right now and expect to continue for quite some time.

I don't think the BEV market is going to stabilize in the next months, potentially even year. So it's something that we're all in the industry going to have to deal with.

THOMAS KLIER: Yeah. So that's really interesting. So it depends. It really depends. Some stuff carries through, and others does not. So obviously, the detail is what determines the answer. Jeff, did you want to add something to that particular product mix question?

JEFF HEMPHILL: Yeah, it's mostly an echo. We're in a similar situation because we make things like wheel bearings and chassis components, where could be one line versus another, one part number versus another, but it's fundamentally the same capacity.

But then as I said, so far, on the electrification side, because our portfolio-- what we're actually producing today is mostly hybrid-- it's been pretty strong. It's going to get more interesting when more of that portfolio is directly BEV products. So we'll have to see how it shakes out, but yeah, so far, so good.

THOMAS KLIER: Right. Right. Great. So yeah, more complicated than we thought about this even in that dimension. And yes, if we think any of this transition is going to be linear, we're probably going to be so wrong because the surprises that come in, right? I don't know who said it earlier.

I think it was Stephanie who said, look, it's not a question that-- we're all moving towards BEVs. That's not the question. The question is, how are we going to get there? But you can't just connect two dots in a straight line. It's more like 2 steps forward and 1 and 1/2 steps back. And then it's not quite sure where the compensating variation is.

And so that's going to keep a lot of people-- hopefully not up at night, but-- on their toes. So in both of your opening statements, you pointed to things that I want to follow up in my next question. And that goes to where you position yourself as an individual company. And so it goes to company size and degree of vertical integration.

I think Jeff, you specifically said, so historically, Schaeffler has been pretty vertically integrated. The question that I'm asking both of you now is, as you are upweighting the hybrid-plus BEVs, do you see forces that push Schaeffler towards either getting larger, per se, maybe because economies of scale are changing for parts that are no longer mechanical, maybe purely electric, or you see forces pushing you even further into that vertical integration direction?

So how does this transition affect the industry structure from where you sit, from the top of the tier 1 supplier pyramid?

JEFF HEMPHILL: Yeah. From our side, I guess the forces are not so much external as they are internal because we really think the foundation of our ability to innovate is the fact that we have everything at one table. The tool designers, the component suppliers are all coming from inside our company.

So we can really mix those ingredients together and bake different cakes. And in order to be able to do that in the future, obviously, we need some new ingredients. So probably, you've heard about our acquisition of Vitesco recently, which we're currently working on. So that'll bring in the power electronics and control side, which we had a little bit of.

But that'll bring it in spades. So yeah, getting bigger, but not necessarily due to a market force-- just due to our innovation strategy, if you will.

THOMAS KLIER: OK. Andy, I know DENSO recently backwards vertically integrated to the solenoid-- silicon.

ANDY CLEMENCE: That's actually--

THOMAS KLIER: Right. To strengthen your supply chain there, which I think ultimately goes into-- is that the controller or the inverter, I think?

ANDY CLEMENCE: It goes into the inverter.

THOMAS KLIER: The inverter. Right.

ANDY CLEMENCE: Yeah. The one you're referring to-- so silicon carbide is a key technology that enables the efficiency and power necessary for battery electric vehicles through traction inverters. And as you said, we've strengthened our vertical integration or our stake in the supply chain because of the growing demand.

But as Jeff said, we've always believed in innovating at every level of the product. We've contributed technology to SI and and now SIC chips. Even though we weren't necessarily producing them ourselves, we were innovating in terms of the manufacturing process to reduce defect ratios, allow various chip sizes, in some cases larger than what are available from other standard sources.

So it's an evolving relationship in terms of vertical integration. In terms of size, similar to Jeff, I don't see a big pressure to change the size of the company. But the role of the company needs to be a little more fluid based, again, on the commodity, where we can contribute.

And if we can contribute on an elemental technology level, then maybe we relegate ourselves to supplying that level of part. If we can contribute at a much more integrated solution level by bringing all those disciplines I talked towards earlier, then yeah, we can bring traction inverters, and thermal management systems, and those types of products that are also needed for this transformation.

THOMAS KLIER: Right. Right. And probably similar to what Jeff explained, there are, in principle, two ways of doing this integration of the different skills that you need to bring to the table to come up with a new inverter, for example, right?

And one way to do this is through the market. You bring all these pieces together. Or you can do it in-house. And there are some coordinated-- if you do it in-house, it's presumably easier, as long as people respond to your phone calls and show up at the table.

But if you have the talent in-house, then it's a matter-- so that's the coordinating function. And the whole atmosphere in which you can do that would seem to me running particularly differently and maybe gives companies like the two of you represent here a leg up in terms of how you are able to move along as the industry is transitioning.

Because you draw on these resources within one roof, so to speak-- not literally, but the corporate roof. And then it seems like a matter of not necessarily-- that's what I hear from both of you. It's not necessarily you need to double your scale because everybody else is doing that, but what you need to do as you're de-emphasizing certain things, maybe certain products, or certain skills-- you need to get into other things that are becoming increasingly important.

So if it's silicon wafers that you need for your inverter, you need to be in there because you want to control part of that game, right? So you have certainty and you get the intel from much further down in the supply chain earlier than if you were to deal through the phone or through the ordering the part on the spot market, if you will.

ANDY CLEMENCE: Yeah. And again, the way to bring value is to, at the elemental technology level, be able to design something that brings a different level of efficiency, or a different level of convenience, or a different level of cost. And to rely on another company to develop that is a big risk.

And so being able to control that internally in-house is a big advantage. But having the ability to do it yourself isn't enough. Having really strong partners in the industry is important. Having partners that trust you as a supplier and that you can trust to invest, both the human capital as well as the financial capital, to develop and to manufacture these products is really important. And we're very lucky to have some of the strongest partners in the industry supporting this transition.

