TROY, Mich.—The automotive industry now fancies itself a technology industry with a manufacturing problem.
CEOs wax on investor calls about competitors from Silicon Valley and regulatory framework for cars that drive themselves. This is all true of course, but automation, artificial intelligence and the big data required to rid cars of steering wheels and crashes is more than just the end product.
Swamy Kotagiri, chief technology officer for the world's third largest auto supplier, Ontario-based Magna International Inc., is focused not just on cars, but the process of making cars—how suppliers are rushing to be on the cutting-edge of manufacturing technology without being on the bleeding edge.
Kotagiri spoke to Crain's Detroit Business senior reporter Dustin Walsh from his office in Troy about the pressures of investing for the future and how thinking about the factory is just as, if not more, important than the car.
How do you determine where to focus your efforts in the changing landscape of automotive?
It's a mix, for sure. Magna has a wide portfolio, so I feel privileged to work with materials, product and engineering. We're really looking at the impact of technology on industries. A good example is the possible effect of artificial intelligence and machine learning. People tend to focus on the impact of those things on autonomous driving, but it is having a significant impact on factories. Advanced robotics and better utilization of space and output. There's a lot more interesting things happening in the automotive industry than the electrification and automation of driving that everyone is talking about.
How much do you dedicate to the future of cars and the future of manufacturing?
We have the near-term challenges we always look at that are in the three- to five-year range for product. How we constantly keep on the edge. Some of the factory aspects are further out of that range. But we have to also look at what's the next mobility business model and balance that with what the smart factory of the future is going to look like. So I'd say it's almost a 60-40 split between how we keep the momentum going and the relevance of current product with the futuristic parts of our business.
How is that impacting financial planning? Are you always at odds with the CFO office over research and development spending?
It's not as much about increasing R&D spend. In simple terms, it's about return on investment. The time horizon might be different on products now. We have to look not just at this quarter or this year. It's an adjustable market that needs a pragmatic approach. You have to provide room for failure now. And that's OK. You have to look at what you're trying to achieve, the deliverable, with an objective process to get there and find the next step or have the knowledge to step away from it if the time is not right. If you have a process in place to do that, it's easier. Fortunately, I've not had an issue where we can't spend money. We've had 18 or 19 investments in the last three of four years. Strategically, it's important for our portfolio to advance. We've been able to do that because we've had a good balance sheet and a very cohesive executive management team.
Is there a specific area of the manufacturing process or technologies you're particularly interested in over others?
AI is a very large field, but there are some specific domains. Sensors as a field. Whether that's sensors for advanced robotics or ADAS (advanced driver-assistance systems) or pre-diagnostic systems in equipment. But it's more than that. We look at the entire product portfolio and the significant things that can change the industry. So we're really talking about materials and processes. Whether that's next generation high-strength steels or high-magnesium content steels or different forms of nonmetallics like carbon fiber. Once I have the material, how do I form it? How do I weld it? What kind of technology do I use? It's all part of the bigger picture.
Are the tariffs on aluminum and steel impacting your use of materials?
Materials have always been and will always be an important part of this industry. Whether that is dictated by crash or safety standards or needed improvements on weight for better MPG or range, we'll have to use different materials. It's about how we put these things together to have a product that is viable and economical. The discussions that are political are transient. I hope they are transient.
Do you fear the smart factory will result in massive jobs losses at Magna and elsewhere?
Automation is no definitive answer or cure-all to anything because there are aspects where automation is not pragmatic, where the human interface is still very efficient. No one is in this to automate for automation's sake. So I'm not so sure smart factories or AVs changes that. All the interfaces and subsystems in the car are changing, but putting things together and making a car is still complex. I don't see a future where the workforce is significantly dropped. It will be affected by where cars and parts are made and volume fluctuations, sure, but I don't think we're going to see automation replace all the people.