Amy Davis, president, new power segment, cummins, inc.
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Welcome. Welcome. Welcome everyone to this episode of Tech.Cars.Machines. This is another episode recorded in the era of that unwelcome entity SARS-CoV-2. That's why, as you might notice from the audio that unlike almost every other episode, this one was recorded remotely rather than in person. This is a very special episode because we get to talk with an industry expert regarding the two biggest challenges by far in the world of transportation. And those are air pollution and climate change, both which results from the emissions from engines, different parts of the world, worry about these two things in different orders, but really vehicles and especially commercial vehicles have become so prevalent globally, that everyone cares about one or the other. And sometimes both commercial vehicles are things like Amazon delivery trucks, your Comcast repair truck buses, garbage trucks. And when you really talk about the big stuff, it's 18 Wheeler semis, which are all big contributors to these emissions.
Of course, there are vehicles that are, as they say, off-road, which are construction equipment, agricultural equipment, uh, mining equipment, which generally are enclosed in the same category of commercial transportation on highway and off highway. The whole transportation supply chain is really keenly focused on how humanity — and it's not too grandiose to say it this way — on how humanity can hold on to the spectacular benefits of mechanized, fossil fuel driven transportation while solving for climate change pollution, commercial transportation world, uh, by the way, is very different from passenger cars and your Teslas and all the fancy things we've talked about before in the commercial world, there are much higher demands on reliability, serviceability, cost, efficiency, range, resell value, application specificity, and localization on a global level. as you can imagine, no matter how great the intentions of a freight company, for example, in the end, adopting, solutions and powertrains that mitigate pollution and climate change really need to make dollars and cents.
Lastly, here's a fun fact for you for today. A heavy duty long called truck, a class eight truck as they're called in the North American market can have a range of 2000 miles when fueled up. And that's when carrying 40,000 pounds of payload with two drivers, each of which can drive 11 hours a day and they have a little kitchen and a little small apartment behind their cabin. And so they really can drive quite aggressively for multiple days in a row that shows you how good really the vehicles today are, that are driven by fossil fuels and how demanding the performance is of any new solution that wants to change the way currently things are. And we have a great guest to tell you how some of these replacement offerings are being developed and what the prospects for them are in the world of commercial transportation, uh, powertrains public company, Cummins Inc is one of the, really the biggest and most revered names globally.
They have about 40 billion of market cap and 20 billion of revenues in the U S they typically have leading market shares from medium duty engines, all the way to heavy duty engine suitable for the type of law called driving that I referred to earlier. And they have a very large global presence is where everywhere, both directly and with partnerships, for example, in India and China. Cummins also has products for trains, power generation and Marine applications. And to get ahead of these trends, emerging trends and powertrains, for example, the introduction of commercial electric vehicles and commercial vehicles that use hydrogen as a source of on vehicle electricity, generat generation Cummins has formed the new power segment. And we're lucky to have the head of that unit, Amy Davis, with us here today. She does a great job of providing history and background. So I won't do too much more of an introduction. And without further ado, let's get to it.
Ali Tabibian:
Welcome everyone. Our guest today is Amy Davis, Vice President and also President of the New Power business at Cummins Inc. What we are going to have today is a really nice wide ranging discussion about how the world of transportation is trying to both accelerate and accommodate the needs for more sustainable fuels and sources of energy to really contribute to what we all know is a needed requirement in the needed reduction in greenhouse gases. As you know every industry has to do it's little bit.
Ali Tabibian:
Let me turn it over to Amy Davis and say welcoming, Amy. Thank you so much for joining us.
Amy Davis:
Thanks for having me. It's really great to be here and a part of this discussion.
Ali Tabibian:
Great. Thank you for joining. Where are you today?
Amy Davis:
I'm actually in Boston in my house here in Boston. A nice sunny day for April in Boston, about 50 degrees. So nice to be at home.
Ali Tabibian:
That is good to hear. Amy, clearly you're an executive at Cummins, and as far as I know, Cummins is not in Boston. Tell us where it is and where you normally are when the offices are open.
Amy Davis:
Yeah, sure. Cummins has headquarters in Columbus, Indiana, as well as a lot of offices in Indianapolis, Indiana. In my last job, I was actually working in Nashville, Tennessee. And so I actually took this new job in the middle of the pandemic, or I should say the beginning of the pandemic. Packed my things up from Nashville, was getting ready to move to Indianapolis and decided just to put things in storage and camp out at my house here in Boston, which is where my kids are until we figure out when we'd be back into the office. Eventually I'll take home in Indianapolis.