THOMAS KLIER: Wonderful. I don't know if you wanted to add something to that, Jeff.

JEFF HEMPHILL: Yeah. I think that's a good point. We've been talking a lot about vertical integration. And that is very powerful, obviously, but there's none of us going to do this alone, especially when it comes to new technical areas and really trying to add more value there.

So yeah, also definitely working with suppliers and have more and more engagement in the venture world, looking at startups who could maybe help us working with different universities. We just started a partnership with Honda and Ohio State University to work on solid state batteries. So that was a good point. We went a little too far one way, but yeah, absolutely. None of us are going to do this alone.

THOMAS KLIER: Yeah. No. So yeah, right. That does draw on a whole ecosystem. And then just under where the origins of both of your companies are, you start with ICE. And then you halve that. But as you're moving into partially overlapping new parameters, then you got to build that out. And I think-- I mean, that resonates. So you build out your connections with places where research and development does happen, that's typically labs or universities.

You have to think about the talent part. Are there places where you need to develop skills internally or recruit? Do you need to work with colleges or community colleges to build out new pathways for you to support your activities? And then see where that journey takes you.

I have-- so really appreciate your sharing that with us. I have one more prepared question. So I haven't looked at the iPad at all. I'm sure questions are lining up there. So I'm going to go to my last prepared question. And that gives us about-- let's see, when is this? Oh, we have one-- I think you have an hour left now. We're half an hour in.

So that's plenty of time. Everybody gets their question in if they like. So keep them coming. So there's one more direction I wanted I wanted to take this conversation. And so both Schaeffler and DENSO are global companies.

Now, both of you represent your respective companies activities within the North American market specifically. So you may have an idea of what challenges then the North American market represents within what Schaeffler is doing or what DENSO is doing globally in that space, right?

I mean, if we're thinking about the triad it's Asia, Europe, and the Americas. They're not all moving at the same pace. And they're not following the same set of drivers, quote, unquote, "drivers," no pun intended, which is primarily sort of regulatory drivers. And then the part that's been really important is the policy support drivers. There's real money on the table, especially in the manufacturing space.

So what makes North America unique in this space? Is there something that concerns you? Or are we falling too far behind? Are there unique opportunities in North America from either place that-- either from Schaeffler or from DENSO? Jeff, let me-- I'll go to you first on this one.

JEFF HEMPHILL: OK, is the audio still OK? I'm getting two audio streams here on the webcast.

THOMAS KLIER: OK I don't know what's-- can I get a thumbs up in the back? How are we doing here? OK, thumbs up. So let me repeat the question, Jeff.

JEFF HEMPHILL: Oh no, I think I got the question. I just wanted to make sure there wasn't some other issue going on. So yeah, I would say definitely differences between the regions, as you said, regulatory, and as well as their market is just different. We already highlighted one of those differences is the predominance of hybrids maybe even we see more growth there in the US, for example.

So that's-- Yeah, there's and also definite differences in the speed of uptake, which we also talked about a little bit. And that's exactly why we have what some would say maybe the most complex corporate organization of any multinational. But we have not only a divisions and a function structure but also a region structure. We have a great deal of self-sufficiency in the region.

And we're expected in our region to make sure we're on top of those things and that we're delivering into that market what innovation is demanded there. So that makes it a much more interesting, but also much more challenging place to work. But I think as you point out it would be really difficult to deal with the divergence of those markets effectively from one central location in the world. So that's why we adopt a strategy like that.

THOMAS KLIER: No, that makes sense. Thank you. Andy, I don't know if you want to add something to that.

ANDY CLEMENCE: Yeah, I mean, I think Jeff's point is really good that the solutions in each region are going to be a little bit different. And trying to develop a global solution from one region without input from the other regions is really difficult. And so I think companies with a global view and a global capability have a little bit of an advantage, because they can bring ideas, both the opportunities and unique things from North America, balanced with some of the maybe more consolidated approaches from other areas of the globe to be able to bring a product to market that we have the ability to scale up at an affordable cost.

I will say you touched a little bit, Jeff, about regulation. I think regulation differences plays a really key role. Just one example, with the P-FAS ban in Europe, that driving towards natural refrigerants, this is really creating a bit of a conflict globally in terms of which refrigerant on which type of powertrain, how quickly speed comes back into that. Again, the industrialization, if you tool up for one refrigerant, the technology required for the other refrigerant is completely different.

And so making that decision-- getting that decision right up front is really important for the health and success of the entire industry, not just any given supplier. So again, having a global view, I think, is really important. Having some standardization or some synergy in terms of regulatory support is also very helpful.

THOMAS KLIER: Thank you both. There was one thing that struck me about both of your answers. So I'm going to just piggyback on that one just for a second. So it does make total sense that both DENSO and Schaeffler sort of run from a regional structure, as complicated as that is. That gives you the ability to pay attention carefully to the specific situation in the respective major markets.

Presumably, and so that's the question, I would think that also gives you the opportunity to learn, within corporate DENSO and corporate Schaeffler, as North America, where you both are and where we all are, is moving, for example, in the direction where Europe has already been for a couple of years to the extent that you're doing something similar there. I would think that there are in principle learning opportunities within the company as well, maybe across the different regional divisions, possibly.

ANDY CLEMENCE: Oh Yeah, absolutely. I mean, that's existed in the past. I mean, Europe certainly was leading in terms of emission regulation for many years. And that was driving technology that eventually make its way into other regions globally. So again, I don't think that's so new.

But again, having a global-- having the ability to receive information from your regional headquarters, and consolidating that view, and then piecing together what the global trend is heading towards I think is a really important factor to be sustainable and successful long term.

