„Schaeffler is more than just cars”
Mr. Rosenfeld, vehicle production worldwide has been declining for several years. Manufacturers and suppliers are struggling with overcapacity. Bankruptcies are piling up in your industry. How does Schaeffler plan to hold its ground?
In the automotive business, we focus on the entire range of the powertrain: from the traditional combustion engine to hybrid solutions and fully battery-electric drives. That is our core competence. Alongside this, we have our chassis business. But Schaeffler is more than just cars.
For example your industrial business for wind turbines?
Yes, but not only that. We are a technology company that does not limit itself to a single sector. The common denominator in our business model is not mobility – but motion. That is the idea behind our concept of a Motion Technology Company. With our passion for this technology, we are turning to new fields of application – for example, in the area of humanoid robots.
Where do the opportunities for Schaeffler lie in this business?
Industrial automation – which always goes hand in hand with electrification – is a huge topic for the future. With our industrial business, we are ideally positioned for this. Especially for humanoids, Schaeffler’s core technology is essential. Think, for example, of high-precision actuators that move knees, hips, and arms. We can deliver what humanoid manufacturers need: precision mechanics and motion technology. And we can industrialise – ideally for large volumes.
Is that already generating revenue?
We are still at the beginning of development. At present, we are working on a whole series of prototype orders. Over the next three years, this business will likely not yet play a major role in our revenue. But in the longer term, a growth field with great potential is emerging here – and a market that is developing very dynamically, especially in China and the United States. Beyond that, future trends offer further opportunities. Take the example of data centres, driven by the rapidly growing demand for computing capacity – above all for everything related to artificial intelligence.
What opportunities are there for you?
Every data centre needs ventilation and cooling. Every pump and every fan contains bearings. That means growth potential for Schaeffler – also with the rising demand for energy and power generation. And not just for data centres.
German industry is currently discovering its interest in the rapidly growing defence business. What does that mean for Schaeffler?
This is also a field we are engaged in. For example, we have been producing bearings for military aircraft for years. After deciding this summer to expand our defence business, we are now in a second phase. The question is no longer whether, but how. A project team is working out the details of our product, manufacturing, and sales strategy.
Can business for civilian applications be easily transferred to military ones?
No, it is not that simple. To be successful in the defence business, you need an independent and very robust business system. Procurement follows different rules. Compliance requirements are particularly high. Cybersecurity is also a major issue.
What is interesting about this business, apart from the fact that Schaeffler – like other automotive suppliers – could make better use of its capacities during the industry downturn?
Defence is not a passing trend. It requires long-term thinking. Ultimately, it is about sustainably improving our defence capabilities not only in Germany but also in Europe. This is a completely different business with a different approach to value for money – and without competition from Chinese suppliers.
And customers accept the full quantity of items ordered.
Yes, even though the volumes are much smaller than in the traditional automotive supply business.
In the first half of the year, Schaeffler’s revenue, operating profit, and margin declined. How do you plan to eventually cover your cost of capital?
Given the current economic environment, this is extremely challenging work right now. The tariff issue adds to the pressure. On top of that, we still have costs related to the integration of Vitesco and ongoing restructuring measures. The quality of our earnings is certainly not yet where it should be. My task is to ensure that we earn at least the cost of capital for our shareholders – the Schaeffler family and all other investors. An adjusted EBIT margin of 3.5% per annum on a fully consolidated pro forma basis, as in 2024, cannot be the long-term target for a company like Schaeffler.
The e-mobility business is growing, but it is still loss making. In contrast, the operating margin in the combustion technology business was relatively solid at 11.2% most recently. However, that business is shrinking. This means that overall group profitability continues to decline.
With the ramp-up of e-mobility, there is a structural shift in profitability. A good supplier in the powertrain business should, over the cycle, achieve a margin of at least 4 to 6%, depending on capital intensity. I cannot currently imagine that we will one day reach a margin of more than 10% in the purely battery-electric drive business.
Why not?
The supplier business is tough, and competition is intense. We make upfront investments and cover development costs ourselves. There are no volume guarantees from car manufacturers. That is the brutal reality of this business. For example, a customer may forecast 500,000 units during the tender process, but in the end, it turns out to be only half. That is why we need compensation when the ramp-up of new models does not go well or demand is weak. The U.S. tariffs are further intensifying this pressure.
Are your customers willing to provide compensation?
Our customers are very cost-conscious, but even that has its limits. Both sides need to be willing to compromise. Most manufacturers want suppliers they can rely on. The worst-case scenario is when product launches fail on both sides.
When will Schaeffler start making money from e-mobility?
I will discuss that at our Capital Markets Day on September 16. We will also disclose the target year then. The profitability of e-mobility is a key issue for us.
Will you also announce earnings targets at the event?
Yes, our medium-term targets for 2028.
Why not for five years until 2030? Is it because of the high level of uncertainty?
The economic environment is currently very volatile. In addition, we acquired Vitesco without a due diligence process. That was unavoidable given the structure of the deal.
Because the Schaeffler family, through its holding company, owned nearly half of Vitesco’s shares before the acquisition.
Our starting position was unusual. We had to maintain strict confidentiality. Until the announcement, everything remained quiet. The capital markets then criticised us for taking our time in publishing targets after the acquisition. But we first needed to understand the pro forma figures for 2024 for Schaeffler and Vitesco combined. Our medium-term targets are intended to be solid, ambitious, and at the same time achievable.
Will the integration of Vitesco be completed as planned by the end of 2027?
Yes, that remains the plan. Some friction here and there is completely normal for an integration of this scale. Once the honeymoon period is over, you quickly move on to day-to-day operations. We want to create a fully integrated company. That is painstaking work. Think of integrating a multitude of IT systems, streamlining the legal structure, and reducing excess space. The integration is a huge opportunity to reduce complexity.
Have all the Vitesco employees you want in the combined company stayed on board?
It is completely normal for people to leave in a situation like this. For the few key performers who departed, we have gained new ones. It was good that we filled the first and second management levels relatively quickly. It is also clear that not everyone gets the job they would like. This goes both ways, especially since the acquisition of Vitesco represents a transformational step for Schaeffler.
What do you mean by that?
We haven’t simply acquired Vitesco’s power electronics and attached this expertise to Schaeffler’s mechanical capabilities. Vitesco offers more than just products. With Vitesco, we are realigning Schaeffler. This includes asking what a company that was once part of Siemens VDO and later Continental does differently – and perhaps even better. That can be very beneficial.