Ali Tabibian:
Okay, great. You've covered everything. I know Amy, your previous position was running a billion dollar division, a filtration unit. What you're now doing is more an emerging business within the Cummins portfolio. One of those businesses that is a small portion of the Cummins revenues today, but you can kind of get the sense that all eyes are on this division has really being the pillar of the company as people are out of necessity or out of regulatory force a major transition to low carbon sources of propulsion. Let me ask you this, maybe just give us a little background on Cummins. I described for our listeners a little bit upfront, so the public profile of the company, some financial stats, but really what does Cummins do?
Amy Davis:
Yeah. Our mission statement is to power a more prosperous world. A lot of people might think of Cummins as a diesel engine manufacturer. That's our heritage. We started as a diesel manufacturer over 100 years ago. But in the '80s and '90s really transformed ourselves into a power producer, if you will, and have always thought of ourselves in the forefront of technology. Today, Cummins is a combination of engine business, power generation business, components and key technical components in power generation, as well as global distribution, and now our New Power segment, which is looking at the alternative energies. It's a Fortune five ... Sorry, a Fortune 150 company with over 20 billion in revenue and really quite global in scale. Again, in the early days we started as a US heavy truck engine maker. Today, we're in all kinds of applications from mining, power generation, like I said, as well as agriculture. Really quite a diverse set of applications that we serve as well.
Ali Tabibian:
Outstanding. It sounds like you could probably divide your business on the transportation side into two main components, sort of on-highway and off-highway. Is that correct?
Amy Davis:
Yeah, that's pretty much exactly how we define ourselves.
Ali Tabibian:
Okay, great. One of the interesting things that I know about the world of commercial engines, if you will, and commercial transportation, is that it might be easy to make a world car. You can sell pretty much the same vehicle all around the world as long as it kind of runs gas and you change the engine displacement a little bit and slap on a few features. But correct me if I'm wrong, for the types of end markets that Cummins sells into, they are very specific and demanding in terms of how the offering has to be highly tailored to their particular application. Is that correct?
Amy Davis:
Yeah, I think that's one of the most interesting things about being a leading global independent engine manufacturer. A lot of our customers might make their own engines or power sources, but most of them can't do it all because in commercial applications there's such diversity. Even if you just take a fleet, just one fleet, which is all you think trucks, that fleet usually has a combination of short haul trucks that are just doing pickup and delivery, as well as things that might go across the country. The needs of that powertrain and system vary a lot. Then once you introduce something, like if you think about a mining application where you have these really large trucks, but they're going just back and forth hauling heavy amounts of goods, that's completely different. Then an ag tractor that might just be going up and down carrying various light loads. The diversity in applications is what complexity Cummins deals with and the value really we bring to our OEM customers and end customers.
Ali Tabibian:
Exactly. One of the interesting things too for your end markets is that they're exceptionally sensitive to the availability, to reliability and to serviceability of their products.
Ali Tabibian:
What are some of the examples you could give our listeners to how sensitive people are? What kind of uptimes do they expect and what kind of turnaround times do they expect when something goes wrong?
Amy Davis:
Absolutely. It's important to remember in our commercial applications, in general, they're using the equipment to do work and make a return. That can largely mean hauling goods and delivering goods to end users. But it can also mean in terms of power generation, our generators are actually doing prime power work. So that means small towns, cities, communities, their electricity. It can mean on a mine, like I said, delivering diamonds and that output. The actual profitability of our customers is tied directly to the equipment we sell them. That's quite different than a passenger car or even a boat. I'm a boater and I'm very frustrated when my boat doesn't start on the 4th of July. But I open a cocktail and I get on with the weekend. Our customers don't have that luxury. Their profits are tied to it, and so they're very impatient. We have a term that we talk about in our industry, total cost of ownership. The cost of ownership for our customers is how efficiently the equipment can do the work, but also how often the equipment is available to do the work.
Amy Davis:
When that appointment is not available, it directly impacts their total cost of operation and they measure it very tightly. In some industries like mining or oil and gas, when millions of dollars are on the line per minute of output actually, if you really think about it, they can be incredibly sensitive. Our investment can be as much as having full equipment on hand standby to be able to quickly replace because they're willing to have a million dollars worth of equipment sitting there just in case because of the value at stake is so high.
Ali Tabibian:
Wow. That's amazing. I know one of the things as we move on to discussing some of the usability and feature objectives that the New Power Group has, one of the things that always wowed me, and maybe you can share with our listeners is for example, in the long-haul applications in a North American market, what is a long-haul truck? When it fuels up, how long does it go and how much of a load does it carry?
Amy Davis:
Yeah. I mean, most trucks in North America gross 80,000 pounds and they'll be taking long-haul trips across country. A truck might not come back to base for a month if you will and the headquarters will not see the equipment for that amount of time. If you think about really the digitization of our products now, the headquarters has to be able to track, understand how that equipment is operating as it's out there and be with the trust of the driver in that case. Really the whole combination, again, of the efficiency, as well as the reliability and the ability to diagnose equipment when it's out on the road are all key factors, for example, for a heavy-duty truck.