THOMAS KLIER: Right, right, because it got a little more complicated. So you don't just have differences across one dimension, let's call it ICE, now you have differences across all the other things too. And then you need to put it together. And somebody needs to look out for the corporate interests, because you need to allocate capital globally, and what have you. You need to answer to investors and all that. OK, thank you very much.

All right, so here's the point where I switch over to-- and take on, as Martin put it, the role of the-- I'm just-- I'm here to ask the questions that got the most votes. So there's one leading the parade right now. I'm just going to read the question. And then I'll see-- I'll put it to Jeff first. And then Andy gets to go second. The EV or the BEV consumes significantly fewer components than ICE vehicle. How does this impact your company specifically?

JEFF HEMPHILL: Well, I would say yes and no. It's certainly true that the powertrain or propulsion system of an electric vehicle contains a lot fewer parts than, obviously, a combustion engine and an automatic transmission. And so in that respect, that could change our volumes.

However, so far, and I guess maybe we're a little unique in this respect, because we'll sell, for example, just a single ball bearing to another electric axle supplier. But we also would supply a complete electric axle with a inverter on it, and a gearbox, and an electric motor, and everything.

So in some ways, our component business may be falling. But our system business could be increasing. So jury is out how that absolutely compensates over the years. But we're engineering and delivering now some of the, certainly the largest, most complex parts that we've ever made. So that's one aspect of it. As I said, jury's still out.

But the other aspect of it is that it's really easy to forget is for example, the battery pack or the thermal management system tend to be very much more complex than anything that's in a combustion engine vehicle. And those are areas, I think, where both of our companies are playing. So where you have a much simpler powertrain, you have a battery pack with maybe 900 cells in it with a battery management system interfacing with all of those cells with thermal management integrated in there.

And then you need an overall thermal management system, and again, critically in an electric vehicle, because you have so little energy on board the vehicle compared to a gas powered vehicle, what you do with every single joule of that energy is critical. So your thermal management system has to-- has to have new capabilities compared to the old.

So it can't just take heat from the powertrain and dissipate it to the air or the passenger compartment. It's got to be able to take energy from the air conditioning and put it in the battery or vice versa. So a thermal management system today is maybe 10 times the complexity of what's needed in a regular internal combustion vehicle.

So that's why I said yes and no. Yeah, in some areas, it's dramatically simpler. In other areas, the complexity is even higher. And I think as innovators, one of our big challenges is to drive down that complexity. It's relatively new into this BEV architecture. I'm sure that in 10 years, vehicles are not going to look exactly like they look now. So that's a big opportunity for us to innovate out some of that complexity.

THOMAS KLIER: So Jeff, real quick, a follow-up. So when you say complexity, that doesn't necessarily manifest itself in the number of parts, I think you suggested. So complexity could just mean a much more challenging way to actually harness the existing energy in the car. And that's a matter of having the right flow of energy. And that doesn't necessarily need a new part. But it probably needs a new code, maybe some additional sensors, who knows what? Did I get that right, then?

JEFF HEMPHILL: Well, in the case of thermal management, it actually does need some new parts because, for example, in our module, we've engineered a valve that can connect eight different energy streams one to the other with one electric motor. So you never would have had to do that in the past. You basically would have had a thermostat, maybe your HVAC system working independently. So that's definitely a much more complex product than what we've made in the past.

On the battery side, you could say that's many more parts. But in one respect, they're all the same part. They're battery cells. But that does present an assembly challenge. Because those all have to go in the right place. All the welds have to be assured. So as an assembly, the complexity there is actually quite high.

THOMAS KLIER: Interesting, all right. Andy, the same question to you about the reduced-- the stereotype, obviously, and that's true is you go electric, you take a bunch of mechanical parts out. How does this change life for DENSO.

ANDY CLEMENCE: No, I'll reiterate what Jeff said. I mean, I think from an ideological standpoint, a BEV seems to have fewer parts at the vehicle level. But at an integrated subsystem level, we're not seeing that right now. We're seeing the complexity going up. Yeah, we're not seeing that trend yet. We'll see how it sorts out with the vertical integration of OEMs and what direction they end up going.

I really love the fact that Jeff brought up thermal management. Being an old thermal guy, that's near and dear to my heart. Thermal used to just be what kept you comfortable in your cabin. But it's got a much broader responsibility now in terms of functional safety and making sure that the car can start in the morning on a cold day like today and can operate efficiently. So you don't lose 40% of your range on a cold day.

So thermal management is a much bigger role in battery electric vehicles. And it does become much more complex, integrated valves, fluid management, all of those things are a magnitude of times more challenging than it is on an ICE vehicle.

THOMAS KLIER: That is fascinating. And that kind of conversation we can't go in if you talk about this transition at the OEM level. So that's exactly where I was hoping we could take this conversation. So I mean, I'm old enough, I can talk about thermal management from the experience of the first car I've ever driven, which was a VW Beetle. The heat was either on or off. I guess we've left that far behind. Even in the ICE world, we've left that behind.

All right, small digression. All right, next question, I'm going to start with you on this one, Andy. How far does the demand for an ICE component need to drop, such that the tier 2 who is producing it decides to no longer manufacture it?

ANDY CLEMENCE: That's a-- I'd love to be able to answer that question. What I can tell you now is we're not there yet. I think globally, we're seeing so much demand that even as we-- just to give an example, as we started to manufacture inverters here in North America in the US in Tennessee, instead of starting a new Greenfield site, we made the decision to transform an existing facility that produced starter alternators.

So a very mechanical ICE-based product that we decided we were going to transform that manufacturing site into a future electrification inverter manufacturing site. And so we were able to just consolidate that production elsewhere in the world. So reducing our overall output without necessarily changing the supply chain and the fundamental sustainability.

Now eventually, we're going to get to a point where either the prices start going up because there are fewer suppliers able to supply those components, or some increased consolidation, or even partnerships among customers. So we don't know exactly where that's going to go. But I think we're a ways away from not being able to supply ICE dedicated components.

