Magna: The Automotive Supplier That Manufactures Cars – Autoline This Week 2309

Magna: The Automotive Supplier That Manufactures Cars – Autoline This Week 2309


Magne is an impressively diversified auto supplier that is growing at double-digit rates on this week’s show CEO Don Walker talks about Magnus involvement in ride-hailing autonomy and electrification and now here’s your host John McElroy want to thank you all for joining us on outline this week today we’re going to be talking about one of the most interesting automotive supplier companies Magna International a 40 billion dollar company that’s growing at double-digit rates you’re gonna find out why it is such an interesting company because our special guest today is Don Walker the CEO of Magna International and Don it is great to have you on the show with us my pleasure to be here also joining us today are joe white from reuters andrew winter from wards and good to have the both of you guys here too Don one of the things I find so interesting about magnet is you’re a contract manufacturer you make cars for car companies including Mercedes BMW Toyota Jaguar at your plant in Austria the Magna Steyr plant but if I understand this right you’re also going to be building cars in China for the beijing automotive industry corporation and there is rumors out there too that you might have a plant in the US for one of these V’s electric vehicle startups evil asset II and let’s just start out talking what is your plan here I mean what’s the strategy behind being the only supplier in the world that makes cars for car companies well it’s one of our business units we have a number of different business units and it’s we bought a company called steyr number years ago for a lot of reasons one they were very good in power train and they’re very good in engineering so yes we do make vehicles for others under contract but with the really interesting part of the business in my opinion is they can engineer a complete vehicle and when we see an engineer a complete vehicle it’s to help design the vehicle program management launch it look at the supplier look legit –ax bring it all together and we have a very flexible assembly plant so as an example for jlr we have the electric vehicle in the internal combustion engine going down the same line with the same tack time so a lot of capability but it’s really the engineering and understanding complete vehicles and complete systems as we look at a full drive train or the electronics of a vehicle that really helps so Don are you and do you have the capability now and it seems like you might if a company startup company and say China and we’re I know you’re working or I believe you’ve been working with VIN fast the Vietnamese company have a real just a real startup and all they’ve got is a concept in a business model they do not have a car or they do and they didn’t have a 70 plan are you basically able to put them in business or you do what Pete what pieces are you missing well yes we can we can design a complete vehicle I would say for the most part if we’re doing well for our traditional companies like BMW BMWs or jlr they will design it and they’ll say this is what we want to do for electronics architecture and here’s Arabella materials it’s a lot easier to work with them to engineer a vehicle but we have engineered complete vehicles if you’re starting with a brand new company it’s much more difficult than most people understand the car makers completely get it but we can do it but it’s very difficult to come up with a competitive vehicle unless you have some building blocks already there specifically in the bill material but we can do it yes and we have so Magna has a lot of different divisions and all sorts of stuff is it how big a piece is the manufacturing of vehicles and what’s your what are your most pop profitable business units well it’s not a sale it’s relatively you know it’s reasonable sizes about five points five point five to six billion dollars out of the 41 billion but that’s because we count the sale of the the selling price of the vehicle it’s a number of people it’s relatively small and Magnus so it’s not a big part of our business the engineering parts IAM the important part of the business we don’t talk about profitability necessarily by by segment although we just changed how we report so we have four big sections one is the complete vehicle one seating one is the body and structures exterior is a vehicle and one is our powertrain Electronics and our mechatronics and that’s the area it’s it’s a it’s about 12 billion dollars of our sales but we also have about four billion dollars of joint ventures we manage in there but that’s the unit that has most of our software capability that’s why we put it all together to try and optimize the software but they’re up there all stainless is that they don’t hit their return on invested capital then they’re you know we wouldn’t keep punting them and so they’re all all good return businesses so let’s go back to the contract manufacturing you’ve got this big plant in Austria you’ve announced that you’re going to build a plant in China and then there’s those these reports out there that eva lhasa tea is looking for magnate to build cars for it in the US is that what’s going to happen but we have a full-size assembly plant very well established it’s made three and half million vehicles in Austria we just built an addition to additional paint job and Sylvania which is not far away because we were gonna be running out of paint capacity in China very short explanation is we’ve got B a is C has a subsidiary that makes electric vehicles so we are working with