Audi-Alcoa aluminum vehicle development partnership

But they were trying to make a Ford Taurus that would compete with a Toyota Camry made out of steel. I used to give this talk that you'll never see that in the next 25 years. At the time, Alcoa was working very closely with Audi to make the first all-aluminum Audi. The senior Executive Vice President of Alcoa, Peter Bridenbaugh, was a graduate of this department, and at various times I gave talks and he'd get up and talk about how they're building an all-aluminum Audi. Well, anybody can build an all-aluminum car if it costs $90,000. But if you're going to buy a $20–25,000 Ford Taurus, I don't think it's going to be all aluminum, okay. I kept saying that for about five or ten years. Peter and I talked about the price of gas. It gets down to: all-aluminum cars in 1990 made no sense unless you were talking about gas at $4 a gallon. At that time gas was about a buck fifty a gallon. I used to be conservative — I said, well, you're not going to have all-aluminum cars until the gas is $3 a gallon. And Peter came up to me at the end of one conference: no, it's $4 a gallon, okay, because Alcoa knew it. It's the energy cost of the aluminum.

Peter Bridenbaugh anecdote. Tom and Bridenbaugh (then SVP at Alcoa) at a metallurgical conference; Bridenbaugh confirms the break-even point is $4 a pound, not $3. Establishes that the Alcoa-Audi partnership was bounded by aluminum's premium-segment economics.

Yes, that's a big deal. Audis are almost all aluminum. Audi and Alcoa had a big thing back in the '90s. I used to say the break-even point was $3 a pound. I gave my talk at a metallurgical conference, and Peter Bridenbaugh, who was a graduate of this department, at the time was senior executive VP of Alcoa — he had the longest title, research, development, safety, technology, environment, and something else. Peter was giving a talk in the same session. I was talking about how you're not going to make aluminum Tauruses because it's too expensive, and Peter was coming in to give a talk about all-aluminum vehicles and the work they were doing with Audi. He came up to me afterward and said, "It's not $3 a pound, Tom — it's $4 a pound is the transition." He admitted it was even higher than what I had estimated. He used the $4 number. That's a mid-'90s number.

So what does that mean for a Ford Taurus or a Toyota Camry that sells for 25 grand? There's only twenty-five hundred dollars worth of material in that car. However, if you go from steel to aluminum, there's an increase in cost because the aluminum is more expensive, and you might add three hundred dollars worth of material to the cost of that car. What's the big deal of going to an all-aluminum vehicle? Well, it turns out all these other things for the aluminum can increase that cost by five or ten thousand dollars. So it's not just going from a twenty-five-thousand-dollar car to a twenty-five-thousand-five-hundred-dollar car. It's going from a twenty-five-thousand-dollar car to a thirty-thousand-dollar car when you go to an all-aluminum vehicle. Audi 25 years ago came out with all-aluminum structures, but that was for $80,000 vehicles.

Brief aside — Audi's high-volume all-aluminum vehicle production hit problems that the historical J.P. Morgan low-volume aluminum cars (1930s, hand-repairable) had not exposed. Used as a learning-curve example.

[Student follow-up.] The problem with the larger boats made of aluminum is cracking, fabrication, fatigue cracking. They don't have the experience. It's not really a problem that they didn't have when they first started building steel ships, but there's a learning curve of how to do the design. The way you design for aluminum is not the same way you design for steel in terms of welded construction and fatigue cracking. Whenever you go to use a new material there's always a learning curve. When Audi went to build all-aluminum [lunar] automobiles, even though they had been built for J.P. Morgan back in the 1930s — he could afford to have his cars repaired — but when they went to high-volume production, they started running into lots of problems they never realized they would have. Then you work your way around and learn to design around those things.