Philip Nelles: ContiTech's growth plans are centered around India

We believe in the Indian market and in the  strength of the economy here.

A war is raging in the Ukraine, affecting the global supply chain and supply of precious materials. What is your perspective as head of your division?
The war in Ukraine is a very serious topic. It has become a humanitarian catastrophe for a lot of people. From a supply perspective, we face a challenge as Russia is a base for oil-related secondary products such as carbon black and polymers. So we do face a shortage and then there is the energy supply coming from Russia and high energy prices which hits Europe mainly. We have a big footprint in Europe in terms of sales share and operations, so it is a key challenge.

At a personal level, I can only hope that the parties come to negotiations and end the war which is in Europe. At Continental, we are trying our best to alleviate the situation, supporting via donations for those who have to flee from their homes and facing much suffering.
Continental's top brass and their Indian colleagues at the inauguration of the surface solutions plant.

What does this mean for the ongoing transformation at ContiTech? 
The change and transformation is happening as we speak. We are going to see a lot of different industries and businesses changing rapidly. At ContiTech, our vision beyond rubber into new growth fields has a rationale. Our home turf is rubber materials but we are now positioning ourselves as material specialists working on a variety of areas and applications with thermoplastics materials.

We are also working to combine different metals. As an example, we are looking at fluid handling systems or damping systems. We are combining these materials and composing a final product which is much more than a pure product. At the end of the day, this is a solution because we enhance the product with sensors, providing more value. Providing solutions is a part of our vision and at the heart of our ongoing transformation.

Having said that, we will not only be delivering a technical solution for our customers, but starting to collect data that enables our customers to be more efficient, and to be more value creative in terms of predictive maintenance, for example. ContiTech’s vision is to develop much faster, based on customer requirements and also explore the use of different materials.

This transformation is also taking place as the world and the auto sector emerges from Covid. So what does this mean on ground?
The transformation in the automotive industry, and for ContiTech will depend on how fast the change will be in battery electric vehicles (BEV) in passenger vehicles. This will increase over time and also because customers are pushing on sustainability.  Therefore, this means that we are transforming ContiTech into making new products, new applications. One example would be what we do in battery cooling lines. The batteries in BEVs require a good thermal management system because they then can operate at their maximum efficiency if kept in an environment with a stable temperature, and it enables a better reach in terms of distance.

Battery cooling lines and heating lines which are a part of our mobile fluid systems is an important part of the business transformation. We will, therefore, use existing information and take that into new applications as we transition from the internal combustion engine to BEV. However, there are many products that are independent from the combustion engine. If you take the surface solutions, and the plant we have opened here in India, the sector covers seats, indoor panels. So we are independent of the powertrain. So while we work on transformation for the powertrain, there are products that are independent of the powertrain, and for which we need new solutions.

What are the trends we see in electrification?
We see China being clearly the biggest single market, the biggest car manufacturing country and market in the world. There is a clear direction there to electrification. The same holds for Europe. Both China and Europe, I would say are heading the pace and the North American market is catching up. We see the transforming volumes happen the strongest in China, and in Europe. India is a different set up.  Cars are different in engine size and price levels are lower than in other countries. So the trends in Europe, essentially the hybrids where you have both the electric engine and combustion engine, is not what we see happening in India.

However, in the domain of trucks, we are dealing with heavy loads and the long distances that matter in the major volume markets. So in our view, we see a fuel cell, hydrogen-based solution coming down the road rather than a battery-equipped truck in terms of future technology that is being carbon efficient and carbon neutral.

Some of those projects will definitely be in electric and related spaces and we see many old world companies entering into tie ups and alliances with startups. What does it mean for ContiTech?
We do have some programs going on. One direction is hydrogen, and the hydrogen value chain. The other part is the digital part, the smart solutions part in which we want to team up with the sensor making companies, and integrate sensor functions into our products. That's where we are investing and looking into,  and we do have our design process where we team up with startups. We will work more closely with startups in India and are in the processing of identifying them.

What are your plans for India?
For ContiTech, the Indian market is very important. That is why I am here for a whole week. We intend to build and grow our business in the APAC region where China is the biggest single market. But next to China, we directly look into India; and then Japan as well as the core trio of countries where we intend to build our businesses, and focus our investments. We will emphasize select industry verticals where we want to build on our experience and history in India. That explains the investment we have made in Pune for surface solutions. We also have other projects at other locations in India. Our growth plans are centered around India in the near future.

The surface solutions plant near Pune was built at a cost of Rs 200 crore.

Many countries, and India too is getting to be more protectionist. How would you as a global company head respond?
Yes, and if I may stay on the business aspect, I would say that as a global company, we act globally. What Continental has always been doing and pursuing is to be “in the region for the region”. This effectively means a certain degree of localization has always underpinned our business decisions. We are seeing the kind of sentiments you mention in the sales and production markets. I would say that de-globalisation is happening. With the operation of the new plant here, we are localising in the best way, and being close to our customers. There will be a shift towards more regionalization again on both supply and demand markets and that will lead to different decisions. We cannot in the near-term future assume that global markets are everywhere going to be totally free and accessible.

We will have to ensure that we are correct in terms of compliance, and sanctions, whatever is needed. Therefore, we will be there where the markets are transparent and business-oriented. If there is more protectionism then, of course, our way is to be in the region for the region.

What is your outlook on India?
We have a total of six divisions of which three are here in India which includes air springs, anti-vibration and power transmission belts. We have just brought in the surface solutions business. We manufacture the belts not only for automotive, but for industrial applications. Our idea is to look to expand into opportunities for air springs and for power transmission belts. That's something we're discussing right now and moving forward. We are also looking at the remaining three business areas and their potential. We have a good base in India. We believe in the market and in the strength of the economy here. We have set up a strategic project which is designed for APAC growth within which India plays a major role.