them to design future vehicles that’s a joint venture and then we’ve also bought into a joint venture with them one of their assembly plants so it’s already got the land it’s got the building paint shop they’re already making vehicles there so we can expand it but that will be to build the vehicles that are being engineered which of the electric vehicles and we can also put other contract vehicles in that plant when they’d like to see us do that as well to fully utilize it so we’ll have the capability as far as North America it’s a bit like a chicken-and-egg if we had an assembly plant here I believe we’d be getting lots of orders because we have lots people talking to us but it’s a big capital investment and you have to have long term so we never talk I never say publicly who we’re talking to obviously but there is interest and I think there’s a long term but a viable business model to make vehicles under contract for other people but we don’t have anything presently here do you so as you you have an a publicly announced partnership with lyft which have just you know just six very successfully launched their IPO and raising capital and they’ve got a pretty stout valuation to the extent that you can I mean where do you see the relationship with lyft going where do you see your relationship with ride-hailing companies globally going because again it’s been a lot of talk didi for instance been very open about saying we would like to have somebody design us a car that’s purpose-built for our kind of work talk about that I mean how big an opportunity is that segment or that sector for you I think the ride-hailing business is huge and getting bigger so congratulations to Logan green on getting because they dissenters to any price last night and we have an equity position there as many other people do so I’m glad to see they were successful the reason we got in the in the relationship with lyft was we already have a lot of capability when it comes to cameras surround view we’re launching a brand new which we think is going to leapfrog technology and radar and we’re we just got a contract for working on now with a German OEM to to bring to market advanced solid-state lidar so the sensors the sensor fusion the brains we’re working on that for levels 1 2 & 3 we it’s a very expensive work in level 4 or 5 that’s what we got in a relationship with a lift and what of co-developing some technology and I won’t time to get in all the details but we would make the the components and engineer the vehicles for it but we’re co-developing I personally think we’re gonna see a big fall out within the people that are working on l4 and l5 because I think fully autonomous vehicles are way out there I gave a speech of what three years ago up in Traverse City where I gave my my predictions everybody said you’re way too conservative and the numbers are just about dead-on so it’s very complicated a lot of money is going into it it’s a very important business unit for us we’re spending a lot of R&D money on the electrification the powertrain and and the assisted driving features and we’re working with lift on l4 l5 I think it’s it’s a it’s it’s the Wild West out there right now what sensors are gonna win who’s got the best technology everybody spending lots of money I think we’re gonna see some consolidation some cooperation and people will be working on technologies get higher volume and lower Rd cost because right now the industries not seen as being very efficient with with capital and this is an example where the investment community is probably right there’s be a lot better more efficient ways to bring mark I just follow up on that I mean do you see for Magne building sort of purpose-built ride-hailing vehicles as a as a business that’s realistic for you one that you you’re looking at going into we could and I think depends on what’s required from the crash in the 15 20 years and now if you you need to have meet crash or not if you need to meet crash then we could certainly build a vehicle it could be a purpose-built vehicle right healing company could also go to one of the existing car makers and say look I want to use your platform or I want to use it but something a little bit different and magnet can do the modifications to put their technology in the vehicle it was announced what we’re doing with way mo we’re gonna be basically let them announce what they what they want to talk about they have talked about us taking vehicles they Pacifica and basically putting the rest es system and there’s some modifying the vehicles but if you think you know the laws of extension is who designs that who can do it from a production standpoint we have all that capability so last winter you introduced a really entry and interesting seating concept that for autonomous cars that allows the seats to move around and basically turn vehicles into different types of vehicles for whatever purpose it’s a really interesting demo you put out and everything else you chose to introduce it really at the giant Consumer Electronics Show rather than more typical than use like an Auto Show or something like that what was your rationale for that well we started going to the Consumer Electronics Show in Vegas about four years ago and the reason we did was we start with a small booth is because we’re doing so much in the autonomous driving features like the new technologies there’s a lot of VC companies we’ve been investigating with a lot of startup companies that go there the first year I went that we had a lot of different meetings we’re also attracting people so it’s a good area if you’re really involved in the bleeding edge of the advanced