Okay, I think we can start to get going, maybe some people trickle in with the next presentation, which is a fireside chat with Gentherm. Very happy to have with us here, Phil Eyler, Gentherm's President and Chief Executive Officer. Phil, thanks for coming to the conference.
Ryan, pleasure to be here. Thank you.
I'll get some general industry questions, but I thought I'd just start with leverage to vehicle electrification, which is obviously, you know, such a big investor focus and theme of CES and, you know, could you talk about your ClimateSense® product? You know, it's not just levered electrification, right? It's a luxury product. Yet at the same time, I think it offers some special benefits to electric vehicles. You've got two awards for the product. Maybe you can tell us what you can about those awards. One of them is public, right? Whatever you can tell us about the other. You know, what your strategy is, too, for securing future awards and then just generally what you think the potential is for ClimateSense® over time.
Sounds good. Well, let me give a little bit of a backdrop on climate management in EVs and why ClimateSense® is such an important initiative for us. A lot of people aren't aware that the HVAC system in an electric vehicle is the second largest consumer of power in the vehicle, second to the electric drivetrain. It's a big, you know, managing the climate in an EV is a significant challenge for OEMs when it comes to balancing passenger comfort with being able to, you know, get the most range possible, especially on the cold and hot weather cycle. There's kind of a major issue there that needed to be addressed. As the leading player in the market for localized thermal solutions, we saw an opportunity there and created a proprietary microclimate solution called ClimateSense®.
The concept there is that we would, in each individual seat within a vehicle, create an intelligent microclimate that would heat on a personalized basis or cool each passenger in the car as opposed to what I'll call the antiquated method, which is to just funnel air into the entire cabin and try to heat the entire cabin up and cool the entire cabin. This methodology of a microclimate is much more efficient. On top of that, it's more effective at providing comfort to the passenger. Our solution kind of surrounds the body with conductive and air-based heating and cooling devices.
But probably what's most important for our ClimateSense® solution is that it utilizes an algorithm embedded in electronics, a software-based algorithm, that takes into account the science of thermal physiology, which we're, we believe one of the world experts on. Thermal physiology is really the understanding of how body behaves under heating and cooling and what makes a person feel more comfortable and what makes a person feel less comfortable. We're able to apply heating and cooling to specific parts of the body to get that person to a comfort level, you know, physically and psychologically, in a way that, you know, speeds comfort, but also takes the minimum power consumption. That's the whole, you know, concept behind it. We've been working on that for a number of years.
As you pointed out, we have announced our first production award with Cadillac on the Cadillac CELESTIQ. We've been working with GM for quite some time. In fact, in the past, some of the programs that we worked on proved through their General Motors testing that for example, in the cold weather cycle, you can reduce power consumption of an HVAC system by 70%. You can extend the range of the vehicle between 30% and 35% in those cold weather cycles. You have, you know, good performance also in the hot weather cycle. It's, you know, it's a really significant impact. That led to a lot of great work with General Motors. We're really excited to announce ClimateSense® launching on CELESTIQ later this year. General Motors made quite a big deal.
We were very pleased and surprised about how much press they put into ClimateSense®. In their press release, we were one of only three suppliers that were announced by name in that press release. We're really excited to be partnering with them. We also won a follow-on award with General Motors on a more high volume EV version of an SUV. We can't say what vehicle yet, but hopefully we can do that soon. That'll go into production in 2025. General Motors, when we're talking about ClimateSense®, our focus is really heavy with General Motors. We wanna launch successfully on the first platform. We'd like to continue, of course, to win new vehicles and expect to do that. That's top priority.
We're also seeing a lot of interest from other OEMs, especially since the announcement of the CELESTIQ and working on a handful of development projects and some exciting opportunities with other OEMs. You know, obviously we expect that this is something that's gonna take off for us.
Very interesting. Thank you. You know, next I wanted to ask about. You know, I saw this press release from Harman yesterday, your former employer, right? Where they talked about their Ready Care sort of in-cabin sensing technology could be leveraged by Gentherm to use your ClimateSense® technology to implement some sort of intervention to prevent driver drowsiness. Maybe you could just talk a little bit about that? A bolt of, you know, cold air to the face or the neck to prevent you from going off the road. How is this gonna work?