Ali Tabibian:
Yeah, exactly. My neighbor in San Francisco shipped a vehicle, a classic car he has to actually Cape Cod where he was born and still has a house. We were both shocked because a husband and wife team loaded his car and seven other vehicles right outside of San Francisco. I swear, I mean, I don't think it was more than three and a half days before they dropped off ... He was the first pickup and the last drop-off. I swear it was maybe three and a half days between when they dropped everything off in Cape Cod. It was a husband and wife team with four dogs in this vehicle. They said it was a new truck that they had acquired and I think they said it had a 2000 mile range per fill up. I mean, it was mind boggling what industry out there does, and really quite honestly, what advantage of fossil fuels have offered humanity for the immediate local availability of an enormous amount of energy. It's been a magnificent development.
Ali Tabibian:
Now, we're seeing what the downside is, but really it's really magnificent what fossil fuels are able to do in terms of producing power efficiently and locally. But clearly your role at New Power is basically what's next beyond fossil fuels. Tell us a little bit about the New Power Group and its mandate.
Amy Davis:
Sure. It's important to recognize that Cummins has very core to its values that everything we do mostly to a cleaner environment. That has been core to how we've approached our business since the Clean Air Act, frankly in 1970. It's been important for us at Cummins and in all of our leadership philosophies to be pushing and leading when it comes to emissions, and now, of course, zero carbon. The company recognized really over the past 20 years that there's an evolution coming. We've been looking at things like fuel cells and leading in natural gas engines over this transitionary period. But really in the last, let's say five to 10 years, the company realized an imperative to shift that the economy is going to accelerate towards a zero emissions future and want somebody to be leading the technologies to do that. So our corporate strategy group started really looking at companies that were investing here.
Amy Davis:
We were accelerating some of our own organic work and started building out, starting in about 2015, a portfolio of companies that have technology capability and are looking ahead to what's going to be the right combination to meet the needs of the applications that we currently serve with a zero footprint for the future.
Ali Tabibian:
That's pretty interesting, Amy, because both in terms of the mentality and the earliness in which Cummins attack this, it's very different from a lot of other organizations. I think you'll find that, maybe it's a trope, but at least the perception amongst a lot of people is that governments say you need to have less pollution, less CO2, and then industry runs around and says, if you make us do that, the civilization will collapse and the earth will be flat again. But I guess what you're saying is that Cummins has really never been that way. It's back when it was purely emissions reduction, it was a leader, and it's basically looking ahead of where even the regulations are forcing you to go. Is that accurate?
Amy Davis:
Absolutely, and I'll tell you a story. I took a job in 2002 leading our communications organization because we had a point at that time in our industry in the US where EPA was pushing regulations beyond where a lot of the manufacturers thought technically they could get to or wanted to get to. I remember that job really well because our company was unique. We were pushing, go ahead, set the regulations, we'll figure it out. It's good for the industry. It's good for us. Many of our OEM partners were not happy with us at the time. Part of my job as communication leader was to try to align the industry a little bit and try to help facilitate us aligning towards a vision of this. But in 2002, that was true because that's when we really added after-treatment. Then again, in 2010 in the US, we had to introduce SCR. These were big R&D investments for our industry and the companies, all of us had to decide how to invest and where to make them.
Amy Davis:
At Cummins, we always push for it. We're doing it now too, trying to set and align the industry towards setting zero carbon goals.
Ali Tabibian:
Interesting. Really the New Power Group is not about less emissions or less CO2, it's about no emissions and no CO2. Is that really the demarcation line between New Power and almost everything else that Cummins does?
Amy Davis:
Exactly. Yeah. We thought it was important to have a division that's sole focused like our competitors. A lot of our competitors are startups and other folks who have that very single-minded focus that it is zero carbon, zero emissions that the environment needs and that our customers need. So we wake up every day focused only on that. That way we're not in any way blurred about what our goals are.
Ali Tabibian:
Excellent. Our listeners will have noted a couple terms that Amy used the after-treatment and SCR. One of the ways that the industry has kept up with demands of regulation is not only making the engine produce power more efficiently, but also treating the exhaust that comes out of the engine with after-treatment. If you look at the history of commercial powertrains, the number of gadgets, if you will, in the after-treatment framework keeps growing and growing and growing because the base engine itself is improving, but limited in how much it can improve. So you kind of take care of it after the fact and before it goes out the exhaust pipe. Now, New Power is clearly focused on some things that are very different. When you think of ... Are your focuses primarily battery electric vehicles and fuel cell electric vehicles?
