Ann: Becoming a substantial holder, page-14

Alright first up, let me manage expectations a bit. "carbon fiber guy" is a grandiose way to describe having built one CF wind turbine during my undergrad thesis.

So this reply kept getting longer and longer, so it’s basically now my mini investment thesis Enjoy.

Making CF wheels at scale.

There are 4 big considerations:

First is the dynamic environment of wheels compared to other CF components. Wheels get compressed by tyres pressing inwards, and spun apart by their rotational inertia at speed, the spokes undergo rapidly cycling compression from the weight of the car as the wheels rotate, they undergo fore-aft shear as the car accelerates and brakes, and lateral shear as the car turns. All these complex and widely varying forces must be transferred from the tyres, concentrated into the wheel hubs and transmitted to the axles and suspension. And that doesn't even consider impacts like potholes, debris, kerbs or simply rough terrain etc. Wheels get absolutely brutalized compared to trim pieces, fairings, and aero components, which make upmost non-aerospace CF products.
The CF component which undergoes dynamic environment closest to a wheel would be the CF monocoque chassis in some hypercars like McLarens or Koenigseggs(this is almost certainly why Koenigsegg are one of the few CF wheel makers,leveraging that experience, but more on them later). High-end bicycle frames from brands like Cervelo and Specialised might be similar, but the loads applied are substantially lower, and the structures tend to be a bit simpler.
Even for aerospace structures like wing spars within the Boeing 787 or Airbus A380, they are critical components with complex load paths, but their operational envelope is very tightly defined, and aircraft spend several hours undergoing maintenance, inspection or other sustainment activities for every hour of flying, to make sure that (among other things) it hasn't had one too many hard landings and the carbon parts are about to fail. This is a ratio that's simply untenable for consumer products on private road vehicles.
Secondly, working with CF is vastly different to working with metal.Modern wheel manufacture is, at its core, metallurgy and machining. there is an immense quantity of knowledge on how to manipulate the microscopic crystalline structure of metal to imbue incredible properties, developed over hundreds of years of material science. Practically none of it applies to the world of structural Carbon Fibre. because of the highly directional properties of carbon fibre, and the way that different layerings of the reinforcement (the fibres)within the matrix (resin/polymer) can subtly, or dramatically change the properties, the skill is much more in how you make it, and much less what it’s made of.

Third, it’s a very rare occurrence to see carbon fibre products that are both pretty, and functional. There's a big perception that carbon fibre is both gorgeous and has a high strength/weight ratio. That's true, but very rarely does that occur at the same time. Pretty carbon fibre panels are usually one or two layers of carbon cloth on top of a fiberglass shell/panel and are actually heavier than an equivalent non-CF part. Similarly, functional CF tends to have weird seams in panels or structures, because that's as far as that bit of cloth needed to go and has no sort of finish to speak of, since you’re not trying to show off the CF, either weight minimization is totally essential, or your race car is going to have sponsor logos pained over it anyway. Things like the Pagani Huayra, dripping in outrageously expensive, gorgeous, light weight CF bodywork and structure are the exception, not the rule.
Lastly, scaling CF production is very difficult. Because working with CF involves so much skilled manual labour in general, and even more so for complex structural and safety-critical components like wheels, chassis, or aircraft structure, it’s very hard to automate the various processes. As discussed above, the unique ways of deciding how to make your product, mean that any plant/equipment used to automate a process will be entirely unique compared to another product, or even a competitors product.
In the same way that Elon Musk isn't just designing and building Starship, he's designing and building a high-volume Starship production line. Much of the value in a company that makes complex CF products at scale will be the production engineering IP behind their manufacture, automation and quality control programs.
This is the core of why I think CBR is a solid business. The company set out to make high performance, complex products, with high quality finish, but maintained a major focus on developing the manufacturing processes to enable scalability / automation to drive down costs of manufacture and achieve all three, where most current and potential future competition will likely only achieve one or two.
Speaking of competition...
Kinds of potential competitors.

Exotic car OEMs

These guys are in the auto industry and have demonstrated the skill to make complex CF components that undergo considerable dynamic loading. In identifying the potential competitors I’ve sourced the list of CF monocoque road vehicles from here, and I’ve selected only those companies with a pedigree of at least two vehicles, or new entrants to the field (first car in the past 5 years) this is to try ensure that for these companies CF chassis work is not simply an abandoned experiment from years ago. Here’s the list:

• Bugatti (+BMW)
• Porsche
• Ford
• Ferrari
• Koenigsegg
• McLaren
• Pagani
• Dallara
• Rimac

(note, I haven't confirmed whether the OEM made the chassis in-house or had a 3rd party make it for them. If anything, this would further thin out the herd)
Of these manufacturers, only Koenigsegg make their own CF wheels, BMW, Porsche,Ford and Ferrari use a 3rd party. McLaren, Pagani, Dallara, and Rimac don't (yet) use CF wheels.
Even if McLaren, Pagani, Dallara, and Rimac enter the market, alongside Koenigsegg, they are all vehicle OEMs and wedded to their own products. Koenigsegg isn't going to make wheels for McLaren or Honda any time soon. Furthermore, as extremely low-volume producers of vehicles, and not part of larger conglomerates, they're unlikely to have a significant impact on CBR's potential market share.

