Brose bullish on India even as China concerns mount

Ulrich Schrickel makes no bones about the fact that the coronavirus outbreak in China poses serious challenges to his company.

The CEO of the Brose Group says there are “lots of things that are single sourced from China”, which means “we are running in short-cuts” with ship pipelines empty in many cases. As a result, Brose is airlifting components and products to regions where they are needed in a hurry, even if this means coughing up more money.

“For now, it can cost us 20 per cent of our turnover in China for 2020. There could be very difficult times ahead and we need to prepare ourselves and improve the situation,” says Schrickel. The top priority now is to ensure deliveries to customers instead of worrying about the cost issues.

“We need to work on the situation and fix things bit by bit. Nearly 25 per cent of our turnover is from China and it is an important market for sure by virtue of its size. The problem needs to be solved quickly since this is important for us and every other company,” adds the Brose CEO.

Clearly, the spread of Covid-19 has come as a body blow to automakers across the world. For component suppliers like Brose, it means working around the clock to ensure the show goes on. The biggest worry is how much longer the outbreak will last, more so now with other parts of the world throwing up new cases by the hour.

This is also introspection time for companies which bet big on China simply because it seemed invincible as the world’s largest producer of cars. Its gigantic market size, coupled with the dizzy scales of production, also make it a critical hub for the supply of parts globally. The spread of Covid-19 has only shown how frail even the world’s most formidable country can end up becoming.

Spreading risks

According to Schrickel, it is important to use all market opportunities to spread risks since problems are largely region-specific. “This is the same with supply chains, too, and you can be highly dependent on one, which means you need a plan B. You need to have the right product and grow the portfolio, too,” he elaborates.

And even while China continues to battle Covid-19, with other countries now quickly following suit, the other piece of bad news is that the world is truly in the midst of a slowdown all around. Schrickel is of the view that things will pretty much stay the same during this year and next, which means that the global economy is not going to recover in a hurry.

The good part, he says, is that things will look up in a couple of years thereafter, when customers start queuing up for new products and technologies in the automotive space. While Brose is betting big on India, Schrickel things there is a lot of potential in the ASEAN region, too.

If things do go according to plan in this part of the world, Brose will opt for Vietnam as its engineering beachhead. India can then cooperate with Vietnam in these competencies, which will double up as a powerhouse across the Asia-Pacific region.

“We have nothing on Vietnam yet but things could change, especially if we speed on ahead with our plans. We first need to leverage opportunities in India. I think ASEAN can do more for Brose,” says Schrickel.

The company is also bullish on South America, where it has restructured its Brazilian business. “I am a fan of priorities and focus..there is no point doing everything at one time,” he adds. Brose develops mechatronic systems for vehicle doors and seats as well as electric motors, drives and electronics for steering, brakes, transmissions and engine cooling. Its Pune facility produces window regulators, side door latches, door modules and seat height adjusters for domestic and global carmakers.

India as software hub

On the topic of India, Schrickel is clearly betting big on its potential as a hub for software and electronics. These will play a bigger role within Brose while also opening up a lot of possibilities in the sensors business.

“India can help us because it is known for software and electronics. There are a lot of competencies here unlike in Germany or other parts of Europe,” he says. Even while the auto market has been going through its worst slowdown in recent times, Schrickel believes that the future looks especially bright.

“India has a big change in front of it and if you look at a period like 2025 with reduced emissions, it means technology will change, which is good for us. We are doing motors and electronics, and everything that is needed in this change will be delivered by us,” he adds.

In two-wheelers, for instance, Brose is ready to provide electrified powertrain solutions and is already in “close contact with one of the biggest two-wheeler manufacturers” in India. The first samples are due to delivered shortly.

“If you consider the traffic situation here, it is different from other countries and you need different solutions. To start with, electrifying four-wheelers in this market does not make any sense,” reasons Schrickel. This is why two-wheelers mark a better beginning in this space, he adds.

Rational thinking

Whilst on the subject of electric mobility, the Brose CEO is clearly irked at the constant rant about the combustion engine, largely emanating from Europe. According to him, this is being discussed at a very emotional level when the need of the hour is to think more rationally.

“If you look at the pure facts, which I do as an engineer, and then check on what is possible to improve the emissions situation of a combustion engine, betting completely on electrification is not the right approach,” reiterates Schrickel.

On the contrary, he argues, a better option is to have a spread of all powertrain solutions. For instance, electrification is clearly a no-no for a heavy-duty truck that is “doing hundreds of kilometres” everyday. There are very good diesel solutions and even “possibilities in the direction of hydrogen cells” which can double up as alternatives instead.

“Everything is turning into an emotional discussion and there is no debate on facts, which is the problem I have. We are in a situation where we are burning a lot of money and, in my opinion, this is not necessary,” says Schrickel.

According to him, politics should challenge the industry to provide good environmental solutions. The better way is to give targets and improve technology, which “will lead to a happier situation”.

The Brose CEO makes it quite clear that these are his “personal opinions”. Yet, they still hold true for countries like India, which need to “look after its environmental situation, especially in big cities, and also improvement of its traffic situation”.

Yet, it is not as if electric is the only answer for clean emissions. “You have to use the whole variety of green powertrain solutions which are equipped within the combustion engine. BS-VI is the right approach for clean air but don’t put all the blame on the combustion engine, as that would be a big mistake,” cautions Schrickel.

In his view, using the right powertrain concept for the right “transportation situation” is the best way forward instead of 100 per cent electrification, which is clearly the wrong approach. “Let’s first explore how it works: with relatively small money, you can equip two-wheelers with an electrified powertrain solution,” says the Brose CEO.

Getting back to business prospects in India, he believes that an improvement in infrastructure will also see emergence of better technology which, in turn, means “new possibilities for us to make things easier to happen in areas like shared mobility”. It would then make sense in such a scenario for doors to open automatically as the commuter approaches the car.

Sensors market

Sensors is clearly a “big, big play field” for Brose in India and the company is confident that it can find the competencies to help it forge ahead with new solutions in this space. “You need software skills for this and our target is to have a (software) package to orchestrate exterior and interior customer functions. We are working on this vision aggressively,” says Schrickel.

By the end of the day, with the right products for India, the sky is the limit for companies like Brose. He says that OEMs realise this too and the market that is now dominated by two or three names will also change for sure. “This is because of the slew of technologies coming in...if technologies are changing, other OEMs will try to get their share in this market,” he explains.

The key is to be able to turn challenges around and make them an opportunity. “This means that if you design products which are good for the Indian market, they can influence our design for the European market and, hence, keep a strategic advantage,” says Schrickel.

The idea is not to blame a situation “since it is not going to change” but to cope with it instead. Brose, for instance, has projects which are being driven out of India; it is also designing products here and making them ready for use by start-up OEMs in the US.

‘Best-cost’ countries

Schrickel clearly dislikes the low-cost countries tag attached to regions like India. “I would term them best-cost countries and not low-cost countries. We want to pay people here in a fair way for the work they do for us and it is therefore a best-cost country,” he says.

Going forward, Brose will also transfer “a lot of things” from Germany to India not only because of the cost advantage but also due to the fact that there are just not enough experts in Europe. “The market is empty and companies do not get the right experts. We will have to grow fast in electronics and software, which means countries like India are critical to this goal,” says Schrickel.

Brose will also focus on organic and inorganic growth with new customers and products like cooling compressors and e-bicycles, where “we have a good idea how to improve technology with interesting solutions”. Some of these ideas could influence the two-wheeler business for India, too, hints Schrickel.