Amy Davis:
In New Power, we're looking at all aspects of what the alternative energy solutions will be. As I mentioned earlier, just a huge variety of applications that exist out there, we feel are going to demand a complimentary group of technologies. We started with batteries in 2015 with a few acquisitions, and also started working on drive train components. Because in the mobility space, in the future at its heart, everything will have an electric drive train. That can take several forms, we think. In the transition, it could be a diesel or a natural gas engine powering some form of a hybrid electric drive train. Then now we're seeing batteries start to directly power the electric drive train. In applications like heavy-duty truck or perhaps mining, where the loads are so heavy and weight is so important and range is so important, we worry batteries just won't get it done. That's why we invested in fuel cell technology and hydrogen enabling technologies through an acquisition of Hydrogenics in 2019. We complimented that last year with a joint venture that would also do high pressure tanks.
Amy Davis:
We're trying to look at the whole solution because as we look at electric drive trains and fuel cell electric drive trains, there's a lot of complexity besides just the fuel cell stack. We're trying to look at all the technologies that will enable it, and frankly, there are many. Then the last thing I'll just comment on because hydrogen is so complicated in terms of infrastructure development, we think it's important to play a role in that ecosystem build out. So we have an electrolysis business, which is the technology that converts water to hydrogen using clean energy. We have that technology capability and that's actually opening up new markets for Cummins to actually help facilitate hydrogen production, hydrogen availability, and infrastructure build out.
Ali Tabibian:
That's pretty interesting. I guess when you go to a particular, let's say customer, you can say at the depot, "If you have clean electricity, we can have a role of generating the hydrogen at the depot." Is that what the idea, or is it a more larger scale production that your electrolysis machines are focused on?
Amy Davis:
It's both, actually. We really feel, and a lot of the reading, I think you see out there is the hydrogen infrastructure will look pretty different from, let's say the diesel infrastructure today. It will be a combination of perhaps some pipeline, some mass distribution like we see today. But there'll also be the opportunity to pair with a clean energy source, electrolysis capability at small scale and put fueling stations and things right on site with let's say a municipality or a utility. But also have a large scale hydrogen production facility that gets distributed. We're seeing all different kinds of scale of projects. I think when the infrastructure actually builds out, it's going to be more of a combination of different kinds of projects that make it happen for us.
Ali Tabibian:
That's quite interesting. I mean, if I were to draw the analogy to the diesel market, Cummins doesn't have a role in producing diesel. But to some extent, you're going to have a role in producing the fuel that goes into at least one of your New Power trains, the fuel cell electric vehicles. How difficult is it for you as the evangelist of the New Power Group to convince the Cummins organization that a more vertically integrated stack is required?
Amy Davis:
Our organization is really excited about it actually. I mean, I think the number of emails I get a day from people within our organization saying, "How can I come over into New Power and be a part of this transformation?" It's really amazing. I think there's a real openness to thinking differently and new markets that this is going to open us up to.
Ali Tabibian:
Interesting. I'm sure that a couple of our viewers at least noted when you indicated that you had a communications role at Cummins. Maybe I should have mentioned earlier that you don't come from an engineering background or metal bending background or metal pounding background. Tell us a little bit about what your background is and how you sort of came to Cummins and what your route was at Cummins?
Amy Davis:
Yeah. I definitely took a very unusual path to where I am today, leading New Power. I was an English major in college, and so I probably envisioned myself more as a writer or a journalist or something like that. I took a role in industry, actually with a company at AT&T and got exposed to technical products quite early in my career. The ability to sort of understand and translate the technical kind of came naturally to me. I landed at Cummins and I probably should lie about this, but I'll tell the truth. I landed there because my husband took a job there and I was a trailing spouse. I tried to stay working at AT&T and we tried to juggle two careers that way. We just realized that they were in different cities, it just wasn't going to work. I remember interviewing in 1994 or so with Cummins, a woman non-engineer, and their first reaction, I hate to say, it was, "Maybe you could work in HR." It was kind of a well-thought thing that most of our roles at that time at Cummins were engineering dominated roles.
Amy Davis:
I did take a role in finance actually, and I transitioned within a year into some customer roles, closer into technology, and I've never looked back. Cummins really is a company based on value and diversity and opened up to the fact that, Hey, I can contribute. And even gave me a job in 2008 to run an engine program, which was kind of unheard of to have a non-engineer run a development program. But it was fascinating and a perfect marriage actually, because our engine programs had a lot of designers who know what they're doing. Having somebody who sees the bigger picture, the commercial tie in, is pushing and diving into the details of the engineering at the right moments, worked well. It really opened up my career at that point to some of the more technical roles.
Ali Tabibian:
that's great. Then I think your stop before New Power was the filtration unit. How does that fit into the architecture of an engine, the filtration products?
