Good morning. Welcome to Johnson Controls Power Solutions Analyst Day. Thank you for participating in our call. Kathy Campbell will be the host of the live event. The slides for today are available at johnsoncontrols.com/investors.
Good morning, and welcome to Powering the Future. I'm Cathy Campbell, Director of Investor Relations, and thank you so much for joining us today, both in the room and on our webcast. You can join today's conversation via Twitter. If you look on the second sheet of your pamphlet, there's more information. Hoping that you had the chance to take advantage of the experiences we have both in the hallway and outside.
If you miss those, please take advantage. We'll be here for a couple of hours after the event today. We have an exciting day planned for you. And at Johnson Controls, we always start with safety first. So if there's an emergency, we'll evacuate out of the back doors and exit the building to the north.
We have restrooms in the corridor. Head that way, just follow the signs. And if you could take a moment now to just double check that your cell phones are silenced, we would very much appreciate it. Before we begin, I also get the pleasure of reminding you that today's comments will include forward looking statements that are subject to risks, uncertainties and assumptions that could cause our actual results to be materially different from those expressed or implied by such forward looking statements. The factors that could cause the results to differ are discussed in the multiple pages in the extended disclosures included in today's presentation document.
Now let's take a look at today. Alex will kick us off highlighting how Power Solutions is a great part of our multi industrial portfolio. Joe Wallachie, our President of Power Solutions will go through our growth story through 2020. We'll then take a deeper dive in the aftermarket with Ray Chimansky, our VP and GM Aftermarket Power Solutions. We'll then bring the 3 of them back to the stage along with Brian Steef, our Executive Vice President and Chief Financial Officer for a Q and A session.
We've got a lot to share with you today, so we're going to have a bit of a working lunch. We're going to have lunch provided right outside the door. So if you could grab your lunch and come back, we're going to kick back off with the technology panel led by Mary Anne Wright, our Group Vice President of Technology and Industry Relations Power Solutions. For those of you in the room, we're going to give you a little deeper experience into our focus areas today with all of our experts around the room. And then we'll have Alex conclude our in room discussion and then we'll direct you to our experiences after that.
With that, it's my very distinct pleasure to announce Alex Melittaroli, Chairman, President and CEO.
Thank you. Good morning, everyone. I really appreciate this opportunity. So I want to remind everyone that we've actually done this one time before. I was asking individuals when they came in, were you here in 2011 when we had this conversation?
And some were and some weren't. So some that are, you can go back to your notes and say, okay, did they do any of the stuff that they talked about in 2011? And for those that weren't here, we did everything that we said we were going to do in 2011. So let me jump right into it. I got 20 minutes to set us kind of set the stage, but the real content is going to come later when we get the management team up here from Power Solutions.
But one of the things that I would like to remind people is and we're going to go through this in some detail is that in 2011, we did talk about the business and this talks about some of the metrics since 2011. So since the last time that we were together talking about this business, what's happened with the business as it relates to our ability to invest in the business and see some of the returns from those investments. This just gives you an idea of the journey since 2011. I do believe there's a slide later on that gives us back a little bit further and of course we'll talk about what we anticipate going forward in the future. And there'll be a lot of questions around the future.
But a couple of things and as I reflect on this, I won't go through all these numbers, you can read them and you've got your hand out. Now I reflect on it in 2011, there's a lot of things that we got right. And I'll point out a couple of them. One is that we talked about the fact that lead acid battery wasn't a dying market, but not only wasn't a dying market, it was a technology that was evolving. That powertrains in the vehicle were going to change and they were all going to be hybrids at the time.
We didn't talk a lot about electric vehicles, but we talked a little bit about electric vehicles. And we did some modeling about what we thought the future would be. And I actually some of these numbers were kind of imprinted in my head. I remember we talked about Europe being primarily a start stop market. We didn't have a lot of insight in China.
I think we actually just said we weren't sure because those decisions really weren't being made yet by our customers. And what we saw was somewhere around 40%. I specifically remember it was an odd number, 39% was the number that we talked about was going to be the penetration in the U. S. Around start stop.
So you can kind of measure where we thought. And the other thing we thought is gas prices will be around $7 a gallon. So we got that one wrong. But a lot of the things that we talked about at the time have come through as it relates to the technological changes, not only in batteries, but probably more important, the reason that people need a battery. The one thing that we didn't anticipate is this conversation around autonomous vehicles that's happened here in the last couple of years.
Let me put this whole thing in context. This will be the only time during the day that we even refer to anything outside of Power Solutions. The context of our multi industrial story, as we've gone through our own transformation, this is a post Adient discussion. As we go through our own as we've gone through our own transformation, the things that we have focused on is where can we participate in what markets that are growth markets, why are they growing and how can we position ourselves to be successful. There's a few themes here and it relates both to our buildings business and to our energy business.
And those themes are around the changing set of demographics, around the urbanization that's happening, around the fact that the middle class that's emerging and the sheer population and wealth that's happening in the East, specifically in China, is something that we need to position ourselves to be successful in the future. That's going to drive technological changes, that's going to drive where the demand is and it's going to drive our business models. And so as we talk about this, we won't spend a lot of time today, but you'll continue to hear this theme, I would expect when we have our Analyst Day in a few months from now, post Adient, we'll really have a deeper conversation around this so that you can understand why we're in the businesses that we're in and how we see the world and how we're going to participate in
it going forward. Many of you have
seen this on the Slide 10 for those that are following along. This is what we call internally our dinner plates, but this speaks to the parts of our business as we move forward that we see there's an opportunity for investment. And so we've got 2 platforms, energy and buildings. And you'll see a couple of things here that look could almost look like distractions. One is you see this distributed energy storage, which is a nascent and growing opportunity that kind of connects our buildings business and our energy storage business.
Then you see the North American branch network. We won't talk about that, but that's also a key capability. It was very germane when we talked about the Tyco merger. So we're not going to spend a lot of time talking about the buildings business. We'll have an opportunity to do that in the future.
But what I would like to
talk about is the $200,000,000,000 opportunity that's in front of us, which is the focus of this conversation around our energy business and where we see the opportunity for growth. You're going to hear conversations today that are going to help you understand why we're uniquely positioned and how we see the market evolving. But I also want to put it all in context. If you look at the way that we think about this business, and I'm focused on the distributed energy storage piece of this, but if you look on your handout, it might be easier to see. But if you think about our business today, we are deep in our expertise, in our share, in our capabilities and really in our ability to differentiate ourselves when you think about the motive market, the automotive market.
That's a deep expertise that we have, particularly around lead acid. We also participate in lithium ion and we also have, as many of you know, vertically integrated and things like separators and of course we vertically integrate into our own recycling capabilities. You're going to hear a lot more about that. This chart doesn't really do it justice. But what I want to make sure that you understand is that we see an opportunity to leverage this talk specifically about some of the questions that have come up from you.
You can probably think about this being your agenda because over the past few months, we've had an opportunity to meet some of the new folks that cover us. A lot of similar questions have come up. You're going to get answers to that question those questions. Then of course, you'll get a chance to ask them yourself. And I think as we go through, what you're going to see is what we already understand about this market is that it's a market that's not only defensible, but the one that's growing.
Once again, we talk about Johnson Controls.
This is
if you take 2016 and pro form it, take Adient out a lot of the noise that's in our business today because we've got lots of things that kind of in and out as we've gone through our transformation. We've got a $30,000,000,000 business. It's made up of 2 platforms, our energy platform, our buildings platform. As it stands today, it's made up of $23,000,000,000 in our buildings business, which includes the merger with Tyco along with the $7,000,000,000 business in Power Solution. The other question that's come up, this kind of speaks to some of the questions.
Let's talk about Power Solutions and some of the metrics behind Power Solutions. If you look at the metrics in Power Solutions and understand why we see this as not only a growth business, but also something that fits quite well within our portfolio is because of some of the metrics. It's a very stable business because of the attributes of being an aftermarket driven business. It's not a discretionary purchase, as you like, the core of our business. Plus, we have many, many parts of many, many reasons related to our scale and our business model that makes us more profitable than our competitors and truly the only global player.
But you can see where you can see if you stack up our metrics today versus kind of a composite of our multi industrial peers within Power Solutions, we truly believe it fits. We want to make sure we get to the nuance of all your questions, but this is how we want to as we peel the onion back, how we'd like you to think of as a starting place around this business, not only in a point in time, but how we see the future and what evidence we have over the past that we've been able to meet these objectives. What you're going to hear today, and this kind of speaks to your questions, This is a fast growing sector. This business is a thriving business and it's been repeatedly been able to continue to add value to our customers, evolve as the market evolves and make sure that we have barriers to entries against our competitors. We have a strong market share and you can see a 36% market share with an emerging opportunity in Asia and China where the market is growing and where it's where we're growing much quicker than the marketplace.
From a product technology standpoint, we see the market move. We're not blind to the fact that the market will evolve over time. And what I would say is we've been appropriate as we have evolved our technology to meet the needs of our customers. And I think you'll see that not only in our current plans, in our future plans and you see some of the announcements we made, but also in our efforts in the future about how we're going to address the market as it evolves. And the fact that our aftermarket business, which we don't talk enough about, which is 74% of our entire business, is one that is very resilient.
That's an inelastic market. It's an opportunity for us to serve our customers. And when you think about modeling this business and you think about a 74% of your business being the aftermarket, we'll get into some of the nuances of that, particularly if you get a chance to speak to some of our people. That opportunity for us is one that allows us to go through the cycle in a much different way than if it was just truly an OE business. And that's something that I want you to get familiar with and I hope you ask a bunch of questions because we don't spend enough time talking about how we add value to our customers, why we're so successful with the aftermarket and how we help our customers be successful.
We think our business model is very unique. There's a few things, remember, about batteries and if those folks that know me from the past, I kind of tell the same story. One is that it's a scale business and the fact that we have the scale, not only scale around the manufacturing processes itself and we have unique technologies that allow us to be much more precise in how we make a battery, which allows us to use much less content, makes our batteries less costly. So we have a much higher performing battery at a lower cost. I think Joe Wallach will talk about that a little bit more in detail.
We also have a network effect. Batteries are heavy and hard to move around. The fact that they're heavy and hard to move around makes it very important to be as close as you can to your customers. And the fact that this is a very unique product that is highly recyclable and we find ourselves in that value chain in a very unique position. It gives us, as you might want to think about this, a lot of bites at the apple and it's also an opportunity for a differentiation with our customers and how we compete.
And so our business model has many attributes to it that allow us to be successful. Technology is one of them, but it's not the only thing. Our manufacturing capability and capacity, the fact that we have reinvested in our plants and facilities is something that also makes us much more successful than our competitors. Our margins have expanded. We continue to see margin and expect margin expansion over the next period.
And I think that there'll be some slides that speak to this, but we have enjoyed consistency in this business and we expect to see consistency in the future. So as we move forward and kind of get to the meat of the presentation, hopefully this is a good setup as we speak for the rest of the day for you to understand why we see this as an important part of our portfolio, but not only an important part, but something that needs that requires and needs and should be invested in. With that, I'll turn it over to Joe Walicky.
Thank you, Alex.
Well, good morning.
I'm Joe Wallachian, I'm President of our Power Solutions business and I truly appreciate on behalf of my team and everyone at Johnson Controls you coming out and spending time with us. We put a lot of effort into trying to make this a program that's constructive and hopefully you'll find it to be a good use of your time. So let's dive into this a little bit. So we're the world's largest manufacturer of batteries with a global leading 36% market share in automotive batteries. Last year, we made 146,000,000 batteries this year on a pace to eclipse that.
1 in 3 vehicles around the world has a battery that was designed and manufactured by Johnson Controls. But our core market goes beyond automotive batteries and it includes commercial, marine, motorcycle, powersport, golf cart, lawn and garden. And if you look at our market share, including those motive segments, it's about 24%. So there's plenty of room for us to grow. And if you look at technology, we go beyond lead acid to include lithium ion.
We've been in this business since 2002. We've been on scale productions since 2,008 and this provides additional growth opportunity and not just in the motive segments that I mentioned earlier, but also in buildings. So we see significant opportunity in distributed energy storage. We actually have a prototype in the back of the room. We're going to talk a little bit about that as we go through today's presentation.
So looking out through 2020, we have significant growth opportunities. Our strategy should guide us from going from the $6,600,000,000 we ended last year to north of $9,000,000,000 around a 7% to 8% CAGR. As Alex mentioned, we expect margins to improve about 100 basis points to 150 basis points, largely on growth of start stop batteries that we'll be introducing across the globe. And even though we're going to invest significantly and there's a few announcements that even came out today, we still expect return on assets of around 25% to 26%. Now 2 thirds of this growth is going to come from start stop and our growth in our China business.