THOMAS KLIER: And sorry, I can then backfill on that. And that's the key to have a whole bunch of stuff still going on in terms of activity, where you're not at the far-- at least past medium-term equilibrium, where you're down to one dominant propulsion technology again.

ANDY CLEMENCE: Well, like you said, it would be great if it was a linear progression. It would be great if that happened. But it won't. And so I think our responsibility is to try to make that transformation as seamless as possible for our people, and for our associates, and as well as protecting our financial position.

It doesn't do any good to double invest all over the world and then have to constrain it again in five years. So finding a way to make that smooth transition is the biggest challenge we face right now.

THOMAS KLIER: OK yeah, appreciate that. And you just gave me an idea for a follow-up. But I'm going to let Jeff get in first on the original question.

JEFF HEMPHILL: Yeah, not a lot to add. I don't think anybody has an exact answer. Certainly we would probably start by internally consolidating two assembly lines into one, that kind of thing. But yeah, when-- so far, as Andrew said, that's not a problem at all. Actually, our what we say foundation products are still growing in sales. So yeah, it hasn't been an issue so far. But it's going to be a very delicate dance there depending on the slope of the curves there.

THOMAS KLIER: And so that gets me-- that gets me back to a slightly different aspect of this very question. And I think Andy gave me this idea. So you pointed to the challenges. And basically having to use all burners on your stove top or whatever as you're transitioning, even the little one, whatever, the one that's growing big.

And that raises challenges in managing your human capital, managing your physical capital and all that. But as long as you're making some of each, and then so the overall footprint of DENSO or of Schaeffler is not-- at least not in the medium term, and I'm thinking at least by 2030, there's nothing on the horizon that seems to impact that dramatically-- are you currently seeing pressures-- I mean, you gave a specific example of how you were consolidating an ICE part in one location and then freeing up an empty location to move into producing, at least if I understood it correctly, sort of an electrification related part.

So that suggests to me, if I interpret that as more typical than not, that you have also not seen noticeable changes in the footprint of your production operations. Or is that too much to interpret into that one example?

ANDY CLEMENCE: No, I think it's a pretty good interpretation. I think we haven't-- our goal is not to grow our footprint more than we have organically in the past. We don't want to make a sudden decision to grow, knowing that in five years when this part disappears, we have to shrink back again.

So so far, we have been able to manage the transition without that volatility. But it's going to get more challenging if we hit the numbers that the industry is predicting, 50% BEV by 2032, '34, I don't know exactly when we're going to get there. The timing how that ICE powertrain scales down is really going to affect where that inflection point is for us.

THOMAS KLIER: Jeff, did you want to-- does it look similar to you from Schaeffler's vantage point?

JEFF HEMPHILL: Yeah, I would say similar. I mean, so far, not big changes in the footprint. There will be definitely changes coming. And not all of them just driven by the transition. There's also some effects that surprised us. For example, it's virtually impossible to buy automotive grade electrical steel in the US. And there's a whole network of tariffs around that. So that's forcing us to change maybe our footprint a little bit where and how we would produce electric motors. So as that volume rises, for example, that will cause some changes in footprint. But yeah, so far, not a big issue.

THOMAS KLIER: But the writing's on the wall. So when we get out of that current state, which could well last 'till, I don't know, 2030, 2032, or something like that. There's more to come on that space. And we'll have another AIS next year. And we'll bring you back in 2027. We'll see about that.

All right, next question. So that goes back to something we sort of touched on. But it's getting a lot of votes. So I'm going to bring it up to you. Earlier, we made reference to the OEMs specifically sort of slowing down the BEV programs. So are you-- and the question is asking exactly about that, are you seeing delays or cuts to EV programs from the OEM side? As far as what you see, respectively. Jeff, I'm going to start with you on that one.

JEFF HEMPHILL: I think actually Andy said it best. It's not really a slowdown. It's a reduction in the rate of acceleration. So it isn't-- and as said earlier, it's not impacting products that we're currently producing. The ones that are about to launch maybe would be more affected by that. But so far, they're not exposed yet. So yeah, so far not a big impact.

THOMAS KLIER: Yeah, OK.

ANDY CLEMENCE: Nothing really to add.

THOMAS KLIER: Nothing to add. The next one is about battery recycling. I don't-- both-- either one of you-- either both Schaeffler and DENSO probably make components that possibly end up in batteries. So this may be a little far fetched. But it's there with four votes.

Is there anything you can see conceptually-- so I'm ad libbing. Is there anything you can see conceptually it would make either Schaeffler or DENSO enter the battery recycling or something like that, something that-- I guess the idea of going to battery recycling is there's two ways. You could get a path towards resources. And the other way, so the other way to do this is to harness some technology.

ANDY CLEMENCE: I'll take it a little different direction. I don't think there's anything that would draw us specifically into battery recycling. But I do think that we have an intention, a desire, an ability to contribute beyond just automotive, beyond just transportation. The grid is going to be really a key factor in terms of the ability to support the market transition to electrified powertrains.

But that grid needs to be sustainable and renewable. And so we need to stabilize the grid. And there are some technologies that we believe we can contribute in terms of fuel cell, hydrogen generation, hydrogen storage, hydrogen conversion into electricity that I think can really contribute to the stabilization of that grid, which ultimately, will relieve some of the anxiety that is preventing or making it difficult to transition as quickly to electrified vehicles as the industry needs to and wants to.

THOMAS KLIER: Yeah, definitely. From a system perspective, definitely complementary. And if the knowledge is there from what you're producing, there's an opportunity to grow. Jeff, any additional comments?