This would include looking at the three areas that you may have potential in India?
Yes, and as an example, I would mention industrial fluid hoses. So hydraulic hose applications and rubber hose applications which I see applicable for industrial maintenance and repair area. This has applications from construction to agriculture, that we will very much be interested in looking into.

How do you plan to leverage India's soft skills in software?
As part of Continental Corporation, we have a large number of engineers and IT specialists for the automotive sector and here we are adding, from ContiTech’s point of view, a team which is covering development of apps, development of ideas, business models around digitization including work in sensors. We have added these to the automotive team with about 20 employees initially and planning to expand. I see great potential and a lot more to come.

At a personal level, what does India mean to you?
I see India as a country of extremely motivated and creative people who are friendly, open minded. It gives me joy to see how interactive people are. That creates, from my point of view,  great dynamics. India is very different to what I know from Europe in many ways so it enriches my business perspective; and I endeavour to always take a flavour of that excitement back to my European colleagues. With your IT, software and educational efforts, I believe that India is truly a powerhouse. We need to have good relations with you and ensure we learn and interact together. I believe that we also need to have a good relationship not only on a company basis but on a country basis too.

Do you see a lot of work that was centralized or largely done out of Europe/Germany moving towards Asia?
In our history and our setup, we have a strong footprint coming from history, from our foundation 150 years in Europe. So, a lot of R&D, and engineering development is done in Europe. Having said that, we strive for global standards. We believe it is a value itself to offer standards to customers who do not have to accept different levels of product quality or lifetime requirements in their applications. ContiTech will strive to roll out robust and proven technologies on a global basis, and that's something that we're doing. This will, of course, make it possible for us to derive benefit in countries where we grow the business and bring in our global standards. We saw that at the plant inauguration with customers reacting to our production processes which are absolutely state of the art. You would not find any different level of technology in any other surface solutions plant worldwide.

In the last 18 months or so, we have all been working from home. How does one motivate people as they come together at the workplace?
I do try to motivate the staff because on the one hand, we are going to have the flexibility we have learnt, and on the other, we are going to keep the technology that we have learned to apply making life easier for us. So, a part of the virtual world will stay, but the world we have been missing such as socializing together, being together, being creative together, meeting customers and suppliers or our contacts to make business work and to create value, we have been missing a lot in the past.

So this is the key message and I have been touching people’s hearts and know that the majority really wants to get back to office, to be together with their colleagues again. However, you do have some who prefer the total virtual way of working, then others who want hybrid, and some want to return to the workplace 100 percent. The learnings are different and we have to respect that. So it will not be 100 percent back to the old model, but we have made it also clear regarding what has been missed over the past years. I think that is the right way moving forward.

How does ContiTech/ Continental look at sustainability and what this means for your group?
The electric vehicle is an important part of the drive towards sustainability but you know that we do a big part of our business in industrial businesses as well. So from the agriculture industry, for example, to construction, to conveying solutions, we do a lot on sustainability. This is divided into two key areas, recycling or the circular economy, and ideas to use recycled materials for use of new materials. A lot of our customers have an increasing interest here and we are developing ways to recycle materials as a share of our ingredients and then production of new materials. On the other hand, we talk about renewable sources. We also talk about materials we have never used before, which are not oil-based, not industrialized yet so far. As examples, we're looking into sugarcane and coffee beans. We have to be creative to find out how we can enhance the share of recycled raw materials and also get back materials out of existing end-of-life vehicles.

We have to also look at how to return back instead of landfill or other non-sustainable processes. So we are exploring new materials coming from dandelions, for example,  where we believe there is a significant chance to increase that share and introduce our applications and solutions.  We are getting more questions from customers on the issues of sustainability, and we have to be aware of regulations that differ from country to country. I believe we can also support the Indian economy with solutions in this direction.

Your tagline says ‘smart and sustainable solutions beyond rubber’. Do you think rubber will finally go out completely from auto manufacturing?
It will be there but different in applications. There will be substitutions because of lightweight requirements and because of further developments in thermoplastics or metal. To take an example, we manufacture extremely thin metal sheets, make pipes out of it and then put it into the hydroforming process. We basically develop an elastic corrugated steel pipe if you want, which demonstrates that we are material specialists and engineers, and can make sure that we handle things depending on requirements and different materials. But I believe thermoplastics will grow stronger in our applications than rubber but I still believe rubber has a long-term existence in various industries.

The pandemic affected us all at various levels and experiences, so both from a personal and professional standpoint, what has Covid taught us?
On a personal level, it taught me how to handle uncertainty and manage with a much higher degree of flexibility, and how to work out different issues. I refer to not being able to meet and reach out to people so handling aspects of leadership, management decisions which usually require personal interactions etc,. Then there is the body language and first reactions when you meet people.

We have lived and worked for quite some time without this, which is the real thing. To sum up, it is how to still handle emotional, critical or positive events on a private and the business side. I think it is possible but I am longing  to get back to a more normal mode again, because seeing people interacting with people and socializing is important.

In this virtual business world at least, my experience is that we tend, of course, to do the business stuff, but via Teams we are doing a kind of interview. There is much I can learn via socializing and maybe finding out other aspects, one’s experiences if I could sit down with you and get to know something that I didn’t really know. That’s missing, and that's something which I'm really looking forward to when our lives get more normal.

(This interview was first published in Autocar Professional's April 15, 2022 edition)