technologies especially as it pertains to assisted driving autonomous driving the reason we show we already had a booth there we already are showing a lot of electronics the reason we put the seat there was more for interesting attractions a lot of people interested in people said well you know why would you show it because somebody can copy you well the real secret sauce in that is not in how do you configure it a seat to move around it’s it’s in the metals it’s in the structures it’s how you it’s all the mechanisms which is a really complicated thing that’s in there to do it we’re really good at that so we didn’t mind showing it you know interesting concept for future vehicles but we’re really not showing the secret sauce because it’s all all things you can’t see but the consumer electronics show is taking off and it’s uh I think a lot of what you see out there quite frankly is hype and a lot of people there for marketing purposes we’re there to make connections and talk to some customers more about that the software electronics in the vehicle down a lot of suppliers exhibit at CES because they want to be portrayed or portray themselves as high-tech electronic companies not low growth old automotive ones you’re doing a lot of interesting things but you’re multiples still are know their industry average I think if I looked it up you’re trading at about seven and a half times earnings which is about half the S&P rate you recently got downgraded by Morgan Stanley and BMO what to take for a supplier to say look at all this cool stuff and the future looks bright and that should be reflected in the stock price you just said it all you know everybody thinks your stock price low and we do as well I think what we need to do is just continue to educate the investment community on what we’re doing because we’re not even if you look at body technology people say well that’s that’s all that is not old technology it takes extremely difficult lightweight low materials new joining everything is very complicated now I think people see the electronics as is the real sexy thing so one things we’ve been doing is is showing our technology we didn’t used to do that so we’re doing that more and more but I think the industry right now is a little multiples because people are worried about is there gonna be a downturn what’s gonna happen with trade what’s gonna happen with tariffs right now the tariffs that are that have been applied to steel and aluminum are really costing the the manufacturing industry in North America especially the u.s. they’re really hurting their the margins and hitting the profitability so I hope that goes away with the new USMC well whether than you the USMC a comes around or not the tariffs I understand the concept but having tariffs within NAFTA is really hurting the industry that everybody’s trying to protect so I think you know there’s a number of things as China ball I’m gonna stay down or not we’re not huge in China we have over 30,000 people there if it’s a percentage of our sales is not huge so there’s a number of different factors I think we need to get through the cycle I think we just stuff to hit our numbers I think we’ve got a great company we’ve got a lot of growth we’ve got a lot of exciting technologies but we have been spending a lot of money on the new technologies and we’ve said publicly how many hundreds and millions of dollars in R&D it does hurt your short-term earnings and we just have to show the the street that you know that will yield some growth and profitability but I think we’re one of the best manufacturers out there I think we’ve gots a lot of great innovations I think you just got to keep on keep your nose the grindstone and hopefully it comes around don’t come back to the point about trade and you know your company does so well does a lot of products and aluminum does a lot of products and steel talk about how the steel aluminum tariffs are affecting you I mean and are they affecting you in the sense that you’ve been had you have to take a cut in your margins to absorb that or are you passing it along to your customers I mean explain a little bit more about the dynamic there because it seems like those tariffs are pretty sticky they’re not going away anytime soon well I hope they do go away but it’s a bit of a complicated calculation so really quickly seal aluminum mainly between Canada and the US let’s say and there’s a bit from Europe and also some of the trade from China but if you look at steel aluminum particularly what we’re buying in Canada and we’re we’re the biggest supplier in North America bio longshore the third biggest world but were the biggest in North America so we have some offsets and we have some pass through the customer and we will have the discussions what’s really hurting us is as we bring steel into the u.s. there’s no offset to that that you can apply for pretty complicated process to try and get relief on that but it’s very it’s pretty cumbersome and it’s not that successful quite frankly so it’s actually heard the profitability of our us-based plants more than anything else and I think the administration understands have I hope they’ll do something with that I think initially was to support the steel industry I think this personal opinion the steel industry has taken advantage of this taken advantage of the people who were trying to help them because as soon as they put the tariffs in all steel prices when I’m not just Canadians know right very magic just happen to be you know that that it’s a bit frustrating it’s really hurting the car companies they’ve been public about that it’s hurting the supply base so I think if the intent