Visteon hired an engineering team that now numbers 100 people to create DriveCore — a departure from competitors who have tried to add technology talent by buying other companies.
DETROIT — Since spinning off from Ford Motor Co. in 2000, Visteon Corp. has been in a continual state of identity crisis.
The supplier stumbled through board turmoil, bankruptcy, multiple CEOs and, over time, a drastic paring-down of its businesses.
CEO Sachin Lawande took over the top executive spot in mid-2015 and went to work, firing the company’s r&d team in early 2016 and going as far as sitting in on interviews with entry-level software engineers.
Now, Lawande is betting the supplier’s future, and possibly his career, on a single vision.
At this week’s CES in Las Vegas, Visteon is unveiling its DriveCore platform, a sort of central command for electronics and software for autonomous cars known as a “domain controller.” The platform is an extension of its SmartCore platform, which similarly centralizes the software and hardware control electronics, but for cockpit systems, such as infotainment, heads-up displays and instrument clusters. Drive Core connects Visteon’s electronics and hardware components to the growing autonomous vehicle market, an area from which it had been glaringly absent.
Visteon is shipping its first SmartCore systems to a European customer later early this year and then to China’s Dongfeng Motor Co.
DriveCore, however, is outside of Visteon’s interiors scope. The supplier largely missed capitalizing on the contract-rich surge to advanced driver assistance systems, such as emergency braking and lane assistance, Sachin acknowledges.
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He vowed the company wouldn’t miss the next evolution of automotive technology.
Lawande hired an engineering team that now numbers 100 people to create DriveCore, a departure from competitors who have tried to add technology talent by buying other companies.
Until now, that team has been mostly kept quiet.
“We know people will say we have no capabilities or experience in this space, but about a year and a half ago, we created a completely separate unit to focus on this and this only,” Lawande said. “I’ve had to make a lot of tough decisions (like eliminating the former r&d team) because we weren’t innovating in the right areas. For us, this is a big bet, but if we’re able to fundamentally change Visteon and prove this (DriveCore) out, we’re going be successful.”
Regroup and rebuild
After spinning off from Ford, the electronics and interiors supplier never posted an annual profit before entering bankruptcy in May 2009. It was plagued by board infighting, under then-CEO Don Stebbins, over the direction of the company.
Board member Timothy Leuliette replaced Stebbins as CEO in 2010 after he was fired by the board. Leuliette triggered a flurry of M&A activity by selling off Visteon’s climate businesses to focus exclusively on interior electronics.
In December 2014, Visteon agreed to sell its 70 percent stake in its Korean joint venture Halla Visteon Climate Control to an affiliate of Korean private equity firm Hahn & Co. and Hankook Tire Co. for $3.6 billion. In November 2014, Visteon completed the largest phase of a deal to transfer its automotive interiors business to Dutch firm Reydel Automotive Holdings BV. Reydel is held by New York private investment firm Cerberus Capital Management LP, the former owners of Chrysler.
Visteon also sold its 50 percent stake in Duckyang Industry Co. to Duckyang’s management for $24.1 million, or 25.9 billion Korean won, and acquired Johnson Controls Inc.’s electronics business for $265 million in 2014.
The result was a smaller, streamlined Visteon. The supplier reported revenue of $9.54 billion in 2010, but the paring of businesses brought that down to $3.16 billion in 2016.
Lawande was named Leuliette’s successor in June 2015. In an interview with Crain’s Detroit Business at that time, Leuliette said the time had come for Visteon to find direction.
“I’ve been here to live with the selloff, to clean up the business,” Leuliette told the affiliate of Automotive News. “The bets we’re going to be making on software, those are a three- or five- or seven-year bets, and the guy who makes those bets should be here to live with those decisions. From a cleanup perspective, it’s about done … This is not your fathers’ Visteon.”
Visteon CEO Sachin Lawande: “The Visteon I see will be more traditional than a Silicon Valley tech company, but a lot closer than others. We’re prepared for the autonomous future now.”
A new vision
Lawande, 50, spent a decade in automotive electronics roles before arriving at Visteon. Most recently, he was president of the infotainment unit of Harman International Industries.
He came to Visteon to give it purpose, one purpose: Find Visteon’s niche.
“I, generally, believe in finding a space where not everyone is focused, and I think we’ve found it” with SmartCore and DriveCore, Lawande said. “We had not invested in core capabilities on the software side. I had to make some very fundamental changes to the company’s structure. This is not the same company as it was a few years ago. We’re focused on Visteon 2.0, and we’re doubling down, and it’s going to pay dividends.”
