By Syndication Washington Post, Bloomberg · Shiho Takezawa, Tsuyoshi Inajima · BUSINESS
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 and most recently the world's most-valuable automaker, is one of its biggest customers.
Although the coronavirus pandemic has depressed global auto 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% annually and will reach $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% on Monday.
Located in Odawara, a city 56 miles (90 kilometers) west of Tokyo, the company's prime business during Japan's postwar economic boom was building coil-winding machines for makers of refrigerators and air conditioners. Apart from Tesla, the company also counts Toyota Motor Corp. and Nissan Motor Co. among its customers. In 2018, Tesla made up 12% of Odawara Engineering's sales, but in 2019 that probably slipped below 10%, 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 $6.5 million (700 million yen) and revenue of $135 million (14.5 billion yen) intact when it reported results in May, as the covid-19 outbreak shuttered economies across the globe.
"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."
Odawara Engineering's Hoshina said the company's backlog for coil-winding machines has increased since December, and he said 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 2018, Germany's Schaeffler AG bought Elmotec Statomat GmbH & Co., a winding technology company. ABB Ltd and ThyssenKrupp AG have joined CWIEME, a global trade and expo group for coil winding and electric motors. Odawara Engineering also competes with Tana Automation Co., Nittoku Co. and China's Changzhou Jinkang Precision Mechanism Co.
In order to fit more wire into motors, Odawara 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. Denso Corp. was among the pioneers in developing hairpin-winding technology.
Even though the market is getting bigger, Odawara Engineering will focus on developing innovations instead of rushing to add capacity, according to Hoshina. Because the machines are complicated and made by hand, merely adding more workers wouldn't work, he said.
"We plan to grow gradually by choosing our clients," Hoshina said. "By looking at which clients and what motors are promising."