JEFF HEMPHILL: Yeah, not so much in the field of batteries. We're just starting on the research side of solid state cells. So we have to make them before we figure out how to bake the cake. We did just start a program on how do you best recycle a permanent magnet synchronous machine. So we're starting to get active in that field. But yeah, not so much in batteries.

THOMAS KLIER: Thank you. So some of these questions that are getting into both of your respective areas of expertise. You're both engineers. I'm an economist. So I'm just going to walk right in there. So the difference between 12 volt and 48 volt systems. So Tesla is leading-- I mean, Tesla introduced the 48 volts. Is this going to be the new standard? And are we going to get that quickly? Or have we-- I mean, are we going beyond 48 volts? Does anybody want to opine on that?

ANDY CLEMENCE: Go ahead, Jeff. Nobody wants to touch this one.

THOMAS KLIER: OK, that's fine. You can just take a rain check too.

JEFF HEMPHILL: We're definitely seeing an uptake in 48 volt for things like chassis actuation. Actually, for some years, we produced a roll stabilizer that's 48 volts. And obviously, there's a advantage in you don't have to step the-- if you're in an electric vehicle, you don't have to step the maybe 800 volts all the way down to 12. So you could save a little money on your inverter there, especially for the higher power devices like a roll stabilizer draws 3 kilowatts at peak or something like that.

So that could substantially change your inverter if you were trying to go to 12 volts. But I don't-- I'm not based electrically. I'm a mechanical engineer by trade. But I think the bulk of the systems would probably stay at 12 volts just because they're so standardized that it would be a real big undertaking to re-engineer things that don't need to be 48 volts to be 48 volts just so you can say you don't have 12 volts. I don't know if we ever get that far. But I don't know, Andy, if you might have better thoughts here. You're a more electrical company than I am.

ANDY CLEMENCE: I'm a mechanical guy as well. But I will say we saw this debate, 400 to 800 volt. There's a lot of debate about whether 800 volt really had a future or not in BEV. And now we're seeing that come to fruition. Many of us can remember, for 20 years, it was 42 volt is coming. And it never did.

48 volt definitely has merit. And like Jeff said, certainly on paper, it makes sense. But can you offset-- can you offset the cost of developing all new components with the need-- with the reduced need to step the voltage all the way down to 12 volts to make it a scalable solution across the board? That's still yet to be seen, I think.

THOMAS KLIER: I mean, it's sort of the equivalent to legacy code. Some things just aren't economical to just throw them all out the window. Of course, if you start from a clean slate, that's a different story. OK, got you. The next question goes sort of towards how you look at your supply base, respectively.

So we talked a bit about how both Schaeffler and DENSO are optimizing capital allocation and human capital allocation within the company. And then you organized regionally and all that. In the context of facing these challenges over the time horizon, as far as one can plan, as we're moving towards more complexity and higher share of electrification, what challenges do you face in the area of supplier relations, including things as monitoring, the supply-- your supply chain, the ability to be confident in the financial stability of strategic suppliers, things of that nature.

Are you doing things in that space that are not necessarily game changers? But do you feel like you have to up your game because it's now getting more complex internally? So you want to make sure you hold up the bargain as far as the kind of parameters that you're monitoring as far as your own supply base goes?

ANDY CLEMENCE: Yeah, I think I mentioned earlier about partners, I was talking about partners up in the industry to customers. But partnerships down through the supply chain are really important as well. And it's something we've always really valued, our ability to be flexible and resilient in the supply chain globally.

We don't see the challenges easing. If anything, they're accelerating. More natural disasters, more volatility in terms of order fluctuation due to this transition to electrification. So the challenge isn't getting easier. And so we're continuing to innovate even on the supply chain management side in terms of predicting supply chain resiliency, looking for secondary sources to have flexibility globally.

And again, that's one of the advantages of being a really present global company and having suppliers for standardized components in other regions. Gives us a lot of ability for customers to trust that we're going to be able to deliver.

THOMAS KLIER: And so you could have a situation where one company supplies you everywhere around the world, right?

ANDY CLEMENCE: You could. There are some always some cases of that. But that would not be our target by any means.

THOMAS KLIER: Well, I didn't mean to say exclusively supplies you around the world. So I mean then you're relying on one supplier only, that's probably not a good idea. Because you don't have a plan B. But anyway, OK, got you. All right, thanks, Andy. Jeff, is there-- what does this look like from where you are?

JEFF HEMPHILL: Yeah, I would say similar. I mean, we certainly added in bold letters of the word resilience to our slide decks and our discussions after the supply chain disruptions. So far, for us at least, that's largely settled down. We're-- our biggest challenge is really to assure that we're bringing in the right suppliers for these new more highly integrated products. So that's really where most of our focus is right now.

THOMAS KLIER: Yeah, right. OK, onto the next one. And keep your votes and questions coming. All right, so the next one is sort of more take this transition and you break it into a personal career perspective. So when you started as mechanical engineers, there was ICE and ICE only.

And that's certainly a thing of the past. ICE is still there. But it's gotten a lot more complicated. So we talk about this transition towards electrification. Now, we can quibble over what that includes. I think one of you said that earlier, and it's probably-- I'm guessing it's more commonly than not commonly understood that electrification includes fuel cells as well, I would think so.

And so in that context, when you look at your career, where you've come from and where you are today, and you look down the road, is there anything of similar magnitude that you see coming the way, or this is it? I mean, it seems like an easy question to answer because I can't see anything bigger than what we're currently going through. Because it's going to take us a long time. But then again, you just don't know that happens tomorrow. So I don't know. I'm going to go with you first, Jeff.

JEFF HEMPHILL: OK, yeah, I would-- certainly, it's by far, the biggest disruption that's in sight. It's a little bit hard to see beyond that. But the historical record is clear that innovation is not going to stop. So there will be something beyond this. But I'm going to read about it in my retirement, I guess, because I'll be lucky to shepherd us through this one.