If you look at startstop, Europe today 60% of their new build is startstop, that's going to grow to 80% between now and 2020. If you look at the U. S, less than 10% of vehicles, new vehicles had start stop a year ago, that will grow to about 45% by 2020. And the China market, which will be the largest which is already the largest OE market in the world, it's going to grow significantly, is going to grow from single digit new vehicle percentages being start stop to north of 60%. And that number we'd even call ourselves on might be a little bit conservative.
So if you look at how we're going to grow, we're going to maintain our unit share position in our mature markets where they're the clear market leader across the Americas and in Europe through start stop and we'll have favorable mix, so that will help us on the revenue and margin side. And in China, this is how we're going to change our game. We're going to go from the number 3 player in China to number 2 largely as we introduce start, stop and we take our leadership position and our relationships to grow in that market. By the way, we've already moved into the number 2 position in China in the OE in terms of market share, something we're pretty proud of. We have a proven track record of growth looking back over the course of the last decade, as Alex mentioned, 9% revenue CAGRs, 14% segment income CAGRs, largely enabled by our scale position, our Protestant technology, our leading brands and the relationships we have with all the major OEs around the world, OEMs around the world and also the largest aftermarket customers.
And so our plan is to extend those strengths and extend our winning streak as we move through this midterm horizon.
Our primary source
of healthy steady growth that you saw on that previous slide is our aftermarket business model. Though we're the largest in market share when you look at the OEM business, largest market share globally in aftermarket, it's the fact that 74% of our batteries go into the aftermarket and this is an annuity business. There's a 1,000,000,000 cars in the park around the world and that number is going up significantly largely because of what you see in Asia and every one of those cars needs 3 to 4 battery turns over their lifecycle. That's what fuels our steady growth. And if you look at our scale and our footprint, if you look at our winning brands, if you look at our customer relationships, we believe that we're in a better position to continue to grow than any of our competitors that are out there.
We're a growth platform. The way we plan to capture growth is, 1, we're going to continue to focus on leveraging our Johnson Controls operating system and we're obviously working on building capabilities around battery design, manufacturer, supply chain and commercial excellence. And we're focusing our capabilities on 5 growth platforms. This has been consistent year to year. 1st platform is we're investing in product and technology to enable the complete delivery of battery solutions to match the evolving requirements of the OEs powertrains, and I'll talk about this.
They have various strategies to electrify their powertrains, But it's just not battery solutions for motive applications. We're also investing in energy storage battery technologies for our building efficiency business. We're looking to maintain our leadership position in mature markets. I mentioned we're the clear leader in Europe and across the Americas. This is a cash flow generating engine and power solutions that we leverage to invest in our growth areas.
And we're going to do this, we're going to maintain that position through start stop. We're aggressively investing and growing in emerging markets with a focus on China first. China is going to represent 50% of the world's battery growth looking out over the next 10 years. So we're going to make sure we win there first. We had a nice announcement that came out next week and I'll talk a little later about this around a new joint venture.
We're implementing component and supply chain strategies so that we can standardize our processes and tools, optimize our network and footprint and to make sure that we can get capacity in place so we can stay a little bit ahead of the market demand and the growth that we see. And then we're looking to leverage our capabilities around battery manufacturing design or supply chain capabilities into adjacent market opportunities. And we've identified adjacent markets that will grow to be as big as $40,000,000,000 looking out between now 2025 that our capabilities would put us in a position where we could win. So that's how we're going to grow. But we're also going to grow by leveraging and paying attention to the strengths to how we got here today.
And I want to talk a little bit about this slide. It begins with our scale and cost leadership position. This will be really difficult to replicate. We have 55 manufacturing and distribution centers around the world. If you look at the major regions of the world for OE and aftermarket, we're everywhere our customers are.
And this is really important because logistics are a big part of our value proposition and our cost model. It's really expensive to move our raw materials and our finished goods around. So that scale position gives us a cost advantage. This is a highly regulated industry. So even if you had the capital to go and build 55 centers like we have, you'd have to get the cooperation from governments around the world to get the permits to put in these type of buildings.
We're vertically integrated in lead, poly, the plastic containers in our batteries and separators, the 3 key ingredients in batteries. That gives us advantage. We're the world's largest recycler of lead and we'll talk about this a little later, 8,000 batteries an hour. So in North America, what that means is we can supply 50% of our own LED needs. That gives us not only cost advantage, but buying power.
And recent studies show that we're between 5% 20% advantaged when we look at our closest competitors. From a product and technology standpoint, it's not only the batteries that we produce, but it's the process and tools inside our factories that allow us to build higher quality, better productivity and throughput, lower costs and safer. And safety is a really important part of our value proposition. It helps us build sticky relationships. The safety I'm talking to is the fact that we've reduced our emissions 98% per battery over the last decade.
Our big customers have governance organizations inside their enterprise that want to make sure that they're working with companies not only produce quality products, but do it in the safest manner possible, especially when you're talking about batteries. But it's also the components inside our batteries. We have a display outside. You hear us talk often about PowerFrame. This is our positive and negative grid technology.
It's got better electrical performance, better corrosion performance. So net net, what that means is we can produce the same outcome as a competitor using less material inside our battery. So once again, cost advantage. We have the most recognized brands around the world. Optima here, if you go to Mexico, LTH, down in South America, Hellyer, VARTA, all across Europe and now into China, DelCor in Korea, just to name a few, and relationships with all the major original equipment suppliers with all the big retailers around the world, JV partners like Interstate Battery, Amraji in India.
If you net all these things together, you could put it in a PowerPoint presentation like this, you could put it up on the Internet, it'd be a difficult business model for a competitor to try to model. So now I want to switch gears a little bit and I want to talk about what's influencing technology in the marketplace today. And in order to do that, I need to build a little bit of empathy for how original equipment manufacturers are making technology and platform decisions. And they're using a decision triangle like you see up here on the stage. And what they want to do is they want to light up each point of this triangle green.
I guess in the case of this triangle maybe they want to light it up blue. So first and foremost they need to meet regulations, right? The regulations that I'm talking about are CO2 emissions reductions and fuel efficiency. 2nd, they need to meet the needs of consumers and those needs resonate around affordability, but comfort, safety and even connectivity arising in importance. So if you think about just those first two, give you a practical example, look at plug in hybrid electric vehicles and hybrid vehicles here in the United States.
There's no doubt that they would help original equipment manufacturers meet their regulations. But the market share of those vehicles is actually dropping. The consumers aren't buying them. So they need to make sure that they're going to go and buy the technology that's in these vehicles. So the 3rd piece of this decision triangle is the rational economics of the original equipment manufacturer.
So in order to satisfy the regulatory needs against the consumers' wants, the original equipment manufacturers have multiple technologies at their fingertips and they're assessing the investment cost to meet those regulations against the consumers' willingness to pay and they're striving to make decisions that aren't only lowest in cost, but decisions that are least disruptive to their existing asset base. They have 1,000,000,000 of dollars tied up in engine plants and transmission plants. They want to sweat those assets as long as they can. So let's talk a little bit about these regulations. We expect the trends in regulations around CO2 emissions to continue going forward.
Between now and 2021, the 3 largest automotive countries in the world and aftermarket customers in the world are going to see about a 25% to 30% reduction in CO2 emissions. As you go from 2021 to 2025, we expect to see about another 20 percent to 20% reduction and this pattern is going to continue. In the face of these more stringent regulatory requirements, the OEs have multiple technologies at their fingertips to meet these regulations. Things like engine improvements, turbocharging, light weighting and one of my favorite, start stop batteries. And if you model out, right, the cost benefit of these technologies, what you'll find is the original equipment manufacturers will require low investments in XEVs in order to meet these regulations.
This is one of the reasons why we expect to see start, stop become ubiquitous in vehicles around the world. It's easy for the OEs to apply to their existing 12 volt power net. It will help them meet regulations and it's appealing to the consumer versus alternatives where they have to deal with plugging in their vehicle or other alternatives that are a lot less affordable. In addition to regulatory trends in regulatory technologies, and this is a big deal, we're starting to see more and more trends in technologies like comfort, safety and connectivity and these are rising in importance to consumers and to the original equipment manufacturers. And some of these technologies are going to be regulated in vehicles as we move forward, for example, automatic braking.
So with the introduction of technologies like automatic driving, driver assist, active stabilization systems for safety in your vehicles, automatic braking, electrical loads in vehicles are gone up. And this is requiring higher performance from the energy storage device in the vehicle. The battery is becoming more integral with the powertrain and with these other vehicle these other technologies that I just talked about. And the need for redundancy is going up. It's becoming critical redundancy in your energy storage solution because a failure of one of these technology systems isn't going to just be an inconvenience in the vehicle, it's going to be a safety concern.
And so what you're going to see is original equipment manufacturers start to introduce multiple batteries in a vehicle. A good example would be the BMW 7 Series, which has 3 AGM batteries. And AGM batteries are going to be a preferable technology of choice because of their ability not only to meet the regulations in terms of cycling, but they have the best reliability and durability in terms of being able to deliver power to these electrical systems that are going to become more prevalent in vehicles. And so in order for the original equipment manufacturers to meet these increasing regulations, they're introducing a range of electrification strategies across their automotive portfolios. And in return, Power Solutions is investing in a continuum, a portfolio of battery solutions to best meet their needs, right?
From lead acid, right, our franchise battery, what we call our flooded battery, and I'll talk a little bit about this, all the way through lithium ion and we're pretty excited about it. We actually see the bridge, the transition to full electric vehicles being a long transition and it's mainly going to be a low voltage transition in that. So let's talk a little bit about our lead acid lineup. This is going to remain the predominant choice of original equipment manufacturers well into the 2030s. And when you look at the overall market, there's significant growth well out probably even beyond 2,040.
Starting with our flooded batteries, and I know this might
be a little bit of
new technology, You'll hear us refer to these batteries as SLI, start, lighting and ignition batteries. These are the batteries that our grandparents, our parents and most of us in this room grew up with. It's the most economical way to start a car. These batteries were designed quick burst of power, cold cranking capability, they'll provide power to the dome light in your car and your radio. Still the most reliable way to do it and with a 1,000,000,000 cars in the park and growing that have these batteries in there, you're going to see these batteries in the market for quite a long time.
What you've probably heard us announce the most, we just made some recent announcement, is our new flagship offering, our AGM battery. That stands for absorbent glass mat. This is not a flooded battery. It's more of an industrial battery. It's designed to do cycling.
So when we talk about regulations, it's really the idea that you stop at a stop sign, car shuts off, take your foot off the brake, car starts off. So this battery is designed to deal with cycling, but it's also designed to deal with aggressive discharge. So when you're stopped at that light, you want your GPS system, you want your radio, you want your air conditioning and you want those safety systems to continue to operate. AGM battery is the most durable and reliable to continue to deliver that power through those stop segments. And it's also designed to deal with the aggressive temperature environments you're going to see in vehicles, whether they're under the hood, in high heat environments or even cold environments.
So let's talk a little bit about why we believe that low voltage, including AGM, are going to be predominant for the OEs as we move forward. So this slide, if you look to the left of this slide, what we're showing you is the original equipment powertrains going all the way out through 2025. To explain the colors a little bit, the mustard yellow color is electric vehicles, hybrid electric and full electric vehicles. The light green color would be low voltage lithium ion. And then your blue colors starting with light blue is start stop, dark blue is our SLI business that I mentioned earlier.
And what you'll note is the OEs are going to require minimal investments in XEVs. They're going to be expensive and they're going to be able to get the regulatory needs and technology that's more appealing to consumers through these low voltage technologies. You're going to see a massive adoption from 24% of the market, 2015 being stopped globally to north of 60%. And as I said earlier, that number might be a little bit conservative as we continue to track what we see going on in China. From a light green standpoint, this is a low voltage lithium ion market, 12 volt, 48 volt.
Those batteries will be paired with an AGM battery. These are going to become more attractive as we get past 2020 and towards 2025 both because of the regulatory benefits, but also because the economics of that technology is going to improve. We're pretty excited about it because we see that as a natural extension of the 12 volt business that we've been in for a long time and this is where we're focusing a lot of our investments.
One other thing I want
to point out or 2 other things is a lead acid battery will be paired with all of those powertrains.
And then if you look at the growth in
the market, you'll just kind of do the math yourself, you'll realize that even in the OE market, lead acid grows actually doubles over this timeframe in terms of market potential.
When you look to the far right, this is
how this translates into the overall battery market. Now I'm talking beyond the original equipment market and I'm talking to the OE and the aftermarket. And what you'll see is a healthy growth. 94% of the battery market in units all the way out through 2,030 is going to be lead acid. If you look at it from a profit pool standpoint, it will be about 65% to 70% of the profit pool as you move out there.
Though you would note that lithium ion though it's nascent in terms of units, it's fairly big in terms of its multiples of the lead acid market when you go out into that space. So in order to make sure we capture this surge in start stop, what we're doing in Power Solutions is we're tripling our
start stop capacity between now and 2020 and we're well
on our way, all right. Ended fiscal year 'fifteen and started to move into 'sixteen, gone all the way up to 50. We had 2 recent pretty exciting announcements starting the one on the left. We announced just today $245,000,000 investment in start stop here in North America. Now I use the word start stop, it's really AGM and let me back up a little bit.
