Tuesday, November 29, 2011

Automakers race to lose weight

SANT'AGATA BOLOGNESE, Italy — Beneath the high ceilings of a factory in the wheat fields of Emilia-Romagna in northern Italy, Lamborghini engineers are building a new supercar. Called the Aventador, it has been described as the closest thing to a stealth fighter jet you'll see on the road. It's also a high-profile symbol of a strategic battle taking shape in the auto industry.


Silhouetted against grey walls, workers in black polo shirts adorned with Lamborghini's gold raging bull logo guide sheets of black material into a vacuum-controlled cutting machine, before pressing and shaping the pieces into huge moulds. These parts will make the chassis of the Aventador, which is one of the first cars to have its entire body built of carbon fiber composites, an alternative to metals prized by plane makers for their lightweight malleability and strength. The materials give designers "freedom to design aggressively," says Lamborghini's Technology Manager Massimiliano Corticelli.


The materials -- plastics reinforced by synthetic fibers -- will also allow the kind of performance so important to Lamborghini drivers: 0-62 miles per hour in 2.9 seconds with a top speed of around 217 miles per hour. But their potential value lies beyond the handful of people who can pay a starting price of 263,000 euros ($355,000) for a car that rolls off the assembly line at just 20 a week.


Partly as a consequence of emissions reduction targets, mass-market auto-makers need to produce lighter cars. For the next few years, auto-makers such as Peugeot, Fiat, Volkswagen and Daimler expect weight reductions to come largely from using aluminum. But composites are 30 percent lighter than aluminum and 50 percent lighter than steel. If car makers can get the price down -- composites currently cost at least 10 times as much as aluminum and 30 times as much as steel, according to Volkswagen -- they hope to be able to use them in the mass-market.


"We have been working on making cars lighter for several years, but the tightening up of regulation for reducing emissions by 2020 makes it necessary in reality to move toward breakthrough solutions," says Louis David, materials expert at French car maker PSA Peugeot Citroen.


There is progress. Peugeot and other carmakers already make some small parts out of composite material but do not yet use the technology for large parts. But BMW, which plans by the end of 2013 to roll out electric cars with entire passenger cabins made from a composite known as carbon fiber reinforced plastic (CFRP), is leading the race.


Helped by Germany's richest woman, Susanne Klatten, the luxury auto maker has been building close ties with Europe's only supplier of carbon fiber technology; it consolidated its hold this week with a share purchase.


"So far, there is no carmaker that is banking on carbon fibers quite like BMW," says Reto Hess, who coordinates global car industry analysis for Credit Suisse's private banking arm.


Too pricey
Taking composites mass market won't be easy. The European Union wants to cut average carbon dioxide emissions of cars manufactured in the region by 33 percent by 2020 -- to 95 g per km. Most mainstream European automakers say the cost of composites is too high to use them in whole cars any time soon.


Volkswagen's VW brand has the material in a prototype, but Ulrich Hackenberg, head of development of the VW brand, says finished parts cost between 30 and 50 euros per kg. That compares with only 1 euro for steel and 3 euros for aluminum. He thinks a reasonable target for the industry could be to bring this cost down to 15-20 euros.


Fiat has long been using composite technology -- its Alfa Romeo 8C contains about 90 kg of the stuff -- but like other car makers, it is still exploring what the technology can do on a larger scale. "In recent years mass production has had the opportunity to push materials like high-strength steel that have won the challenge with composites," says Fiat materials expert Rosanna Serra. But "we know these traditional materials cannot support the challenge in the future. They have limits."


Daimler has since April 2010 had a joint venture with Toray Industries of Japan, the world's largest manufacturer of carbon fibers, to build parts for its high-end, convertible coupe SL class. Toray has said branching out further into automotive uses is a top priority. It plans to speed up molding carbon fabrics into car parts to provide a new generation of components for Daimler by 2013.


Cars built from carbon fiber parts will have to meet the same safety criteria as conventional ones; composites can potentially cut a car's mass by half, says PSA's David. But on costs, he is blunt: "Today we believe that composites that are competitive for the automotive industry in terms of cost and production rhythm do not exist," he says. The company is taking "baby steps" in using the materials in vehicles that should be in showrooms by 2014-15, and he expects the technology to be much more widespread by 2018.


Secure supply
BMW isn't waiting. It won't disclose its investment, but according to German weekly Der Spiegel it has spent more than a billion euros on developing the technology and its new range of "i" electric vehicles and plug-in hybrids. Whole cars made of carbon fiber composites will be available from 2013.


