While Ford Motor Co. readies to take one of the biggest gambles in its storied history--by outfitting its best-selling F-150 pickup truck with a mostly aluminum versus steel body in a bid to pump up fuel economy, BMW has been driving deeper and deeper into carbon fiber technology.
Hop in the passengers seat and ride along as Inner Circle cruises the dynamic automotive materials landscape with Hinrich J. Woebcken, purchasing and supplies network senior vice president indirect purchasing, and the folks that bring you the ultimate driving machine. (BMWs Woebcken was interviewed on the sidelines of Steel Success Strategies XXVII, June 2012).
Inner Circle: Lets start with an easy one. What is your fix on the future of steel in auto applications?
Herr Woebcken: Steel has proven successful over many decades at taking on the challenge of other materials. We also see steel as a very important part of the choice of materials in the future for our products. But it is of course, as it has been in the past, challenged by other materials, mainly because of strength and weight reduction. There are people who say maybe in 25 years in time, there will be no steel in cars. This is a very aggressive assumption. The advantages of other materials are challenging steel. The process for steel replacement is evolutionary, not revolutionary.
Inner Circle: At what rate is that evolution progressing? How does the material content of todays vehicle differ from what it was five years ago at BMW? What materials are gaining ground at the fastest rate?
Herr Woebcken: Aluminum had the fastest replacement pace in the past. Right now, the degree of steel in a BMW product versus several years ago depends heavily on which product you are looking at. Larger cars on a higher end have a higher degree of replacement by aluminum because of weight. Cars in the compact segment, smaller cars, have a lower replacement rate because the cost sensitivity is higher at that end and replacing steel with other materials is still more expensive. We have a specific amount of euro per kilo of weight reduction in mind, which is unique to each application. We are willing to pay more per kilogram weight reduction depending on what kind of product we are talking about. The price of a product on the compact side is more sensitive than on bigger cars. On the electric mobility side of the scale, a kilogram has a huge amount of benefit and we are willing to pay more money to achieve one more kilogram of weight reduction simply because range is everything in that technology. And range is only achievable if you have weight reduction. One challenge inherent in electric mobility is the weight of the battery pack. So it is a deadlock situation in standard car architecture with steel if you take out the combustion engine powertrain and exchange it with an electric engine with batteries. Thats why we are in the final stage of bringing the BMW i3 into the market. This car is completely designed for electric mobility. We are saving a significant amount of weight on the structure, because the body structure of the i3 is mainly carbon fiber composite.
Inner Circle: Where do you source the carbon fiber?
Herr Woebcken: We are sourcing it in our own value chain. We have a joint venture with SGL, the number one player in carbon-fiber technology in Europe. We not only have a joint venture, BMW and our main shareholders actually own a significant portion of SGLs stock.
Inner Circle: So, you think carbon fiber is the future?
Herr Woebcken: Yes, carbon fiber will find its way into automotive application on a broader basis.
Inner Circle: How near is the future?
Herr Woebcken: The BMW i3 is announced to be implemented in the market end of 2013.
Inner Circle: Have you driven it? What does it drive like?
Herr Woebcken: Fantastic.
Inner Circle: Do you feel safe? Is it quiet?
Herr Woebcken: It is very quiet. The feel of driving this car is not only due to carbon fiber. It is because of the i3s electric-driven motor. The beauty of electric driving is the high torque from the beginning.
Inner Circle: Does it hum? How quiet is it?
Herr Woebcken: You hear the sound of the wind, the air you are passing through.
Inner Circle: How have consumers reacted so far to the i3? What about safety concerns? What happens to the vehicle on impact?
Herr Woebcken: Safety is not an issue. Not at all. The drivers would not have survived the big accidents in Formula One racing over the past ten years, if they hadnt been in the molded cockpit of a carbon-fiber shell.
Inner Circle: Are we going to see carbon fiber migrate into non-electric vehicles?
Herr Woebcken: We already have carbon fiber in our production series cars, like the M products. The roof on the BMW M3 is not made out of steel, it is carbon fiber. Especially in high dynamic products, you want to have the center of gravity of the car as low as possible. The roof marked the beginning of carbon fiber technology for us. We have already implemented this in previous products in some segments. And it is absolutely an option we are looking at to implement this material in other products besides electric vehicles.
