MUNICH: ZF Friedrichshafen AG is getting some reprieve from its debt burden with the slower shift to electric cars boosting demand for key components such as gearboxes.
Changing course from an EV-first approach to selling parts for EVs, hybrids and fuel-burning cars will help bolster the company's balance sheet, Chief Financial Officer Michael Frick said in an interview.
The German supplier to Ford Motor Co, Volkswagen AG and BMW AG is already benefiting from more favourable refinancing costs, he said.
"We have a new strategic orientation with regard to drive technology," Frick said.
"We consider what we experienced last year and the year before in terms of rising interest rates and spreads to be a temporary situation."
ZF, the world's third-biggest component maker, has been under pressure from rising interest rates with refinancing obligations totaling more than €13 billion (RM59.7bil) through the end of the decade, according to its latest results published in September.
The financial strife paired with deteriorating operating margins has prompted the company to seek some 14,000 in job cuts, including across its EV division.
The more plodding transition to battery power has caught large parts of the industry wrong-footed.
Stellantis NV, joining Ford and General Motors Co, this month announced €22.2 billion (RM102bil) in writedowns and charges mostly tied to a strategic reset on EVs, including the delay of several models.
ZF's Frick said the choppy shift is driving demand for hybrid models, a trend supporting its powertrain sales.
In Europe, demand for plug-in hybrid models jumped by about a third last year.
The repositioning on electric mobility is among measures to cut debt after the company's credit ratings deteriorated to below investment grade.
The borrowings stem from two major acquisitions totaling some US$20 billion (RM77.9bil) to add products for electric and software-defined vehicles.
There are signs of improvements. The interest rate on ZF's most recent euro bond sale in February was at 5.5%, down from 7% on an April 2025 issuance.
The company has reduced borrowings by a low triple-digit million-euro amount over the past year and is working toward regaining investment-grade status, Frick said.
ZF also plans to use part of €6 billion (RM27.6bil) in liquidity to repurchase a large share of bonds maturing in 2027, Frick said.
Remaining maturities will be covered from operating cash flow and proceeds from ongoing transactions, he said.
In December, the company sold its driver-assistance business to Samsung Electronics Co-owned Harman International for €1.5 billion (RM6.9bil).
The firm is reviewing options for its other divisions as well, from selling its Lifetec division to assessing possible partners for parts of its powertrain unit and realising equity from its wind division.
Another lifeline could be the defense sector, where ZF wants to double its exposure, from a low base.
By 2028, defense sales are expected to make up 1% of revenue.