is to protect an industry I understand that but if they have to be reasonable and I think they have to roll this back or you it’ll eventually gonna hurt jobs in the u.s. more than anywhere else have you shifted any of investment decisions yet as a result of that or you kind of trying to well just leave it there if it’s if it of investment decisions we’ve changed a few sourcing in other areas the world they’re coming back into to minimize the impact of tariffs we really haven’t done too much in North America because I think it’s going to go away because once you move something at its heart it’s expensive and so you really have to take a long view of this I think it’s gonna turn on logic would say you get rid of it within North America it doesn’t make any sense if you’re trying to raise the standard of living for a country or a region and you hurt manufacturing you’re doing the exact opposite so I think that will go away it has to go away all the squirrel it’s gonna have a negative effect long term so electrification you’ve got these megatrends going on like electrification and autonomy and which you are a bit skeptical of the timelines and whatnot how different do you think Magna will look in in say five years down the road is it going to look much different than now or because of some of these megatrends going on or is that still way down the road not in five years I so I think assisted driving levels one two and three is coming fast there’s a huge consumer pull for that people aren’t safer so I we’re heavily focused on level one two and three but automotive cycles are as you know three to five years and so nothing dramatically changes I think level four level five in any volume is a long way off I think the penetration rates pure electric vehicles will go up there’s a whole bunch of levers legislation gas prices you get a license plate doing it and make megacity rules there’s a lot of things but I do think the the technology and the cost for electric vehicles is such that you can see pretty fast penetration of pure electric vehicles pretty fast is all relative we still think by 2025 globally you’re only about four to six percent of electric vehicles probably growing between electric and pure and P HEV globally – probably 25 percent in 2030 but the penetration rates are drastically different between China North America and Europe and the solutions are different as well so we believe they’re coming other than fully autonomous vehicles is we’re invested heavily in it but not much changes in our business model between now and five years – now you know 15 years – no it will change building on what drew just said are you worried as a supplier the commitments that OMS are making two V’s you know in about two to three years time and the US market alone will go from roughly a dozen electric car models so depending on who you believe what they say they’re going to introduce anywhere from 80 to 120 in two to three years time I don’t see the market demand for that I’ve got to believe that you’re trying to protect yourself and not putting in the manufacturing capacity for a market that may not emerge in that time frame it’s a great question and that’s why we spend so much time trying to get it right it doesn’t really matter to us how fast it moves quite frankly although we’re spending a lot of R&D money so probably the faster moves it’s to the extent that we have we get contracts the better but you really have to get the volume ranked so if you quote for a million vehicles and turns out to be 250,000 you can’t amortize your engineering or your your capital you know I when somebody says they’re gonna going to produce certain a member of electric vehicles I think the first question asked is how do you define electric vehicle is an electric vehicle is it a Phe V is it a hybrid is it a micro hybrid and so that can be a bit confusing and I also think you know if I was running a brand I’m not running a brand I’m running a b2b company if I was running a brand you want to be on the lean edge of saying I’m going to be fully electrified I’m gonna be fully autonomous and I’m not saying they’re not moving that way but we have to we have to break it down and say okay practically what’s the market demand what are the market drivers what’s of all I’m gonna be to know what products they’re we want to sell so it doesn’t matter to us really how fast it penetrates what matters to us is we get the volumes right yes you’re trying to figure that out I mean what what signals are you trying to tune into because you know as a as journalist you know one day I’m hearing industry executives saying we’re all in on evey so it’s like oh that’s great and then you look at the actual sales of EVs and and and the minute subsidies are withdrawn or diminished in a given market that the sales go down and and it just it just seems like consumers are pretty shrewd they do the calculation in their head you know what am I getting back for this and the minute it doesn’t work they’re out so I’m just interesting cuz you I get your point you’ve got to get this right or it’s bad for your business I mean what are you tuning into to try to really figure this out and just to jump in on that China just announced a big chopper you know a big drop in the subsidies they’re going to pay for electric cars yeah III think there’s gonna be shakeout it over or in China because there’s a lot of carmakers and I think they wanted probably want to get them with some stability in the industry so I think you really got to figure out were the drivers so is their charging what’s a range what’s the cost what do they make megacity rules all the things we talked about