THOMAS KLIER: OK, I hear you. All right, Andy, anything else?

ANDY CLEMENCE: I think the shift to electrification is enough of a paradigm change for us to tackle right now. It is a topic, though, that I do spend a lot of time talking to our employees, our associates about. There's a lot of anxiety about the shift to electrification, like you said.

They grew up mechanical engineers. They grew up driving ICE vehicles. This is one of the things that we're talking with local universities about is that the practical experience with electrified vehicles is largely missing from the workforce. They didn't grow up working on their electric vehicle.

They grew up working on their ICE vehicles. So they fundamentally how the technology works. They can apply that practical knowledge to their learned academic knowledge. And then develop the next generation product for that vehicle. But it's largely academic knowledge today.

And so I really think partnering with universities to grow practical experience. So that the new engineers coming into the field have a good basis to contribute is important. But at the same time, our current associates are still extremely valuable. Just because we're switching from mechanical to electrified components doesn't mean that we don't need good systems engineers. And that's transferable. So we've got a spot for everybody. It's just helping them reskill and upskill to be able to continue to contribute like they have been.

THOMAS KLIER: Yeah, it's actually-- want to take that because that touches on a question that's on the laptop here. If you can go one more round on the challenges and the skill environment. So let me just take your answer and recast a little bit, and give you the opportunity to chime in a little more if you like.

So the challenges are twofold, obviously, it's on the retention of the existing workforce. And that includes re-education or additional skill building. So somebody who came up through the mechanical engineer side and now has to learn electric engineering, they can feel threatened in terms of their career. And some of this training, you can do in house. For some of that, you can partner.

I don't what the right educational institution is. That would be a community college, or a technical college, or technical university. And then maybe equally important or more importantly, depending on very specific factors, like the age distribution of your engineering staff, is the recruitment.

So the auto industry is relatively new to electrical engineering. But there are other industries that are not as new. So do you do you recruit, then, primarily fresh graduates from engineering schools? Or are you trying to find people from anywhere you can that includes other industries?

And is that tied, as well, into your ideal footprint? Does this change the game at all? I mean, carmakers used to go to California for the design studios. I don't know if that's a comparable situation or not. So there's a lot there in this space. If there's anything you want to expand on, I think that would be really interesting. I'm going to start with you, Andy since you opened that door already.

ANDY CLEMENCE: Yes. Retention and attraction is something that we absolutely are hyper focused on. And you're right, there's upskilling, reskilling our existing human capital, which is really important and really valuable to us.

And then there's bringing in entry level engineers. There's finding engineers from other industries that have the skill set and the capability to come into the automotive industry and innovate, bring a different perspective. So the answer is yes. We'll take the best and the brightest from anywhere.

THOMAS KLIER: OK, that's right. Anything goes, that's right. I would assume that applies to Schaeffler as well. But I don't know if you have a specific variation on the Schaeffler take on the talent challenges, Jeff.

JEFF HEMPHILL: Very much echo that. And actually, I would emphasize a point that Andy made, a very good point earlier is I grew up working on cars with my dad. You can't really work on your electric car today. So one of the things that we have to do is-- and we do quite a bit of this and probably need to grow it is support some of these student teams.

So working on, say, SAE formula electric, that's a chance for you to really maybe even put together your own inverter, weld up a battery pack, figure out how an electric motor works on a dyno versus a vehicle. So we really need to engage at the co-op program level, even at the high school and maybe middle school level.

Because part of the issue here is that everybody that's going through school right now is seeing names like Google, and Amazon, and Apple. And those are the sexy employers to go to. So we've really got to continue to get the message out there that, hey, a car is really a phone on wheels these days. So there's tons of interesting work you can do in this industry.

So yeah, very much echo that. But yeah, also, really got to engage these students. And as Andy said, make sure they're getting some kind of practical experience. Because that's just invaluable.

THOMAS KLIER: Yeah, no, that's actually-- so I want to emphasize that point. Because if you think about this, that ties into the whole question of what can a state or a region do to stay in the game. We're here in Detroit, obviously, which has done really well in terms of the ICE based industry.

And you mentioned these specific programs, even down to the high school level, college competition, the SAE programs. I think it's important to get the word out on that. Because that sort of opens up a pipeline for companies that are hiring, that are looking for talent. But if you're interested in putting yourself out there, I have interests and I have a skill set, I can't work in my family home garage like Jeff did with my dad on getting under the hood because it's not mechanical anymore.

So that's another way to get your foot in the door as somebody who's looking for a career. So I think that's well worth emphasizing. And that's mostly why I wanted to repeat that point. And specifically, because Jeff mentioned some specific programs.

There's a whole slew of policy questions related to that supply of talent and staying in the game. And then ultimately, it feeds back on location attractiveness, of course. Not everybody is infinitely mobile. We all have places that we prefer to be at, regardless of what our job is.

So that's an important dimension and typically doesn't get mentioned in this transition. So this doesn't happen in a vacuum. All these things happen because people are managing complexity within corporate structures. And the challenges abound, not just in terms of solving the problems that arise. But who is going to solve them? Under what leadership? Under what management structure? And under what talent pool?

So yeah, no, that is indeed fascinating. All right, so let's see. I got to catch up to the questions. That one we have. Is there-- are there particular factors that you could share with us that you're looking at when you decide who you enter business programs with, in light of the complexity?

I mean, I would think you're going to point-- if you want to speak to that at all, you're going to point to the obvious things, like guaranteed volumes, the reputation of the partner, and things like that nature. But it is possible, I don't know, we brought this up earlier, I think the three leading Chinese electric vehicle producers are apparently scouting Mexico for production locations.

