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Tesla, Toyota Motors help obscure Japanese supplier to thrive
DEEP in the electric-vehicle (EV) industry's supply chain is a little-known Japanese manufacturer that makes a seemingly mundane, but essential, device: coil-winding machines.
If the motor is the heart of an EV, then coils in turn are the heart of the electric motor. Odawara Engineering Co, founded 70 years ago as a supplier for appliance makers, is an expert in the making the dense loops of wire that go into those motors. Tesla Inc, manufacturer of the Model S and Model 3 sedans, is one of its biggest customers.
Although the coronavirus pandemic has depressed global car sales, BloombergNEF predicts that economies will speed up adoption of EVs as some countries choose to bolster funding for low-emission cars and infrastructure. The global market for coil-winding machines is projected to expand at 10 per cent annually and will reach US$1.3 billion in 2024, according to Global Info Research.
"We have to keep making our machines better," said Masahiko Hoshina, vice-president at Odawara Engineering. "Our clients can't win if they can't differentiate their products."
Electromagnetic coils interact with magnets to turn electric energy into motion, the basic principle behind the motors that power everything from drills to commuter trains. The shares of Odawara Engineering jumped 21 per cent on Monday.
Apart from Tesla, the company also counts Toyota Motor Corp and Nissan Motor Co among its customers. In 2018, Tesla made up 12 per cent of Odawara Engineering's sales, but in 2019 that probably slipped below 10 per cent, the threshold for reporting such figures.
Robust demand for Odawara Engineering's machines means it will probably keep its outlook intact for the current year. The company maintained its forecast for operating profit of 700 million yen (S$9.1 million) and revenue of 14.5 billion yen intact when it reported results in May.
"The shift toward electrification and automation won't change" even during the pandemic, said Akihiko Kawazoe, an analyst at Toyo Securities. "The company probably won't be impacted by the coronavirus as much. Its sales will likely be in line with its outlook."
Mr Hoshina said the company's backlog for coil-winding machines has increased since December, and the manufacturer is now focused on cutting costs. Bigger companies in the sector are buying smaller ones, and competition is becoming more global, he said.
In order to fit more wire into motors, Odawara Engineering is working on "hairpin" winding machines. Instead of round wires, square-shaped wires are used to pack more into electric motors, improving their efficiency and performance.
Even though the market is getting bigger, Odawara Engineering will focus on developing innovations instead of rushing to add capacity, according to Mr Hoshina. Because the machines are complicated and made by hand, merely adding more workers wouldn't work, he said. BLOOMBERG