Its strategy is based on the view that trendsetting car buffs with deep pockets will develop a taste for electric cars, especially if prodded by government incentives such as exemptions from city-center congestion charges. The company says the i3's bodywork will be 250-350 kg (550-770 pounds) lighter than that of a conventional car of the same size. With a much lighter chassis, it hopes its traditional clientele of drivers could even desire a premium electric vehicle for city driving.


BMW finance chief Friedrich Eichiner says the company is already working to cut costs to a point where they will be level with aluminum. It's a goal that can only be achieved with economies of scale. "Costs are a function of the volumes -- that remains the driver," Eichiner says.


To this end, BMW has already secured fiber production capacity which industry experts say is equivalent to what the entire car industry consumed last year. Since 2011, the company has sourced its carbon fiber reinforced plastics through a joint venture with Europe's only major producer of carbon fibers, German-based SGL Carbon signed in 2009.


To get an idea of the scale, it's worth a glance at SGL's production chain. Based in Wiesbaden, southwest Germany, the company gets precursor fibers, similar to those used in fleece clothing, from a joint venture with Mitsubishi Rayon in Japan. They are shipped for treatment - including baking at temperatures as high as 1,400 Celsius (2,550 Fahrenheit) -- to the United States. Then they go to Germany, for finishing.


SGL says its U.S. plant will eventually be able to churn out 3,000 tonnes of fiber per year. That compares with an estimated 2-3,000 tonnes used in all cars globally last year and about 35,000 tonnes across all industries.


Klatten clincher
SGL is already majority-owned by Klatten, who is worth an estimated 8.9 billion euros according to German monthly Manager Magazin. Heiress to the fortune of German industrialist Herbert Quandt, she and her family also have a combined 46.7 percent of BMW.


The car company's pact with SGL was signed a few months after Klatten, who is Germany's richest woman, had emerged as the largest shareholder in SGL, too. It was a strategic move, and one BMW appeared to seal on Friday when it said it had bought a 15.2 percent stake in the carbon fiber producer.


The carbon-fiber industry suffered a meltdown when demand for expensive defense technology waned after the end of the Cold War, and now only about half a dozen makers globally are capable of producing on an industrial scale. SGL is the only major European player, with main rivals in Japan -- Toray, Teijin and Mitsubishi Chemical's Rayon division - and the United States: Zoltek and Hexcel.


Fiber technology requires high expertise. The slightest tweaks in the process can alter the fibers' molecular structure, potentially compromising the safety of the parts they go into. At a test production site for fibers in Meitingen, Bavaria, SGL measures no fewer than 2,400 parameters every five seconds to monitor the process. "It may be easy to build a production site for carbon fibers but it's certainly extremely complicated to operate one," says CSFB's Hess.


SGL's position in Europe was underlined in a headline-grabbing tussle between Klatten and Volkswagen over the carbon-fiber maker in March. Volkswagen, Europe's biggest carmaker and Lamborghini's owner, acquired an 8 percent stake in SGL, and Klatten responded by saying she was observing VW's actions "with a distance and with vigilance".


Since May she has lifted her holding to around 29 percent, which gives her the right to veto strategic decisions at the supplier. That, combined with BMW's purchase, would bring the BMW camp's holding of the company to around 44 percent.


If Germany's financial regulator ruled that Klatten and BMW are acting in concert, their combined holding of more than 30 percent in SGL would trigger a mandatory complete takeover offer. A spokesman for Klatten said on Friday she had not been involved with, nor informed in advance, of BMW's purchase.


Volkswagen now holds almost 10 percent. A spokesman for Klatten says she is "comfortable" with her current stake and that her stance toward VW has not changed.


SGL has said it does not rule out collaboration agreements with other carmakers; but its stock has spiraled to its highest in more than three years on speculation that it will be the target of a takeover bid. It's now trading at almost 30 times estimated earnings -- the average multiple for European industrial stocks is nearer 11, Thomson Reuters StarMine data shows.


SGL's Chief Executive Robert Koehler says only that "VW has made it clear that they are keen for SGL to remain independent," and that "BMW is working under high pressure on its CFRP concept for the 'i' series. We are on a tight schedule."


Even so, BMW's CEO Norbert Reithofer has his sights set further into the future. The electric model range has an "enabling job to deliver because we want to use parts of this technology for our future models" in the series development, he says.


Copyright 2011 Thomson Reuters.

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