In the two decades since Linda Hasenfratz took the helm of Linamar Corporation from her father, Frank, the Guelph-based auto-parts manufacturer has grown into a global giant with a market cap of almost $ 5 billion. The company recently struck a strategic alliance with Ballard Power Systems to develop fuel-cell electric powertrains and components in a big bet on hydrogen fuel. We asked the one-time factory machine operator how she feels about the dramatic evolution the automotive industry is going through.
You largely manufacture auto parts but the pandemic brought you into a new niche: ventilators.
Jumping into production of ventilators when there was a global shortage was probably the most meaningful thing we did in the early days. We made ventilator parts and full ventilators for five different customers. We made nearly one million parts or full assemblies for ventilators last year and that business is continuing.
Will you stay in that business?
Interestingly, we had already identified medical devices as a market we wanted to expand into, given the aging global population. We were not looking at ventilators specifically, but the work last year helped us get more connected with the industry and refine our strategy.
Automotive sector remains your primary focus and the industry has weathered this downturn much better than the financial crisis. How has that affected Linamar?
Well, we were fully shut down for two months last year, which was painful. But when our customers started coming back online, they came back quickly, particularly in North America and Asia. Then, at the beginning of this year, the brakes got put on again as we started to feel supply chain issues. The notable one is semiconductor chips. The auto industry tends to work on just-in-time inventory; if manufacturers don’t need the parts, they shut suppliers off. For the chip guys, automakers only represent six per cent or seven per cent of the global market, and with the surge in demand for consumer electronics and computers, they had plenty of other places to allocate those chips. When the automakers wanted that supply again, it wasn’t there for them. Back in 2010, the exact same thing happened, so unfortunately we didn’t learn from that.
What about other commodities that have also soared in price?
The steel prices would be where we’re feeling the most impact. On the automotive side, most of our contracts have metal market pass-through adjustments so every quarter we change our pricing based on the metal market index and that makes us reasonably well insulated. In our industrial businesses Skyjack and MacDon, we’re more exposed so we have to negotiate the best we can.
You’ve partnered with Ballard to produce automotive fuel-cell components. Do you expect that technology to take over from battery electric cars?
Just to clarify the terminology, a fuel-cell vehicle is still an electric vehicle but instead of a battery pack, it’s powered by fuel cells. We’re big believers that fuel-cell technology is the future of mobility, from passenger cars to commercial vehicles and heavy trucks, because it’s superior to battery-electric for four reasons. The first and possibly most important one is that it’s a clean technology end to end — from fuel sourcing right through to the tailpipe — because it’s not reliant on electricity grids, which are pretty dirty. A battery pack itself is heavy, 800 kilograms or more, which is not very efficient for vehicle performance and produces heavy emissions: making one battery pack for a large sedan releases 17 tons of CO2. A car with an internal combustion engine generates between six and eight tons of CO2 a year, so making that one battery pack produces as much pollution as more than two years of driving an internal-combustion car. Hydrogen is made from water using solar or wind power. In a way, you’re temporarily storing the solar and wind power in the hydrogen, because when you run the fuel cell, the byproduct is water.
Number two, fuel-cell vehicles can be refilled in minutes, the same as what we’re used to. Thirdly, hydrogen is a highly efficient fuel with high energy density. Lastly, fuel-cell vehicles don’t rely on regionally concentrated sources of so-called conflict minerals used in battery packs. More than half of the world’s cobalt comes from the Congo, and a third of it is mined “artisanally,” which sounds nice but it means by hand, which isn’t very sustainable. Eighty per cent of the world’s cobalt is then refined in China, which concentrates the supply chain risk. You never want to have to buy 80 per cent of something from a single place.
Do auto-parts suppliers and automakers have to choose between committing to hydrogen fuel cells or batteries the way one might choose Windows versus Apple’s iOS as a computing platform?
It’s not about making a big decision because the vehicle architecture is similar; you can pull out the battery pack, put in the fuel-cell system and use the same propulsion system. That’s part of our strategy with Ballard: we want to develop a plug-and-play technology so we can supply either vehicle type. We don’t want to bet the farm on one technology because there is much uncertainty around which technology will be adopted.
Which parts of the automotive markets do you envision embracing fuel cells first?
It will be commercial vehicles: heavy trucks that have to worry about the payload. When you’re paid by the pound of freight you deliver, the last thing you want is to fill up your truck with batteries. The passenger-car side, many automakers are working on fuel-cell vehicles but we won’t see significant volumes for at least 10 years.
That’s OK because we’re in the middle of a transition from internal combustion to hybrid, and then to battery electric, and then ultimately to fuel cells, and that takes a long time. Even the shift to hybrid and battery is slower than people estimated. We always overestimate technology adoption in the short term and underestimate it in the long term, and the more complex the products you’re transitioning, the longer the transition takes. Then you need to bring the consumer on board.
Consumers have certainly been buying lots of cars, with vehicle sales breaking records. Is that just driven by pandemic-related fear of using transit or car-sharing?
Remember that dealerships were closed last year so we have pent-up demand. At the same time, the automotive industry works in cycles. Automotive production peaked in North America in 2017 and volumes in 2018 and 2019 were down. Then the pandemic hit. Now we’re back on a natural upward trajectory, and the low interest rates are impacting that, too.
Aside from fuel cells, what new technologies are you most excited to see?
Electrification, broadly, is the single biggest opportunity for suppliers in the history of automotive manufacturing. Vehicle autonomy is another area that has lots of implications. We may move away from individual ownership toward fleet ownership, and that would affect vehicle design. Consumers care about performance and how a car handles, but if the vehicle is owned by a fleet, different things matter, such as how often the vehicle breaks, its simplicity and how easy is it to repair. Owners may not care as much about horsepower.