Existing Wheel Manufacturers:
e.g. Konig, Enkei, BBS.

Wheel manufacturers are, by and large, metallurgists and machinists. They develop the alloys, and then cast/forge/machine the stock into the finished wheels. All these manufacturing skills go out the window if they start pursuing carbon fibre wheels. They would have a good understanding of the structural,performance, and testing requirements for a wheel, but would have to start from scratch when actually designing and then making a CF product.
Existing CF manufacturers:

e.g. automotive brands like Ilmberger & Seibon. Or potentially the cycling world like Cervello, Cannondale, Trek.

The counterpart to wheel manufacturers who know the needs of the product, but not of the process; these companies may understand the needs of the process, but not the product. As stated above, the environment for wheels is vastly different for existing CF components, and building up the design, modelling,and testing capabilities for wheels is a significant barrier to entry.

Major automotive OEMs
e.g. Toyota, VAG, Hyundai, GM

Large automotive companies, have a wealth of technological expertise, including their wheel manufacturing subsections. Additionally, they have the scale to pull in specialist SME knowledge from the world of either automotive or aerospace CF and put them to work developing CF wheels. Nevertheless, we haven’t seen any major vehicle OEMs bother, furthermore, VAG (via Porsche), Ford, Ferrari, Renault/Nissan,(and maybe GM if the corvette rumours are true) have shown that they’d rather engage specialist 3^rd party to develop their CF wheel solutions.

The closest company to achieving this is BMW who have shown a number of concepts of CF wheels from their i3 / i8 experience, and ties to Bugatti, and now the M4 is being offered with two-piece carbon and aluminium rims, but I think they’re a ways away from offering one-piece carbon wheels.

This maybe a case of a heavy ship being slow to turn, and they may eventually stand up their own capability, but if firms like CBR have it down pat, why bother doing things themselves, just bring them in the same way most OEMs just use Bosch for ABS modules, or Takata for airbags (okay bad example).

Aerospace Firms

e.g.Boeing, Airbus

Similar to Exotic car manufacturers, they’ve got the technical know how to make high performance, complex carbon fibre parts that are safety critical, and they have plenty of money and resources to close the gaps in areas they don’t have the expertise.But again, these companies run on very high cost components, and very low-scale production. There are less than 1000 Boeing 787s, less than 250 A350s, and less than 400 A350s, which represent a significant majority of all CF structure flying passengers.

Pivoting that high cost low volume mindset to enter the consumer CF wheel space is unlikely.

To summarise, there are significant barriers to entry from most other spaces that would at first appear in a good position to enter the market, and seemingly thee best solution, technology wise is to specialise, and build up the knowledge from scratch. Consequently, this confers a significant first-mover advantage.

Current Competition.

Here are the current companies that produce CF wheels for road vehicles:

• Carbon Revolution
• Koenigsegg
• ESE Carbon Wheels
• BST (motorbikes only)
• Rotoblox (motorbikes only)
• Thyssenkrupp Carbon Composites

Koenigsegg, as mentioned, are extending their exotic CF monocoque chassis skillset into extremely low-volume, in-house wheel manufacturing. They are pretty much penned into their own brand, and almost certainly unable to achieve automation, scaling and price point to become a serious competitor in the space CBR is playing in.

ESE Carbon Wheels… yeah, so these guys… they’ve been discussed here before, and currently think that the term “ESE carbon wheels”describes literally just the four wheels on the guy’s yellow Porsche, and that’sit. Lots of odd directional lighting on their other website media makes me think its photoshop, and there’s zero significant mention of any technology or manufacturing background.These guys honestly seem to be to the performance CF wheel market what The Asylum are to Hollywood. Wouldn’t be surprised if it turns out it’s a sham, or just dries up and disappears.

BST & Rotoblox. As a motorbike rider myself, and someone who has very seriously looked these guys for a set of wheels for my bike, I am not worried about them eating CBR’s lunch. Motorbikes use lean angle to translate lateral G’s into “vertical” G’s. As such, motorbike wheels experience much less lateral loading, which simplifies the dynamic problem. Furthermore, the lighter accelerating and braking torque associated with the lighter vehicles reduces the levels of stress the wheels undergo.Finally, these CF wheels are primarily designed for track racing only. This is a much more mature space than for cars, and there are hundreds of threads on the various motorbike make/model forums about damaging CF wheels on roads, and it looks like the structural margins on these products are razor thin. As such their technology is far from ready to translate into car wheels. And again,the scale of the high-performance track motorcycle component market is waaaay smaller than the market CBR is gearing up to serve.