We're really excited about the collaboration with Harman on the Ready Care. Before I get into the details, you know, The areas we're really focused on outside of the mechanism of bringing, you know, the driver or passenger to comfort is what other solutions can ClimateSense® bring if you have significantly content in thermal solutions in a car. We're really looking at, you know, how can we add value over the life of the vehicle, beyond just comfort. Areas that we're looking at are, of course, you know, therapies, heating and cooling. Of course, we'll talk a little bit about our massage and lumbar, you know, to help not only provide basic comfort, but to create an experience for passengers so they feel better than they did getting out of the car than when they did getting in.
On top of that, how can we also engage these effectors? I mean, we're, you know, one of the few suppliers that have all of these connection points with the human body, and there's so many different opportunities to capitalize on that. The opportunity that we're working with Harman on is basically they've developed this ReadyCare system that is an advanced driver monitoring system that can determine if a driver is losing focus or is drowsy. In order to increase safety in the driving cycle, they can take action. We have connected with their API in that system to be, you know, to show what could be done there. In this case, it is almost exactly as you said, providing a rush of cold air to the body, through our CCS solution, our ClimateSense® CCS devices.
We actually can manipulate that with our ClimateSense® algorithm to be the most effective. You know, it could be a ramp-up of cooling and then a ramp down, depending on what feedback we're getting from the ReadyCare driver monitoring system. It's like a nice closed loop way of managing that.
Interesting. You know, at GM's EV Investor Day in New York recently, I test drove the Cadillac Lyriq, and, you know, if you try, you know, if you put your turn signal on and there's a car in the lane next to you and you're gonna turn, you know, it beeps to warn you. If you actually start to turn the steering wheel, the seat starts to shake. You know, it gives you, like, a haptic feedback. I'm just thinking, now that you've got Alfmeier and, you know, the back of the seat you can manipulate and is it such a stretch that you could do, you know, active safety with, like, haptics in the seat as well? Is that on the agenda?
There are a lot of interesting discussions along those lines. you know, we can jump to that topic of our lumbar massage. We have a proprietary next generation pneumatic massage system that's called Puls.A that basically, i think you got a chance to experience that when you were in Michigan not too long ago. Essentially what this does is a typical massage system inflates and deflates a bladder up and down the back. You get this rolling sensation of massage, where the Puls.A can pulsate, you know, these bladders after they're full of air. Basically creates a pulsating sensation. There are definitely some very interesting applications of that besides comfort. I mean, our focus is gonna be around physiotherapy, you know, so that passengers can experience wellness in a car.
Not just comfort, not just getting from A to B. We see that as such a huge opportunity. Definitely there could be safety related or alertness related effects, audio experience related effects that could be done. These are a lot of the ideas that we're looking at. You combine that with the thermal solutions, we're really excited about some of the opportunities.
Strobe lights. You know, it's interesting because I'm used to thinking of you as leverage to electrification, and now there's an active safety aspect as well. Maybe sticking with electrification, though, but with battery performance solutions, right? Maybe you can talk about your leverage to electrification through this division. Maybe you can walk through, like, the history here, right? Starting with, you know, the thermal management for the 48-volt batteries, but more recently progressing into battery, cell monitoring and other technologies for battery electric vehicles, the real explosive growth area. What should investors expect from this product area for you going forward?
As you pointed out, it all started off with thermal management. As a thermal company, our, you know, our engineering expertise on thermal management is very, very strong. OEMs reached out to us to ask: How can we use some of your technologies to manage some of the challenges we face on extreme temperatures with the battery cells? That's started off with the 48-volt battery, which was expected to be, you know, one of the primary growth mechanisms in EVs. Of course, that didn't pan out as we expected, but we created a really compelling solution. It was a thermoelectric-based heating and cooling solution for 48-volt batteries. We launched that with Jeep. We launched it with Mercedes. Went across the whole lineup of Mercedes 48-volt mild hybrid vehicles. A very exciting product that we're very proud of.
