Freudenberg takes majority stake in Xalt Energy

MIDLAND, Mich.—Freudenberg Sealing Technologies has upped the ante on its commitment to electrified technologies.

Almost one year after acquiring a 31 percent stake in Midland-based Xalt Energy, which produces lithium-ion technology solutions targeted for heavy-duty mobility applications, Freudenberg disclosed another investment in January to take a majority ownership in the firm.

Financial details were not disclosed, but Freudenberg said it now has a "more than 50 percent share" in Xalt with a standing agreement to acquire all remaining shares during the next few years.

"Now is the time to really put in a lot of capital and infuse cash into this business to make it much bigger and prepare for the growth we are definitely seeing through committed orders from our customers," said Nils Martens, senior vice president who leads Freudenberg's recently formed Battery and Fuel Cell Division. "We also want to drive expansions into other regions."

Freudenberg Sealing Technologies generated about 55 percent of its $2.66 billion sales in 2017 from the automotive market, the remainder coming from industries like aerospace, commercial truck and bus, marine and energy.

The firm took an internal look at how its businesses would be impacted by emerging electrified technologies. In September, Freudenberg concluded about 70 percent of its business is in danger unless it takes steps to chase these new opportunities. While its existing business will remain relevant in the near-term, global trends are beginning to accelerate the adoption of electric technologies.

"The fortunate answer for Freudenberg was that there will be quite a significant impact on our base business, but it's not as devastating to us as maybe people initially thought it would be," Martens said. "We started to think about the opportunities it could offer us to take the next step. Freudenberg is a 170-year-old company. We've gone through a number of industrial transformations and this is just another chance."

Massive potential

Electrification is not limited to the automotive industry, though Martens said the knowledge gained from Xalt can be applied to that industry. But in order for Freudenberg to capitalize on the opportunities electrification presents, it needed to expand its knowledge base through strategic investments.

Xalt focuses on applying lithium-ion technology to large-scale, high-energy and high-power storage solutions for the commercial transportation, rail, marine, industrial operations and automotive industries. Freudenberg said Xalt operates a 460,000-sq.-ft. site in Midland and a research and development/sales center in Pontiac, Mich., with about 250 total employees.

Freudenberg also acquired Munich- based fuel cell system manufacturer Elcore in 2018. These two deals, along with Freudenberg's existing expertise at the fuel cell component level, were combined into a newly created unit—the Battery and Fuel Cell Division.

"We needed to have in-house knowledge of the applications like we have for the combustion engine and transmissions," Martens said. "Fortunately, we were lucky enough to come across Xalt Energy, which is a very interesting company in terms of the technology they bring."

Freudenberg's component-level knowledge combined with its financial strength and global footprint has helped support Xalt. The firm has invested to help Xalt strengthen its capabilities. In turn, Xalt has provided Freudenberg with the knowledge it needs to capitalize on electrification trends.

"We've learned a lot in terms of the complexity that a battery system and battery cell can bring," Martens said. "There's much more to it than people may initially think. A lot of people underestimate what it takes to design and produce a battery module, especially when you look at the tough requirements of the heavy-duty market. It's triggered a lot of innovation on our components side."

Strategic partnerships

Freudenberg said the Xalt Energy name will remain and become an affiliated brand of the group. It also appointed Jeff Michalski to take over leadership of Xalt Energy from retiring CEO Richard Cundiff. Michalski is a long-standing Freudenberg executive who the firm said has extensive experience handling global acquisitions and market expansion for the company.

"He's very successfully built businesses for us, most recently integrating an acquisition in Australia," Martens said. "He has a very strong background in automotive sales and understands how to approach customers with this business line. He's the right leader to bring together the two cultures of the company, though I'll say they are already pretty closely linked."

Freudenberg said it and Xalt Energy already have entered into strategic partnership agreements to provide advanced lithium-ion battery systems to heavy-duty segment leaders like New Flyer of America for transit buses.

In 2018, Freudenberg agreed to work with a leading provider of electrical power distribution and automation for the marine industry to explore battery solutions for its applications.

Xalt Energy also is working with automotive original equipment manufacturers—including Fiat Chrysler Automobiles, Ford Motor Co. and General Motors Co.—through the U.S. Advanced Battery Consortium L.L.C. In September, the Consortium announced it would partner with Xalt to develop a 12-volt, lithium manganese oxide-lithium titanate stop-start battery system. Freudenberg said GM also disclosed it was using Xalt battery systems in an experimental electric drag racer, the eCOPO Chevrolet Camaro concept vehicle.

Martens said Freudenberg plans to increase employment and add additional options to its battery pack portfolio, which include finding synergies to create hybrid battery systems, and also actively look to expand the battery business regionally and expand product lines into adjacent arenas.

"We are extremely excited," Martens said. "It's been quite a ride because as you can imagine getting into such a new business, learning a lot of new things and growing as quickly as we've been brings a lot of challenges. But we're more and more convinced by this tremendous opportunity."