A big part of this opportunity is to deal with the OE market going from single digit percentages in new vehicles all the way up to about 45% like I mentioned earlier. But if you look at our aftermarket, we already see a lot of automotive enthusiasts that are putting more toys in their vehicles that prefer AGM batteries as a super premium battery in non start stop vehicles today and it's not trivial. We see this looking out through 2020 as 3000000 to 4000000 units of opportunity here in North America and we're trying to make sure that we can better serve our retail customers and take care of those consumers that prefer that type of technology. To the far right, you see our most recent announcement in China. So I mentioned we have a plan across the horizon to move into the number 2 position overall in the China market.
China is going to be the largest battery market in the world come 2020. We've seen a maturing aftermarket in China by 2020. The aftermarket will be about 66% of the overall market in terms of units. And what we announced is our 4th plant. It's a JV with BAIC through an affiliate of theirs called Bohai Piston, right.
Bohai Piston is an affiliate owned by BAIC. Let me tell you a little bit about why we're doing this. One, we for sure need the units of capacity. We're right now, we've just broken ground on our 3rd plant. It's up in Shenyang, China.
Before that plant is even complete, we expect that that will be tight in terms of our ability to serve the market. We see solid demand. If you've been tracking us, our aftermarket business, the halfway point of the year in China was up 65% and Ray is going to talk a little bit about this as we move forward. So we need the units, but we also are looking forward to a partner like BAIC. BAIC themselves, Beijing Automotive, will produce 5,000,000 vehicles come 2020 between themselves and their JV partners.
Their JV partners include Hyundai, Kia and Mercedes just to mention 2 of them. So it gets us better access to their 5,000,000 vehicles. They also own 2,400 OES shops, service shops across China. So we'll be able to brand a battery for them and sell it through those service shops, which will give us good aftermarket opportunity. And they also have an aftermarket arm to their organization.
So in terms of channel access to the market, we feel really good about that. But what we feel even as strongly about or even better about is the fact that we have a strong Chinese partner. There's a lot to get done in China beyond selling more batteries. We need to continue to influence technology around regulations, but also there's a lot to get done in terms of lead recycling and this is a partner that can help us in that arena. We're at a point in China where we're going to look to vertically integrate.
So we'll be looking to build more plants. We'll need more help in getting permits. So there's a lot of positives that come out of the strategic elements of this relationship. And with that, we're going to show a quick video.
So I could have done a little
bit of better job setting that up. That was our Zwickau plant over in Germany. It's the world's largest AGM automotive battery plant. One of the ideas that we had when we were talking about this Analyst Day was perhaps taking you to a plant. And what you're going to see instead, we think this is a better idea with 55 world class sites that we're proud of, we decided that we're going to bring our plants to you.
So it will give you an opportunity to see more of a diversity around what we do here in Power Solutions.
So one of the other areas
in our continuum of battery solutions is low voltage and high voltage lithium ion. From a high voltage standpoint, I'll tell you right out of the gate, this is something we're keeping our eye on. It's nascent. All the OEs see this as an integral part of their powertrain. It's going to be difficult to scale.
So this is an area that we're selectively participating in. But what we're truly excited about is the 12 volt and 48 volt lithium ion markets. I mentioned earlier, this is a market we've been in since 2002 and we see this as a natural extension of our capabilities. So let's talk a little bit about this. The headline here really is as CO2 emissions continue to become more and more stringent, these low voltage solutions are going to become more attractive to the original equipment manufacturers.
And these low voltage lithium ion solutions are going to be paired with an AGM battery. What you see on the chart to your left, if you start at the top, we're trying to show the decrease in CO2 emissions and the cost of applying the technology. So all the way at the top left, you see start, stop, something we expect will become ubiquitous in all vehicles, cost about $35 per point of CO2 emissions, real easy for an OE to plug it into their existing powertrain, so it's easy to apply and the consumers find it appealing. But the next technology you'll see on the list in the yellow, right, is our low voltage, what we call advanced start stop. This is where you'll start to pair a lithium ion battery with an AGM battery.
So remember earlier I talked about these new technologies and the want for redundancy. It will help you with regards to applying redundant energy storage solutions in a vehicle. It will get you about 3% more energy efficiency than you get out of a straight up start stop battery. And the way it does it is the lithium ion battery can actually take regenerative, it's hard for me to say, breaking power. As you break, it takes power back and it can use that power in the vehicle to get you about 3 points of additional savings at about $60 per percent fuel efficiency.
So it's attractive again to the OEs because I can plug it right into my existing power net, not a lot of disruption. It will be a continuation of the drive experience that most consumers are used to today and it provides 3 points more benefit. The next one that we're really excited about and we actually see this growing significantly beyond 2020 is 48 volt, right? 48 volt technology, higher voltage, right? It will get you about 5.3x what you would get out of a straight up start stop battery, where you would get from an AGM battery about 5 percentage points of CO2 emissions reduction.
With 48 volt, you're looking at about 15% reduction in CO2. What's nice about this is, is it's relatively inexpensive compared to what I'm going to show you next, hybrid electric vehicles and electric vehicles, because it's not a separate powertrain. It actually adapts right on to the internal combustion engine and the transmission systems that auto makers have in their vehicles today. But what's nice about 48 volt is the higher voltages can help provide revenue opportunities for the OE. So when I mentioned earlier, some of the systems around connectivity and safety, automatic driving.
As automated driving becomes more prevalent in the future as those features come into automobile, you'll see a lot more CPUs and those CPUs are going to require higher energy sources, right? So that's the revenue generating opportunity. And then you see electric vehicles, and though no doubt they have strong CO2 benefits, they're highly disruptive to the original equipment manufacturers. Basically throw away your existing engine plants and your transmissions, you got a whole new powertrain here. So it would be extremely disruptive, not required to meet regulations.
And from a consumer standpoint, they introduce things like range plug in your vehicle and some things like that. So from a Johnson Controls standpoint, we're investing in 48 volt. We've been investing in this for about 6 or 7 years. If you're out in the parking lot, you can actually see we have the hood of a trunk open. You'll see some prototypes of 48 volt that we started to build 4 or 5 years ago.
We have this thing now down optimized down to the size of around an AGM battery. We see this as a technology that will pair with an AGM battery. We'll be production ready, meaning our designs will be production ready for our next generation by about 2018 for a market that we see starting to adopt by around 2020. So before I get off the stage, there's 2 things that I need to do. 1, we're going to show a video and what you're going to see is a video of our Meadowbrook facility over in Michigan.
This is where we produce these low voltage and high voltage lithium ion solutions. And then following me up on the stage is going to be Ray Shemansky. Ray Shemansky is
the Vice President and General Manager
of our Global Aftermarket and he'll continue to take you through the journey for how we plan to grow with a focus on our aftermarket business. Thank you.
Good morning. My name is Ray Chimansky. I'm the Group Vice President and General Manager of our aftermarket business in our Power Solutions organization. I'm going to add I'm going to first add to the list of truths about our traditional battery business that Alex and Joe built on. My favorite is the fact that a lead acid battery doesn't care if the economy is up or down.
It doesn't matter how you're doing individually. It doesn't matter what's going on in the world. It's going to die when it's going to die and I get to sell you another battery. So that's a beautiful thing. So let's start with kind of following up on what Joe and Alex talked about.
We see steady growth in our core traditional automotive battery business, growing to approximately 190,000,000 units by the time we get to 2020. When we look at the makeup of our business, it really mirrors the overall market opportunity that exists for us. If you look at the statistics from 2015, there were a little more than 300,000,000 batteries sold in the aftermarket channels around the world. On the OE side, there were a little more than 100,000,000 batteries sold in 2015 around the world. So the overall market between OE and aftermarket is split about 75, 25 on a global basis.
And you can see on the chart, our business pretty much mirrors the overall market. In the OE business, we ship batteries direct to the automobile manufacturer's assembly plants. About 26% of our volume in 2015 went through that channel to our OE customers. In the aftermarket business, we ship batteries to a variety of customers. We ship through wholesale distributors.
We ship through retail customers and we ship to the automobile dealers in the field where they provide service.
So I'm going to do
a little bit of level setting now to kind of help you understand the differences between the North America market and the rest of the world, because there are some uniquenesses in the U. S. Market that I think you need to understand. It looks like most of us in the audience, I think all of us looks like probably live in the United States. So you maybe have a perception of how the market works here.
But there's a couple of truths about the automotive aftermarket business in the U. S. Number 1, it's heavily influenced by the retail segment. We typically sell batteries through the retail channel to 3 different types of retailers in the U. S.
In addition to our wholesale distributors as well. But those three types of retailers are the big box retailers, companies like Walmart, Sam's and Costco. Another strong channel is the auto parts channel, the auto parts retailers, companies like AutoZone, O'Reilly's, Advanced Auto Parts, real strong customers in the market. And the third one is really the farm and ag channel. So you have companies there like Tractor Supply and Farm and Fleet.
So the U. S. Has a significant amount of volume that runs through the retail channel. Lots of people in the U. S.
Still like to do maintenance on their vehicles. There's a significant amount of do it yourselfers in the marketplace. That is not necessarily true when you go outside of the United States. Another truth about the market and a difference about the market in the U. S.
Is that this is a private label market. So when we build batteries and we ship to our aftermarket customers, we're building under and shipping under their brand. A couple of good examples of that, that you'd recognize in the United States will be Interstate Battery. It would be at AutoZone, they have developed their brand Duralast, which is their aftermarket auto parts brand that they go to market with. So we supply under our customers' brands in the United States.
When you go outside of the United States and understand all the other regions, most batteries get replaced through garages and workshops. Those garages and workshop get their batteries from wholesale distributors. So in the rest of the world, we're shipping the majority of our product through wholesale distributors on into the marketplace. These wholesale distributors outside of the U. S.
Are typically small family owned independent businesses and they're not really very sophisticated. And so that's where the advantage of Johnson Controls comes in. What we are focused on and what we're leveraging is our operating system that we've implemented around the world in all parts of our business, our building efficiency business and our power solutions business. We're taking elements of our manufacturing operating system and our commercial operating system that has been proven successful in our mature markets like the United States, like Europe and even in what we consider to be emerging markets where we've already been operating for more than 20 years, places like most of the countries in Latin America and in India. Joe mentioned our Amrajia joint venture in India.
Been very successful there over the last 20 years. So we're taking elements of those operating systems that have proven successful and transporting them into the markets where we see growth opportunities, as Joe mentioned, similar to China. So let's talk about what those elements of this successful model are. So when we look at partnerships, number 1. Partnerships are the foundation to our success.
When you think about partnerships, you may traditionally think about customer relationships. And we do have strong relationships both on the OE and the aftermarket side around the world with our customer partners. But these also take the form of relationships like I mentioned in India with our joint venture partnership that we have there that's proven very successful. But also in order to drive cost on the cost side, our strategic partners on our supply chain that are critical to our success. And one of the pillars of our commercial operating system that we leverage across this value chain is our strategic account management processes, which really help us as Johnson Controls focus on the needs and wants of our partners in order to help make them successful in the marketplace.
I talked earlier about the U. S. Being a private label brand business. That's not true. It's another anomaly in the United States market.
In the other regions of the world, it's a manufacturer brand market. So when you entered the building today, I hope you took some time to notice all of the kiosks that were lining the hallway. And each of those kiosks were representing 1 of the global brands that we have invested in and built to be number 1 in each market that it participates in. It is number 1 in recognition. It's number 1 in preference, both in B2B and in B2C channels in the markets that they serve in.
If you haven't taken the time to look at them, certainly on the way out, make sure you take time to get familiar with them. But these brands and the investments we make in these brands drive loyalty from our distribution customers and partners. As we're building those brands, we're driving consumers into the workshops and the garages that they support and sell product to as well. So partnership is a key element of our success. Distribution.
So when you look at the distribution needs of the different markets, again, leveraging our commercial operating system, we're able to tailor the needs in our offering to our customers. When you look at the United States market, we're dealing with really big corporations. They're focused on lean supply chain initiatives, inventory management practices, their working capital needs. So our organizations are focused on helping them manage that part of the business and ultimately delivering the lowest cost battery through the supply chain to the consumer. You go to the other markets, it's a different need.
I talked about the customers that we have being distributors, small independent family owned companies. These guys need tools. They don't even know how to really run a successful business. So our toolkit that we deliver there is we bring tools, we bring systems and processes that we have proven successful in other regions of the world and help make them more successful in building their brand and building their business, managing their business and being successful. The ultimate result of all of that work is again the leanest supply chain from getting batteries from our manufacturing facilities to the garages and installed in vehicles in the consumers' cars.