So that's-- I don't know, hypothetically, I'm an economist. I can make assumptions. So that's a potential business venture five years down the line. So I would think there's a playbook, obviously, at each of your companies, how you screen potential business opportunities. I'm not sure that spending in a certain direction, when it comes to the transition, it's still a business venture. But I may be thinking about this wrongly. So I'm going to start with Jeff again on that one.

JEFF HEMPHILL: Yeah, I mean, ultimately, it has to come down to, like it did before the EV revolution, that it has to be a business that makes sense for the customer and the supplier. And for us, that means it has to be something that we're good at. So we're good at a lot of things. But we're not good at every business. And it doesn't make sense to try to squeeze a square peg into around hole if it's not suitable to us. It's probably not going to work out.

We have had to expand a little bit of our horizon in terms of the new mobility players because one of the shocking things that maybe a lot of people don't think about, but it's been hundreds years since somebody stood up a high volume car company in the world. And now we've had two of them created in the last 30. And those are different companies to work with, not just those two, anybody who's in the new mobility space.

So you have to be willing to think about that in a different way and maybe consider some different factors. How much are you going to learn? How much can you really contribute? But fundamentally, it comes down to are we going to offer each other value as customer and supplier.

THOMAS KLIER: Yeah, thank you, Jeff. I assume you're going to second that.

ANDY CLEMENCE: Yeah, I mean, I think every business is a living thing. No path to a new business is the same path. But at a very macro level, similar to what Jeff said, does it fit our vision? Does it fit our green peace of mind vision, our strategy? If it's outside of that, it's an easy answer.

Do we have a trusting partnership that can make the business work for both companies, both the customer and the supplier? Do we have the necessary resources to support it, be it human or physical capital footprint? And then finally, can we contribute something unique in that space? If we're just making the same thing that five other suppliers are making, that's probably a space that we don't want to venture into too deeply.

THOMAS KLIER: Great. I'm going to go back to a technology question. So I'm not sure this is true. So I'm just going to spell out my assumptions. So my impression is that both Schaeffler and DENSO, in your business model, are primarily oriented to light vehicle producing customers, as far as automotive is concerned, not medium and heavy. But I may be wrong.

And the reason I bring this up because somebody asked what, from your vantage point, the status of hydrogen fuel cell vehicles is. My impression is that the viable business models, primarily, at the moment, are playing out sort of in the much heavier vehicles because there are some real disadvantages to the size of the all electric battery that you would need to support a class 8 truck, potentially.

So I don't how much this plays a role for either Schaeffler or DENSO. But I'm going to put it out there because it was a question that was raised. So I'm going to go to you first, Andy.

ANDY CLEMENCE: Well, fuel cell is definitely an area that we're heavily invested in. It's a technology that we believe has a place in the mobility space. Now whether it's at the grid level, the actual passenger vehicle level, or a certain segment, like a heavy duty truck, is still-- there's still a lot of barriers to overcome, the price of hydrogen, the infrastructure to transport and distribute the fuel, combined with the technical hurdles to overcome to make it a mass market solution.

So I think it's still got a bright future. But it's-- I would say I don't have much to contribute in terms of how fast and how far it's going to go.

THOMAS KLIER: No, no, no, that's all good. Thank you. I appreciate that, Jeff. What's it look like for you?

JEFF HEMPHILL: Yeah, would say a similar story. We are actively producing bipolar plates for fuel cells and also electrolyser stacks on our industrial side for the production of green hydrogen. And certainly, we've seen the transportation market, anyway, shift maybe from passenger cars, more over to heavy duty trucks due to the issues that you mentioned there. But as Andy said, there there's still enough hurdles to overcome there that it's hard to say how much by when. But that's definitely the general trend.

THOMAS KLIER: Yeah, right. Well great, just-- I thought I had the next question ready. And I lost my train of thought. That's wonderful, isn't it? Oh man, it was right here. OK, just give me a second. Oh yes, so I want to go back sort of to an industry structure argument.

And this is a question that obviously has some competitive relevance. So you can, obviously, decline to answer this or order it anonymously. But Jeff mentioned the rather unusual fact, in terms of the history and the structure of the global auto industry, that nobody stood up a new company until less than 20 years ago, we got two new ones.

Are you seeing competition arising from that supplier universe of one of those two companies? And so the presumption is then, just like Tesla and BYD can do things differently because they start with a clean sheet of paper, Schaeffler and DENSO are straddling ICE and straddling the future, straddling the past and straddling the future. And both of these pieces are going to be active for a long time.

So the way I read the question is, is there-- how much are you worried about competition from the pure electric side and as that filters down? That gets debated a lot at the OEM level. And there's interesting conversations to be had about that. Is there a conversation to be had at the tier 1 level as well?

JEFF HEMPHILL: So are you asking-- are we going to stand up new suppliers because of electrification?

THOMAS KLIER: Well, that's one way to think about it. Is are you seeing competitive threats coming out of that space, let's say out of the Tesla supplier universe that grew up with supporting the pure player? And here, Schaeffler now has to watch the flank in whatever direction.

JEFF HEMPHILL: I don't think from our side necessarily a big concern there. Although I will say that for the foundation products with all the OEMs, the established as well as the new, the field of competitors had sort of baked itself down to a few. Whereas on these new products, everybody got the memo.

And everybody is out there quoting. If you want to quote an e-axle, or maybe not so much thermal management, but some of these other things, there's 15, 20, 30 suppliers sometimes. But at the end of the day, it hasn't been a huge worry for us.

THOMAS KLIER: And if you think about it, thermal management is the thing that came up between both of your companies. So thermal management is something that you need to solve in a BEV or in a hybrid. And even if you come up with a pure BEV OEM as a supplier in that universe. You still have to solve that problem.

