With four consecutive quarters of record production and record revenue for the full year, 2022 was a good year for SinterCast. But we had hoped for more.
Starting the year with 3.0 million Engine Equivalents in both January and February, we set our sights on the four million milestone before the end of the year. With 3.9 million Engine Equivalents in June, we were on track, but production flattened after the summer shutdown period, preventing us from reaching our goal. The shortfall was due to the combined effects of a model year changeover for the high volume Ford super-duty engine, affecting our annualised volume by approximately 200,000 Engine Equivalents throughout the second-half of the year; the stoppage of the Audi V6 production; the announcement that Ram would discontinue the 3.0 litre V6 engine at year-end; an 8% slump in US vehicle sales in the second-half; and, delays in the ramp rates of two new commercial vehicle engine programmes. We didn’t need the stars to align; it would’ve been enough for everybody to have a normal month at the same time.
With the start of a new year, we reset our optimism. The Ford Super-Duty production has returned, US vehicle sales and semiconductor supply are set to improve, and we expect growing contributions from the continued ramp of the Scania heavy-duty engine for Traton Group commercial vehicles and from the initial ramp at First Automobile Works (FAW) in China. We watch month-by-month for the four million milestone, we look forward to the five million milestone, and we remain confident in growth beyond.
The start of a new year also provides me with the opportunity to share my thoughts on our current status and our outlook, and I’m happy to do that this year with reference to the four pillars upon which SinterCast has been built: growth; longevity; climate contribution; and, profitability.
With twenty years of high volume series production behind us, our technology is proven and mature. However, our CGI market opportunity is still in the growth phase.
Over the past ten years, our series production has delivered 11% compounded annual growth rate and we reinforced this in 2022 with 13% growth. With double-digit growth in our past, we continue to forecast double-digit growth in our future. During 2022, 47% of our production was for commercial vehicles, 34% was for super-duty pick-up trucks, 11% was for full-size pick-up trucks; 4% was for mid-size pick-ups, SUVs and cars; and, 4% was for off-road applications.
Globally, more than 95% of all heavy-duty commercial vehicles rely on the diesel engine. With less than half of the global fleet currently using CGI – and an industry consensus that most engines will migrate to CGI to meet future performance, fuel efficiency and CO2 requirements – commercial vehicles comprise our largest growth opportunity, with the potential to provide high volume contribution well beyond 2035.
In our home market in Sweden, Scania started production of a new 13 litre heavy-duty engine during the first quarter of 2022, with both the cylinder block and the cylinder head in SinterCast-CGI. Scania will supply the engine to all of the affiliated companies in the global Traton Group, including MAN, Navistar and the Volkswagen Truck & Bus division. With production at the new purpose-built Scania foundry in Sweden and at the Tupy foundry in Brazil, the engine is expected to provide one million incremental Engine Equivalents when the production reaches mature volume. This ramp will be one of the main drivers of our near-term growth.
In addition to the 13 litre ramp, Scania announced two new developments during 2022 that will provide incremental volume for SinterCast. The announcements include the launch of a new 11 litre version of the engine and the construction of a new wholly-owned manufacturing facility in China that is planned to start production during 2025. With intended production of at least 20,000 commercial vehicles per year, and approval from the local Chinese authorities for up to 50,000 per year, the Chinese facility provides further growth opportunities for SinterCast.
Also in China, 2022 marked the start of series production of a new 16 litre heavy-duty commercial vehicle engine at FAW, with the cylinder block produced in SinterCast-CGI. However, in the face of continued Covid lockdowns, the production did not make a meaningful contribution during 2022. While the 16 litre stalled, FAW announced the development of 11 litre and 13 litre derivatives of the engine, also with SinterCast-CGI cylinder blocks. Considering that FAW is the largest commercial vehicle OEM in the world, with annual production on par with the entire European or American markets, the pending family of 11, 13 and 16 litre engines also provides the opportunity for one million incremental Engine Equivalents.
Beyond the ramp of the current commercial vehicle programmes, we are actively supporting the development of new CGI engine programmes in each of the passenger car, pick-up truck, commercial vehicle, and off-road sectors. The current development programmes have production-intent start dates ranging from 2027 through 2030, providing continuous input to the series production pipeline. From our largest engines in current production, to the smallest ultra-light petrol engine concept that we launched together with Tupy in 2022, we see continued growth opportunities.
Media reports suggest that the automotive industry will be all-electric, tomorrow. But that narrative isn’t entirely relevant to our vehicles. Approximately 85% of our current production is for commercial vehicles, super-duty pick-ups and off-road applications, where there is no foreseeable alternative to the internal combustion engine. Our OEM customers are currently making investments of hundreds of millions of dollars for new engine development and new engine manufacturing facilities. These are long-term investments, carrying their flagship products well beyond 2035.
Electrification will come, and SinterCast won’t be immune. However, the bulk of the current emphasis is on passenger cars and less than 1% of our 2022 production was for cars. But even for cars – where batteries are smaller and driving distances are shorter – electrification won’t be as fast, easy and seamless as many of the pundits suggest. Beyond the challenges related to raw materials, infrastructure and cost, the debate is turning toward realisation. Germany and Italy have both publicly questioned the proposed EU ban on internal combustion engines in 2035 and Toyota is strongly advocating for hybrids (smaller batteries together with engines) instead of fully electric vehicles. Meanwhile, in the US, the Detroit-3 have distanced themselves from electrification for super-duty pick-ups, acknowledging that it doesn’t suit the use case for the vehicles.