On the product and technology side, our passion is waking up every single day to deliver the lowest cost battery at the highest quality possible. Every region of the world, that's what we do, that's what we focus on, that's our mission. If you have that, you're going to win. In addition to that though, as you saw again as you entered, we had a mock up of a small display area of a retail store in the United States. What you would have seen in that display is a full spectrum of batteries.
And we offer that to all of our customers in all regions as we grow the business. We make sure we're offering them we talk about it as a good, better, best product, differentiated on things like performance, whether it's cranking amps, whether it's cycling capability. We differentiate on warranties, we differentiate on price. We also offer premium batteries. We also offer a variety of specialty batteries.
Joe mentioned automotive, motorcycle batteries, lawn and garden batteries, heavy duty batteries. So we're positioning ourselves as a one stop shop for our customers to service all of their battery needs. We go to market with our proven patented power frame technology. Joe mentioned this as well. It offers us a cost advantage.
It offers us a performance and advantage and it's also more environmentally friendly to produce than traditional grid technologies that most of our competitors use in the marketplace. When we look at our start stop position that we just saw a video on, we have gained significant share with our OE customers as start stop vehicles have entered the market in Europe. We're the market leader there and we're extending those relationships around the world with customers like BMW, Daimler, Volkswagen, Audi as they expand their business into Europe and into other regions of the world and we're leveraging those investments also in our aftermarket as Joe mentioned as well. An advantaged global network is also key. And this is where taking best practices across our manufacturing network, from our manufacturing operating system and installing them into our plants as we build out our network is critical for us to achieve that low cost manufacturing position.
The breadth of our network also allows us to better service aftermarket business. When we look at the best delivered cost position, it really is a summation of 4 elements in our business. It's leveraging the scale that we have. It's leveraging the strategic supply agreements and partnerships we have with our supply base. It's leveraging our vertical integration capabilities and then our global manufacturing network as well.
So I referenced vertical integration a little bit. One of the areas, one example of our vertical integration capabilities is our recycling network. When you look at our product, the highest cost element in our product is our metals. And so our recycling network is critical to us getting that raw material back into our manufacturing process and doing that efficiently and effectively. So let's dive in a little bit more into the recycling process and we'll talk through some details there.
So the first thing that I wanted to mention is the fact that the automotive traditional automotive battery is the most recycled product
in the world. I'm going
to stop and look for some surprise faces. I'm going to say it again because I think some people might be It is the most recycled product in the world, far more so than aluminum cans, plastic bottles, cardboard, paper or other plastic products. 99% of the batteries that are shipped in the United States and Europe do get recycled. Of those batteries, when they come back, 99% of the contents of those batteries are used in the manufacture of new products and materials. In the recycling process, we extract the metal from the battery and we melt that down and we reuse it in the manufacture of new batteries.
Similar situation for the plastics. We take the plastics, we ultimately melt them back down and we reuse them as inputs back into the manufacture of our lids and cases. In the case of the liquids that are in the battery, we actually extract those and we sell those off. Other companies use them in the manufacturing of detergents and other consumer products. So it all starts though around the commercial agreements and the alignment that we have with our partners, our customers.
The key is getting that core or that spent battery back from the consumer. So typically, when a consumer comes into a garage or a retail center, the key is for our customer to reclaim that dead battery that they're replacing. When they recover those, they collect them. And ultimately, when we deliver new batteries to our customers, we collect the pile of cores that are sitting there. They ultimately go through a reverse transportation system and back up into our recycling centers where we run through the process of breaking them down and extracting the materials that I talked about.
That process has happened seamlessly and continuously all the time with the result being the fact that we produce we run 8,000 batteries, over 8,000 batteries through our recycling network every hour of every single day, which is an astronomical number. So this provides us with some advantages. Joel mentioned, it's our supply of raw material to start the manufacturing process specifically for our aftermarket batteries. We actually in the U. S.
Collect enough metal to produce the full volume that I would supply to my customers in the United States on an annual basis. So obviously, it's a little bit of an advantage for us. It's also the right thing to do obviously from an environmental perspective. But we don't do it just because of that. We do it because actually we believe that this does provide us with a competitive advantage in the marketplace.
And because of that, we continually invest in this business. We invest in new technologies. We invest in our people. We invest in our processes. And the result of all that investment is that we're performing at higher levels of performance, benchmark levels of performance year over year in terms of both safety and environmental performance in our facilities.
And we'll continue to do that. We think it's a responsible thing to do and we'll continue to make those investments. So let's spend a few minutes. I'm going to run a video on our give you some more insight into our recycling facilities. This is our Garcia, Mexico recycling plant.
Take a look. So now that I've set the stage, kind of explained the 4 critical elements of our operating model and operating system that make us successful in a variety of regions around the world, Let's talk about where we're applying that model and the type of success we're having in markets where we're aspiring to grow. So let's focus on China. So as Joe mentioned, China is the biggest OE market in the world today, but it's also going to be the largest battery market overall, OE and aftermarket by the time we reach 2020. We actually have a playbook on how we enter markets like this and we have been in the market for quite a while.
But our playbook says that we're going to start winning business with OE customers. We do that for a couple of reasons. Number 1, we've already got established relationship with these customers around the world. Take companies like Ford, General Motors, Daimler, BMW, Volkswagen. We do business with them in other regions of the world, the U.
S, Europe, Latin America today. So when we go into a new market, they trust our quality, they trust our reliability, they trust our service, they trust our cost performance and our environmental responsibility and stewardship that we bring when we participate in those markets. The benefit for us is business comes in significantly large chunks with limited complexity. So if you win the Ford Focus business out at the Ford Chongqing plant in China, you're going to get an order for 250,000 or 350,000 batteries that repeat year over year. And to supply batteries to the Ford Focus, they only need 3 or 4 different types of batteries.
And so it's nice business to build that scale advantage that we talked about is important to us. So we lead with the OE while we're building our aftermarket business to follow. The other advantage that building with the OE business has is it's a sign of credibility and prestige to some extent. When you're talking to our aftermarket customers, they appreciate the fact that you must meet a certain level of quality, performance and cost if you're supplying the OE customers. They also appreciate around the world the fact that you have those insights that Joe talked about, the technology trends coming that we can prepare them 3 to 5 years in advance of what's going to hit them in their stores or their distribution centers or in their shops by knowing what the OEMs are doing and we can translate that and can help them prepare for the oncoming changes in technology or whatever it might be.
So in the aftermarket business, what we see is the compound annual growth rate in China is at 10%. We're seeing the aging of the car park. Obviously, you can see the OE build. And as those vehicles now are in the car park longer and longer, it is growing the demand and the need for replacement parts for those vehicles as they get older. So the result of all of that is the fact that by the time we
get to 2020, there's going to
be 90,000,000 more cars in the aftermarket that need replacement parts in China, which offers us a significant opportunity to grow. So now let's take a look at how we're applying. I talked about the 4 elements: partnerships, distribution, scaled manufacturing network and product and technology. Just talk about how we're doing in China relative to our
objectives. So first off, from
an advantaged global network, we have 2 plants in operation today, our Chongqing and our Chongqing plant. Again, our manufacturing team is using our manufacturing operating system to install consistent manufacturing plants, processes and systems that are proven around the world and consistent products as well. So those two facilities are up and running right now. Our plans show that they will be filled based on our projections for business growth in our OEM aftermarket business in FY 2017. That's again why we're launching the new plant in Shenyang in FY 2018.
Shenyang is strategically located to support our aftermarket customers in the north and a couple of key OE customers. BMW is located right in Shenyang and Volkswagen Audi is in the north part of the country as well. Joe mentioned the announcement last week of the 4th plant in Binzhou, Shandong Province in China. This is the joint venture again with Bohai Piston, which is an affiliate of BAIC and we're really excited about the three opportunities that Joe identified. Closer relationships with a strong Chinese company that can help and open doors on environmental and government relations activities, access to 5,000,000 vehicles that they build in their manufacturing network in the 2,400 OES shops that they have in place in China today that we can sell batteries through.
So great opportunity for us to expand that relationship in China. When we look at the future, the South is a footprint opportunity for us and we're planning in the early planning stages for how we support there with the 5th plant in the southern part of the country. So now that we're building batteries, how do we get these batteries to our customers? Obviously, our distribution channel is important. So again, we're spending time local, small, independent, family owned businesses, growing their capabilities, getting them connected to our brand, building their overall business acumen.
We have 3 25 of those type of distributors that exist in China today. During this fiscal year, we've added 89 to get to that 325 number. These distributors are located in 1 190 or 189 of the largest cities in China. And with that distribution of the network, we have 89% geographic coverage on where the vehicles are in China in order to support the growth there. So again, we'll continue to leverage our capabilities both to make investments in physical assets, building plants, but also leveraging our operating system again to build our distribution network.
So let me show you again, give
you a little insight into one of our facilities, the Chongqing plant in China. Let's roll the video. That's a great day when all these people come and talk about batteries,
isn't it? Anyways, the final two elements
of our success factors, partnerships, number 1. The picture on the top left hand side of the screen is from our distributor convention in China in December of 2015, so 6 months ago. The interesting thing about that picture and
I should have actually put
in the presentation, if I would have shown you the picture from 2014, it would have had a quarter as many number of people sitting in the chairs in the picture. So we've quadrupled. I talked about the 325, but we basically quadrupled the distributor partnerships that we have in China that are working to sell our brand and build the business. The right hand picture on top of the word quality, I'm going to tell you a little bit of story, share a little story with you. So this is the picture of our largest distributor in Shanghai.
And this is a picture in January.
If you would have
been at his shop in December, it would have had our number 2 competitors signs and brand all over the shop, SAIL, ThinkFan. But this distributor is a distributor that's been with us for 20 months. And after the distributor convention, he was part of it. So number 1, let me digress a minute. At the distributor convention, we spent a couple of days focused on a lot of things I talked about, teaching these people how to be better business people, teaching about our brand, teaching about how to run a more successful business, teaching about working capital management, teaching them about technology trends that are coming.
So a lot of things over a couple of days. So he walked out of there and he's been to a couple of them blown away and he came to us and said, look, I'm all in. I'm all in. You guys come out, take all the signage down, take all the racks out of my place, branded VARTA. And this is so it was because of the distributor convention what he saw.
But more importantly, it was because of this fact. He's been selling Fing Fan sale batteries for 15 years. He's got a very successful business. He's grown it to the point where he's selling 150,000 batteries a year, which isn't bad. That's good for a small business guy in China.
He has been signed up with us for 20 months. In December, he was hitting a run rate of over 150,000 batteries after dealing with us for just 20 months. So that's the kind of success, where is Kenneth? Kenneth is in the room, our leader of our Chinese business, that we're having every day in China, making progress and taking care of our customers. So not only are we making those investments to build the brand, we also spend to build our awareness on the B2C side as well.
And so we monitor key metrics to make sure that our brand is performing well. So areas like consideration, preference and recommendation, you can see over the last couple of years we've made some significant progress. We'll continue to invest there on behalf of these distributor partners, continue to build a brand and grow their business. From product and technology side, I mentioned VARTA in the conversation and I probably haven't done it justice to talk a little bit about VARTA. But VARTA is our flagship brand in Europe.
It's got over 100 year heritage in history. It is the most respected battery brand, premium battery brand throughout Europe. So that's the brand we decided to go to market with in China and we offer again, we're building out our product mix that wouldn't be today as extensive as it would be in the United States, but we're continuing to build that out for our customers, offering good, better, best products. We use our PowerFrame technology in China as we do around the world to provide the cost, performance and environmental advantages. And on the AGM side, we've talked about the growth that's coming.
We're investing 10,000,000 units of capacity over the next 5 years to support both our OE and aftermarket customers in China. Just this last year also we realigned our offering this good, better, best product by introducing our SureTop, which is an ingredient brand technology. It's really technology around the lid. It's got an integrated case into it and we changed some of the poly colors. And what it really did is differentiate product a little bit more in terms of appearance, in terms of performance and in terms of overall performance.
So the result of that is that we've moved the needle. We've shifted our mix up to we're selling about 2% more is the data over the last 10 months of our silver product line, which is our premium product line. So again, we'll continue to invest and build with our supply chain partners to grow the business there.
Okay, next slide.
So that sounds good, Ray. You're doing all this stuff, but is it paying off? What are the results? So let's talk about that. I mentioned that we are the number 3 player in the aftermarket today in China.
I think it's obvious that with the growth path that we're on in the next 12 to 18 months, we'll be in the number 2 market share position in the aftermarket in China. Our growth rate is 3 times the market overall right now in China. And as Joe mentioned, halfway through this year, we have achieved 65% of our annual volume target and we're on path to nearly double the business during fiscal year 2016. So I think some success. So as we look forward, we're taking the elements of our commercial operating system, our manufacturing operating system, things that have proven successful in our mature markets and we're transporting them to our emerging markets where we see we have opportunities to grow and continue to build on the success that we have.
