Why Webasto's chief is 'courageously optimistic' on tough sales goal

Webasto increased global sales 9 percent to 3.5 billion euros last year but the German supplier has an even tougher goal in mind. Webasto Chairman Holger Engelmann wants to boost to 5 billion euros by 2020. Engelmann is "courageously optimistic" that the tough target can be reached, he told Automotive News Europe Managing Editor Douglas A. Bolduc. But he worries that the industry could be badly damaged if a trade war between Europe and the U.S. continues to escalate.

Is Webasto still on track for 5 billion euros in annual sales by 2020?

There is still a lot of work to do but we are courageously optimistic that we will reach that goal.

Even if the trade war escalates?

If everything that is being reported in the press becomes a reality it will have a negative impact on the whole economy. We are grateful that the automotive industry was able to quickly and steadily recover from the global economic downturn of 2008 and 2009. We have seen increasing volumes for a number of years in the major markets. I'm worried that with all the discussions we are having right now regarding free trade we risk falling back into the bad situation we had a few years ago. We have to monitor developments carefully, but we shouldn't panic because right now the volumes are strong, and we have to deliver.

What is Webasto's outlook for Europe, the U.S. and China for this year?

We expect single-digit growth of light vehicle production in Europe and China while production in North American will be flat.

How about Webasto's sales outlook for those markets?

We foresee growth of 5 percent globally, which will mainly be driven by double-digit growth for us in China. That will be due to increased volume and additional projects above all in the sunroof and panorama roof business. We also expect strong growth in the U.S. because of our recent acquisition of AeroVironment's Efficient Energy Systems business. This accelerates the global development of our recently launched e-solutions business. Another boost in the U.S. will come from the launch of the new Jeep Wrangler with our convertible top. In Europe, we expect our sales to remain stable.

Has there been more interest in crossover cabriolets after you won work for the Range Rover Evoque convertible versions?

We have added the Jeep Wrangler, which offers a huge softtop that opens and closes. This will provide a big volume. We also have been awarded another project for what will be an SUV convertible. Therefore, there is interest from customers for convertible concepts for SUVs. We hope we can continue to participate in this area of the SUV boom. How big this niche is going to be remains to be seen, but there seems to be a small trend developing.

What about convertibles overall. Is that market dying?

Demand for convertibles is stable, but we are not going to see double-digit growth for them in the future. At Webasto, convertibles account for 9 percent of our annual sales, therefore, developments in this sector won't have a significant impact on the future development of the overall sales of the company.

What is your outlook for panorama roofs and sunroofs?

They account for about 75 percent of our business while our thermo and comfort division accounts for the remaining 16 percent. I don't see any major changes to these proportions in the near future. Panorama roofs and sunroofs will remain the dominant player. We also have high hopes that in coming years our e-solutions business will steadily develop, resulting in a shift in those percentages.

How is business developing for your e-solutions and services unit?

We are happy to have taken our first steps into the e-mobility market with charging solutions and battery systems. We got our first order from an automaker for charging stations and one to provide battery systems to a European bus maker. We also have received a lot of requests for proposals from companies. In addition, we see that automakers are asking for higher-than-expected volumes especially in the battery business.

How much higher?

When we first envisioned starting the battery business we thought the automakers were going to produce most of their batteries in-house. We initially thought they would only outsource work for the low-volume vehicles. Now we see that automakers want to outsource a portion of the work for their high-volume electrified models as well as their low-volume models. There are other players in the battery market too, but there is enough space for us. We estimate that there is about 30 percent of this market that suppliers such as Webasto can exploit.

Which players will be in this game?

We see a portion of the battery systems being produced by the automakers, a portion by the cell makers and the rest coming from suppliers like us.

How many people are working in the e-solutions and services area at Webasto and how much will that grow?

Following the acquisition of AeroVironment's charging business unit we have 230 employees in this area, and that will grow to 500 in the next three years.

Is Webasto hedged enough in the U.S. to protect itself against the threat of higher tariffs or would there be a negative effect on the bottom line?

Our strategy on hedging is to produce in the country where we will deliver, therefore, we have a high localization of our products and of our suppliers. In the U.S. our localization rate of suppliers is 80 percent. That means only 20 percent of our components are imported into the U.S. Nevertheless, even on that 20 percent, a 25 percent tariff would have a huge impact on our financial results. That would force us to look at our alternatives.

Which are?

One would be that we increase our price to our customers, which would lead to higher prices for end consumers. Another option is to adjust or restructure our U.S. business in a way that we ensure the cost impact will not hit us too badly. That would lead to reduced investments in the U.S., where we have six sites and employ 1,800 people. Our example shows that tariffs would be a lose-lose situation. It will not help end consumers, companies or U.S. workers. There is a higher risk that there will be less employment not more employment because of this.

What is Webasto's outlook for its convertible tops business if tariffs become a reality?

There is not a big difference when you compare panorama roofs, sunroofs and convertible tops because the mechanism is basically the same. When it comes to convertibles, we also have roughly 80 percent localization of supplied components and the remaining 20 percent is mainly from Mexico. We sew the textile for our softtops in Mexico and import it into the U.S. Then we assemble the system in the U.S. Therefore, a 25 percent tariff would hit our textiles.

Would you consider moving the work to the U.S.?

Currently, the cost advantage from doing this work in Mexico is more than 25 percent so it doesn't make sense to move this work to the U.S. It would just be an additional cost on our profit and loss statement. At the moment, I don't see any negative volume effects, especially in 2018, because our business is very much driven by the ramp-up of the Jeep Wrangler. The question is: Will potentially higher prices impact the overall volume of vehicles sold within the U.S.? With our 80:20 ratio, I think we are pretty favorable compared with other suppliers. Suppliers with a 70:30 or 50:50 ratio have a much bigger problem to contend with than us. All of the convertible roofs we sell in the U.S. are assembled there.