A Legacy Auto Supplier Makes a Swift Shift to Electric

Sandy Stojkovski, CEO of North America for Tier 1 auto supplier Vitesco Technologies, is an automotive industry veteran who has been a leader at startups and major suppliers, and nearly everything in between. Five years ago, she arrived at Continental AG in Germany to lead its global injectors product line. It was an odd time to be on the combustion engine side of things, with a shift to electric vehicles out there on the horizon but no one quite sure how far off the transition was, or how long it would take.

At least externally, Continental seemed optimistic that the status quo would be around for a while. It had just announced a new turnaround strategy for its Powertrain division focused on increased efficiency for gas-powered engines, with hybrid and electric drivetrains secondary. “The combustion engine is yet to have its peak,” a press release announced. “We do not expect to see a slow decline in volumes until after 2025.”

But Stojkovski, a University of Michigan-trained mechanical, industrial and systems engineer with an MBA and a profit-and-loss background, deduced soon after she arrived at Continental that the powertrain business could not just keep chugging along on combustion engines indefinitely. The new strategy she inherited had been out of date before it was even written; the business would need to pivot to electric drivetrains much more quickly.

“The team thought they were done with the turnaround before I arrived, but after we really got into the details we realized—'we’re probably halfway through a turnaround and there’s a lot of work left to be done,’” she says. It was a sobering time, but also a purposeful one where people brought their strengths to work together as a team.

“We got to work on understanding where our cost levers were that we could push, and how quickly we could push them so that we could decrease our costs without having a lot of people displaced from their jobs,” Stojkovski says. “We ended up reducing our structural costs by about 30% in a very short period of time, and we did it without laying people off because we were able to find other parts of the overall company where their skills were needed.”

Stojkovski and then her team set out to “win the targeted addressable market share of electrification. When that target was set a few years ago, she says, “we were not on track to hit it.” In 2021, when the powertrain division spun off from Continental to become the stand-alone Tier 1 supplier Vitesco, 5% of Vitesco’s sales were electrified. By the end of the first half of 2022, however, 81% of the order books were electrified, with innovation around space-saving battery management systems. In January 2022, Vitesco won an order from a North American automaker to supply millions of 800-volt invertors with silicon carbide technology for fast-charging and range improvement, to start production in 2025. The company’s second-quarter 2022 performance exceeded expectations despite a slowdown in the China market, thanks in part to the growth of the North American business that Stojkovski leads.

“We are transforming from combustion-based products into electrification with real orders,” says Stojkovski. “It took a huge collaborative effort to make it happen.”

Stojkovski talked to IndustryWeek about pivoting a legacy business, leading a new company (and bringing her team with her), Vitesco’s policy toward hybrid work and more.

IndustryWeek: When you arrived at Continental’s powertrain division in 2017, what were people getting wrong about the combustion engine business?

Stojkovski: One of the rosier assumptions was about the actual market for combustion-based vehicles: that this market keeps growing and growing and growing. But we re-evaluated the business through the lens of, “What if the overall market doesn’t look like that and actually plateaus or decreases?” “What if we see in other markets the trends that are emerging in Germany around shrinking market for diesel engines in particular?” By analyzing those different scenarios and then taking decisive action on how to proactively manage the business, we were able to talk about cost reduction without having to lay people off.

We did remove people from our business. We were able to find good places where they could contribute to other parts of the company. That was a large piece of cost reductions. But we also started to curtail our capex spending. We were very careful and prioritized around where we were investing with the vision of what was best for the overall company. Some of the things we could do, we opted not to do. There were obviously lots and lots of parts to a turnaround plan and there always are, but people and capital tend to be the biggest levers. So there were things we had seen ourselves investing in like the powertrain side and said, no, “EVs are going to be the future and we’re going to invest there.”

Some of the things we were looking to do in the injector business, for example—the whole activity around making the next generation of natural gas injectors—when we looked at the market, we said, “Okay, yes, there is a small piece of the market that will be natural gas, but it’s not a growth market for us.” And so we opted not to expend those funds into R&D and development of things that would serve a flat-to-declining market.

Continental powertrain’s spinoff to Vitesco was announced in 2019, but because of the pandemic, that was delayed until 2021. During this time of uncertainty, how did you begin to make the transition to a new culture and put structures and policies in place?

We knew that the spinoff itself was a really big opportunity for us to be deliberate. Globally, our CEO and executive board have established what we call Direction 2030—our strategy toward 2030. With that very clear framework established, we got to work here in North America, saying, “What are the important contributions that we make towards that?”

Operational excellence is certainly one of the pillars of our strategy, but it’s just one that I find to be incredibly important to the results we’ve been able to achieve. We’re measuring ourselves through the lens of the employee Net Promoter Score. It keeps us very honest with this one simple question: Would you recommend working at this company to a friend or family member? You are looking for employees that are absolutely yeses on the nine and 10 level. Those are the “promoters.”  This score keeps us focused on employees as a stakeholder group.

How are you rethinking the employee experience? A lot changed during COVID.

Leading through COVID was another challenge on top of everything. I was inspired by the idea of, “What if we could turn this terrible experience of COVID into an opportunity to come out even better than we went into it” and that really kind of flipped the script. And one of those opportunities fell right in the direction of hybrid work.