earlier to find out what the demand is what we do is we don’t really look at what we think the consumer demand is going to be we’ll look at what did the car companies have to do in their fleet to meet the the legislation because right now I believe this is legislation driven largely eventually be cost competitive you also get more efficiency in in internal combustion engines and quite frankly hi diesels are a very good solution you won’t like it but they’re a very good solution for the environment so you got to see what happens and you know things go back and forth so we’ll look at what do they have to do to meet the legislation what’s the vol I’m going to be and at what point time does a tip over so that’s actually getting more cost-effective for Navy than an internal combustion engine and that may drive consumer choice not many people are gonna say I’m gonna drive an electric vehicle because I want to be environmentally clean and in fact in places where you don’t have green energy have an electric vehicle in my opinion well two wheel is actually worse for the global warm you have a coal-fired grid yep so you know that’s that’s a separate discussion but I think at the end of the day ground up and then we’ll just have to make our best guess as to what happens with cost but we also know what the can what the customers are doing as far as their future vehicle design so that tells us pretty well whether they’re you know what what their volumes are liable to be it’s difficult but that’s her can I just quickly follow me no so what our customers telling you with with their future vehicle plans I mean they’re telling you that yes they believe there’s gonna be a significant growth or they hedging their bets it would be more conservative well I think a lot of companies believe that electric vehicles are going to be more cost competitive and be more market acceptance in the future in the future not being 15 years probably and I’m starting down but it really depends in the penetration rate and but we also have to use our own judgment it’s quite frankly if I was a customer I’d say please quote that job I’m gonna make a million of them so please give me a really low this is one of your cups right give me a million of those / ability yet so I’m gonna I’m gonna be really tight and amortize my capital my engineering my R&D and if they only produce 250 thousand then we’re on hook so it’s not just magnets all all the big intelligent tier ones will do the same analysis and but I it is coming everybody said it was coming seven or eight years ago the car shows you walked on you think the whole world is gonna be electric I actually at the same time a driver City I said here’s what I think it’s really gonna happen and pretty well for the numbers we still are saying and we said no no you’re going to look look these are all the announcements but I do think we’re the point now where it’s becoming competitive in and we’ll we’ll see the penetration rates so what’s your outlook near-term outlook for the industry and what’s your biggest fear for what could actually derail it I think most people think this year’s going to be okay but what’s your biggest concern that could could throw things off well if you had a major which somebody can predict I don’t think gasoline prices are gonna rock it anytime soon we have had a long cycle so our view is relatively relatively flat maybe down a little bit in North America Europe probably relatively flat and maybe up a little bit China is going through some bumpy times but our view overall is we it’s an industry that continues to grow I read reports about you’re gonna have shared mobility and it’s going to drop off I think they’re crazy I actually think you can have more vehicles in the road because you’re having all these new vehicles take away from public transit so if you look at all the didn’t all the dynamics I don’t think it’s not easy to predict over a six month period but I do think we’re gonna continue to see this as a very healthy industry I think the there’s a lot of change in dynamics there may be some new players in the future I think you’re going to see more cooperation consolidation so barring something that is really unusual as long as you don’t have these massive swings like we had know 1809 that was very very difficult to get through but the customers balance you’d serve better now I don’t think anybody’s like trying to reduce prices to pull forward vehicles I think the supply in this reason much healthier shape you don’t have people gonna go bankrupt is it because people have just been more careful so I think it’s a relatively relatively stable industry but you couldn’t go up and down in short-term and the one the way we prepare for it quite frankly is we’ve worked really hard in the past ten years on what we call world-class manufacturing I firmly believe if you keep really motivated happy people and culture and you’re really competitive and you don’t have any waste we track it globally we share best practices and you’re really good at what you’re doing then we’re gonna get the business and that’s you say we keep on growing people how do you keep on growing safe you you just you just you have to be competitive and have the right technology and you’re gonna get the business that’s the perfect way to end up the show we’re running out of time here Don but I could go on for another hour but thanks so much for coming on out of line this week I really appreciate your insights into the industry drew winner Joe white wanna thank you both too and of course as I always do want to thank all of you for having too [Music]


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