Unfortunately, there's not a lot of demand for that now going forward. We knew that we had to come up with some interesting solutions for full battery electric vehicles, high voltage solutions. By the way, you also mentioned we have air cooling solutions. A lot of people don't know this about Gentherm. We're one of the highest volume producers of air moving devices in vehicles. We ship around 14 or 15 million, you know, micro blowers, you know, across the world. You know, we have a lot of expertise on the intelligent management of air movement, and that plays a nice role when it comes to cooling not only batteries, but also electronics. We've got some applications with Mercedes, for example, where we're actually cooling the electronics behind displays. We still look at that as an opportunity going forward.
You know, as you pointed out, an area that has gotten a lot of attention from us is related to a thin foil flex circuit that we developed, and it utilizes a manufacturing process called Mechanical Structuring. Basically, if you look at flex foils on the market today, most of the technologies you'll find are chemically etched flex foils. That's what's used in most EVs that have flex foils. Our solution mechanically etches the circuit on any kind of thin foil. Can be aluminum, can be copper, could be other solutions, and it's 100% environmentally friendly. Fully recyclable, just like your aluminum can that you've got there, as opposed to pretty harmful chemical etching. We're really excited about that technology. We just announced our first go-to-market cell connecting device with BMW.
It's on the BMW 7 Series, and it'll follow with more plug-in hybrid vehicles utilizing this unique technology. It's something we're investing in. We're looking at opportunities to grow that business. You know, it's not growing quite as fast as we had hoped, primarily because OEMs are aggressively launching electric vehicles, and, you know, making changes is hard to get in right now. They wanna launch quickly with what's known, unless there's some, you know, very significantly, you know, compelling technology. They've got a lot of interest in ours. I think that you're gonna see more and more opportunities for us in that front. We also use this thin foil technology for battery cell heating. We've launched that with LG on across several platforms. We're working on a platform also with Renault on that.
I'd like to ask, too, on some of the acquisitions that you did since, you know, your time at the conference last year, starting with the larger of the two, Alfmeier, right? A supplier of pneumatic lumbar massage features you mentioned. You know, what was the motivation here more, would you say from a cost synergy or from a revenue? You got an early win on the revenue synergy front, right? How would you rate the relative benefits there? You know, what is the benefit of offering these two products into a bundled offering? With the two companies under one roof, you know, what kind of new types of products might that lead to?
Yeah. Well, first of all, kind of, it comes back to our focus as a company, and our purpose is really about creating solutions that improve health, wellness, comfort, and energy efficiency. You know, we're consistently looking at how do we expand our value proposition. I think a very natural expansion was lumbar massage. It was the physiotherapy side to kind of mesh with thermal physiology. Thermal physiology, physiotherapy, they come together. They, they work in tandem. That's, that's our vision. It's really that's where it all started, is how do we create a solution that adds more value for customers? We looked across, you know, the different players in the market and really saw Alfmeier as the technology leader. As you know, Gentherm, we really focus on innovation and technology, being first to market with advanced technologies.
We saw that same type of track record and progress with Alfmeier. We've been working with them for a number of years and finally found the right opportunity to come together. Alfmeier is the global leader in pneumatic-based lumbar and massage systems. Then maybe to your question, where does the real value creation come? Number one, it's gonna be on growth and in a couple different ways. First, Alfmeier, as a small private German company, really focused on a mostly European OEMs and mostly on the luxury side. They had expanded a little bit beyond that. Great, that adds, entrenches us more with the European OEMs. Gentherm brings 35 OEMs to the table. We looked at immediately, we could grow their business in the U.S., in Asia, with Asian OEM customers.
We really saw that as just taking their product and expanding that into our customer base. The longer-term opportunities are really gonna be about creating system-level solutions that bring thermal and physiotherapy together. The massage, the lumbar, not just for comfort, but also for wellness, for therapies. We really believe there's an untapped opportunity out there to positively affect people with back pain, for example, in the car. Right now driving a car is actually a net negative on people that have back pain. Well, what if you know, flip the script on that and turn that into an opportunity to improve the pain management of people with these situations? That's the kind of thing that we're thinking about longer term with that addition.