Inner Circle: What impact is the implementation of carbon fiber going to have on the basic cost of the vehicle?
Herr Woebcken: The cost of carbon fiber, as many other things, is a matter of economy of scale. For decades, carbon fiber failed to make real inroads simply because the carbon fiber base product was too expensive. But the cost has come down dramatically in recent years. Together with our joint-venture partner, SGL, weve developed a specific automotive fiber, which benefits from an extra cost-reduction step, which is not available on the carbon fiber market right now.
We are manufacturing this carbon fiber in the state of Washington in the United States. There, we can use 100-percent regenerated energy by water power. That approach plays into our commitment not only to have a sustainable product on the road but to also engage in sustainable production.
Inner Circle: Where are you introducing the model i3?
Herr Woebcken: On a global basis in major cities.
Inner Circle: How many units do you expect to produce?
Herr Woebcken: We have not announced that yet. We have two products in the pipeline: The BMW i3 is a vehicle built for sustainability in the urban environment: tailored for an emission-free electric drive train to provide intelligent mobility for commuters and city driving. Features include a unique, modern design, agile and responsive handling, seamless connectivity and optimum utilization of the interior space. The BMW i8 is a contemporary sports car perfect for every-day driving. It combines the performance of a sports car with the consumption of a small car. Thanks to its plug-in hybrid drive, the majority of the i8s day-to-day driving is possible in an emission-free, fully electric mode.
Inner Circle: What is the price range?
Herr Woebcken: Please understand that we are not yet releasing prices for the BMW i3 and the BMW i8.
Inner Circle: Who is going to buy it? How are you going to market it?
Herr Woebcken: Demand for alternative drive forms, such as electric propulsion and hybrid technology, is growing steadily. In megacities, in particular, many people already use several different types of transportation and are looking for options that intelligently combine the advantages of different forms of mobility. It also appears that premium offerings will be defined more in terms of sustainability in the future.
Inner Circle: What was the collective investment in the carbon-fiber joint venture?
Herr Woebcken: Including component manufacture, the BMW Group and its joint venture with the SGL Group are investing a total of around EUR 530-million in manufacturing carbon fibers.
Inner Circle: So, I have to ask you: why then are you attending Steel Survival XXVII, a steel conference?
Herr Woebcken: Steel plays an important role in terms of my responsibility at BMW for the procurement of investments, services and raw materials. Steel and raw materials were not viewed as a big, dramatic topic in terms of price volatility until 2008. But the year 2008 and unforeseen volatility issue it brought with it, sounded a certain sense of alert. We centralized all raw material activities in the new function raw material management. And this made me personally get very close to the steel business itself. In order to understand the steel business and make the professional decisions necessary you have to attend these marketplaces, these conferences. I was a keynote speaker at the German Handelsblatt Steel Conference. There my key messages focused on the impact of the steel business on the car industry and on BMW specifically.
Inner Circle: How has BMW rearranged, re-strategized its global procurement activities since 2008, in the wake of what we call the new normal here in the U.S.?
Herr Woebcken: We are using several approaches to balance our risks and opportunities in the steel business. We are partly financially hedging, we are partly using index-based contracts, and we are partly entering into fixed-price contracts over different periods of times. We have also invested in analytics of steel costs. We are using a wide range of approaches to address price volatility. Globally, we have basically implemented regional sourcing strategies, with combining global steel companies and local players.
Inner Circle: Are you buying from a smaller base of suppliers than you did prior to the reorganization? Have you worked hard to consolidate your supplier date?
Herr Woebcken: No. Actually, we have opened it up. We have new suppliers. And we like to have a good mixture of large steel suppliers as well as small steel suppliers. Though we dont believe that big is better, we do believe technologically that the best innovation power and skills are driving our sourcing decisions.
The steel you buy is....I think historically, there has been a volume mentality when it comes to carbon flat-rolled steel.
America is typically looking at volume and big numbers. But if you look at AK Steel for example, they are supplying more than 50-percent of their volume to the automotive industry with very specific grades. As a premium car manufacturer we are counting on steel suppliers with a strong focus on innovation. In my view, weight reduction, in particular, is a driving innovation element for the future.
