PARIS -- Valeo is making a big bet on 48-volt "mild hybrid" technology, which the French supplier sees as a cost-effective way for automakers to meet tightening emissions standards and to deliver power to new energy-consuming components such as electric superchargers.
Valeo says it has already signed 25 contracts for the technology, many with domestic automakers in China, where the company has advanced component and electronics factories. Valeo executives declined to say what the value of that business might be.
Valeo and other suppliers, including Continental, Robert Bosch and BorgWarner, have been developing 48-volt technology as a supplement to the 12-volt electric net. The earliest products to come to market are electric superchargers, on diesel versions of the Audi SQ7 and Bentley Bentayga SUVs. These nearly eliminate turbo lag and increase low-end torque while using less fuel.
Analysts say that the technology's real tipping point will come with mass-market adoption of 48-volt booster technology, which generally consists of a belt-driven alternator/starter that incorporates a small electric motor, a 48-volt lithium battery and a DC-to-DC converter. Energy can be recovered during braking and stored in the battery.
Renault is bringing such a system to market on diesel models of its Megane hatchback and Scenic minivan using components from Continental/Schaeffler.
The booster motors will help automakers to meet fleet fuel economy standards, especially as diesel engines lose favor in the wake of the Volkswagen Group diesel-emissions scandal, experts say, with efficiency gains of 10 percent to 20 percent, depending on vehicles and engine size.
At an estimated cost of less than 1,000 euros per vehicle, mild hybrid drive is much less expensive than high-voltage hybrids, which need two full parallel propulsion systems and costly batteries. The package fits into existing vehicle platforms, further reducing costs.
Other automakers using 48-volt technology include Daimler, which will include a booster motor on its revamped Mercedes S-class sedan.
Valeo's advantages
Analysts say that Valeo has several advantages over competitors in the race to lead the 48-volt market. The supplier has been a leader in conventional alternators and starters, and can leverage this expertise to produce the new 48-volt system, while competitors are "starting from scratch," said David Lesne, an analyst at UBS who has intensively researched the technology.
"The incremental cost for them to develop 48 volt is actually lower than most of their peers," Lesne said. He said that the average content cost per car for a mild hybrid system is between 500 and 1,000 euros, "and we think Valeo will be at the low end."
Valeo was instrumental in developing the first engine stop-start systems in the mid-2000s, and the new 48-volt motors shares much of that technology, Lesne said. "Their DNA is to have a solution on the market as quickly as possible for mass market," he said.
Last year, UBS raised its penetration rate forecast for 48-volt mild hybrid systems to 10 percent of the market by the end of 2020, "five years earlier than the industry's forecast and our previous estimate," it said in an investor's note.
UBS estimates that sales of 48-volt components could reach 11 billion euros by then and 22 billion by the end of 2024.
"Our view is that carmakers will invest in a bridge solution that will help them meet the upcoming regulations and offset the declining penetration of diesel, and to some extent, be able to share the costs with consumers, and that's hybrid 48 volts," Lesne said.
Even before the impact of 48-volt systems are felt on the bottom line, Valeo has been a strong financial performer under CEO Jacques Aschenbroich. First-quarter sales were 4.8 billion euros, an increase of 22 percent year-over-year, or 13 percent on an adjusted like-for-like basis. Sales last year were 16.5 billion euros, with an operating margin of 8.1 percent.
Aschenbroich affirmed to shareholders at the company's annual meeting here in Paris on May 23 his target of outperforming the market by at least 5 percentage points in 2017. The company's new strategic plan, announced at the end of February, is targeting annual sales of over 27 billion euros by 2021, an average annual growth of more than 10 percent.
Operating margin is pegged at about 9 percent, and free cash flow from 2017 to 2021 would nearly double to 3.7 billion euros. To reach those goals, Valeo says it will increase product content per vehicle and improve the product mix.
Mild hybrid drive systems and other 48-volt technology are likely to figure strongly in that mix, Valeo said.
Future advances
"We believe 48-volt doesn’t stop only with the mild hybrid system," Michel Forissier, research and development director of the powertrain systems business group at Valeo, said in an interview. "There is much more to come. You can create new value propositions."
The next step, perhaps as early as 2019, will be to move the electric motor into the transmission to minimize regenerative energy losses, he said. "You will have better fuel economy, the only difficulty is that it's much more complex in terms of vehicle architecture," Forissier said. "You have to find space in the transmission and retool the transmission."
Another possibility is to embed an electric motor inside the rear axle, creating an all-wheel-drive system without the need for a cumbersome driveshaft. Valeo demonstrated such a system at the Consumer Electronics Show in Las Vegas earlier this year.
"That's a very interesting configuration because it is very simple to implement in the car," Forissier said.
