David Slump, President & CEO, Auto News, ET Auto

Q. How has it been working for a year in a company that has undergone major restructuring? What kind of challenges you faced?

We’re getting better, but not yet at our peak performance. There’s still more work to do. The market environment has also not been helpful, as the global automotive industry is going through lots of changes. These are disruptive times for everybody and it’s important that we are focused and collaborative with customers.

Q. Could you share details on how do you manage cash flows?

In January, the top four things in my mind were cash, simplification, cost, and innovation. Cash was number one because we were going into the balance sheet restructuring. It was clear that there was a risk that we could run out of cash and liquidity in that. Given the environment and 26 lenders, the debt restructuring process actually took longer than we thought it would. But we were able to self-help our way through that and worked on optimizing the Capex and localizing better.

The idea was not to buy everything from a high cost country. So cash is still the item number one in my operation reviews with the business. And what’s important for me is that I have transferred the cash focus from more of a central treasury group function down to the divisions and now down to each plant. As we have 140 plants, it’s important that the operating cash flow discipline is embedded in each plant’s culture.

Q. Going forward, what are the focus areas and how do you plan to expand?

The first thing I did was to group the businesses into two pillars or clusters – the first is those businesses that impact the vehicle personality – exterior lighting and our lighting business being our most significant business, because the brand signature through lights today is farther than you can see the logo. So this is extremely important to OEMs and they’re investing a lot of money to differentiate their vehicles, particularly their electric vehicles, through the design of light.

The second cluster is interior electronics, displays, and HMI – the human machine interfaces. How as consumers and drivers people interact with the vehicle is a point of differentiation for them. The whole interior cockpit, the material, the fit and finish, is our third largest business. So our lighting business, our electronics business and our interior experience business impact the brand signature of the vehicle.

The rest of the businesses impact the vehicle’s performance and those are going through shifts – powertrain shifts, exhaust shifts, suspension shifts. So, once we grouped those businesses into those two clusters, the second step was to define three battlefields that the industry is facing. We asked ourselves what would be our unique point of view of that battlefield and then what would be the consequent investments needed to provide differentiation and growth in each of those battlefields.

Combining the vehicle architecture with software defined vehicles is one of the big investment areas~

The first battlefield was the powertrain battlefield and how fast things will convert from traditional ICE powertrain to electric vehicles. That’s a regional battlefield that is not a global battlefield. For instance, countries or regions like Europe and China might go really fast and we think other regions will go much slower. So we are taking our powertrain business and localizing in those long tail regions like India and Brazil, and that allows us to accelerate the transformation of our footprint in areas like Europe. And by the way, the US will be a long tail business from a powertrain perspective.

The second battlefield that we looked at was how the vehicle architecture is laid out. So, today we have electronics in every one of our businesses, touching that architecture. Tomorrow there might be fewer of those. So we reposition our portfolio and our investments in that.

And then the third was software and sensors. Combining the vehicle architecture with software defined vehicles is one of the big investment areas. Doing cloud applications for an app is a lot easier than the vehicle architecture and fewer people know those domains. So that’s an area of investment and a particular area of investment in the team that we’re building here in India.

We picked the road maps, and then we looked at the underlying growth and dynamics of those businesses. And I would say in the vehicle performance, it’ll be more controlled to manage them for cash and cost than certain shifts. For example, in our ride dynamics and in our thermal business, we want to invest in shifting from ICE to EV platforms, because they are vehicle agnostic businesses. I mean a suspension is a suspension, but it’s not when you look at the weight characteristics and the requirements. So for us the content per vehicle goes up in suspension for electric vehicles.

Q. What role will software play in the future vehicles? Are you looking at specific investments, developing R&D around it or providing a product-to-services solution to the OEMs and other companies?

We are really good at embedded software in the electronics of vehicles and the shifts that make and in today’s semiconductor crisis that’s even more important as you look at alternative architectures and designs. So our investment first and foremost is in the embedded software engineering and test capabilities.

Now to bring that together and to take it to another scale, we made a global team decision to add 1000 people in India in those areas. Currently we have 200 people and I think next year we want to increase that to about 400 and then to 1000. That’s one area of investment. The second is we don’t believe we can do it all alone. We want to collaborate and partner to create this value proposition with Amazon, QNX, and other global tech companies where we can take some of their tools and our unique domain knowledge and do something different.

Leveraging the cloud for us means putting the development tools for the embedded software in the cloud in a way that could be done over the air and separate the hardware and software and update cycles of a vehicle. I am a big believer in Minimum Viable Product. We already have a proof of concept that we’ll be showing at CES.

Q. Do you plan to invest in something as disruptive as AMT (Automated Manual Transmission) technology again, because it’s almost been a decade since such an innovative development?

I think AMT is still at its beginning and I don’t think the growth of AMT is over. I see it growing and that’s why we’re investing in localizing. Now to your question, what’s next? We are working to ‘co-create what’s next’.