That doesn't mean we're forgetting about our mature markets. We've got needs and wants of our customers in these markets, so we're going to continue to invest and grow with them as well. So with that, I thank you very much. I'm going to invite Alex back to the stage, Joel back to the stage and also want to introduce Brian Stief, our Executive Vice President and Chief Financial Officer of the corporation to join me for a Q and A session.
Thanks, Ray.
So if you have a question, I think the logistics are just raise your hand, wait a minute for the mic to come to you so the folks on the line can hear the question and our response. So, Kim, you're going to manage. Alex, you want to call on the hand raisers?
Sure. All right. I'll follow the microphone. How about right here? Hey, guys.
Robert Barry from Susquehanna. I was wondering if you could give us a lay of the land on pricing, what the experience has been and what the expectations are on AGM in the developed markets and in the emerging markets, especially as we look out what your expectations are in the plan? And then just a follow-up question on the margin expectation. How much of that 100 bps to 150 bps to margin is simply from the assumed migration of mix to AGM? Do you want to take that?
Sure.
So if you look at and you asked quite a few questions there in one question. In the context of AGM mature markets and even emerging markets, I think in pricing and how is that working. If you look at it from an OE standpoint, we don't really see much of a change pricing wise. We actually see an opportunity as we localize and we localize AGM production in China. That's actually a good opportunity for us.
But we've been consistent around 2.5x revenue when we look at the OE business. When you look at the aftermarket business, it's more favorable than that. So in the past, you've heard us talk about 2.5x to 3x margin opportunities on pricing, and we still see that as an opportunity, especially as we see the aftermarket both in North America. I mentioned how we see an upsell opportunity around premium product. It's not even just start stop.
The Europe market, there's 30,000,000 vehicles on the road today. And so we see a nice aftermarket starting to develop there. In terms of the bps, clearly AGM, if you go back in time, you look from like 2012 to today, we've had about 400 basis point improvement in Power Solutions. A lot of that has been as we've been introducing more AGM into the market. But there's other things that we do to focus on both in our plants, there's a lot of focus on how do we continue to reduce our costs through continuous improvement.
It's part of our operating system that ultimately washes out in the form of margin in our overall business. But AGM is a big part of it.
So Rob, I'd just say the 150 bps to think about that, probably a third of that is through JTOS, a third of it is through mix and a third of it's through probably G and A reduction type activities as we look forward here. So that's kind of the way to box. And if your question was around people ask this, so in case part of the question is, is the margins different in China? Because we kind of get that question every now and then, are we selling product at a different cost? One of the things that's happened is we have a fixed cost issue in China and we don't have a margin issue in China.
Our fixed cost issue is because we don't have scale yet. And so over time, one of the things that you'll see is that the margins of that region will start to look like the margins of everyone else because we're catching up to the fixed cost that we put in place in order to manage the business. It's not a margin issue. It's not a plant margin issue. It's more of an infrastructure.
On the recycling, can you talk about recycling compliance by region and what the incremental opportunity might be? What is I'm sorry, I'll make I meant that my own word. In other words, you're supposed to
turn up for recycling. It sounds like
in the United States, North America, 99% of the batteries do get recycled and turned in, not thrown out somewhere. Is that significantly different in other emerging market regions?
Yes. So I'll start and let Joe give you the specifics. I think our business model is a little more mature here in North America and a little different. Batteries generally get recycled because of regulatory issues. In emerging markets, a little more of a challenge just because the markets aren't completely formed.
If you get to Europe, what you'd find is you'd find high recyclable rates just like you'd find in North America. It's a little different model and our participation in that's a little bit different. I think where you see it in emerging markets is where the opportunity is to get that low that closed loop fully closed. And that's something that requires us to work with government and local governments and national governments to make sure that they build a process and regulatory environment to make that happen.
Yes. And the part I'd add to it, so across the Americas, across Europe, very high when you get into and let's just talk about China because we're focusing so much on that. A lot of challenges in China, the government's focused on regulations, but they're unclear in terms of exactly how they want to influence that. There's some taxes that they're trying to apply in the industry as an example to try to drive it up. So one of the things that we're excited about, I mentioned our relationship with BAIC, we're trying to leverage that partnership as we continue to influence like the Ministry of Information Technology over in China.
They have a big play in lead recycling. We've been leveraging our government affairs. We've been bringing folks in from around the world, with South America to share their experience as they move more towards a closed loop process. We have an actual pilot plant that we're doing with them now in Shanghai, where we're trying to bring that closed loop recycling program to China that's more sustainable. It's not going to rely on taxes, but it's actually going to rely on economics and in a network in order to get the recycling rates up to an expectation that we would have in the rest of the world.
So it's lower now. Yes, yes.
There you go. Good morning. David Leiker, Baird. Good morning, David.
I want
to talk a little bit about your lithium business. It's something we get questions from a lot. I think it's something that a lot of investors don't really have their arms around. These new entrants coming into the market, talking about electric vehicles. And I know and we agree with your view, it's going to take a long time before that moves the needle.
But the reality is, is these announcements are being made and who's involved with whom, your name never comes up. So can you talk a little bit about the low voltage and the high voltage side, exactly where you're playing, what your market any kind of details of who you're working with? Sure.
Well, the first thing I'd tell you is that as it relates to the type of announcements that you probably see or that you're referring to around high voltage electric vehicles, I wouldn't hold your breath to expect to see us in an announcement. And that's not a focus of where it is that we're trying to focus our efforts. And one of the reasons is and we've done an awful lot of work in this to understand is we can actually buy those batteries from our competitors in this case lower cost than they can manufacture them. And so it just doesn't make sense for us to be participating in a business that right now is at overcapacity and is not mature. And so from our standpoint, we see the high voltage cell business very different than the low voltage battery business.
The low voltage battery business, where batteries will be require lithium cells in a battery, we see that as a newer integrated play, one that's going to have more margin in it and one that's more in our sweet spot, something that's important to us. So I wouldn't as you look at these types of announcements, I wouldn't be looking for us to be in that group. Yes.
The only thing I would add to that is, I didn't do it justice when I was up here presenting, but then there's the whole opportunity around distributed energy storage beyond low voltage. Low voltage, we see that market starting to pop. And I mentioned from an automotive standpoint, 2020 beyond and we think our capabilities
are going to help us
be a winner there. When you look at distributed energy storage, this is really the intersection of power solutions and building efficiency. Our experience in lithium ion, battery design, manufacturing, supply chain, combined with building efficiencies, leadership position in security solutions, environmental solutions and energy solutions. And so we see the melding of those two capabilities as a winning combination in the marketplace. Things like our not only our scale position in buildings that we'll be able to leverage in our relationships, but the supply chains of our 2 organizations coming together and our know how to put us in a position where we can be responsive as it pertains to cost and price.
So we see that as a
big opportunity. That's a good point because you look at the EBITDA cost profile of the battery package that you have in the back which is small scale or the one that's out in the parking lot, whole different cost model and the value chain equation as it relates to being anticipate in that market versus an EV market which today is just oversupplied. Trying to spread it around.
Thanks. Rod Lache with Deutsche Bank. I had two questions. One is in the low voltage lithium ion battery opportunity, is basically what you're saying is the reason why it would be yourselves that are successful here as opposed to someone who's traditionally coming at it from the lithium ion angle is because typically you're going to package that with lead acid in almost all cases, that there's going to be within the same box or container, there's going to be a combination of that?
I don't know if they'll be in the same box. So I think that there's 2 messages there. One is the lead acid battery is going to be around. So that check, lead acid battery is going to be around. That's one piece that you need to hopefully get out of the message today.
The second is because it's going to be packaged, it's not going to be what we don't foresee is our customers buying cells in order for them to make a battery the way they do with electric vehicles today. I mean essentially they're breaking down the value chain, they're buying themselves and assembling their own battery. But we see it as a much more integrated product, very like the products are today for a lead acid battery. As the product is more integrated, people are going to be buying a battery. And if you look at the way that the battery and the cells need to be manufactured and integrated, it's something that we'll be focused on and we wouldn't be disadvantaged.
Okay. And the second question is just one of the things, Alex, that you mentioned in your introductory comments is one of the things you didn't foresee in the last Analyst Day was shared mobility and potentially how that could affect the automotive market in mature markets over the next years. Does that affect your perspective in any way on what the growth opportunities will be in certain technologies? Does that potentially affect your expectations for where high voltage might be, for example, just given the lower operating costs for EVs? I know that the vast majority will still be lead acid, but how does that come into your thinking?
And I know we'll talk about this later a little bit in the technology section, but maybe you could give me your thoughts are probably more current than mine.
Yes. I think we actually see it. I mean, try to answer your question directly. We see it as an opportunity in the short term. The fact that redundancy is becoming more critical in a vehicle and you see BMW as just one of there's 20 platforms today, there'll be another 15 platforms introduced in the short term that are going to have multiple batteries and multiple AGM batteries.
So we see that as a short term opportunity. We also it's one of the reasons why we're a little bit bullish on 48 volt, right. As what you were describing, there's going to be an opportunity to meet 70% of the regulatory benefit that you would get from a hybrid electric vehicle through these 48 volt solutions at a much lower cost. You're not introducing a redundant drivetrain and you're going to have the higher voltage that's going to enable you to do some more of those automated driving attributes you're going to see in vehicles. So 48 volt AGM in the near term, AGM, but as you go a little bit further out, we see AGM paired with 48 volt as a real solid opportunity.
I think Mary Anne will be able to answer this even better. But one of the things that you need to when you hear this word redundancy, what that should lead you toward is even if you have an electric vehicle that has all this electrification in it, it does not provide you redundancy because it's actually one battery system. So you're still going to have to have multiple battery systems because now you're working with safety within vehicles and you start talking about some of the technologies and applications technology that are moving forward. Did I get that right, Mary Anne? Thumbs up?
I got thumbs up from Mary Anne. Yes. Oh, go ahead. I'm sorry. Rich Kwas, Wells Fargo.
Just curious. So just a question back on China. Where do you see the consolidation playing out over the period of years since you last had this Investor Day, you talked about there are a number of players in China and that was going to consolidate over time because of regulation, environmental requirements and whatnot, technology. Any numbers around where you are now versus 5, 6 years ago? And the second question is from a competitive standpoint, this is a good margin business, a growth business.
From a global standpoint, you have some North American players that have struggled over a period of years because of financial issues and whatnot and others that just don't have scale. But from a global standpoint, are you seeing any emerging competition, whether it be Europe or some of the emerging markets? So I'll start and let since the conversation started at 11,000. I think there was around 10,000 competitors. I think that's the number I remember right in 2011.
I think we're probably about 1,000 now is my guess. 300. 300. So you're rapidly consolidating. But I think what I would tell you if you look at our history is at some point we'd probably be in the middle of some of that consolidation.
We're not we haven't been up to this point. And so when Joe talks about his future or Ray talks about his future in China and the growth, I wouldn't say that it'll all be organic. I think we needed to get to a point where we the market would come to us and the market would take us serious because you can be a global player, but if you're not in town, you're not legitimate. We are now certainly legitimate. So I would see the market will continue to consolidate in a very rapid fashion.
The government's helping that along with technology shifts. When you start moving to AGM, it starts to change who the competition is. And I think we should be in the middle of that.
I think if you look at the circle that Ray presented that showed our 5th plant, we would be happy not to physically build that plant if we could find another way to do it, right? And that's in line with what Alex was
just sharing. In terms of
your question around competition, I think you were talking about inside China?
Globally, just because in North America, you're pretty well positioned. Europe, you have a pretty good share of why putting some point in China.
Got it. So we have not seen that. I Yuasa is probably one of the companies that's tried to make some inroads there and haven't necessarily made a lot of progress. We have 2 big domestic players inside China, both Camel and Fenfeng that have been pretty successful. Camel has actually been a consolidator in the marketplace.
And up to this point in time, I mean, I think between it's interesting, if you would have talked to Fenfeng, I know this for a fact, and Camel about a year ago, they would have been talking about us as not that big a deal. We have their attention today, right? So there's 3 significant players in China today and so far there's we don't expect to see others enter the market. We think within the market, we're looking at the next layer down to see if anybody could stand up, but that's they're going to get consolidated. And you're going to have those 3 big players in that I
think that there will be a separation probably between the 2 domestics that ourselves and probably the rest of the market as it relates to the market as we see
it today. There's definitely a model difference as well as to how we participate in the market. And maybe I didn't hit it hard enough, but when you look at especially in Asia Pacific, including China, our competitors are selling a battery and the minute it leaves their dock, they wipe their hands of it. Good, we sold a battery. How are we going to sell another one?
So in order for them at times when it's extremely competitive for them to grow their business, they're just lowering their price. We see that all the time. Whereas we're building relationships with these partners, we're developing their capabilities, we're getting them invested and brought into our brand to grow. And through that process, we're kind of raising the tide for everybody and raising margins for everybody as we grow the
business there. So I think
you got a different model discussion as well that's happening.