Inner Circle: Would you ever invest in co-innovating with a mill as you have in the carbon fiber plant?
Herr Woebcken: No. We are investing in our technology, especially in innovations that give us a competitive advantage. Steel production is not a part of this.
Inner Circle: I have to ask you about the developments at ThyssenKrupp in Mobile, Alabama. Have developments there had much of an impact on your North American operations?
Herr Woebcken: Thyssen Krupps new U.S. plant is, for us, a positive additional sourcing option, especially for our Spartanburg, N.C. North American operation. We believe it is good news for the automotive companies in the southern region, especially for the supply of high-performance and high-strength steel products for the automotive industry.
Inner Circle: As you know, ThyssenKrupp Steel USA has had enormous problems at Calvert, ALa. They are not going to be there.
Herr Woebcken: From the beginning BMW supported the idea of having a professional steel plant down there. And we are continuing to support this plant. We are presently validating new grades for our Spartanburg plant demands and new volume growth. This will continue also with the new owner.
Inner Circle: My sense is you had a comfort factor with TK and German automakers would naturally gravitate toward them as a steel supplier.
Herr Woebcken: And the comfort factor remains.
Inner Circle: Is there anything interesting happening in surface treatments? We have been reading recently about films, etc.
Herr Woebcken: That technology has been looked at for many years. Actually the German steel industry together with universities are exploring replacing the precoat lines at the facilities by precoating the steel immediately after the mill process. But that approach has its disadvantages because of the edges. We have also looked at colored foil. In fact, that has been under evaluation for many years. Ultimately, UV stability is still not at the same level as the prepainted material. And the high demand for different colors from our customers makes it very difficult with foiling. Therefore, we still see, the mid-range perspective, a place for the traditional painting process.
Inner Circle: Youve been very generous with your time. I wonder if we could take the last few minutes to address the future of the European auto industry and BMWs plans in the emerging world.
Herr Woebcken: We are the market leader of the premium brands in North America. The North American market is extremely important to BMW. At a very early-stage we committed to investing strongly in this country quite heavily over the period since we launched the factory. And we do this because our philosophy is production follows the market. Another aspect is getting a little more independent from the Euro. We are selling more cars to other currencies compared with what we are generating in Euros for the products. We have to make a so-called natural hedging out of this aspect as well.
Inner Circle: Where are you experiencing the most growth right now? Annual and market?
Herr Woebcken: Automobile sales are set to reach a new high in 2012 with new sales records for each of the BMW, MINI and Rolls-Royce brands. The BMW Group aims to outperform the total market in 2012.
Inner Circle: One last question relating to the recyclability of carbon fiber. Obviously, steel has a great sustainability story. Im not so sure that is equivalent in carbon fiber.
Herr Woebcken: Oh yes.
Inner Circle: Is there a scrap market in carbon fiber?
Herr Woebcken: Not really yet. We are recycling it ourselves. Because you have to imagine--and its a big disadvantage of steel-- if you punch out a side panel from a car, you wind up with cutouts. About 50 percent is scrap. If you produce the same part out of carbon fiber, you are essentially configuring the part out of different patches. So there is a much lower percentage of scrap. By the way, the benefit is not only environmental. Carbon fiber is also an expensive material. So, we try not to spoil too much. The cut of the material, which is really the leftover, is transformed with a comb into a new structure and we are using this material in parts where the property demands are not as stringent. Overall we see a great advantage of carbon fiber in respect to recyclability.
Inner Circle: What are you doing with your steel scrap?
Herr Woebcken: We have a steel scrap sales strategy. We are selling it to the open market and are also offering it to the steel companies.
Inner Circle: Are you auctioning it?
Herr Woebcken: Yes, we are also auctioning it. We are preparing the bundles in a way that they can be easily brought to the market. The big disadvantage of scrap in an automotive factory is typically that it costs a lot of money to bring it to the market.
Inner Circle: Thank you very much for taking the time to talk to us. I expect to see you back here next year, raising hell!
Herr Woebcken: Thanks for having me.