Amy Davis:
Yeah. There's multiple filters on an engine. You're filtering air, you're filtering the oil, you're filtering the fuel. We're even sort of now trying to filter some of the emissions in a lot of ways. It's a nice blend of very technical components that are getting more and more technical as the emissions have more aggressive, but also aftermarket. So one of the things about filters is you have to replace them and probably all your listeners know that because they go and get their oil changed and you have to change those out. It creates a nice recurring revenue stream for the company and a very interesting different business dynamic of working with end customers and dealers and optimizing how they can do their maintenance and other things. A very different lens. Probably one of our most mature businesses within Cummins is the filtration business. Taking the step into the New Power was most certainly an exciting kind of change from a very operational mature to what's new and strategic and exciting.
Ali Tabibian:
Right. Really New Power is at this point a significant source of investment for Cummins. I think your mandate is more than see what you can sell for a profit today and it's much more about, see what portfolio you can deliver to us a few years down the line. Is that an accurate statement?
Amy Davis:
Absolutely. We started investing and have invested over 500 million in this business as a company to this point. Really in building out through acquisitions, through internal investment, R&D a portfolio of technologies. We're going to have to continue to do that. We're one of the only ones that is participating in all the spaces. It's something ... I'm sure you've interviewed some folks who are very focused on fuel cells or very focused on battery development. We're a company committed to providing the portfolio of product replacements for our customers at the end of the day. The investment is a key part of it. Making sure that we have the product when the market adopts is really another key challenge, because they're all going at different adoption curves. Making sure the technology is evolving at the right moment is probably one of the bigger challenges.
Ali Tabibian:
Interesting. I noticed in some of the collateral I viewed before our call that for example, one of the first deployments you have of a hydrogen powertrain is actually in a train. Is that accurate?
Amy Davis:
Absolutely. You don't think about trains and the mandate to electrify trains, but passenger trains in Europe is really a perfect application for fuel cell electric drive train adoption. Think about how much it would cost to electrify a traditionally diesel train line. You have to build out all the electric cabling and everything to make that possible. Where fuel cells for many applications the cost just isn't where it needs to be on the adoption curve yet. When you compare that to building electric cables and the full cost of that whole line, it gets a lot more comparable. A train is point to point, so you have very clear range that you have to hit and you have fueling that you needed to make available at each point. It's actually an application that overcomes some of the obstacles that we're going to see in other ... We talked a lot about heavy-duty truck, which doesn't have those same kind of simple, straightforward infrastructure opportunities.
Ali Tabibian:
Right. It's much harder for a truck to know where that infrastructure should be, how much of it should be available, et cetera. Whereas a train, the whole point of it is that it runs on a track from very distinct points with a schedule. how would you compare the different geographies in the world in terms of what they're looking at for sustainability, electric versus fuel cell versus something else?
Amy Davis:
I think of hydrogen in Europe being ahead in the vision for infrastructure. Over the past year, the European Union and several European countries have made clear commitments to make hydrogen infrastructure available. Therefore, it's a commitment that ultimately hydrogen fuel cells is going to play a key part in mobility. In terms of the actual early adopter of putting them into applications, I would say what I see is pretty consistent everywhere. That we're seeing pilots ... Trains is a notable exception that we just talked about. But whether it's a commercial truck, a bus, a medium truck, even passenger cars, in the fuel cell space, we're still seeing very small piloting of the applications. But where Europe is really leading is in the infrastructure build out. I see that because they're committing to that, that's going to pull through the applications probably earlier than other places that aren't doing that. The other place that I see really is China. China has publicly said that they see fuel cells as the technical solution for their heavy-duty trucking industry, which is now bigger than the US heavy-duty truck market.
Amy Davis:
With that commitment, and they're also making the infrastructure commitment, they could move very fast in this space, I think.
Ali Tabibian:
It's really quite interesting. Then what are the sources of hydrogen for those communities? Is it local production or ... I know some of the typical oil companies are quite interested in becoming global providers of hydrogen. Is there a sense you have of where the hydrogen will come from absent to somebody using your electrolyzer?
Amy Davis:
Yeah. I think I mentioned earlier, there's going to be many different paths that hydrogen is going to come from. There's a lot of speculation in the industry now of which one is going to be the most mainstream. There's even a lot of discussion around transport via liquid hydrogen, or ammonia, and then transferring it back into the hydrogen state versus the gaseous form and more localized production is going to win, and it's really unclear. We're hearing some announcement of like, for example, big project Air Products is doing in the Middle East where they plan to do a mass production of hydrogen transferred into pneumonia and ship it all around the world in the form of ammonia. I think that project will go, it's a committed project and we'll see that being one form of transport. But I think you're going to see other things popping up. As we're participating in the electrolysis market, we're seeing all kinds of projects. Projects driven by oil and gas companies wanting to figure out how to distribute.
