We thank all our partners, customers and suppliers for the first half year 2023. The period was great for Eltwin Group as we grew our business with 50% and are back to a more normal delivery performance.
We plan to grow our business even further in the second half of the year and below you find parts of our activities terms of supply chain resilience and how we try to align ourselves, not only for next year, but for the coming years by building partnerships.
The general market for power electronics is still booming primarily driven by the Green Transition and the general electrification and decarbonisation of the transportation and heating sector. We are now seeing demands surpassing the pandemic and the Ukrainian war. Unfortunately, the demand is growing faster than the supply capacity and it looks like this will take years before we have a good balance between demand and supply in the industrial sector for power electronics. Eltwin’s estimate, based on input from our supply chain, indicates that it will take 2-3 years. Unlike consumer electronics where the industry seems to have put its focus on the first round where we now see near to normal supply conditions. We can hope that some of the more volume-driven commodity-like products will move out of the typical industrial segment and try to use alternative technologies from the more consumer and commodity-based segment as these become more attractive due to cost and availability.
Supply Chain Resilient
Geopolitical tension, the China-Tawain situation and the war in Ukraine put supply chain resilient on top of the agenda of many companies and attract attention from boards and customers. Likewise, ESG regulation and requirements are also rising in the supply chain as a topic that needs to be taken seriously and an area where we want to ensure that we have a full alignment with our main stakeholders on both risk, transparency, compliance and the action taken to ensure an appropriate performance level can be achieved under various scenarios. Eltwin Group have this on top of our agenda and in dialogue with many of our stakeholders on how we can manage and share the risk and thereby improve our overall supply chain resilience.
Generally nearshoring and less China dependency put the US and European electronic production capacity under pressure. Eltwin Group's ambition is to become the centre of excellence for drives and controls in order to support our European and North American customers with western-made products. Also, we are committed to supporting the American Inflation Reduction Act and European green transition by investing in the regional supply chain security of supply.
Eltwin has over the last six months seen huge improvements in on-time deliveries and general supplier performance. We now have reduced our near-stock-out situations and spot-marked buying to one tenth of what we did same time last year. This is a more manageable situation and what we properly will call a new normal. Eltwin Group has successfully increased its production capacity by more than 50 % and has now sufficient headroom to meet our customers' needs. Further capacity increases are approved and will double the group's production capacity over the next 2 years to meet the current demand. We apricate the flexibility and support that our customers and suppliers have given us throughout this crisis.
We at Eltwin will maintain and continue to build incremental capacity and maintain a high safety stock and level of headroom to reflect our customers' growth ambitions and the uncertainty in the market. We believe we can maintain or improve the current stable on-time delivery performance as well as the lead times that we currently are seeing for the next 6-12 months.
Eltwin Group has built a more resilient supply chain during the crisis and the system and agreement support these more dynamic market conditions. However, we are not back to the good old days with short lead times and no market allocations. We are seeing some relief in demand due to the previous hoarding effect, but fundamental demand is still high on critical power electronic and active devices that still have 36 months lead times and are on hard allocations, most standard electronic devices still have 2-3 times pre-pandemic lead times.
The good news is that we are getting what we order and that our long-lasting partnerships with many of our suppliers are paying off so we can now also support and commit to our customers' aggressive long-term growth rates. We still recommend a long-term agreement with 18-24 months detailed forecasting/commitment on mix and volume and a 36-60 months strategic outlook. The outlook in Eltwin Group is growing at a fast rate as well as many of our suppliers. So, significant changes in the volume or mix need to be planted and agreed upon well in advance due to the availability of components, equipment, and getting people on board typically 24-36 months ahead of time.
Inflation is decreasing, the Dollar and Euro is dropping, as well as many raw materials indexes are dropping too. This should yield some improvement in general prices, especially on plastic and metal parts. Eltwin keeps a close eye on price development and is in close cooperation with our suppliers on when we will see the effect of this on our prices. Unfortunately, we are also seeing that many electronic devices are not liked by the price index but are more driven by demand. However, we anticipate that prices will be stable for the remaining part of 2023.
New products and change of programs
We successfully expanded our Eltwin Hyper factory in Australia at the beginning of the year, we launched a new version of our drives for the heat pump marked so that our customers can be F gas compliance and reduce CO2 footprint for an average heat pump with 2000 kg CO2. Eltwin Group has initiated new change programs that will strengthen the foundation of Eltwin and support its growth. A new ERP system, Dynamic 365 is under implementation, new capacity and sites in Denmark & Polen, sustainability, longevity and circularity initiative and goals are integrated into all our strategic initiative from new sites, new products, new suppliers and new equipment.
We at Eltwin Group believe that an open proactive dialog is crucial for a long-term successful partnership and hope that we can continue or initiate the dialog on how we best manage the new normal in power electronics. So, we together can make a powerful impact on the green transition, our growth ambition and our day-to-day business.
Have a joyful summer.