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[longshanks] 26/7/2017 10:20

My understanding is as follows: the larger OEM groups build their own brake systems using their own chosen components: rotors, pads calipers etc. All component suppliers therefore become tier 1 as they are all independent.Other OEMs buy in a complete brake system from a single tier 1 supplier who then source components from tier 2 suppliers.---I think there have been some good questions raised on the nature of dual-sourcing and how it works in practice when the products from the two sources differ significantly. I am going to find out more details and get back to the board as I can't say I understand these subtleties myself.

[toffeeman] 26/7/2017 09:22

Apologies Longshanks - please can you explain how SCE can be tier 1 if they only make discs?

[longshanks] 25/7/2017 17:25

ST will be a tier 1 supplier to the larger OEMs. They made this clear on the open day. Where the OEM doesn't have the infrastructure, then ST would work as a tier 2 supplier through a brake system supplier.

[supernumerary] 25/7/2017 16:15

reg - how would you know? One gets cracked so you buy a manufacturer's replacement - do they have different part numbers linked to the VIN? Will buyers be able to specify which they get at the time of purchase of the car?

[rhomboid] 25/7/2017 15:40

Are folk saying these ST discs will share a part number with the Brembo disc yet have demonstrably different performance & construction methods? That seems illogical Captain🤔

[regandharry5] 25/7/2017 14:52

Can't think why one would want to put two different discs on the same axle, we are not talking Mondeo cars here.

[toffeeman] 25/7/2017 13:43

Nope problem is that Brembo are a tier 1 supplier (I think) and SCE are tier 2

[supernumerary] 25/7/2017 13:01

So you'd be allowed to mix two different disc types on the same axle? In a 600bhp motor? Mmmm...

[longshanks] 25/7/2017 12:27

For OEMs the rotors would be supplied, unbranded, by the tier 1 supplier.You the punter would see them as Porsche, Audi, Bentley etc brakes and wouldn't know if they were supplied by Brembo or ST.That is OEM supply, and why the testing is so exhaustive: it is the OEMs reputation at stake, not just STs.Naturally if the rotors come from ST, they will be stronger and operate at a lower temperature. But on a case by case basis it will not be easily discernible unless you know what you are looking for.

[supernumerary] 25/7/2017 11:56

Toffeeman - thanks for that, but I don't think it really helps me much ;¬(

longshanks - ditto. Are they the same, or not? If they're the same, where is SCE's ip used? If they're not, how does the punter know which he's got? I'd just like to understand how it's supposed to work in practice...

[longshanks] 25/7/2017 11:45

The need for dual-sourcing is actually all about security of supply and nothing to do with competitive advantage.A prerequisite for tier 1 automotive suppliers to satisfy VDA 6.3 is that all elements of their own supply chain is dual sourced.That process makes the supply chain robust and capable of supporting just-in-time production.Large OEMs looking to expand the usage of carbon-ceramic brakes to more main stream models need this security.Remember we are looking at a £100m market expanding to £2bn within 10 years.Brembo will need to raise their game to fully compete with ST because they will not be able to match size/performance criteria on some vehicles but for the vast majority of brands and models the rotor size from either supplier will be the same.Exciting times ahead.

[longshanks] 25/7/2017 11:34

Great news: and David at the meeting suggested they would look to fill all OO requests should they be oversubscribed.

[rivaldo] 25/7/2017 11:28

RNS out - great to see the Open Offer heavily oversubscribed, with 157% take-up....



SCE are "exploring alternative avenues to satisfy this additional demand". Hopefully they won't succeed and this unsatisfied demand will have to find shares in the open market!

[toffeeman] 25/7/2017 10:54

That's a good point SN and sorry for the following SoC no time to edit.

I actually believe this has been misinterpreted by many including Hardman.

IMO the real point is that manufacturers hate having just one supplier because it can dictate price and so the main reason why manufacturers want two or more suppliers is to increase their bargaining power.

From what I can see of the production process if all Porsche cars had BremboSGL and there was a problem SCE would take a long time to be able to substitute supply it's not instant. So there will not be dual supply - at best you would have SCE as an option at ordering the car.

I don't believe manufacturer will specify BSGL for one model and SCE for another.

The main investment case for SCE is that their technology produces superior brakes than Brembo SGL(at least that's what we believe) and so manufacturers will prefer SCE but will use Brembo's presence to hold down SCE prices (because Brembo SGL are better than existing standard brakes).

Brembo SGL know this (of course) and will be going hammer and tongs at matching the SCE product without infringing patents - they will have SCE products and re-engineered them to check on the feasibility of matching.

Now the problem is that two of the major shareholders of Brembo SGL are BMW and VW who would obviously wish their brands to specify BSGL rather than SCE and this presents a problem if SCE are better and cheaper.

Why would BMW or Rolls or Audi, Porsche or Bentley specify a component manufactured by a competitor - unless they had to?

So the four possible scenarios that I can see are:

1. SCE competes with BSGL for the non BMW/VW brands (basically A-M, Jag, Merc, Lexus plus the tiddlers like Maserati, Ferrari, Lambo et al).

2. BSGL sell their carbon ceramic brake operation to a big tier 1 supplier freeing up VW/BMW to source from where they wish.

3. BSGL can't match SCE performance so buy the company. Problem: anti-trust issues about supplying competitors

4. SCE can't get the required volumes to turn a decent profit and mosey on and then decline.

Take your pick - and pick apart please!

[supernumerary] 25/7/2017 10:17

Sorry, I don't really understand this dual-sourcing business. For that to work, components have to be either identical, or at the very least functionally indistinguishable from the two manufacturers. If that's the case, what's SCE's advantage in this situation?

[timbo003] 25/7/2017 07:58

Thank you Longshanks for that excellent account

I am so glad I made the trip, I never realized there were so many steps to the process and how much know-how is embedded in to each of the steps. It would surely take many £millions and many years for anyone to replicate.

On a related topic, there is a new interview on Director's talk with Hardman's analyst Mike Foster, who talks about the new factory and current prospects for the company.

[albert_einstein] 24/7/2017 17:26

Thanks Longshanks.

Superb analysis.

[graham1ty] 24/7/2017 07:56

Longshanks, hope all well with you, family etc.

Many many thanks for the detailed write up. If only everyone ( inc myself) reported properly on meetings, then PIs would find investing so much better informed.

So, many many thanks again

[longshanks] 21/7/2017 11:14

Feel free riv

[rivaldo] 21/7/2017 10:30

That's a superb summary longshanks, many thanks. Would you mind if I copied it onto another bulletin board?

[distill] 20/7/2017 23:55

quemaster
thanks about the RB/AM Adrian Newey tie-up, had not seen it, onwards and upwards

[goldman] 20/7/2017 15:14

Longshanks,
Thanks for putting such a good and detailed report together. I can vouch for it being factually accurate and that it gives a reliable and detailed description of all that we saw and heard.

The management team and staff are almost bubbling with enthusiasm and quite rightly so, they have worked hard to achieve the very happy position they're now in, i.e. OEM,s really solidly behind them and pushing hard to see Surface Transforms become a supplier of the very best Corbon ceramic brake disks available to them as a dual supplier.

As you have stated, with the forthcoming VDA 6.3 validation and the prospect of the OEM 3 contract following close on its heels the future does indeed look particularly bright.

[quemaster] 20/7/2017 12:42

Thank you Longshanks.
Regarding F1 Adrian Newey seems to be a fan of our brakes after choosing them for the Red bull Aston Martin collaboration.