Japanese industrial machinery maker IHI is set to invest 6 billion yen ($54.1 million) to boost turbocharger production in anticipation of demand driven by stricter vehicle regulations.
The company plans to increase production and capacity in leading markets like China and North America and will seek to cut costs by exporting basic components from Japan, Thailand and Europe.
IHI expects demand for turbochargers to continue growing until 2020 as fuel-efficiency rules tighten across the world. It hopes reorganizing production at home and abroad will strengthen its revenue base.
A turbocharger increases the engine’s power and efficiency by forcing air into the combustion chamber using a turbine driven by the vehicle’s exhaust gas.
The global market for the devices is almost entirely dominated by four players — IHI and Mitsubishi Heavy Industries of Japan, along with U.S. companies Honeywell International and BorgWarner.
IHI’s products are used by Volkswagen, Ferrari and Suzuki Motor, among others. Isuzu Motors uses them for its commercial vehicles.
IHI will spend over 1 billion yen to add more testing facilities and pre-shipment inspection facilities at Wuxi IHI Turbo, a wholly owned subsidiary based in Jiangsu Province, just north of Shanghai. “China will likely become one of the largest markets in 2020 along with Europe,” said an official who oversees turbochargers at the company.
The investment is designed to meet demand from regular customers in Europe.
For North America, there are plans to increase annual production at its plant in Illinois by 100,000 units from a year earlier to 400,000 units. The company will also invest 2 billion yen in Thailand and 1 billion yen in Europe to enhance manufacturing facilities.
In Japan, IHI plans to boost capacity to develop cutting-edge products, such as the electrical assist turbo — a device with a combined motor — and turbochargers for fuel cell vehicles. Basic components such as turbine shafts and parts used to compress air will be shipped from Japan, Thailand and Europe. North America and China will primarily handle assembly.
Turbochargers and aircraft engines are an important source of revenue for IHI, which has been struggling with its marine and nuclear businesses. The devices are expected to bring in 190 billion yen in sales in the year through March 2018, up just under 10% from the previous year.
In Europe, turbochargers are mainly used in diesel cars. But automakers are increasingly adopting the technology to increase the fuel efficiency of gasoline vehicles. While the company expects only a slight increase in auto production in the next few years, it believes the number of new vehicles equipped with turbochargers will grow by an average of 11% annually until 2020.
IHI Corp., Mitsubishi Heavy Industries, Ltd., Isuzu Motors Ltd., Suzuki Motor Corp.