I think the one thing that sets us apart from competition is that we develop our own software and electronics and our vision here is to keep building on, you know, you have ClimateSense® plus the physiotherapy solutions, and you add to that the software, the algorithms, and the ability to upgrade and add features over time. The software-defined vehicle is an area we spend a lot of time talking about. How can our solutions enable more opportunities for OEMs around the software-defined vehicle? A lot of that comes by adding features over time through, you know, software updates. You know, I think a therapy example is a great example of that. If we have a ClimateSense® solution, we also have installed lumbar massage.
As new therapies get developed, those can just be added to the vehicle through software, and these new features can be added if done correctly. That's the vision of where we wanna go with it.
Very interesting. With regard to the other acquisition you did in 2022, Dacheng Medical, maybe you can talk a little bit about what attracted you to that business, but also more generally, you know, about patient thermal therapy in a medical setting, and then how that expertise, you know, translates over into the automotive setting. One of your more recent product demos I was able to experience, you know, featured, like, the alternating heat and cool, right? And combined with massage and, you know, it really was sort of like a physiotherapy in the car. When, when might we see something like that in production, do you think? Does your patient, you know, thermal management business, does it enable you to introduce these types of new features to the vehicle, say, before the competition?
Yeah. I think it's such a differentiator for us that we have this medical business, and it's laser-focused right now on patient temperature management, as you pointed out. For those of who don't know that business, basically what we're doing is we're managing a patient's temperature in the operating room and in intensive care, and that can be through heating, through cooling. We even induce hypothermia in certain cases with stroke victims and head trauma victims, for example. This is a really exciting business for us, and besides, we believe it's a fast growth been as a business in a multi-billion market in the medical space. The real value for us, because we're mostly automotive, is that deep understanding of the human body and how the human body responds to temperature change.
Besides just managing the body's temperature in the operating room, we also do a lot of therapy products, so especially in the orthopedic side. People who have, you know, knee surgery, ankle surgery, shoulder surgery, our cooling products and heating products are used for that therapy. You start to take that knowledge around thermal physiology that we gain in the medical space, and you bring that into solutions for automotive. We believe we're the only company in the world that can do that can bring that expertise. You know, our goal with the business is pretty modest. We'd like to get it. Today it's, you know, a little bit less than $50 million out of our, you know, over $1 billion, and we'd like to get it to about 10% of the business.
Somewhere down the road between $150 million-$200 million, I think is the right size for that business. That brought in the Dacheng acquisition. We're very much a mainly a North America-focused business right now in patient temperature management. We wanna become a little bit more global. Dacheng is one of the leading providers in China, but they're also selling in other markets around the world. They have FDA-approved product in the U.S. and South America, this is a really ideal acquisition. They're mainly focused on the consumable products, so wraps and blankets and things like that, which is an area we wanted to grow. It's a great business models if you can get more consumable business in that space. We're excited about that acquisition.
We'll continue to, you know, keep our eyes open for smaller acquisitions to help us grow over time. We think we have great organic growth opportunities in the medical space, you know, as long as it continues to add value and synergy to our automotive business, you know, we'll keep investing there.
Great. Thanks. I wanted to ask about, like, the scope of what you consider within your wheelhouse or potential wheelhouse within the automobile. You know, I've heard you describe the company's mission as being about developing and manufacturing products that improve lives through health and wellness, comfort, energy efficiency, and certainly your products today do that. Although, you know, there are a number of other products that could possibly fall into that category. You know, I know after you came in as CEO in 2017, there was a rethinking of, you know, which product areas the company wants to focus on. You know, how are you thinking about the portfolio potentially further evolving in the future?