The remaining 15% of our current production is for full-size pick-ups and smaller vehicles, with the Ford-F-150 comprising approximately 11%. While Ford and GM have launched battery electric pick-up trucks, Ford has stated that more than 70% of the sales are new to Ford and new to pick-ups while GM has said that more than 50% are new to GM and more than 60% are new to pick-ups. The early-adopters are conquests rather than converts. In the Ford F-150, our 2.7 litre V6 petrol engine is the smallest and most fuel efficient engine option. It is reasonable to expect that our engine will be hybridised and will continue to be produced beyond 2030.
In our final on-road sector, approximately 4% of our production is for mid-size pick-ups, SUVs and cars. We previously forecast that this sector would sundown in the second half of this decade following the introduction of Euro VII emissions legislation. However, the largest programme in the sector, the Ford 3.0 litre V6 diesel engine, received an indefinite extension during 2022. Originally produced in the UK for Jaguar and Land Rover, Ford has invested in two new manufacturing facilities for the joint venture production of the engine for Ford Ranger and Volkswagen Amarok mid-size pick-ups in South Africa, and in Argentina. These new investments extend the life of the SinterCast-CGI engine – and our small vehicle sector – well beyond 2030.
While the industry develops alternative technologies that offer the promise of zero carbon emissions in the future, our technology enables the production of smaller, lighter and more fuel efficient engines that have been making meaningful climate contributions for the past 20 years. We are proud of our contribution and we hope that all of our stakeholders have had the opportunity to review the new sustainability section that we launched on our website in September.
Although we have championed our improved fuel efficiency for more than 20 years, one of the key objectives of our new sustainability section was to quantify our climate contribution. For example, for commercial vehicles, 60 current SinterCast-CGI heavy-duty trucks produce the same greenhouse gas emissions as just one truck produced during the formative years of SinterCast in the late 1980’s. In our super-duty sector, the average driver of a SinterCast-CGI engine saves 1,000 litres of fuel per year compared to the nearest available engine option, saving more than 2.5 tonnes of CO2 per year, per vehicle. And finally, for our Ford F-150 production, our 2.7 litre petrol engine emits 22% less CO2 than the 2012 engine and 27% less than the 2003 engine. And for each of our vehicles, these CO2 savings continue to contribute every year, throughout the life of the vehicle.
With more than 90% of our series production focussed on full-size pick-ups, super-duty pick-ups and heavy-duty commercial vehicles, and more than ten million SinterCast-CGI vehicles on the road, we estimate that our technology contributed to the saving of approximately 8 million tonnes of CO2 in 2021 and approximately 50 million tonnes since the start of our high volume production in 2003. We make large climate contributions to large volumes of large vehicles, today.
In perspective, the Tesla 2021 Environmental Impact Report showed that the cumulative CO2 saving from Tesla’s cars, energy storage systems and solar panels saved 8.4 million tonnes of CO2 in 2021. This clearly shows that there are different ways of making climate contributions and, with the urgency on decarbonisation, all contributions are welcome.
Today, our climate contribution is based on improving the efficiency and fuel economy of conventional engines using conventional fuels. However, we are also supporting the development of new engines for use with low-carbon synthetic fuels and zero carbon fuels such as renewable diesel and hydrogen. During 2022, Tupy announced a collaborative programme with AVL and Westport to develop a heavy-duty hydrogen engine for commercial vehicles. We are proud to support the castings for this ambitious project and I am personally honoured to be appointed by Tupy to sit on the Advisory Board for the project. Ultimately, I believe that the focus of the current debate will evolve from ‘engines’ to ‘energy’, and that the internal combustion engine with clean fuels will be an important part of long-term sustainable mobility.
Our technology is strong and our business is also strong. With revenue of approximately SEK 30 per Engine Equivalent, a normal 2.7 litre V6 petrol engine represents a cost of approximately SEK 30 per vehicle for the OEM. In exchange for the improved performance and efficiency, it is good value for the OEM and, with 3.5 million Engine Equivalents in 2022, good business for SinterCast.
During 2022, we achieved revenue of approximately SEK 3.7 million per employee and profit of approximately SEK 1.0 million per employee. In preparation for the market growth, we invested in the expansion of our team over the past five years, from 21 colleagues in 2017 to 32 colleagues at the end of 2022. This increase includes two new recruits in 2022 for the planned succession of two colleagues who will retire during the first half of 2023, returning the base to 30 employees. We are confident that the current team has the depth and competence to drive and support the market development. While there may be some turnover, and well-deserved retirements, our business is highly scalable and we don’t expect the headcount to grow by more than 10% before the end of the decade. The revenue growth will predominately fall through to the bottom line.
Ultimately, our confidence in the future and our pro-dividend stance led to the Board’s proposal for an ordinary dividend of SEK 5.00 per share, plus an extraordinary dividend of SEK 0.5 per share. Since our first dividend was paid in 2011, we have delivered a continuously increasing ordinary dividend, with the exception of a brief pause during the Covid year of 2020. Considering the current dividend proposal, we will have returned SEK 282.4 million to our shareholders, representing 111% of the operating result for the financial years 2010 through 2022. We value the longstanding support of our shareholders and we remain committed to our strong dividend strategy.
Twenty years ago, in 2003, we started the production of our first high volume engine: the Ford 2.7 litre V6 diesel. Today, with approximately two million produced, the engine has found new applications that will maintain its high volume production well beyond 2030. The efficiency drivers for the development of that first engine twenty years ago are the same as they are for the development of the new engines that we are currently working on. The drivers for us also remain the same: to see our technology on the roads, to contribute to society, and to build a legacy that we can all be proud of.
Dr. Steve Dawson
President & CEO
Originally published in the 2022 Annual Report