Q. How are you balancing the two acts of focusing on managing the cash flows and investing in new technologies?

Coming in, I had doubts that we had innovation capability. So the first investment was in innovation, capability, and people-process technologies. So we’ve invested in our core businesses. Our lighting business has always been independent and we knew how to innovate.

We’re not out there trying to do big bets. But we are investing in some really cool technology, but it’s not costing us the bank because the team is creating an MVP, engaging the customer and now the customer will help fund it through awards and through development.

Q. When do you expect to be profitable and what kind of investments are you looking at?

We are starting to be profitable. There is two years of restructuring still to do. We are probably halfway through, there’s still opportunity. We will be profitable in 2023.

We’re reinvesting 5% in Engineering and R&D. Even though that is not an unusually high number for a tech company, it’s not a small amount for a tier-1 either. We’ll continue to invest in traditional areas as well. So if I take our powertrain business here that has AMT, GDI and flex fuel are innovation areas.

There are a lot of investment areas that we’re funding, but again I’m a big believer in co-creation. The customer would help direct our investments.

We are reinvesting 5% in Engineering and R&D~

We have put a total investment of USD 1.8 billion in our bank plan. So even when we went through the ADR and restructured, we said we’d have to invest and that was a combination of R&D and Capex because we’re also investing in some digital transformation of our business. There’s a lot of digital transformation to do, to also enable simplification of productivity. And there are a lot of capacity increases we have to invest in as the shift is going on in the world. So that’s a total investment that we’re making.

Q. Going forward, do you think you will also increase the content per vehicle in the components?

The simple answer is yes. I need to get the team starting to measure that way, but I’ll give you an example of our lighting business. You know, when we go from the halogen to the simple ID, we’re increasing our content per vehicle. When we go into what we’re doing for high-end Audi, Mercedes-Benz, BMW, the content per vehicle is of a higher magnitude. And when we go to flex fuel GDI, it’s increasing.

When we go for some of the new emission norms like Euro 7 or our exhaust business, the content per vehicle increases. Some of our new display technologies also do the same. So it’s a metric and yes, we will be able to improve our content per vehicle.

If we can create differentiation and things that allow their profit per vehicle and their sales to be high, those are the things that I’m putting in their vehicle personality. Then we do it in the other areas through localization, everything we got to improve the cost per pound or the cost per metric.

Q. You mentioned that electrification is a regional trend, not a global trend that will impact the auto industry. Where can India catch up with China or Europe from a global point of view and what are the reasons behind this?

I spent 20 years in energy industry before joining automotive. It is ironic as it’s coming full circle because of the infrastructure. But what’s common between the two businesses are the three things that come together for the change to happen: technology to be cost competitive, regulatory framework, and consumer adoption.

Some European countries have regulatory policies in place, high consumer preference, the trust factor and the technologies. In the US, we don’t have the same regulatory framework for the shift. And one reason is Republican or Democrat they are united and are derisking China. So until a car company can do electrification without a dependency on China, it will go slower from a policy standpoint.

Also, consumers don’t trust a big country’s infrastructure. So I’m not an expert on India, but my gut feeling from what I’m listening is that it will be more like Brazil and the US. It won’t be the fast hype, and that’s why we’re focused on traditional technologies, still doing less emissions, and life cycle neutral technologies.

Revenue from India market is about USD 600 million with double digit profitability~

Q. In your global business, where does the Indian market stand? Do you see it growing?

Revenue is about USD 600 million, double digit profitability. We see that growing in the next three years. The metric I tend to look at is 2-3 times the market growth. So if India is growing 4% in vehicle production, we should be growing 8% to 12%. Given our portfolio, our JV positioning, and our presence, I think 2X market growth is feasible.

Q. So which part of your business is bringing most part of the revenues in India?

India is not just the best cost country, but efficient in its speed and agility, and an important market to localize. I think India has a promising growth potential underlying, and Marelli has a promising growth potential here in partnering with our customers. Currently, lighting and powertrain are the top two businesses here.

Our market share is strong here, but we have to drive costs. If we can provide innovation, sustainability and resiliency, then we have a powerful combination. The other potential here is reverse innovation. So if we get our new platform cost here and some of the display technologies, we can take that to other markets that have similar features and needs.

India has the potential of reverse innovation. If we get our new platform cost here and some of the display technologies, we can take that to other markets that have similar features and needs~

Q. Which all markets could that be?

Our presence in Brazil is quite significant. We’re growing our presence in China. I think it’s a little different mix there, but companies like Peugeot still have entry vehicles. If we want to call at that, we can scale and provide value.

I think, because of the semiconductor crisis, similar to the consumer in the US, even for those here only content-rich cars were available. If the OEMs can’t get enough chips, they put them only in the high-end vehicles. There are not many vehicles available for the average person right now. And the rising interest rates and inflation are going to make every market entry opportunity-rich for reverse innovation.

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