Warnecke: the challenge is how to meet Chinese consumers' needs on hi-tech solution at low cost

Gasgoo：Please give us a brief introduction of Conti’s product line (the Powertrain Unit) and related activities in China.

Volker Warnecke: Continental’s Powertrain Division brings innovative and efficient system solutions affecting every aspect of a vehicle’s drive train. We aim not only to make driving more affordable and environmentally acceptable but also to make it a more pleasurable and less stressful experience. With sales in excess of 4 billion Euros in 2008, the Divisioin is a major player among the world’s top three almost in every market.

It can be sub-divided into the following business units: engine system, transmission, sensors and actuators, fuel supply and hybrid electric vehicles.

Here in China, we started our powertrain business since 1996. At the early stage, we set up manufacturing bases, and then we gradually focus more and more on both development and manufacturing. We develop products in China that really serve the local customers’ needs. Besides the plants, we have two tech centers to support--one in Changchun, and then the second one in Jiading (Shanghai). The tech centers are to conduct vehicle application development and system test of our new technology and products customized for the Chinese OEM market.

Gasgoo.com: You brought all the products to China or only part of them as there’re mostly low-cost needs?

Volker Warnecke: We have not yet brought everything to China due to several reasons: the scale of manufacturing in China and the local needs are different from the other market, etc. And now we look at developing products and technologies locally. We do not only application development at our tech centers, but we also do some basic research work, on the hardware and software also for the hybrid.

To us, the big challenge is how to really meet the needs or requirements from Chinese customers on hi-tech solution at low cost. So we need to do the basic research work for the market and find ways to lower the cost, making ourselves ready to put it into production in a few years when there’s the need.
Take our engine system unit as an example; we’re going to put our latest product—the 32-bit “Easy-U” engine management system-- into production this July. Easy-U is developed by our Chinese team with support from our European team. Another example is our EAST-TCU platform, which is based on Continental market study of automatic transmission in China; we use the latest electronics solutions with global synergies—developed at our China site with support from Europe. The EAST-TCU platform can be applied to stepped AT, CVT, AMT and DCT; it’s a time-to-market and cost-effective solution and will be put into production late this year.

Gasgoo.com: We’ve learnt that you offered lots of cost-effective solutions for developing markets like China and India; then how did you make it happen?

Volker Warnecke: To develop low-cost approach, firstly we localize our development process; on the other hand, we’ll utilize our knowledge and expertise worldwide within the corporation, on the automotive and non-automotive areas—we can exploit the synergy from the Synerject subsidiary—a joint venture between Continental and Orbital Engine Company which specializes in engine management systems for motorcycle, boats and other leisure sports vehicles. We could incorporate much of the technology used for the smaller engines into our development work, and this kind of technology transfer especially from motorcycles to cars, will accelerate in the next few years.

To talk about specific products, we developed function and software platform strategy of the Easy-U on three basic ideas: (1) modular and flexible function portfolio, ((2) simple solutions used for entry-level systems, (3) low-size design for non-automotive systems. Easy-U exhibits how we make down-scaling of existing solutions—to simplify the function and software, to optimize the algorithms, to remove non-required interfaces and reduce number of calibration data--yet with extensive functional validation on cars. This streamlined EMS approach targets the China and markets including India, ASEAN, Middle East, South America, Russia and other cost-sensitive market segments in the mature markets.

Gasgoo.com: During the past SAE conference, panelists in a session called “Near Term Powertrain Solutions” didn’t entirely dismiss the idea of smaller cars and engines—but doubted that consumers would sacrifice size and power. What would you say regarding the road to green car future in China?

Volker Warnecke: The comments in SAE conference were quiet based on the local market in the US. Actually in China, we see there’re two paths to the green car future.

One path is to downsize the engine with turbocharger, advanced engine management and injection systems. With those high-techs, you can have smaller engine size with still good fuel economy, lower emission and still good performance. We have those products in line; some of them like turbochargers are not yet in production in China.

The second path is to develop from start/stop system, to vehicle energy management, then mild hybrid, then full hybrid and electric vehicles.