Amy Davis:
Projects by, for example, the industrial companies who are wanting to transform their production methods away from carbon and into something like hydrogen based production, like in the steel industry. It's a wide array of localized electrolysis and mass production. I think we'll see some combination of both as the projects actually come to life.
Ali Tabibian:
It sounds like also then New Power isn't necessarily just powering typical transportation and markets and power systems markets that Cummins would be sort of servicing. You could be servicing essentially hydrogen production for the sake of hydrogen production with your ... Well, that's really quite interesting. How do you how do you think about that potential new market in terms of your ability to access it with existing Cummins distribution and sales infrastructure? Is that going to be a really kind of an exciting new buildup with new channels, or is it pretty synergistic?
Amy Davis:
I think it's a really great example where we have this core distribution capability that we'll be able to translate into the needs of supporting electrolyzers as they get put all over and very odd, who knows where, places around the world. Our distribution system is a combination of supporting mobility kinds of equipment, but also power generation equipment. Remember, we do generators both for utility and prime but standby. So our distribution has some capabilities of doing project support and maintenance contracts and things on site. These kinds of skills will translate very well once we get electrolyzers out there in producing hydrogen. They need maintenance, they need all those things, and it's playing into some of our projects. People want to know when they put this new technology out there that there's some technician who will come out and support it.
Ali Tabibian:
It's impressive how many different angles you have to handle to be able to successfully deliver the typical Cummins offerings as well as certainly New Power. It seems like the world used to be a lot simpler really. You sort of had your internal combustion engine and you filled it with sometimes diesel, sometimes gas and you were off to the races. All the infrastructure was there and all the business processes and workflows had decades to adapt to that. It's kind of fun suddenly to have all this fragmentation, but what are the parts that are not so fun really from the customer and regulator, and as you mentioned, infrastructure of business? I mean, how do you think about infrastructure, cost of ownership, regulatory environment?
Amy Davis:
Yeah. I think what's really a challenge for our industry at multiple levels at the end user, at the component manufacturer and the OEM level, and then we have startups, because you said it really well and fleet maybe have different applications, different duty cycles. But at the end of the day, it was a diesel technology, which is scaled differently, but it still has these things that go up and down and the same kind of things and it's fueled by diesel. Which you can get at our depot, but also at the corner or on the highway. Now, if you were going to say, "Okay, take that and replace it all with just hydrogen." That would be hard, but still okay, it's taking one technology and replacing it with another. I think that's going to be unlikely. I think a lot of these end customers and OEMs are now going to have to design multiple technology drive trains, or have to support or deal with them in their fleet. Most OEMs are going to have some kind of trucks that they're going to make just battery electric.
Amy Davis:
They might have some that they have a hybrid and a battery electric. They may have to do a fuel cell. So there's multiple technology drive trains they're going to have to be designing and supporting, and that means different parts and capabilities. If you're a fleet trying to operate them and figure out how to buy them, the purchasing, the acquisition and the maintenance, and it's such a learning curve for the industry. Then by the way, we have the infrastructure not yet available, whether it's charging or hydrogen availability. The technology, probably not as mature as it needs to be. I think for a lot of the customers I talk to, it's overwhelming. They're trying to plot a ten-year plan and understand what technologies to embrace, and it's tough. One of the things we hope by having the whole portfolio, we're trying to be that consultant to help people sort of map a path to zero emissions because it's not turnkey. It's like a 10 year transition for these customers and they're going to have to pick and choose as the readiness comes along. But I think that for a lot of us, it's overwhelming.
Ali Tabibian:
I was thinking of the word consultant, the word you used, exactly as you were describing this everything that the customer needs to understand to be able to make the right decision. Certainly, to some extent, Cummins is unconflicted in terms of its equipment recommendations because you make everything. But somebody still has to make heads or tails of it and the progression of it over time for the customer. How does this change? How does that customer need to be led a little bit as opposed to just offered the equipment? How does that change who you hire at Cummins? Does it?
Amy Davis:
It's an excellent question, Ali. I mean, whether it's on the development side or on the relationship side, the human component of this is really challenging, I think for business. Because we are used to stable, very mature, evolved products. How to be on the forefront of selling something that isn't as mature and by the way, costs three times as much, helping a customer through that decision and through the decision to put it in their fleet and get the early experience, it takes a different mindset. Because we're used to selling zero risk. Go with us because it's zero risk. That's kind of when I was an engine guy, that's what I talked about. Now when you're selling this new technology, you have to say, "Yes, take some risk." That's a different mindset for both us as the people launching these products out there and the ones trying to help customers through those decisions.
