BASF Sees Automotive Sector As An Engine For Growth

With a host of European countries treading economic water, Greece’s economy underwater, and the rushing waters of China’s economy now slowing, managers at BASF—the world’s largest chemical company—could be forgiven for being downbeat about the prospects for growth.

And yet Kurt Bock, BASF’s chief executive officer, is upbeat. One major reason for his optimism is his expectation that the firm’s sales to the auto industry, already its most important end market, will increase steadily through 2020. Dow Chemical and DuPont are among other major firms also set on building a stronger position in the automotive chemicals market.

Although Bock does not expect an upturn in demand for BASF products during the second half of the year, he told journalists at a briefing in London earlier this month that he is optimistic about the longer-term economic outlook. “I am not seeing a bleak future at all. I don’t see any reason for the chemical industry to be pessimistic,” he said with a smile.

BASF expects to increase sales to the auto industry from $12 billion last year, about 13% of its overall sales, to $21 billion by 2020. Its products for the sector include battery materials, coatings, engineering plastics, specialty foams, fuel additives, and textiles. BASF forecasts that the overall market for automotive chemicals will rise 6% annually from $82 billion in 2011 to about $140 billion in 2020.

BASF’s forecast is based on assumptions that the auto industry will continue to grow in size and use more chemicals. The sector has been growing 3% annually in recent years but will grow “by 5% per year going forward,” Bock predicted. “There will be ups and downs, but the trend is a good one for BASF.”

The number of cars on the world’s roads is forecast to grow from 900 million this year to 1.2 billion in 2020. Bock expects the market to grow strongest in developing countries where car ownership has the opportunity to shoot up. The ratio of cars to people in the U.S. is almost 1:1, whereas in China only 61 people in every 1,000 own a car, and in India only 23 people in every 1,000 own a car.

A key trend supporting BASF’s growth plans is the auto sector’s push to make cars more comfortable, more energy efficient, and better looking. Solutions to these challenges involve the application of chemistry, Bock said.

Today, each car features roughly $1,000 worth of chemicals, BASF calculates. In the next 10 years, the replacement of metals with plastics could cut the weight of an average car by 330 lb, increasing energy efficiency in the process, Bock said. “The percentage of chemicals in cars is increasing steadily and is supporting our growth.”

BASF invested $250 million in R&D associated with the automotive industry in 2011—about one-eighth of its total R&D spending. And the company expects to maintain this level of spending in the next few years, said BASF board member Wayne T. Smith, who also participated in the London briefing. Smith emphasized that the company is keen to develop tailor-made solutions for automotive companies, an approach embodied in the “We create chemistry” strategy it rolled out toward the end of 2011.

BASF claims to work with more than 20 major automotive manufacturers. For example, in separate projects it has been working closely with Daimler and Hyundai to develop prototype cars featuring a series of innovations to enhance comfort, sustainability, and style. BASF and Hyundai scientists have been working in each other’s facilities so that Hyundai’s designers “can learn what they can do with chemistry,” Bock said.

A recently formed battery materials business, which is developing batteries for the auto sector, will “become a nice niche” for the company, Bock said. Technologies the company is developing include novel cathode materials derived from a variety of lithium-based chemicals.

DuPont and Dow are also targeting the auto market. When announcing DuPont’s sale of its automotive coatings business for $4.9 billion last month, CEO Ellen J. Kullman stressed that the company remains committed to serving the sector. Even after the divestment, DuPont expects to sell to the auto industry more than $3 billion of advanced materials per year, representing about 8% of its total sales.

Dow Automotive Systems generated almost $1.2 billion in automotive sales last year, or 2% of Dow’s total sales. The firm’s products for the sector include auto glass bonding systems and polyurethanes. It also has a stake in a joint venture, Dow Kokam, to develop and manufacture batteries for electric vehicles.

Unlike Bock, however, Dow’s CEO, Andrew N. Liveris, is downbeat about the economic outlook. When presenting Dow’s second-quarter financial results at the end of July, Liveris cautioned that “global economies have been not only volatile, but conditions clearly deteriorated as the quarter progressed.” Liveris’ outlook was gloomy: “The new reality is that this world is not in a normal growth mode, and it does not appear that we will see this for at least 12 to 24 months.”

When asked in London about Liveris’ comments, Bock was surprised at his apparent pessimism. “He sees a bleak future—really?” Bock said.

Even beyond the automotive industry, there is room for optimism, Bock maintains. A couple of key trends—namely population growth and the need for energy efficiency—will require the greater use of chemicals. “It all points toward the use of better chemistry,” he added.

In a playful dig, BASF’s Smith offered Liveris some advice on how to ensure a more positive outlook. “He needs to buy some BASF stock,” Smith said.