Thanks. Julian Mitchell of Credit Suisse. A couple of questions, maybe one around the free cash conversion. I think you're targeting 80% plus in 4 or 5 years. Where is that today?
And is the increase all about CapEx falling? Maybe give some insight around working capital in the business, how that trends? And then secondly, just a question around the adjacent markets. I think you talked about 40,000,000,000 dollars or so of potential addressable market or adjacent market. Is that something you can attack through acquisition?
Or is there any scope to do it organically or what has to be acquired?
So let me just start and I'll give turn it over to Brian about the free cash flow. One of the trade offs in this business is working capital. So to understand this business, we don't have the capacity even though we have a capacity for 100 and 50,000,000 units, I guess, something like that, dollars 250 something. We don't have the capacity for the market in its peak months. So this is a business that we build.
We're continually trying to level load our plants so that we're building capacity. And so what you'd find is this is a working capital intensive business depending on the time of the year. So we're either building capacity for the market or we're depleting capacity all the time. I mean that's essentially what's happening in this market. So as it relates to working capital, you can always get better, But you have to understand that is from a surge perspective, we don't have that.
We haven't built the physical capacity in order to serve the market at its peak conditions. You want to talk about the free cash flow? Yes. I think if you look at free cash flow in 2016, we're probably around 70% or so. And with the investments that Joe mentioned in connection with the new joint venture that we recently announced, the North America AGM release that went out this morning.
And also we've got the North plant in China, which was plant number 3 that Joe referred to. A lot of those investments we've made over the next couple of years. So it's pretty choppy from a free cash flow standpoint. We're going to probably go from 70% down below that for a period of time just at Power Solutions. And then by the end of the midterm, which would be about 2020, we expect to ramp up to around that 85% to 90% target that was in the slide.
Then your last question around growth in adjacent markets. I think we have two choices. One of the things that we do understand about the market is, particularly if you think of the lead acid market, have the manufacturing scale and capacity and capabilities in region to be able to support the market. Business models are a little different when you think about the industrial market and stationary market. We don't have access to the distribution.
So that's not 100% true depending on what part of the region, what part of the world we're in. But to do it at scale, I mean, I think that we would look at organic and inorganic opportunities. Looking to see is this Amy over there? Go ahead. Hi, Alex, Brian Sponheimer.
Hi, Alex. As we look out this next decade or so and thinking about the mix from lead acid or within lead acid to AGM, does that change at all in North America retail versus do it for me from a channel perspective where AGM battery is any harder DIYer to install relative to a typical lead acid battery. So we're talking about our customers business. What influence you're going to have on the channel? Right.
Are you going to be more of a wholesale market in 8 or 9 years relative to where you are now?
In the U. S. Specifically? Yes. So our customers and I think some of you are signed up to go on some store with us this afternoon.
But so our customers, these retail customers, they're firmly entrenched in maintaining their share and their position on the do it yourself side and selling batteries out the front door. But they also, if you go to those stores, they're replacing a lot of batteries. Batteries are generally an easy replacement, getting more difficult all the time to replace right in the parking lot of their store. So they do a lot of that replacement. But at the same time, this same customer of these retailers, a lot of them, particularly in the auto parts channel, are building their backdoor business as well, where they're selling batteries and other automotive components to the local garages and workshops as well.
So I think as you over time, we are seeing a little bit of a migration, maybe about a 1% increase over the course of a couple of years in do it for me because of the difficult installations that are coming into the marketplace. So we do see a kind of a slow, steady movement in that direction. But again, the customer base that we have today is trying to play in that other space as well. And we do have a big distribution business in North America too, not just reliant on the retailers.
And if you think, just add a little bit to what Ray said, some of our value proposition is focused beyond the battery in terms of value added services. So these AGM batteries, you want to treat them like a wear product, like a windshield wiper, like a tire. So we're working with not only our retail customers, but their customers in introducing tools so they can proactively test those vehicles. We're working with companies like Bosch that plug right into the onboard computer in the car to proactively look to see if that battery is responding the right way. So there's a lot of things we're doing to bring real value to our not only retail customers, but our WD customers so that we continue to see that market grow, something that they really appreciate about us.
Okay. We have one more question over here. We have a over here. No, right here. Which one?
This is Noah Kaye with Oppenheimer. Apologies if this is not an apples to apples comparison, but I was just looking at the Analyst Day slide deck from December. And the AGM ramp at that time getting to 2020, I think the number was 27,000,000 units. And today, the unit number is 50,000,000. Dollars So again, I don't know if it was apples to apples, but did you decide to more aggressively ramp AGM?
And if so, can you talk about the process that we're making? First, our customers decided. I think if you go back in time, if you go way back, go back to 2011, what you'd find is that a lot of the capacity that we're talking about now, we actually talked about then and North America pushed off. There's 2 things that happened and I kind of brought it with my introduction. North America did not adopt like we anticipated.
All of a sudden that's happening and you see that happening and it has a lot to do with it has a lot to do with the application of it. It's just a much better application today when you go drive a vehicle. And the second thing is we didn't know what was going to happen in China and China is going to meet a much faster adopter and that's happening real time.
I think that's probably what you're saying. Sure. Yes. China has taken off. If you were to when we talked to you back then, we were talking about a China market about 40%.
Now we're talking about China at 60%. So China is bullish, and we're still a little bit concerned that we're all over it that we could be a little bit conservative. The other thing we didn't see, but we're going
to act like it was our
idea, is this opportunity here in North America around premium upsell in the retail segment. There's lot of automotive enthusiasts and like I said earlier, it's not trivial, millions of units of opportunity for us. That's another thing that has us lifting our investments. Yes. So it's all
I think that it's all good and I would still bet on the over personally. And that's why I tell these guys that we have not been we have been not able to keep up our forecast of not being able to keep up with the reality, which is it's a great problem to have. I think with that, we're going to turn it over to Kathy to tell us what we need to do. Thank you, everyone.
And Noah, just to point
it out, it isn't apples to apples. It's an all start stop versus that was an AGM only. So that's part of the reconciling
difference there. As I mentioned, well, thank you guys for all of your great questions. Thank you, Brian, Joe, Alex and Ray for your insights. As I mentioned earlier, we're going to have a bit of a working lunch. We have lunch set out right out up for you right outside these doors and you can grab your lunch and head back to your seats.
Again, reminder, the restrooms are out in the hallway. We're going to get started with the technology panel right at noon.
Welcome back to the Johnson Controls Power Solutions Analyst Day Call. The program continues with a technology panel hosted by Mary Anne Wright. I'm now thrilled to announce
the phone as if you had any calls over this quick break that were silenced. I'm now thrilled to introduce Mary Anne Wright. She's our Group VP of Technology and Industry Relations and she's going to lead us in a technology panel. Mary Anne? Well, good afternoon, and I hope you've been enjoying your morning.
And I want to reiterate something that Ray said. The screen behind you just before we started up again showed all of our customers, our OEM customers and our aftermarket customers. And that is why we come to work every day because we are so passionate about making sure that we have the best products and the best service at the best cost for our customers. So everything that we do centers around our customers. So this session is going to focus on what's going on inside of the vehicles and what's going on inside of the powertrains and the implications that, that has on our energy storage or battery systems.
We'll focus on start stop in the low voltage market applications because that's really a growth opportunity for us at Power Solutions. And then the way that we will show you how we're going to do that is by leveraging our global footprint and our technical expertise because we have the best technical talent in the world as the world's largest battery manufacturer. So what I'd like to do is put a little bit of context around this by showing what's been going on inside of under the hood of the vehicles for the last 40 years. Starting with 1976 within the U. S, that's about the time that the government started regulating fuel economy.
Up until that time, the focus was really on horsepower and performance. Fast forward 20 years and you see that the horsepower still remains a significant driver for consumer behavior. The vehicles are very heavy. And if you are not aware, weight is the enemy of fuel economy and CO2. Now what you also should notice is kind of messy under the hood here in 1976, but it's a very much a do it yourself kind of a model.
Most of the components were mechanical, they could be replaced. You go forward to 1996, you start seeing systems being integrated. So the underhood environment is getting cleaned up, but it's getting more complex. Go out to 2016, look at how much more power we're able to deliver at significant weight reductions. But what's really important here as well is how much better we're doing at improving fuel economy.
You also should notice that the underhood environment has become very sophisticated and very complex. And this has had a big implication on the do it yourself market as these systems become much more integrated into the powertrain. So our job is to make sure that we work with our OEM customers to shape the best technologies and put the best products in, while also preserving and helping our aftermarket customers grow by enabling the aftermarket to adopt the technologies once it has been put in place with the OEMs. As we think about increasing vehicle complexity, 20 years ago, you might have found 20 electrical devices in the vehicle. Now you can find over 150, more than 50 CPUs, a mile and a half of wiring and over 100,000,000 lines of code.
Actually more complex than Office 2013. And what that means to us is the systems are much more integrated. There's much more expectation around robustness and reliable performance and particularly around safety performance as we start implementing these functions and features that Joe talked about relative to autonomous driving, connected vehicle and automated safety. We talked about the environment that we have been working in for the last several years, predominantly around driving technology to improve fuel economy and CO2 emissions engine technologies, whether that is engine downsizing and pairing it with a turbo 8, 10, 12 speed transmissions cylinder deactivation, light weighting technologies, low rolling resistance tires, lubricants. There's a new dynamic around safety and comfort, instant heat, instant cool, autonomous braking, lane departure warning.
All of these things are huge power vampires and they require more energy from our energy storage and more reliable energy. So as we think about technology adoption, it's not dissimilar to how you think about your personal devices. Every 6 or 9 months, you expect to see new technologies coming out with your mobile devices. We're seeing that same pace of technology increasing in the automotive environment to deliver fuel economy, CO2, safety features, all the consumer creature comfort features. So in order to be able to do that, we need to have the best technical talent in the world, the best technical talent in the world.
That's you guys, come on.
And so here with me today are 3 of our technical leaders to help us go through a discussion about what's going on inside of the vehicle environment. First, I'd like to introduce Tom Watson. He's our Vice President of Powertrain and Vehicle Technologies. He also is one of 250 Society of Automotive Engineering Technical Fellows in the world. Joining him is Doctor.
Zoe Jin. Zoe leads our modeling and simulation team and you'll hear a lot of really exciting things that we're doing in the simulated environment to be able to explore more broadly, do it more quickly and improve our first time capability. And then we are also joined by Perry Wyeth. Perry leads our advanced battery technical activities and he's really been leading the effort in this low voltage space as we validate what we have identified as a new market opportunity both at the energy storage level and the vehicle level. So welcome to all of you.
So Tom, I'm going to start with you. If you believe the headlines that we've been seeing over the last 4 to 6 years, it would lead you to believe that almost everyone's going to be driving a hybrid or electric vehicle, but we just haven't seen that happen. So what's going on?
Well, that certainly was the case. Many believe that we'd all be driving electric vehicles, but the reality is much different than the hype. In the U. S, 7 tenths of 1% of new vehicle sales were electric vehicles. Now Huffington Post was reporting that December of last year was the best month ever for EV sales, but in reality, all of 2015 sales were down from 2014.
In China, rapid growth in electric vehicle sales last year, big increase in the last month, kind of like the U. S. So about 9 10ths of 1% of new vehicle sales in China are electric vehicles. Nearly 50% of those were government purchases and around 40% of those were what are called mini EVs. These are vehicles that only have capacity for 1 person or maybe even 2 people in some cases.
Europe is pretty much mirroring the rest of the world with new vehicle sales of luxury vehicles coming in around 1 point 2%. And country by country, wild swings in the numbers depending on which countries have incentives in place for purchase.
So clearly we're seeing that hybrid and electric vehicle adoption is happening much slower than some had forecasted. But the demands on the automakers to deliver more fuel efficient, lower CO2 emissions as well as the consumer demanded functions are forcing them to look at other technologies. Why don't you talk about what's going on inside of the vehicle policy?
Yes. Let's start on the top right hand corner of this graph. These are all these electrified vehicles. And I've got some examples. These are not all the models that are on the market.
So a battery electric vehicle such as a Model S from Tesla, an extended range electric vehicle or a plug in hybrid from a Chevrolet called a Volt or in the case of a hybrid electric vehicle a Toyota Prius. And like I said there are many other models on the market each one of them at fairly low volume. The cost for implementation of this technology for the OEMs is pretty exorbitant. Joe showed a chart earlier that showed around $150 to $300 per percent of fuel economy improvement that these vehicles can deliver in the marketplace. That's an extremely high cost for meeting compliance for CO2 or fuel economy.
So but a couple of other things that I think are important for our audience to understand is these also all require lead acid batteries in addition to the powertrain.
Absolutely. So any vehicle with a high voltage system needs to have certain level of isolation and the ability to shut that system down for safety reasons. All the while, you still have dome lights, computers, other things in the vehicle that still need to operate even when
the vehicle shut down. So a
12 volt lead acid battery is very key to the operation of these vehicles.