Ali Tabibian:
What is your pitch to people who are joining the industry afresh or joining New Power afresh? What are you selling the most, that ultimate ability to guide the customer or the exciting multiple things that they could be working on in the short term? How do you get people on board? What do you sell, Amy?
Amy Davis:
Well, it's the yin and the yang at Cummins. You get to beyond the sexy new stuff with a company that offers you this longevity and security of future. I mean, a lot of the companies out there look super exciting. You read about them every day in the press, in the startups, in the stacks, but you want security in your future and also to work on the fun stuff. That's, I think, in the New Power part of Cummins, it's really the best of both worlds. Because we're working on the fun stuff, we're dabbling and we're changing the world. We are going to be transforming in an industry, as you started out, that is a major contributor of carbon into the atmosphere. We are on the front edge of changing that while at the same time, having just this huge breadth of opportunity for people to go to and develop their careers.
Ali Tabibian:
That's a great pitch. When you've got this much change happening, the chance of ... First of all, there's the social impact of what New Power is doing. Certainly somebody who is, let's say, comparing it to any startup who's working on sustainability, it seems like they can find the same thing at New Power. But it's also really nice if you do work on something which for whatever reason doesn't become the dominant or a big outcome for the entity, , but you also don't lose the investments you've made in a particular organization in a set of relationships.. One of the interesting things too, Amy, and let me ask you this about the human capital, batteries, fuel cells, et cetera, these are still essentially manufactured goods. A lot of understanding of chemistry and mechanical engineering, things that Cummins is really good at. I know that Cummins, for its engines, writes a lot of control software.
Ali Tabibian:
But at least the perception is that the control software for electric or electrified powertrains is a little more complicated or more a bigger part of the value chain. Is that true? If it is true, what does it mean for what Cummins has to do, who it has to hire, where it has to hire, where it has to locate to take advantage of the right talent, essentially?
Amy Davis:
I think it was true before our significant investment in electrification and New Power. I have seen in the last 10 years, just a real skillset need and transition into software, into integration, into the internet of things, leveraging data. This has been a trend impacting us because the amount of things you can do once you collect data and understand how a drive train is operating, it's tremendous. We see this as a huge advantage for us because we've been tracking data on drive trains and duty cycles since electronic controls were introduced. We've been collecting data. Applying that knowledge of duty cycle and how people operate, how people drive into the controls now, as we're doing from scratch electric drive trains, we think it's an advantage of somebody perhaps a competitor who might be just leveraging either past car experience or a very simple battery and claiming to have battery systems. You can manage a battery systems, you can pack them together and manage them. But managing them for example, on a city bus that's idling, stopping and starting, sitting, waiting ...
Amy Davis:
We know we're the leader in the bus market in the US and the complexity of a bus duty cycle is almost as hard as it gets, believe it or not because of all of that variation. Being able to optimize that so that you can optimize your power supply, because that's what it all is for range, is being able to how you're leveraging that battery storage, that the energy storage, we think it gives us an exciting advantage. But it definitely takes a skillset that we've been working to hire within Cummins for 10 years probably.
Ali Tabibian:
Well, that's ... I hadn't really thought of that, which is the quality of the software is to a strong extent, the function of the data you have, the history you have of what that software needs to be and how it needs to be managing. For a lot of the past car electric vehicles, they've had to build that up over time. Now, let's say Tesla can say, it's an advantage, but in your case, you've had that data. So there's a significant difference in terms of a newcomer's ability to enter the market because in this case that, that data exists and having it is a big deal. Whereas in the past car market, it really didn't exist.
Amy Davis:
Yeah. I'd be interested to see how Tesla, who's talking a lot about translating that knowledge into trucks ... I can tell you that the duty cycle as we've talked about from the beginning on heavy-duty truck especially, is just not at all parallel to a passenger car.
Ali Tabibian:
That's an interesting point. I would be interested to see if a company which famously doesn't partner with anyone, at least hasn't since partnering with, I guess, Mercedes very early on, would be willing to do something different in that area. It's really a battery company and I would say past cars are almost a reference application that they'll always be in. But for the rest of these items, I personally think that it would be just as happy to just sell the batteries and have somebody maybe partner with them to develop a sleek, maybe even a Tesla labeled vehicle. But really where all the vehicle intelligence and a lot of the intelligence that goes into the battery management comes from an incumbent like Cummins. I don't think they would be that ... It would be interesting to inquire about that. I also think ... They're reasonably public about this. I mean, if you ask them, there'll be quite clear that they're not really looking to compete with a heavy-duty long-haul.