And it's not clear that you're going to be better able to solve this problem if you don't have a history in ICE. Because you've already dealt with thermal management. It's getting more complex, but still, you have a history of dealing with that. So that may not be a disadvantage, I think. It's one way to possibly think about that. But I think that's a good point. Andy, did you--

ANDY CLEMENCE: Yeah, I mean, I think we always have the threat. And we certainly welcome new players in the industry. It keeps us all-- steel sharpens steel. But I don't see a massive influx of new players. So what I will say is that, as we talked about, there are a lot of things that are at play in terms of the expansion of electric vehicles. And part of it is market acceptance.

And every time we hear about a big problem with an electric vehicle, it becomes the talk of the market. And so executing these new vehicles at the level of quality and reliability that the market expects from 100 years of ICE vehicles is really important. We have to get that right. And I think suppliers that have a foot in the past that know what it takes to execute systems in the automotive space, in the environments that we deal with, have a leg up in terms of delivering those solutions.

THOMAS KLIER: That's certainly a point to stress and repeat. Because I think when we talk about the competition as it plays out in the delivering solutions to the consumer space, that's something we sort of gloss over. And of course, at the peril of missing majorly important discussion topic.

I mean, there's a reason why Schaeffler and DENSO are succeeding in this space. And a non-small part has to do with where you come from historically, what knowledge you can draw on. And that knowledge includes the ability to come up with solutions. And you're as challenged as anybody else to come up with solutions to problems that are more complex. But you have a history of finding solutions to thermal management issues. And so then you put those two together, there's no guarantee you're going to beat the new guy. But you're in the game.

So as we're coming to the witching hour. And I think if I remember the program right, when we close this panel, I believe Kristin, confirm or not, there will be a break? Is that right? OK, good. So here's how I'm going to wrap this up. I'm going to give you both an open-ended question with a small footnote element to it.

And the open-ended question is what is the main takeaway from this discussion that you want to emphasize to our audience about from where you sit, what are the one or two items that you want us to remember about this conversation? Of course, we're going to remember everything, right?

So there is the opportunity to double down on something. And if you're willing to, can you share with us what's in your vehicle park at home? You don't have to name brands. You don't have to name anything. But just put it in the ICE and the non-ICE bucket if you would. Jeff, I'm going to go with you. And then Andy, you get to wrap it up.

JEFF HEMPHILL: OK, well, I guess my main message would convey is the automotive industry is certainly changing faster than it's changed in my career. But as usual, innovation is going to get us through this, all the way from our suppliers up to us, to the OEMs. We're going to get this thing done.

And you can really feel the energy in all of those places as we work through this together. So they say necessity is the mother of invention. And I think that's really happening. And I've said every year for 36 years that I've been doing this, it's a better year to be an engineer than it was last year. And it's still true.

Any kind of engineer now, chemical, electrochemical, material science, electrical, software, embedded software, it's just fantastic. And no matter how you look at the march of human progress, all us humans talking together like we're doing today, giving each other new impetuses, new ideas, that has produced a continuous improvement in the standard of life around the world. Still a long way to go in a lot of cases. But the progress is obvious. And we're definitely going to get there.

So in my garage, I've got a totally conventional Honda CRV. I've got a hybrid Explorer because we make the hybrid module for it in Wooster, Ohio. And I have a 1967 MGE with an RX8 rotary powertrain in it. That's about the mix.

THOMAS KLIER: All right, well, there's some complexity in the ICE world for you, a rotary powertrain. So there you have it, wow. OK, I didn't see that coming. OK, I get that. Andy, you get the last word.

JEFF HEMPHILL: Neither did my wife.

ANDY CLEMENCE: I don't have anything as cool as Jeff in my garage. But I do-- I do have a plug-in hybrid that I'll share a story about why I ended up with a plug-in hybrid over a battery electric vehicle. It was-- at the time, I was shopping for a new vehicle, I was running our operations at our Battle Creek manufacturing plant.

And so I was commuting out there. It's a 130 miles one way. So I was commuting three or four times a week. And the battery electric vehicle was just not quite ready for that commute. And so I chose a plug-in hybrid. And I share that story because I do think that we talked about the diversity of powertrain options.

Eventually, battery electric is going to get there for everybody. But there are going to be transition technologies. And I'm a strong believer that hybrid and plug-in hybrid vehicles will actually help accelerate the industry's acceptance of battery electric vehicles. So I'm proud to be an owner of a plug-in hybrid vehicle.

But I do think one thing we didn't touch on in this panel is the role that we all play in terms of helping to convince the consumer that this transformation is good for everybody. And there's still a lot of rumors, and fears, and anxiety out there about owning a battery electric vehicle.

Some of them are reasonable. If you do have a long commute, that's a reasonable anxiety. But for 99% of users, for 96% of the time, a battery electric vehicle is a better solution for them. And so educating the market to help the adoption of these vehicles, I think, is going to be a really key factor.

And that's not just on the OEMs. That's on the government, the financial institutions, everybody. So that's one point. And then as far as closing thought, it was a really good panel. I think we covered a lot of area. I think it's a really exciting time to be in the automotive space.

I'll reiterate what Jeff said. Companies aren't going to solve this problem, people are. And it's not just engineers. It's across all functions. But engineers will play an outsized role in that. And really excited to be a part of it. So thanks for the opportunity today.

THOMAS KLIER: Well, thanks, both of you. You've been very generous with your time. And we worked you hard because we unexpectedly lost our third panelist. So the denominator just went from three to two. And you both had to talk a lot more. And we got more questions in. And I mean, kudos to both of you. This was awesome. Thank you very much. Let's join me in giving our panelists round of applause.

[APPLAUSE]

So all present in the room, we now get to mingle again. I don't know if there are refreshments outside, maybe? There are refreshments outside, of course. And it's a 15-minute break? It is a 15-minute break. And we can reconvene for the last panel of the day before-- after that panel, then the final element of the program is the reception if you would like to join us for that. So thank you very much. All right.