BEIJING -- Despite worries about China's economy, Delphi Automotive is betting that the auto industry will continue to grow and is backing up that bet with a significant expansion.
Over the next couple of years, Delphi will open three new plants and a technical center, and it expects to grow faster than the industry.
On the sidelines of the Beijing auto show last month, Delphi CEO Kevin Clark summarized his expectations for vehicle electrification and automated driving.
Below is a condensed version of his conversation with Yang Jian, managing editor of Automotive News China.
What kind of growth targets does Delphi hope to achieve in China over the next five years?
Over next five years, we expect the current growth to continue. We'll double our annual revenue of almost 3 billion dollars in 2015 to close to 6 billion dollars in 2020.
What was your revenue growth in China last year?
We grew about 12 percent last year from a revenue standpoint. That was seven or eight points over vehicle production growth in the market ... We have been growing pretty consistently eight to ten percentage points over the market.
Are you expanding operations in China now?
We have 18 manufacturing facilities and three technical centers in China, and we have about 26,000 employees here. We are looking to add the fourth technical center over the next couple of years, probably in western China. We'll also add three plants by 2018.
How much business do you have with Chinese brands, which have gained market share?
We supply all major domestic Chinese automakers. Local brands represent 25 percent of our revenue in China. It will grow up to 30 percent over the next five years.
Labor costs are rising fast. Will this affect Delphi's expansion?
No, it will not get in our way of growth here. Labor costs are going up, but the middle class is growing and more people are buying cars. Rising labor costs are certainly something we manage, and we are very productive from a workforce standpoint. It is also important to know that we are in China to serve the China market. We are not using the China market to export products.
Several automakers have conducted road tests of self-driving vehicles. Is China ready for this?
Although the technology exists today, we think fully automated driving is probably ten years or more away. When you look at the active safety benefits of the technology related to automated driving, the industry uses a spectrum from level zero to level four. At level two, you can get 80 percent of the safety benefits for only 20 percent of the costs.
So we think there will be tremendous demand for active safety over the next ten years. Our active safety business has been growing 50 percent a year globally. As costs come down, you'll see more applications of automated driving.
Chinese brands have launched many electric cars but foreign automakers seem reluctant. What are the prospects for EVs?
I think it depends on how you define electric vehicles. There is a broad spectrum of electric vehicles, from mild hybrids to full EVs. If you talk to all the automakers and suppliers, everyone would say you need more electrification to reduce carbon dioxide and improve fuel economy. The challenge with full EVs is cost related -- whether consumers will pay that cost to get the benefit and whether the automakers will make money on those cars.
How is Delphi tackling the market for electrified cars?
We have come up with a great solution, the 48-volt electrical system, for the North American, European and the Chinese markets. With this technology, you can get 70 percent of the benefits of a full electric vehicle at 30 percent of the total cost. [A 48-volt electrical system is used to operate start-stop systems, generate electricity from regenerative brakes, and - in some cases - power a supercharger or turbocharger.]
Delphi has made multiple acquisitions in recent years. Do you plan to keep doing so?
Yes, we probably will.
What are your targets?
They will be across each of our segments -- mostly in electrical architecture, especially in areas like connectors, engineered products, safety software and powertrain products.