I think it's great to hear you talk about our mission statement. Says we're doing a pretty good job of getting that message out there. That's great. It's around those areas, health, wellness, comfort, energy efficiency, and having a positive impact on the individuals that use our product on their lives, frankly. It's a great mission. Not only does it keep us focused, it's kind of this is our North Star, this is what we're gonna focus on as a business, it fits perfectly with the mega trends in the automotive industry. Fits perfectly with the EV movement that's happening. You know, all these things are gonna fuel growth for us. You know, we're gonna stay pretty focused on that mission. As we pointed out, talked about the massage and lumbar fit nicely with that, expanding it.
If there are other areas that give us the ability to add more value to our customers, both the consumers and the OEMs around those areas, then we certainly would be open to looking at those. You know, we're in a very good position when it comes to our balance sheet. You know, it's, you know, acquisition could be something we look at. We're certainly watching the volatility in the world right now, and we'll be fairly conservative for the time being. You know, I think that, you know, any way we can enhance the experience of passengers would be something we'd be open to looking at.
Yeah. You know, maybe a higher level question, you know, just about the industry, which it seems been through so much, right? The pandemic in 2020, the chip shortage in 2021, all sorts of component shortages and, you know, higher non-commodity costs and geopolitical, you know, storms you had to navigate in 2022. You know, how would you rate the current conditions in the industry, and what is your outlook going forward?
Well, first of all, we're, you know, we'll give our 2023 outlook in our next earnings call, the end of year 2022 earnings call. You know, if you look at S&P Global, I think in our key markets, they're estimating around 70 million vehicles produced, which is about a 4% year-over-year increase from 2022. Based on the feedback that we've gotten from all of our customers, what we're seeing currently in the demand flow, that seems to be pretty good estimate. That said, there's so much volatility out there right now, you know, around all the points. I won't restate what you just said. Certainly the potential recession, effects that nobody really understands exactly how that's gonna impact automotive. You're hearing a few things.
It's kind of there's kind of a mixed message out there about what dealers are seeing in terms of their inventory and demand positioning. We're watching that very closely. To be honest with you, we're preparing for downside if we need to be ready for it. Because I think that's, there's certainly some, you know, some indicators that say there could be some downside to it. All that said, we've kind of been in a recession when it comes to vehicle production for several years now, I know, you know, there's definitely pent-up demand out there. I'm excited about that possibility. I think the thing that when it comes to Gentherm specifically, it's very important to understand that our volumes are based on penetration and take rates.
Our take rates are still not all that high when it comes to total vehicle production. Our basic seat heat product, which is, I would say, the most mature product out there, is still just over 30% of vehicles produced worldwide. That's the largest take rate of any product we have. When you get to CCS, which is the active and ventilated heating and cooling, that's about 10% of total vehicles produced. Steering wheel heat is only 15% of vehicles produced. The lumbar solutions is pretty close to 30% for overall lumbar population. When you get into massage, it's low single digits. You can see there's a huge swath of vehicle production that don't have these kind of solutions.
I think as you see a movement to electric vehicles, we're going to see a rapid acceleration of take rates of our products. That's the area we expect a significant outperformance to vehicle production. Of course, we care about vehicle production. On the short-term basis, it has a significant effect on anybody in our industry. But, you know, we're going to keep our innovation focus, launching new technologies, new systems, integrating our products in a more effective way. We've been winning business at a very high rate, and we expect to continue to do that.
Given this conference's focus on both the semiconductor industry and the auto industry, I wanted to delve specifically into the chip shortage. You know, I think it's a bit easier to see on the outside, you know, the impact on your customers, you know, how many millions of units as per IHS have been lost, et cetera, of production. I'd be interested to hear from you what the very latest is you're seeing there in terms of customer, you know, impact. Also, what has been your own experience in getting the chips that you need to, you know, so that you can produce the product? You know, I think there's been some impact on your mix at times.
There's been some impact on, you know, expedited shipping when you do get, you know, you know, inventory in and the Etratech in-house electronics business. Where are we in terms of, I don't wanna use baseball innings or whatever, but in, where is it headed next, do you think?
