Auto supplier ZF eyes more flexibility as EV programs pause

Gray Court, S.C. — ZF Friedrichshafen Group's announcement this month of a $500 million investment at its transmission plant here demonstrates the German supplier giant's electrification strategy as its original equipment manufacturer customers slow down their own plans for the electric vehicle market .

Suddenly faced with a new era of uncertainty as automakers switch up their plans, ZF intends to make its manufacturing sites more flexible, able to easily and quickly shift production between internal combustion engine vehicle parts and components for EVs or hybrids.

Creating that flexibility is easier said than done for a parts supplier as massive as ZF, the world's third-largest by annual sales to automakers. But ZF Group's Gray Court plant near Greenville, S.C., could soon serve as a model for the rest of the company as it prepares to build hundreds of thousands of transmissions each year for internal combustion engine vehicles, EVs and hybrids alike, as well as both commercial and passenger vehicles.

"We know that the markets will develop differently," said Stephan von Schuckmann, a member of ZF's board of management, in an interview with Automotive News. "We never believed that everything would instantly switch to electrification. We wanted a modular kit that was extremely flexible and able to meet different demands."

The new $500 million investment, which ZF announced on Feb. 6, will support several new product lines at the plant and include the North American launch of its fourth-generation eight-speed transmission for plug-in hybrids. That transmission is currently manufactured in Germany and used on the BMW 7 Series and X5.

Production of the transmissions will ramp up through 2025 and occur alongside the production of transmissions for other vehicle types. In addition to transmissions, ZF makes a range of auto parts, including composite springs, electronics and safety systems.

The new spending comes on top of a $200 million investment at the plant to begin producing ZF's PowerLine eight-speed automatic transmission for commercial vehicles late last year. The PowerLine, being built for three major U.S. commercial vehicle makers, has the flexibility to be produced in mild hybrid and plug-in hybrid variants.

Jeff Rude, ZF director of operations, driveline systems and commercial vehicle solutions, said PowerLine production at the plant employs new technologies designed to boost flexibility, including the use of automated guided vehicles to move components around the line instead of a conveyor system, as well as new ways of testing.

"We wanted to make the most flexible solution that we possibly could," he said.

That desire is driven in part by the uncertainty around the pace of vehicle electrification worldwide — particularly in North America, where EV sales growth has slowed. Suppliers have been scrambling to respond as Ford, General Motors and others alter their EV schedules and announce delays in production. Such schedule changes can prove costly to suppliers banking on consistent parts orders.

Adjusting schedules can be a difficult balance for suppliers as they try to prepare for an electrified future while not being caught off-guard if that future takes longer to arrive than automakers first thought, said Tom Manganello, co-chair of law firm Warner Norcross + Judd's Automotive Industry Group.

"Virtually every OEM has a clause that says the volume forecasts are just that: They're nonbinding," Manganello said.

Von Schuckmann said the flexible manufacturing philosophy at Gray Court will help keep the supplier nimble — and also serve as a template for other plant projects in the future.

"When we plan, we plan for a certain amount of hybrids or conventional transmissions, but we can vary that," he said. "We produce all three transmission types on the same line. It's as simple as just ordering a different amount."

Like many other suppliers, the transition to EV parts production has been a rocky one for ZF. Automotive News Europe reported in January that the company is considering up to 12,000 job cuts in Germany by 2030 amid the move to electrification, citing the supplier's labor representatives. A ZF spokesperson said those fears were based on "extreme scenarios" and "outdated assumptions."

Von Schuckmann said Gray Court will serve as an example of how ZF will invest in North America and elsewhere in the EV transition. Employees are being trained to work on parts for internal combustion engine vehicles, hybrids and EVs alike, he said.

"If you look at it at a high level, you could say that Gray Court won't exist after the combustion engine dies," he said. "But the opposite is going to happen."

The South Carolina investment also comes as the U.S. government implements new incentives and rules to spur more local vehicle and parts production — and as ZF looks to make its supply chains more regional.

Because of those new rules, von Schuckmann said the supplier wants to maximize the number of components it sources from North America. The company said it has a target of sourcing about 80 percent of its components regionally.

"We want to make sure they're not dependent on supply chains on the other side of the world," von Schuckmann said. "With a lot of the geopolitical tensions we see, the likelihood for a supply chain for a specific component to be disrupted is quite likely. We see that right now in the Red Sea," where terrorists are disrupting commercial shipping.

ZF said it is seeking federal incentives to support its Gray Court investment. It was not immediately clear where the request stands, though the project has already received financial incentives from the South Carolina state government.

ZF Group ranks No. 3 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $42.1 billion in 2022.