Ali Tabibian:
They quite know that that tonnage of battery required, and how do you even recharge 10, 20,000 batteries that stop in Elko, Nevada at the same time? How do you even charge those batteries? Where's the electricity coming from? They're quite aware of what those issues are. I think as New Power develops, I really do think a partnership with somebody like a Tesla could be very much to the benefit of both companies. I don't think the Tesla guys are unreasonable about how different it is and how application specific and how fragmented the commercial market is compared to the kind of a Model S and Model 3 selling everywhere in the world approach that they've managed to have. Amy, you've been very kind with your time. Let me maybe move on to what is probably my last question. Which is, as you go through and build New Power, how do you know that Cummins has been successful and that you have been successful for Cummins? Is it a specific target of BEVs and fuel cells or is the jury potentially out on what else it could be?
Ali Tabibian:
How do you know? What's the vision of the future that says, you know what, we really did what we were supposed to do for Cummins?
Amy Davis:
Yeah. It's an interesting question because the ultimate gray card, if you will, is always out. If you look at the, for example, fuel cell adoption, the Hydrogen Council says that in 2030, 5% of heavy-duty trucks could be fuel cell. So if we judge ourselves too early on numbers of vehicles, we'll miss the plot in my view. In the short term, there's a couple of things we're really focused on. One is, you talked about optionality and we really try to operate a real options mentality. Moving and failing fast, if we're doing something knowing that's not the right model and moving. We have a lot of metrics focused on making sure we're not investing too long on something and moving to the right thing and taking hypotheses and developing them. Then moving and migrating them so that we're adopting and getting that learning going. Secondly, we're putting product out there. We think this is really important because again, application knowledge is key. You can see we have, whether it's batteries or fuel cells in trains.
Amy Davis:
We just did a helicopter with a fuel cell, heavy trucks, waste trucks, port vehicles, marine, mining. Getting product out there is important for the application learning because it's not this iteration of technology that's going to win when the market pops, it's two iterations from now. I feel it's really important to have a clear process for application learning and iterating so that we know each iteration of the product is a step change from what it replaces. Because the winner ultimately in 2030 and 2035 is going to be the one who took those steps, made those stepping stones the most meaningful. So we put our metrics a lot around that technology learning. I try not to take too many projects on that I know I won't get tangible learning for either I know that it's the wrong move, or it's a meaningful step change move. I think the other thing for us is to find the new opportunities, the new segments. This hydrogen economy is opening up new segments. For us, that could be tanks. We're doing this JV and high pressure tanks, we're in electrolyzers now.
Amy Davis:
What does that mean for the whole hydrogen infrastructure? Making sure our eyes are open because when industry transforms, new profit pools open up. So success for us will be finding those and quickly participating in them. Those are at least a few things I think about.
Ali Tabibian:
Wow. That's very interesting. Very much of a startup mentality, but in a better way. Because a lot of startups define, fail, whatever fail fast or whatever the saying is, they almost define it in a way that means they frequently go to market with sloppy products. Then that of course increases your chance of failure. In which case, you wind up questioning a particular approach which maybe was just poorly executed. What you seem to be saying is, you do want to try a lot of things, you do want to get them into people's hands really fast, but a quality product so you can really see and learn from the way those products are used to iterate as fast as possible on the next version.
Amy Davis:
Absolutely. I think one of the key things about leading this division is maintaining the right amount of separation. Understanding where there are core capabilities that we have to leverage that will make us better. You asked the question about how we're leveraging distribution and electrolyzers. We need to be clear-minded. We know exactly A, B and C of how we're going to do that. Equally, we need to know, these other things, we want none of it. We have to stay separate so that we can keep this mindset of our own and keep it growing for its own culture and the benefit of what we need to be doing, which is a quite different mission.
Ali Tabibian:
Excellent. Wow. Well, best of luck with it, Amy. I think all of us are home. My wife and I's home in Sonoma, which is occasionally subject to increasing wildfires, and then people with coastal property who don't want the seas to rise much more, we're all rooting for you. I have no more questions. Unless you have some other point you'd like to make, I appreciate the time you've spent with us.
Amy Davis:
Yeah. I really appreciate the time. It's great to be talking with you about a different side of Cummins that a lot of people don't know about. I think if there was anything I would be concluding with, it would be to say, don't count out 100 year old diesel manufacturer of being the leader in zero carbon. Too many people just want to question the incumbent. The thing about it is, we have the knowledge of the industry and the relationships, and I just really believe in our people that we're going to be able to pull it off. Keep watching us, Ali, because I think we might end up on top.
Ali Tabibian:
I wish you the best. It seems like you've got a good plan of action and a strong leadership and a strong team. We appreciate you telling us about it.
Amy Davis:
Thank you.
Ali Tabibian:
Great. Thank you very much.
Amy Davis:
Thank-
Ali Tabibian:
Amy, thank you very much.