responses submitted by Jonathan Holloway, Head of Strategy, Danfoss Power Solutions
In previous years, the BRIC countries were the primary areas of focus for global expansion and investment. Since then, Brazil and Russia’s prevalence seems to have waned. What do you consider to be the strong markets for opportunity around the world?
While some regional markets have slowed, we are still in a coordinated global expansion — which is challenging supply chains across the industry. We see growth in all of our regions, led by China and North America. However, we expect growth to taper in 2019, and geopolitical risks and trade tensions are dampening confidence.
Are there new regions of interest? What particular industry or equipment type are you looking to expand in these regions and why?
It is important for Danfoss to be close to its customers and invest in solutions relevant for each market we serve. In developed markets, this means investing in precision and autonomous capabilities, improved control and efficiency, and electrification.
In developing markets, there are also fundamental shifts underway to take advantage of construction and agricultural equipment technology to boost productivity. As an example, India is slated for strong growth in the coming years, sparked by ambitious government objectives and supported by subsidies. Several applications are moving from mechanical to hydraulic systems, and even to precision control. Some are calling for a “Second Green Revolution,” which would significantly boost efficiency in agriculture. Plus, the cold chain is also developing, which will reduce food waste and capture the value of agricultural investments.
Politics & Government
What potential policies are you keeping your eye on that could impact (or have already impacted) your company, for the better or worse?
Steel & Aluminum tariffs; reciprocal tariffs
This is impacting the industry and is an unfortunate effect of efforts to improve trade conditions. End-users should expect to see higher prices due to current policies, though many analysts expect to see resolution before the US mid-term elections. We remain hopeful.
Proposed lower emissions standards for cars and trucks in the U.S.
My belief is that while immediate policies may delay higher environmental standards, the long-term direction is clear. OEMs should stay the course in continuing to develop more environmentally-friendly solutions for both on- and off-highway.
This is ongoing, and we are watching it closely. Most of the recently released news is focused on the automotive industry and rules of origin, and it’s unclear how this will serve as a blueprint for other markets.
To geek out a little bit, interest rate policy is another area to watch, since this drives borrowing costs for purchases of everything from homes to heavy equipment. Inflation has been ticking up, growth has remained strong, and the Federal Reserve System has stated intentions to continue raising interest rates as long as the current picture continues. The question is whether inflation can be contained while global growth moderates. Analysts are watching closely for an inverted yield curve, which is when short term interest rates exceed long term interest rates, and has preceded every major recession for the past several decades.
How have or will these policies (or lack of policy) hurt or benefited your business?
Steel & Aluminum tariffs; reciprocal tariffs
As many have noted, there are no domestic substitutes for many imports impacted by these tariffs and globally integrated supply chains cannot change overnight, so the result is that higher costs will be passed through the channel and borne by end-users.
With the benefit of the Tax Cuts, how have you used this to reinvest in your company?
Our industry is growing rapidly, so this has enabled us to keep growing our workforce and investing in capacity to keep up.
Diesel vs. Electric
Do you think there will always be a place for diesel powered equipment for heavy-duty applications? Why or why not?
"Always” is a tough word. But for the foreseeable future, yes, there will be a place for diesel-powered equipment in heavy-duty applications. This is mainly due to power density and cost. However, electric system and battery technology is advancing rapidly, and the full value of electric solutions is just beginning to be recognized. I think Roy Amara’s point that "we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run," applies here.
What would electric power sources have to achieve in order to replace the diesel engine for heavy-duty applications?
It depends on the application, because some of the benefits of electrification, like higher system efficiency, lower emissions, and reduced maintenance costs, can already justify changing system architecture. But barring unforeseen regulatory action, for a widespread move we need to see the economics for electric systems including batteries become equivalent to those of diesel-powered systems.
As an adjacent example, in marine applications, electrification enables flexibility in the location of energy production, storage, and consumption, which can free certain spaces in the vessel for higher value uses. We have also found in marine applications that the maintenance savings of electric and hybrid vessels significantly outweigh fuel savings, which may not be intuitive. In other applications, I also expect we will find new value propositions as technology develops further and as new use cases are explored.
How do the diesel bans in several major cities around the world play into the direction your company is taking for electric vehicle development, if at all?
Danfoss is investing in electric solutions and working with customers to prepare for changing regulations and market demands. This is most relevant in marine and port applications, which are major markets for us. We are also investing in other city infrastructure moves and believe the shift to electric vehicles and machines will endure.
What do you think is the next step for emissions regulations after Tier 4 Final and Stage V?
I look to ports and cities staking out emission-free zones as an indicator of a next step. Regulations need to consider available market solutions, but I expect to see electrification as a long-term emissions solution.
IoT & Connectivity
How is your company investing in IoT services and opportunities?