Yes. And you can't integrate those systems into the existing body structures and powertrains. They require a lot of engineering and retooling, right?
Yes. These battery systems are when you're talking high levels of energy, you're trying to stuff batteries wherever you can in the vehicle and that means compromises on the vehicle package, the vehicle structure. In many cases, adding a significant amount of weight to the vehicle, the Toyota or I mean, Tesla Model S, for example, weighs nearly £6,000 So the rest of the vehicle has to be significantly upgraded just to manage carrying these batteries around.
Great. So what about the other 99% of the vehicles? What's going on there?
So let's go down to
the bottom left corner. This is let's start with the conventional vehicle. So Mary Anne, you mentioned earlier, the OEMs are adding technologies to these vehicles to improve their CO2 performance. And the landscape is really changing. Obviously for compliance with regulations, we're seeing with continued low fuel prices around the globe, consumers are not demanding significant increases in fuel economy.
They'll take it. They want it. We have market research shows they do want the improved efficiency, but they're not willing to pay a large amount of money for it. So they're looking to implement technologies in the vehicle that represent the lowest cost possible way for them to achieve their compliance. So they're adding technologies such as like you mentioned before, light weighting, low rolling resistance tires, we're also looking at improving the thermal efficiency of the engine, adding turbochargers, downsizing the engine, changing the combustion process.
These things are all technologies that they have at their disposal. And they're all costing in the range of say $5 to $50 per percent in improvement. Now Joe mentioned this morning that start stop technology is coming in at around $35 per percent, very valuable compared to the other technologies that the OEMs have at their disposal. So this the start stop shown here is an extremely good value technology and that's one of the reasons why it's becoming ubiquitous around the globe. Joe shared some numbers in terms of penetration where we see it going by 2020.
I mean pretty much it's going to be the dominant technology in the market in Europe by the end of the decade. I mean it already is over 60%. It will be well over 80% by the end of the decade. And it will be close getting close to 40% or 45% in the U. S.
And nearly 50% in China by the end of the decade.
Great. So we've identified this market opportunity. Joe has talked about it earlier around the low voltage, the 12 and the 48 volt. So why don't you talk about what the OEMs are doing to stretch the conventional powertrain assets and still deliver the fuel economy and the CO2 emissions and the other functionality without having to go up to high presence electric vehicles?
So as a battery maker, it behooves us to understand the full vehicle system. And we do a lot of work in this area to understand where the OEMs are heading with their power nets, with their powertrain strategies, with their vehicle strategies and where can we best play, we began looking at where there are opportunities to improve the efficiency of the vehicle without requiring a high voltage network, due to mainly due to the cost that comes along with that. We see this as a growing segment in the marketplace. And by 5 to 10 years from now, we see this becoming maybe 16% of the total new vehicle sales being in this area that we call the market opportunity.
Perfect. Thank you. So Perry, turning to you. We need to have batteries that meet the functional requirements that Tom talked about in all those powertrains. So why don't you take us through our battery portfolio?
And then let's come back and focus on that low voltage area, okay?
Okay. So it starts in the lower left with our standard starter lighter and ignition battery. Joe talked quite a bit about this. These batteries have been in vehicles since really the inception of the automobile. And they do a great job with cold cranking, cranking the vehicle warm and also powering your accessories like your lights.
And that really is the majority of the market today. As we move into fuel economy options for batteries, we're looking at start stop. The AGM battery was designed to handle this rigorous application. In start stop, we're getting a lot higher cyclability of the batteries. So every time we turn on and turn off the vehicle, we're going to cycle that battery.
Also, we're going to cycle it a lot deeper because the vehicle will be off and it will be powering loads during that time. So with the AGM battery, we can handle that type of an application and we get about a 5% fuel economy benefit with that product. As we continue to progress fuel economy benefits, one of the things we're looking towards is being able to use regenerative braking. So when the vehicle is slowing down, we want to capture that energy, put it into the battery and then use it again later for other accessory loads. In order to do this and also add a little redundancy, we pair that with a lithium ion 12 volt battery with our AGM product, and that allows us about a total of 8% fuel economy benefit over conventional.
When we get into some of this autonomous and connectivity as well as even furthering fuel economy further, we can go to a 48 volt system, which is built on the base vehicle platform. So not a lot of tear up to the vehicle, but basically an installation of a few components, the addition of a 48 volt lithium ion battery with the AGM battery. And that allows us to get even higher levels of reach in, but also opens up the window for new loads and new creature comforts that are going in the vehicle. So 48 volt vehicles could unlock capabilities such as electronic roll stabilization, which basically would have electrical actuators, which would maintain the stability of your vehicle through cornering. Also, we unlock things like electric turbos, which will allow us to reduce turbo lag and also potentially downsize the engine.
That really makes up the low voltage portfolio. So as we talked about low voltage, that's what we're talking about. It's limited at 60 volts. The reason we picked 60 volts is that's the level of electrocution. And so in order to stay below that, what we can do is we can minimize some of the components that we need in the high voltage system.
So that would be oversight for isolation between the battery nets as well as some of the high power components that we need in
the high voltage system. Terrific.
So I do have to make a note that these 3 along with some of their colleagues are the patent filers for over 200 patents in this low voltage space. And I think some of the first to actually have patents granted in this space. So we really have been pioneers in this space. Now, Zoe, you're not getting away. Now we're going to talk about how no, I'm going to talk about this.
This just isn't our opinion, that this has also been validated not only by the research houses, but also the automakers and the suppliers that they see a huge opportunity in this low voltage advanced 12 volt and micro hybrid 48 volt, which is paired with an AGM battery. Now to you, Zoe. So as we look at as a leader of our modeling and simulation team and we look at this low voltage environment, you really helped us to validate what the opportunity was while helping us to accelerate our product development process. So why don't you talk a bit about what our tool set is and how that works? Sure.
So at the beginning of these evaluations, we look at all kinds of alternatives, everything from developing the nano materials, all the way to the battery in vehicle systems of various size and types and all the way to the fuel economy and emission policy and regulations to identify the likely winners and losers and then we put our integrated modeling tool to work. So what we did is we did the virtual design iterations. So from there, we'd be able to optimize for the best cost, the lowest weight or the optimum performance to cost ratios through the hard work of computer clusters on the servers in hours and days rather than months years. So there we predict the fuel economy and we already developed a very detailed understanding of battery behaviors. This is how we arrived to the advanced 12 volts 48 volts design proposals together with the prediction how exactly they are going to bring the fuel economy benefits.
Terrific. Thank you. So Tom, Zoe talked about how we use our modeling and simulation to inform our technology's direction. One of the tools that we've developed is a vehicle efficiency trade off model that really helps us look at it from our consumer's eyes and look at all the technology trade offs available and helping to make the right decisions around what will be the winners and the losers and how best to understand the best cost and best performance. Why don't you talk a bit about how that works?
Yes. So this tool, the Vehicle Efficiency Trade Off Model or BTOM for short, not named that for me by the way, We use this as a means of helping to understand what choices the OEMs are going to make when they have to make their technology choices. What we're showing here is one example. This is a midsized car for Europe with a gasoline engine. In 2021, they have to meet a target of 95 grams per kilometer for their full fleet.
So this particular model would need to achieve 94 grams per kilometer to fit within that OEM's overall fleet. We have that horizontal line drawn there at 94 grams per kilometer. And so to achieve that at lowest cost, essentially you want to be choosing technologies that are as far left as possible. Now what we're showing here are a
bunch of dots. Each one
of these dots represents a technology bundle that could be added to the vehicle to improve fuel economy. In one case, it may be 1 technology that's added. In another case, it may be 5 technologies. In another case, three technologies, but each one of these dots represent a bundle of technologies. And what we've done with these dots is we've colored them based on what level of low voltage electrification has been added to the vehicle.
The orange dots represent start stop and that's what's already going into the market. You can see it's obvious from this chart why this is such a valuable technology for the OEMs to add to their vehicles. All the orange dots are clustered as far left as possible, meaning this is the most cost effective solution for them. Now they're not just doing StartStop alone. They're bundling this with other engine, transmission, vehicle technologies to get to their fuel economy numbers.
And all the benefits of those other technologies are bundled within each of those dots. The red dots represent the next most valuable technologies and that's the advanced start stop or what Perry talked about in terms of a 12 volt lithium ion combined with an AGM battery. When traditional start stop is good for 5% fuel economy, the advanced start stop is good for 8% fuel economy. And when you combine that with the cost and the other technologies that the OEMs have at their disposal, you end up with the red dots. And then finally, the green or yellow dots, depending on how they look on the screen, that's where the 48 volt micro hybrid comes in.
So there's 2 key messages on this slide. First is StarStop and Advanced StarStop have a long runway ahead still staying at a 12 volt network in
the vehicle to be
able to improve the efficiency of vehicles when combined with other technologies that the OEMs have available to them. And then once that is tapped out, then 48 volt becomes the next logical choice for technology for the OEMs to have in their vehicles before ever thinking about going to high voltage system.
Great. Thank you. Okay, Zoe, so you talked about how we're building our models from the nanoscale up to the battery pack, and then Tom complemented that with the vehicle trade off model so that we can look at it from our customers' perspective. So it's time now for us to go into the virtual prototype. So why don't you talk about how that process works?
Sure. So the virtual prototype provides the insights that help us quickly developing the key understandings that drive the design and the process innovation. So that our modeling informs us the battery charge, discharge capability as well as capacity across all temperatures. And we do finite element analysis, so to verify that with all the electrochemical process that are happening inside the batteries, there won't be too much pressure on the containers and we do thermal modeling so that we are checking to verify that in the environmental, the battery is going to be the material inside won't exceeding their maximum temperatures. So the virtual prototyping test and results help us to address the weakest link in the design process and that improves our first time
capability. Terrific. Thank you. So Perry, I think Zoe just said you can go build in the physical environment. So you led our activities around the twelve-forty eight full.
So why don't you talk about how we went out of the simulated environment into the battery pack prototyping and then into the validation and optimization in the vehicle environment?
So it really starts with us from the requirements and the modeling informs those requirements for us. From there, we build our concept prototypes, we test those on the bench and we feed that back into our models. So it's an iterative process really for us. When we're testing on the bench, we feed that back in, it makes our models better and then we continue to evolve our design. What we really want to do with 48 volt in particular is understand what the in vehicle application was going to look like.
So what do these things look like in the real world? 48 volt vehicles don't exist. And at the time, their components didn't even exist. So what we did is we acquired a 2012 BMW, which was the first BMW start up vehicle available in North America. We took the vehicle and we retrofitted it into a 48 volt system and then put our prototype components in place to be able to test this on the dynamometer as well as on the road.
You can see the middle bottom picture is the first implementation of that. So very much a prototype, very much evolving. We are working with our partners Bosch, PortWarner and Vallejo to acquire prototypes as they were evolving their component design. We were putting them back in the vehicle. And our first iterations achieved about a 12% fuel economy benefit, where our model was telling us it was 15%.
We continue to work with those partners. And finally, we ended up being able to prove out about 15% fuel economy benefit by downsizing the package as well, increasing the performance and optimizing it there on the lower right, and
that was in about an 18 month time frame.
Terrific. Thank you. So we know that lead acid is very robust in both cold and hot temperatures and lithium ion tends to like it to be in more moderate environment. So why don't you talk about in the 12 volt space, how we've been working to improve the temperature robustness and the overall performance of lithium ion in these applications.
It's really one of the challenging aspects of lithium ion is where do you package an additional battery as well as what does the climate need to be for that battery as well. So the vehicle platforms allow a nice technology for us to be able to test out the different implementations that the OEs are using, whether it's in trunk or in the passenger compartment or really ideally it would be under hood. You want it close to the engine and to the starter. And we upfitted the Ford Focus, which you'd be able to see outside more of the future, sorry, which you'd be able to see outside with the battery actually under hood and start to drive this around on the road as well as on the dyno, get feedback and continue to improve our design. The thing that this really does for us beyond just evolving our design is it provides a rich set of data that we can go to our customers and we can work and partner with them on their future products and help inform their specification as ultimately their product portfolio.
Terrific.
So I think we have a video that's going to talk about our global capabilities and how we develop this low voltage space. So go ahead. Thank you. Great. So Ray always likes to talk about, John Controls Power Solutions as being the biggest, baddest battery company in the world.
And we are. And we're really proud of our global footprint, both in terms of our manufacturing and recycling as well as our technical centers, which are located around the world. We have 15,000 team members located in our facilities around the world and over 50 of these facilities. And so, Zoe, what I'd like you to do is talk a bit about our technical capabilities and what we have situated around the world. Sure.
We have
R and D facilities in Shanghai, China Hanover, Germany and the Holland, Michigan, U. S. And right here, Milwaukee. In fact, this morning, you just walk by the largest battery R and D center in North America, it's right next to us. So in U.