We basically took some of our younger team leaders and said, “What would you wish for in terms of how we would be able to work now?” I mean, we've certainly demonstrated through COVID that you can work remotely and there are tools and capabilities there, but what would you wish for? And they started to come back with some very exciting ideas.

We then started to go through the process of, “How do we convert these into policies and procedures?” In the past, we probably would have come up with a 30-plus page procedure to ensure that everyone fit into the policy and it was all very clear. But what I'm really proud of is instead, we came up with a four-page policy [on hybrid work], which gives guardrails to everyone so managers and employees understand how it works and what their role is in it—but also gives maximum freedom to each manager and employee pair in making the decision that fits best for their department and teammates.

This hybrid work policy is a great example of how we’ve turned COVID into competitive advantage. We have people now joining us and staying with us because they say they love how progressive and flexible we are. We're not telling them, “You have to be in three days a week and we're counting.” We're not doing any of that. We're taking trust to the next level and it's working out well.

We have four work categories. One is the traditional working from the office or labs every day. It applies certainly to our production workers and it applies to people that need to be in certain locations to perform their jobs. And we have our hybrid workers. Those are the ones who are sometimes there and sometimes not; it depends on the nature of their schedule for their work.

Then we have a work-from-anywhere category. People typically will come in basically once a month, but otherwise work from anywhere if they don't have an office or cube in our locations.

And then we have a very fully remote category which sounds a lot like work from anywhere, but they come in even less. It's more like business travel, if you will, when they come in. That’s how we define the four areas and we've encouraged and trained all of our managers so that they can be as flexible as possible in deciding that for roles and for people. And so far, so good. But we're still in this experimental phase and continue to evolve it.

If you list something as a remote or hybrid, you can get up to five times the applicants. So it's really not only expanding the number, but I'd say also the quality because now you can get people who would ordinarily be logistically limited from considering your company. We're pretty excited about how that's worked and it's definitely led to an easier time recruiting.

Are you hearing of other auto suppliers doing this as well?

I put us on the higher end of the flexibility continuum. I think people are starting to see examples like ours and get more flexible than they probably would have. Certainly, the [OEMs] have been very flexible. That is important for us to see because we know that the customers are OK with us working this way. But there are still a lot of auto suppliers that are thinking more about how to get back to normal.

Being progressive also helps with retentions too. We don't lose people because they can’t get this kind of flexibility somewhere else.

What were some key points of that shift in strategy to increase your electrification market share?

We had to get really clear about what the future market could be for electrification. And that's changed a lot over the last couple of years. But getting really clear about what our customers would be needing from us. And then positioning our product-engineering teams to be developing the modular and scalable platform-based technologies that would allow us to win in the marketplace. This was so critical:  What are the North American market requirements? When are they going to be required by? And then working our modular scalable platforms to include those requirements in the designs so that we'd be well-positioned when our customers started asking for them.

With your manufacturing facilities, you're making this big shift from the power train to EV and it's happening quickly. How are you converting your plants?

It means consolidating and removing lines associated with combustion products; meanwhile, adding new lines for the electrified product and doing that in a way where you're not creating a lot of inefficiency in the plant floor. This is really a huge activity. Meanwhile, training and developing the team so that they can move their skill base from one area to the other. How quickly can you convert the lines and train the people—how long does that take?

It won’t be all at once—we have floor space for that, and we're able to convert step by step. The real challenge will be making sure that we don't over-invest in floor space for electric early, but where we are placing our bets is clearly in electrification. We have these orders and we have these programs that give us the confidence to make those investments.

Do the plant workers require retraining for EV production?

It depends. You take our Seguin, Texas, plant, for example. A large portion of the floor space is dedicated to producing engine control units. So you might think, “Oh, wow—how are we going to convert them now that we're implementing new battery management systems and things in that location?” The reality is that the technology is quite compatible. There is some risk, but the reality they're from almost the same family product area. And so that's something where you have a lot of crossover in logistics and industrial engineering and other kinds of functions. The job is not dramatically different because of the product itself. So we are trying to keep similar product families in mind as we establish our manufacturing choices for where to produce things.

With the shift to EVs, do you see the relationship between suppliers and OEMs changing?

I think we're at the beginning of this transformation around electrification. That's why you see some of the OEM customers deciding to make certain parts of the propulsion system in-house. That changes the nature of what is supplied. Our strategy is to meet our customers where they're at. We can develop full systems. Or if they want to buy components, we sell them components that they then manufacture and assemble into the full systems or anything in between. By having a modular and scalable product, we're able to be agnostic to how they're buying what they buy.

I imagine they want to have some of it in-house because they want to have the intellectual property.

It can be. There are various reasons why customers go in one direction or another. Sometimes it's due to commitments that they've made to their labor unions. It can be because they want to understand technology and get closer to it, or in the case of in particular batteries, a lot of them see that the batteries are going to be such a large piece of the cost of a future electric vehicle that they don't want to pay the profit on top of that to an outside party—they'd like to capture that in-house.

What’s ahead for Vitesco?

Similar to maybe what you've heard about Ford, we have separated ourselves into two different divisions, one focusing on the combustion engine and one focusing on electrification.

We have clear alignment of purpose in these two divisions, where you can recognize that you need to run these different parts of the company differently because they have different needs. One is more about consolidating and transformation and the other is about growth and profitability. And you need the two parts of this—one that's generating cash from products today and the other that generates our growth and profitability. These two parts together now form an overall company that that's able to win and finance the transformations.