Connectivity has been a focus area of Danfoss for several years, from telematics to integration of more software and control services to precision and autonomous capabilities. The foundation is our PLUS+1 toolbox, which enables easy integration of complete electro-hydraulic subsystem solutions. Built on our PLUS+1 platform, we offer remote monitoring, data logging, geofencing and automatic report generation, among other capabilities. And through academic partnerships, R&D projects and acquisitions, we are continuing to extend our connected solutions.
If you have already implemented some IoT opportunities, how has it affected your company? What are the long-term hopes or goals?
I have heard great stories of customers jumping and cheering when they see how easy it is to incorporate connected and autonomous solutions into their machines using our PLUS+1 platform, which is really inspiring. Long-term, the financial picture is also promising. The value captured from using data intelligently to improve safety, efficiency and productivity is growing year by year — and it’s clear that there is still much more potential.
Do you see a path toward the use of AI, VR or AR in your manufacturing processes, or even on-board the vehicle itself?
Yes, precision agriculture and construction are integrating augmented reality and autonomous control today, and we have demonstrated these capabilities in our Application Development Centers (ADCs). We are working with machine learning to improve autonomous functionality and continue to invest in customer projects to prove and advance this technology.
We have found the most powerful way to demonstrate capabilities is with real-world testing in our ADCs. But since not everyone can travel to our ADC locations in the U.S., Denmark or China, we have provided virtual control capabilities to customers and end-users to bring the ADCs to them.
What concerns do you have with these technologies, their integration, and their means vs. ends, if any?
Safety is an extremely important topic. We have prioritized investments in functional safety control and this will always come first for us.
Another common concern is the future of work. Many are asking, “Will autonomous capabilities eliminate jobs?” Our work has focused on improving the productivity of existing workers and enabling safer operations through remote control, but I do expect fully autonomous machine applications to grow in the future. However, I also fully expect job growth in areas like robotics, machine learning, and component and system design to outpace any job displacement. Danfoss is investing in training and education at every level of our organization to support this transition.
Serviceability is also an important related issue. I recently watched a good video advocating for the right to service machines and then immediately read a counterpoint, and it’s clear that this is a complex issue with no easy answers. I think we as an industry need to listen to all the stakeholders and work together on finding solutions.
Automation & Smart Systems
What smart systems or components does your company currently offer? If they are application or industry specific, include that detail in the explanation.
Our PLUS+1 platform makes it easy to design, build and control connected machines. In less than a day, anyone can use this software as well as our application and product blocks to program a machine. Then the PLUS+1 connectivity solutions enable real-time monitoring, including productivity and efficiency, proactive maintenance, machine status reports and even remote service.
How will that portfolio be expanding in the near future? What customer/industry demands drove these future developments?
We can’t spill all the beans, but you will see more connected solutions coming soon. This includes our recent acquisition of Ikusi to enhance remote control capabilities and more application program blocks added to the already robust PLUS+1 library.
How do you see the timeline of vehicle automation unfolding in the coming years?
It’s important to recognize that autonomy is already here. We have already proven autonomous tractor capabilities and are working with customers on additional pilots — we are also working on several use cases advertised by our customers. It’s really a matter of how various applications will develop various levels of autonomy.
So far, very few machines are fully autonomous. Those that are typically operate within a quarantined zone with no humans around. To generalize further, agricultural applications tend to have more repetitive use cases, enabling faster adoption of autonomous functionality, while construction applications have more variability depending on what’s happening on a job site, so developing autonomous solutions for those markets will take longer.
I have been a little surprised to see how many customers are coming to us with niche applications that end-users want to automate for wide-ranging reasons, from high levels of costly human error, to safety concerns in traditional operations, to improving precision or productivity. So, to make one more generalization, it’s tough to generalize! Each application will move at its own pace based on its unique factors.
Challenges & Opportunities
What excites you about the future of the heavy-duty vehicle market?
I was drawn to this market because of the big strategic shifts underway. Smart, connected products are unlocking value through data-driven decisions. Electrification is driving new system architectures that hold great promise for bettering efficiency and environmental footprint. And while autonomy is in an early stage, it could similarly change the game in regards to safety and performance while enabling entirely new system designs or even new applications.
My family has roots in agriculture and I know our industry has great people capable of tackling these challenges — including workforce development in the face of new technologies and changing policies and regulations. So I’m excited to work jointly on addressing these challenges while working to make the most of the opportunities ahead.
What ancillary sectors outside your core market or area of expertise are you keeping tabs on and why?
We are in an era where industry boundaries are blurring, so we need to scan all of the adjacent industries for overlapping technologies. On the technology front, the automotive sector is influencing areas like autonomy and electrification, but at the same time, customer expectations are being influenced by companies like Amazon. Customer experience is a big deal for you, me, and everyone we work with, and so while we are investing heavily in technology to improve machine performance, we are also investing heavily to become easier to work with.