S. And Germany, we have complete development capability from nanoscale materials all the way to the full battery systems and the vehicle integration validation. So in China, we have large and expanding footprints and we are developing the same capability there, giving this is the biggest and the most important market that we are going to participating in. So this is not only allow us to put our brightest scientists and engineers to work near our customers and this also enable us to collaborate as a global technical team, so that we are working essentially virtually, visually around the clock to support our customers. Great.
Why don't you talk a
bit about how it's helping us having these state
of the art facilities, it's helping us to attract and retain the best talent. And so that we have invested a significant investment in our modeling and simulation capabilities, Because of that, we have been able to develop a wide spectrum of modeling and simulation as well as advanced analytical capabilities. So that this really help us to attract and retain the best talent from the top schools and institutions globally. And as a matter of fact that we actually own a lot of the same simulation and modeling tools as our OE Automotive customers. So this way we are able to see and predict what they are going to see even though they don't want to sometimes they don't want to tell us.
And really then we add value to their work and really complement their work with our expertise from energy storage space. So this put us in a great advantage over our competitors and these are some of the reasons that's why we are so uniquely positioned and why our customer love to work with us.
Great. Thank you. So Tom, we complement our internal capabilities with a terrific set of partners, partnering with the best universities and labs globally. So why don't you talk a bit about how these partnerships help us to enhance and maintain our technology leadership position?
Great. Mary Anne, there's two reasons why we partner with laboratories and universities. 1 is to maintain our technology leadership and second is to develop that pipeline of talent that is needed for what Zoe was talking about in terms of having the best talent around the globe. Let me talk about J. Caesar.
We are the industrial partner to the $125,000,000 energy storage hub that's housed at Argonne National Lab. It's called the Joint Center For Energy Storage Research. Brings together 4 other national labs in the U. S. Besides Argonne plus some of the top universities across the country including MIT, University of Michigan, UC Berkeley to work on breakthroughs in energy storage and energy density and cost reduction for the future.
At the university level, we work around the globe. We've got partners in Germany, in China, and I'll talk about a big partnership we have right here in the state of Wisconsin. With the Wisconsin system, we've invested 1,000,000 of dollars in facilities and laboratories on 2 campuses. 1 is a battery material research lab and the other is a battery systems research lab. And then over in the state of Michigan, we have a partnership with Lawrence Technological University where we do vehicle level research.
And some of the footage you saw in the video was taken at that facility over in Michigan. On top of that, as I mentioned before, there are several national labs included with J. Caesar. We partner with some of these labs independently from the J. Caesar effort.
And I guess I should also mention as well within the Wisconsin system, we have endowed a chair for Energy Storage Research who is working directly with us doing research for us as well as independent research in the area of energy storage.
Thank you. So bringing it all together by having really deep insights and expertise around what is going on inside of vehicle environment and particularly on powertrains, it really allows us to partner with our customers and help inform and shape the technology that goes into the OEM market. And at the same time, ensure that we are protecting and helping to our aftermarket customers grow by ensuring that the technology that's going into the vehicles can then migrate its way into the aftermarket and be a growth platform for us going into the future. And as a result, we offer a complete portfolio of products that will meet all of the requirements that our customers need now and in the future to ensure that we continue to be the partner of choice. So with that, I think we're ready to turn to some Q and A, and I think we'll use the same process as last time.
We have a couple of microphones going around, so if you could raise your hand and then we will call on everybody and we'll engage my technical expert partners here. Rod?
Can you just talk a little bit about what the cost evolution of some of these things are? You did comment on this being $35 or so per 1% improvement for a micro hybrid. When we're thinking about things that are potentially disruptive, there's on the one hand, we hear about electric vehicle companies talking about projections of $100 a kilowatt hour and conceivably within the next 5, 6, 7, 8, 9 years getting to cost parity with the more advanced engines that are out there, diesel engines or even other kinds of gasoline engines. Is that something that you do not subscribe to at all? And if that is happening, is there also a commensurate reduction in cost that you see in some of these technologies that are that you've been describing in the low voltage and some of these other areas that would keep it very cost competitive?
Yes. So I think we can look at it a ways and Tom I'll have you weigh in here. We are seeing the 3% a year lithium ion cost reduction coming over. But to be perfectly honest, we're going to hit the laws of physics with today's technology in lithium ion. There really is going to need to be a breakthrough to get the power and energy density to the level that you can get in other technologies at a lower cost.
I mean, we're really starting to get to the point where we're going to need a significant breakthrough. In the low voltage space, however, and you heard Alex talk about it, it's going to be a different model than you see in electric vehicles. In the low voltage space, it's going to be what we call a drop in model, meaning it's going to be a black box that has certain technical requirements and certain package and mass requirements that they're going to expect to achieve the requirements. And that gives you a lot of flexibility around you can be more chemistry agnostic and really look at it from a system level and optimization. To the second part, when we look at things like Turbos, Turbos is an excellent example.
That was probably the most disruptive technology we've seen in the last 25 years. They were terrible in the 80s, but we kept at them and now they're ubiquitous. And if one turbo is good, you're now starting to see 4 of them that's driving the cost down. And the next disruptor probably will be e boosters and e turbos. And so they'll continue to push the cost down.
But we do believe, and Alex, you may want to jump in here, higher voltage lithium ion applications are going to continue to be challenged economically and with performance in absence of that technology breakthrough.
You said that, obviously, there's technology breakthroughs with energy density and that would be in range, for example. But you're just to understand what you're saying, are you also suggesting that some of these targets of $100 a kilowatt hour, 200 mile range electric vehicles or maybe $5,000 battery packs or less than that, even that is something that you believe would be a very challenging thing to do.
Oh, it's absolutely. It's absolutely challenging. And in fact, out of the energy storage hub, where we have the goal, we're trying to get my number, 250, 250, there's still a lot of stretch there because the science and as well, particularly we don't have the slide up. When you're talking about the high voltage, each one of those are uniquely engineered to fit in a specific space inside the vehicle. The added cost around the powertrain tear up and the body structure tear up and the reintegration are it's not just the battery, it's the whole system.
So we still see a lot of challenges getting to the cost versus the price. The price can be driven by other dynamics.
Thank you. Sure.
Was there anything you wanted to add?
Well, if you're talking about a 200 mile range vehicle, you're talking about a battery that's got 80 kilowatt hours. So even if the world will get to $100 per kilowatt hour multiply that by 80, you're still talking an $8,000 battery pack on top of the cost of a vehicle. So there's affordability issues all around. And even if that is affordable over the entire lifetime, now you're expecting a consumer to pull ahead all of that cost into the initial purchase price of the vehicle versus spreading out those costs over the life of the vehicle. I'm not giving you a good answer, I know, but it's kind of illustrates some of the challenges.
In the 48 volt space, as we've alluded to and talked to around the edges, And I think even Ray mentioned it this morning in terms around being able to or maybe it was Joe talking about designing a 48 volt module that fits within the footprint of a traditional AGM battery. This is where our sweet spot is in understanding the low voltage space, designing, taking the scale and taking advantage of that scale in terms of a standardized battery that can be applied to a lot of different vehicles and help provide value for all the customers.
And packaged anywhere.
Yes.
Colin Lang at UBSS talking about 48 volt. I mean do you think you need a partner in that space because a lot of these systems are kind of combined with other elements? And can you give any color on the battery costs, how much revenue that would be? Because I imagine they're substantially more expensive. I've heard $500 to $600 for one of these 48 volt systems.
And what is the competitive landscape today because it's obviously a brand new technology or who is your real players? Are the competitors in lithium or are they the competitors coming from the lead assets side?
So you have a lot of pieces in there. So the first part was do we need partners And we do use partners. We use we're partnered with Bosch and Velio and BorgWarner. We do development platforms with them because we need the motors to be sized so that you can have all the charge acceptance. We optimize the energy storage.
We optimize the starter generator. We optimize the 48 volt network. We work with them on what load should go to the 48 volt versus 12 volts. So I think partners are going to be a good thing. What that means is we're not sure, but we partner with them today because they don't have the expertise in the energy storage space and they can't optimize the entire system without having all those pieces.
And again, I'll emphasize that this low voltage base is a very different model than the high voltage where the OEMs are buying cells and integrating in large extent themselves and doing it piecemeal. And this, because of the economics and the potential and they want to keep the vehicle environment undisrupted is they're really looking for these drop in solutions, so the partners work really well. When we look at the economics of the 48 volt system all in, we're looking at between $1,01200 for all of the componentry, the wiring, the 48 volt network, the motors and the battery. And I think I forgot your third question.
And then who's the competitor set today that you're seeing in
the So we're seeing some of the same competitors that are in the high voltage space. I think our different view the difference in this case would be because of the model being a drop in and in a dual energy storage environment, we are uniquely positioned and because of the global footprint that we can optimize both the AGM battery and the lithium ion for the best solution that meets the cost, the requirements as well as the packaging space. Come on, no more questions. That was like the coolest part of the presentation, wasn't it? I guess.
No other questions.
Just as a follow-up. On AGM, where is your market share today? I think in the past it was over 70%. And where do you see that going? And where is the competitive landscape there as well?
So today's market share is 70% globally. Our total battery market is 36%, but AGM is 70%. And our intent through our capacity expansion and our continued investments in our technology improvements is that we will continue to grow our position.
Is that one over here?
That right, Joe?
Yes.
David Leiker at Baird. If we look at your plants you have in Michigan, that's when you got ARRA funding for. Originally, I think that was designed to do high voltage lithium.
Can you
talk a little bit about what you're doing in that plant today, what the capacity is, how much of it's utilized and what your thoughts are that going forward?
Sure. So when we built that plant, if we went back to one of the first slides around the market forecast around high voltage applications, we paced those investments to match what was going to happen in the marketplace. And so we have put 2 different formats of product in there, our original cylindrical, which had both our power cells, which went into the original Mercedes and BMW mild hybrid systems. And then we also had the energy cells, which went into our customers' applications in plug in and electric vehicles. The second product portfolio that we put in was really focused around the prismatic, which from a packaging standpoint has advantages.
And that was really on the focus of this low voltage environment. The good thing about the way we designed the plant is that it's very flexible and scalable for both of those technologies. And so the focus for us is really scaling that for the low voltage in which we have the right products in the plant now. To be honest with you, I'm going to have to get an answer on that one.
Where is Alex?
Is Alex there?
I think we're at
0.3. So 0.3 gigawatts is what our
Is installed capacity.
Installed capacity is right now. And Alex, where are we at right now roughly?
Right. Okay.
In the event that there is some sort of technological breakthrough with the in lithium ion, how far behind the curve you think you would be? Because clearly, there's a large portion of this market that thinks that, that is readily achievable.
Well, I would put it this way. We're partnered with the best energy storage laboratory in the world in Argonne National Lab. And so we have both line of sight of any of those potential breakthroughs as well as the work that we've done over the last 3 years has really been to screen the technologies that we're getting some headlines versus the reality. And so I would just tell you that we're going to be able to continue to keep pace with any of the technology breakthroughs. And we're going to be able to do that two reasons.
One is because we're partnered with the right people on the technology advancements because that's where those breakthroughs happen, are in the universities and in the national labs. And so that is the premier place to do it. The second is the way that we have designed and constructed our first lithium ion plant, we're very scalable and we're very flexible both in terms of chemistry and as well as format. And we also are capacitized and ready to do full systems as well. Did anybody hear that 4 new elements where I discovered and they're getting we're adding 4 new elements to the periodic table?
That's like really exciting for us.
Do you
have other questions? Yes, we have one
more. Sorry.
So just on the distributed storage and energy storage business, as we look out that's sort of nascent over the next 5 years. Is that something that we can be modeling into our models or is it just not big enough to make a huge difference?
So if it was a technical question, I could absolutely answer that for you. But I would have to turn that over to Joe, I think.
It's not in the model at this point in time.
Go ahead. I guess the way to think about that is anything that you've seen in our growth forecast, we wouldn't have because it is nascent. And I think that at this point, anything that we do in that space until we understand what that opportunity is, it's not material. So we haven't really put it in any of the models.
Okay. All right. Thank you,
Mary Anne, Tom, Perry and Joey for that insightful discussion. Now we're going to get you guys up and moving and taking advantage of Now we're going to get you guys up and moving and taking advantage of a deeper dive into our focus areas for today. So if you take a look, you've been put into groups. There should be a number on each one of your name badges for the day. If you're number 1, you're going to join Tom Watson at Market Drivers.
If you're number 2, your host is Rebecca Conway at customer partnerships. If you're number 3, you start your journey with John Schaff at Distributed Energy Storage. Number 4, product portfolio. Number 5, sustainable circular supply chain with Adam Mullroyce and we're going to do 10 minutes at each station. So when you hear the bell, sounds like that.
That means rotate counter we're rotating clockwise, so every 10 minutes. So let's get started.
Thank you for participating in the Johnson Controls Power Solutions Analyst Day call. We appreciate your attendance, and thank you for your interest in Johnson Controls. A replay of this event will be available at johnsoncontrols.com/investors.