By Johannes Hellstrom
STOCKHOLM (Reuters) - Swedish industrial group Atlas Copco (ST:ATCOa) is set to profit from a shift towards electric cars after investing in technology to meet a challenge that is hurting many traditional parts suppliers, a company executive said.
While overall demand from the auto industry is expected to decline in the near term, due to trade tariffs, slowing Chinese demand and uncertainty about new technology, Atlas Copco is well placed to emerge ultimately as a winner in the electrification of transportation, the executive told Reuters.
But patience is likely to be required.
Shares in Atlas Copco have lost a fifth of their value this year and Barclays (LON:BARC) downgraded the company this month, saying its concern on 2019 earnings was increasingly shifting to the Industrial Technique unit, which accounts for the bulk of Atlas Copco's automotive exposure.
Henrik Elmin, head of Industrial Technique, told Reuters the picture was mixed, but noted potential ahead from newer technologies that join parts that are hard to weld.
"We see a number of projects being delayed or terminated, and others that are being accelerated," he said in an interview. "We see a lot of opportunities in the battery pack."
Elmin added: "The total on the car industry side is what we have said earlier, that there is somewhat lower demand in the near term."
Global data for November showed few signs of car sales stabilizing, with steep falls seen both in China and Europe..
SPECIALIST INVESTMENTS
To get ahead in the transformation of the auto industry, Industrial Technique has bought a number of companies specializing in technology for dispensing adhesives and other techniques that are needed as carmakers move towards lighter weight vehicles.
Industrial Technique, which reported a 3 billion Swedish crown ($332 million) operating profit in the January-September period on 13 billion in sales, competes with the likes of Stanley Black & Decker (N:SWK) in industrial power tools and Nordson (O:NDSN) and Graco (N:GGG) in adhesives dispensing.
It derives 60 percent of its sales from the car industry, with the rest coming from sectors such as aerospace, energy and electronics. Atlas Copco also makes products such as compressors and vacuum pumps.
The International Energy Agency forecast this year that the number of electrified vehicles around the world would hit 125 million by 2030, up from 3 million in 2017.
The boom poses a major challenge to many suppliers whose operations have been built around internal combustion engine cars - electric cars feature only around 7,000 components compared to more than 20,000 for an internal combustion engine powered one, according to a report from KPMG.
But it means that new assembly technologies are in increasing demand, playing into the hands of Industrial Technique, which bought adhesives dispensing gear maker SCA in 2011, and snapped up self-pierce riveting specialist Henrob in 2014.
This year the unit added another joining technology with the purchase of flow drill fastening firm Klingel.
While hybrid electric cars, which still have an internal combustion engine, would be a positive to Industrial Technique, pure battery cars are seen creating an even larger boost, due to major opportunities in the very large battery pack, Elmin said.
"When you assemble a battery pack, it is primarily tightening and adhesives, but we also see in some projects, riveting and flow-drill fastening," Elmin said.
He pointed to water-proofing and temperature control as two essential parts in the production of battery packs, with large potential for its adhesives gear business.