Well, it's still pretty dynamic. It's nowhere near as difficult as it was maybe a year ago. We still have some challenges. We're not in a, you know, extreme shortage situation for the most part. Some of the capacity from our suppliers has been limited, where, you know, we could sell more if we had more capacity. A lot of that's related to the mature node semiconductor variants that are out there. You know, some of the newer stuff, more capacity is coming online a little bit quicker. That said, we are seeing some capacity open up and expect to still see gradual improvement over the coming year. But it's an area of, I think long-term, it's still an area of concern, because we're kind of in a down cycle when it comes to some of the consumer products.
If that comes back again, you know, we need to be ready for it. We're doing a lot of work to redesign products, so we have multiple chipsets that we can apply to our product, multiple suppliers that we can apply to our product. You know, I think like most automotive suppliers out there that are in the electronic space, really trying to make our capabilities more robust to sustain these kind of challenges. We still face. I mean, I would say every week there's a handful of shortages because the visibility is kind of limited. A lot of our suppliers only give us six weeks of visibility, that's what we know is coming. They'll change some of their allocations, and we have to hustle and find ways to get to get the chips.
Probably the biggest challenge right now on top of, you know, still fighting the capacity is it's still an inflationary, a heavy inflationary area. We're still seeing pricing increases, especially for the older nodes that we're struggling with. We still do have some expedite. It's better, but we're certainly not out of the woods.
Thanks for the update. Any questions? We have Jim Irwin, please. Thank you.
Thank you for the presentation, Tom. Two quick questions. One, over to the seat suppliers is pretty concentrated. I think we would be in line with some but not all. Because of this perception, do you work with all the seat suppliers, and is it being driven by the OEMs? The second question is Cadillac. The fact that it's coming in as a far more expensive vehicle, as you mentioned another one planning for 5. I mean, this number of 30% efficiency or range boost or 30%-35% improvement on range, it seems like a no-brainer. Is it a concern on GM's systems are radically new concept going from cabin to the individual passenger? That's why they're being so reticent about this is what this is gonna have to be before t he numbers now seem to be close.
Yeah. Yeah. All right. Well, first one, the vast majority of our business is directed from the OEMs. Not all of it, but the vast majority. Basically how that works is we'll get, you know, we'll get awarded either a thermal product or the same applies to our massage and lumbar, by the way. Vast majority is sourced by the OEM. Then we'll be directed to the Tier 1 seat manufacturer in those cases. But there are some cases where the seat manufacturer also makes the decision. So we're, you know, we know that could swing over time, so we really work to build relationships with all of those potential customers. Hope that answers that question.
The second one on ClimateSense® is to, m aybe I'll start with the CELESTIQ which is our first launch is a very highly contented vehicle. I would call that a kind of a halo opportunity for ClimateSense®. you know, we always talk about the climate, the ClimateSense® is 2 to 4 times content, our typical content per vehicle. That one's definitely on the high end. you know, I think it's a perfect opportunity for Cadillac and us to showcase the maximum benefits from a fully, you know, populated ClimateSense® solution. The challenge is to get the most out of ClimateSense® and to get that kind of performance that I talked about, the 30% range plus extension, you have to bring costs down for the HVAC system because you're gonna add content for, you know, the microclimate.
It's certainly a pretty significant content add. So it really is a full architecture change that has to happen to get that full value. You know, the CELESTIQ was the first opportunity there, and they'll keep looking at opportunities to do that within General Motors. But that's probably the biggest change that has to happen. The good thing about our ClimateSense® solution is it's on a continuum. You know, you're gonna see in the CELESTIQ kinda the full-blown ClimateSense®, but you can also scale that back. We put, we can apply our ClimateSense® algorithm into smart effectors and bring down the content quite a bit, but still get a significant leap in consumption savings. You know, ClimateSense® is not really a digital system.
It's more of a, you know, you can add a little bit of content, get a little bit of the benefit, or you can go all the way.
That high volume SUV is all electric?
Can't really say much more about that one yet. It's a little too early.
All right. That's all we have time for. Please, join me in thanking Phil for the great color and insight he shared today.
Thank you.
Yeah. Thanks.