Thyssenkrupp. These guys are the scariest ones to watch. They seem to have started in the motorbike / cycling space, and have begun moving into the car space. They have made car wheels with carbon rims around aluminium spokes/hubs for a while (see here)and since 2017 have made the Porsche 911’s one-piece CF wheels (compare the equipment in this and this video). This makes them the only (credible) firm besides CBR and Koenigsegg to make one-piece CF wheels for cars, and the only one besides CBR not locked into a single marque. So these guys are the real competition for CBR. They’ve got the backing of parent company Thyssenkrupp AG, and could throw resources into the problem, but they seem to be moving far more slowly than CBR, and lack brand recognition, and I think its because of limitations in their plant / equipment.

Coming from the motorcycle / cycling space, I suspect they stared out without a focus on scalability of manufacturing process. Note here, that they describe their equipment as “*the* world’s largest carbon fibre braiding machine”. I am willing to believe that they do indeed only have one of these machines, and it makes sense that they have been highly limited in terms of total output and ability to grow market share. If they want to increase production, they need to build the world’s largest carbon fibre braiding machine again. Here CBR’s focus on scaling up their manufacturing gives an appreciable advantage. And just as far as the “warm and fuzzy feelings” go,seeing snippets of the CBR manufacturing process, their equipment isn’t nearly as grandiose and complex looking as Thyssenkrupp’s gear looks.

While we’re on the subject of market share…

The OEM Market.

Here are the world’s 20 largest automotive manufacturers, per 2017 results (source)and any relationships established with a CF wheel manufacturer:

·Toyota

·VAG (Thyssenkrupp, via Porsche)

·Hyundai

·GM (CBR, rumoured via Corvette)

·Ford (CBR)

·Nissan(CBR, via Renault via Nissan/Renault/Mitsubishi Alliance)

·Honda

·FCA (CBR,via Ferrari – Ferrari & FCA owned by Exor N.V.)

·Renault (CBR)

·Peugeot S.A.

·Suzuki

·SAIC

·Daimler AG

·BMW (in house, but two-piece)

·Geely

·Changan

·Mazda

·DongFeng

·BAIC

·Mitsubishi (CBR, via Renault via Nissan/Renault/Mitsubishi Alliance)

CBR currently has relationships (noting that some of them are more tenuous than others, but nevertheless they’re all examples of a foot in the door) with 5 of the 10 largest manufacturers, 6 of the largest 20, and of the other two firms with relationships in the top 20, Thyssenkrupp is engaged with only one brand(albeit a large conglomerate with VW, Audi, & Lamborghini in tow), and the other has yet to offer one-piece CF wheels.

I expect that CF wheels will follow the trend with most automotive technologies, in that the new stuff will trickle down from the performance/luxury market, to the mainstream and economy markets. A largely similar scenario to the growth of allow wheels replacing the majority of steelies starting at the top, and now after decades, being just about everywhere. With the exception being that the IP on manufacturing processes will allow the expertise to be concentrated into a much smaller number of companies)

As such the current most important brands for CF wheel technology are those known worldwide for their high-performance / luxury aspirations, but who also have considerable“upper-middle tier” production.

From this I think CBR is well and truly the best positioned business to take up market share, beginning in the high-performance space, and then as the technology becomes more ubiquitous, expanding through the OEM’s range, from the Shelby GT500, down to the Ford Focus, and from the Corvette to the Cruze.

Looking forward, it’s my belief that the next most important brands to establish an OEM relationship with are Toyota (targeting the Supra and Lexus), Daimler AG(Mercedes AMG) and potentially convincing BMW (M) to let a specialist handle their CF wheels. If CBR were to lock out these brands, and cement their existing OEM relationships, it would almost be a lay down misere for the next decade of market dominance and growth of market share.

Far Future

I’m getting sick of typing, so I’ll keep this brief. All the stuff about CF wheels being hard, means that if CBR get a good hang of this, and it seems they do given their industrialisation efforts, and the continually decreasing cost per wheel,its likely that they’ll easily be able to expand to other CF tech as well. Fairings,trim, motorsport structural elements like chassis or driveshafts, would be a cake walk having already overcome one of the most challenging types of CF product.

Similarly,they’re currently looking at aerospace applications like CF wheels for the CH-47 Chinook. I think they’re in with a good chance of succeeding with that project as the testing regimes for defence aerospace are likely to be as complex and technically demanding as their regime for performance car wheels, with maybe only extreme temperature variations being a new consideration.

Damn this got long.

TL,DR;
This stuff is hard. There is value in the process as much as the product. First in best dressed. CBR are doing very well at all of these things.

Keep an eye out for more big OEM partnership announcements, and continuing decreases in cost per wheel. Next decade looks good.