Gasgoo.com: On the two powertrain tech roadmaps (combustion vehicle and hybrid/electric vehicle) to meet the increasingly stringent emission standard, there’re different solutions for different phases. Could the Chinese market be different from the way that western markets evolved?

Volker Warnecke: Actually there was some interesting information based on a survey Continental made last year. We surveyed the motorists each in China, Germany, France, UK, Japan, Autraia, Switzerland and the USA. The result surprisingly showed Chinese people are more interested in electric cars and in vehicles with hybrid drives—they are leading the Europeans and other Asian states. A 53.7% of the Chinese respondents were prepared to buy a car with a hybrid drive and 73.4%were even open to buying an electric car.　

To me, to universalize hybrid and electric vehicles depends on the consumer side; and the second factor is on governmental program support. If the government encourages the introduction of such vehicles, and give incentives to support push for market development,, In the end, China will probably move ahead of the trend worldwide.

Continental has made lots of investment and marketing efforts on that area. We’ve been the first European supplier of hybrid systems in 2003, and last year, the Hybrid Electric Vehicles business unit was the world’s first manufacturer to start series production of lithium-ion batteries for use in hybrid cars (Mercedes S400 BlueHybrid).

In China, we’ve begun several series production contracts for mild hybrid drives. Because the challenge here as well is to implement high-tech solutions more simply and less expensively but at the same time to provide functionality comparable to that installed in vehicles for western European and North America. We’re going to produce also power electronics for hybrid drives in China.

We made some marketing efforts for our hybrid technology, and it’s well received, we’ve made plans of investment for the development of hybrid systems in the years to come. We’re busy implementing our plans and looking at the next step to realize the plans.

Gasgoo.com: How do you compete against your competitors as the Chinese OEM customers may choose a smaller or local supplier, or even an engineering company?

Volker Warnecke: The OEM customers always have their reasons to choose another supplier rather than Continental. But what we can say here is that with innovative components and software/fuctions for the entire powertrain portfolio of gasoline, diesel and hybrid engines using conventional and renewable fuels, we’re a localized and experienced supplier.

We can offer engineering service, but we also aim to offer products in the end, as we need to finance our R&D budget and innovation which is our core competence. Combing development and manufacturing is what Continental focuses on.

Gasgoo.com: How did the financial crisis affect you? Did you align your R&D efforts with the market uncertainties?

Volker Warnecke: The financial crisis does not affect Continental only, but actually every body in the industry. Compared with other markets, especially the North American market, the Chinese market is all in all the best—even compared with other Asian market like Japan and South Korea. We see the Chinese auto market still growing, though slower than it’s used to be.

We’re currently in the downturn of the global economy and the auto industry in particular. How to handle this? You could align your production capacity with the needs and you could adjust your business structure; in some cases you could redesign your product portfolio. But the Powertrain Business Units didn’t reduce any R&D budget at the customer project and since customers following the downturn, have even stronger demands on continuing and upgrading their powertrain technology; they spend more on new technology development to regain the market share. Specifically in China, the largest growth market, OEMs are making similar efforts. We believe that contrary to other market, China will develop fast in the next few years; that’s our long-term vision.

Europe, North America and Asia are the three major markets we look at. And in general, China is one of the most important Asian markets. We’ll continue the progress and raise the volume in China; concentrate on product portfolio with better fuel economy, lower emission and lower cost. In the long term, we believe that our efforts in China will be to the benefit for all Asian and Western markets. We also look at the low-end market segment; we aim to provide low-cost powertrain solutions to the customers.

Gasgoo.com: Prediction on the local technology development?

Volker Warnecke: I think the competition in the low end will get even fiercer than today. But the technology trend in the local market will be quite similar with the evolution in other mature markets: people will look at driving affordable, powerful and smooth with reduced emission and fuel consumption. You can see more and more Chinese consumers are also turning to automatic transmission rather than manual transmission and the overall requirements on comfort for the powertrain are increasing.

The other trend is that: the Chinese market used to benefit from the technology development in other markets and as the Chinese market evolves and grow, the other markets will benefit from China. Our Easy-U and East platform have proven this already.