The vision is even reflected in Visteon’s stock listing. In December, Visteon transferred its stock listing from the New York Stock Exchange to the Nasdaq, where most technology companies trade.
“Our move to Nasdaq, where we will join many other growth-oriented technology enterprises, is consistent with our transformation to a software-focused tech company that is helping put the auto industry on a path toward the digital cockpit and autonomous driving,” Lawande said in a statement at the time.
Payoff or reckoning?
The move to domain controllers for autonomous vehicles may prove to expand Visteon’s top line. The market for domain controllers linked to advanced driver-assistance systems is expected to grow to 20 million units by 2023, according to IHS Markit forecasts. That’s a larger number than the growth of cockpit domain controllers for the infotainment, heads-up displays, etc., which is expected to reach roughly 8 million units by 2026, IHS forecasts.
Mark Boyadjis, principal analyst and manager of automotive user experience at IHS Markit, said what Visteon sees as risk is a shrewd and, probably, a necessary move due to automaker demands.
“With every new feature (on a car) comes a new electronics control unit and (automakers) are at their wits’ end,” Boyadjis said. “Now with these domain controllers, they see a way to combine the ECUs with less complexity and less cost. It’s of strategic importance for Visteon to be doing this because, like their peers, they were beginning to offer these domain controllers in the cockpit that were essentially eliminating hardware they were supplying. Everyone is asking how this won’t affect their bottom line and the answer is to produce them for more than just the cockpit.”
Domain controllers are expected to reduce ECUs from 60 to 100 today in semi-autonomous cars to as few as six in fully-autonomous cars of the future, Boyadjis said.
But the market is saturated with juggernauts that have supplied ADAS systems for years and are poised to capitalize on those systems with their own domain controllers. Germany’s Continental AG and Robert Bosch GmbH, Aptiv PLC and Japan’s Denso Corp. are formidable competitors in that space.
“Skepticism is legitimate, because the market is competitive,” said Steven Fox, managing director of New York City-based technology industry equity research firm Cross Partners LLC, which recently started tracking Visteon’s stock. “This is not without risk, but given how the industry is moving around autonomous cars, there’s more risk if Visteon stayed with its old business model.”
Lawande said while it plans to go head-to-head with automotive competitors, it made sure to avoid direct competition with Silicon Valley’s automotive entrants, like Google and Apple, by keeping its software open-source and allowing automakers to use whatever software they prefer.
“When it comes to the big giants of Silicon Valley, they are extremely formidable, that’s why we spent a lot of time where we felt we could operate,” Lawande said. “Continental and Aptiv have no chance in competing against Google and neither do we, but we’re at the cusp of really exciting things for the company. We’re already in discussions with (automakers) about putting the DriveCore system in vehicles in the 2020 time frame. After 2020, we expect this to pick up and become a significant portion of our business.”
But Visteon has to deliver on a massive backlog of business it secured through the JCI acquisition and the continued success of its SmartCore and its infotainment platform Phoenix, which already secured several contracts, and it’s expected to begin delivery this year. Its backlog was $18 billion as of Sept. 30, 2017, up from $16.5 billion at the end of 2016.
“Visteon has a lot of momentum and they’ve been hitting their (earnings) targets,” Fox said. “I don’t see a reason they can’t continue that, but this will be a telling year for them. They are looking to grow their shipments pretty quickly over the next few years. If they don’t execute that could be concerning.”
Fans on Wall Street
Yet Wall Street is all in on Lawande as a leader.
“I’m a big fan of Sachin,” said Colin Langan, autos equity analyst for UBS Investment Bank in New York. “Visteon clearly didn’t have any direction when it spun out of Ford. But he’s laser focused and has provided the clearest vision of where the world is going in auto and making sure they are relevant in its history. Visteon has the same name, but it’s a different company under Sachin.”
Visteon shares are up more than 130 percent since Lawande became CEO in 2015, closing Friday at $136.74 per share.
“I’m optimistic about where we are,” Lawande said. “In Detroit, we’ve underestimated our capabilities. We have to know where we can compete and where we can collaborate. We’re not going to play a zero-sum game with Silicon Valley. That hasn’t worked out well for others.
“The Visteon I see will be more traditional than a Silicon Valley tech company, but a lot closer than others. We’re prepared for the autonomous future now.”