Why Autoliv will remain on 'high alert' despite market-beating outlook

Autoliv, the world's 30th largest auto supplier, expects to have market-beating results in 2022, despite being hit by COVID lockdowns in China, raw material cost increases and volatile car production. The Swedish safety equipment specialist forecasts its organic sales will grow by up to 16 percent and it will have an adjusted operating margin of about 6 to 7 percent. CEO Mikael Bratt, who has led the airbag and seat belt maker since 2018, said stabilizing chip supplies have make Autoliv "cautiously optimistic," but the company will remain on "high alert" because of the multiple challenges still facing the industry faces. He shared his outlook with Automotive News Europe Managing Editor Douglas A. Bolduc.

What is your overall market outlook for 2022?

We are cautiously optimistic because we have seen some more stable production volumes across the board due to the improved availability of components, particularly semiconductors. Therefore, we expect global LVP (light vehicle production) to rise 2 to 5 percent compared with 2021.

Will Autoliv outperform the market?

We expect full-year organic sales growth of 13 to 16 percent. That means that we are looking to outperform LVP by about 11 percentage points. This comes from both our product mix and content per vehicle, meaning that the safety content is growing roughly between 2 and 3 percentage points year over year. We are leveraging our order book to gain share.

What is your outlook for the major global markets?

China is developing positively. The U.S. is relatively stable, so things are improving there. Europe, meanwhile, remains volatile. There is uncertainty about the implications the region may face from the energy situation this winter. Overall, we will remain on high alert and continue to be flexible because COVID lockdowns and supply constraints also continue to cause concern.

What effect has Autoliv felt from the chip crisis and what steps have been taken to offset this?

While we are not a very large semiconductor user, we do have chips in our products. To offset the shortage, we set up a task force in our supply chain team that has been quick and proactive. They have been in close contact with our suppliers and our customers to make sure we secured what we needed to fulfill our orders.

Were Autoliv's chips given priority because they are so essential to safety equipment that has to function in a car?

I can't say that we have seen or felt that we have been prioritized, but you either deliver a car with full functionality on the safety side, or you don't deliver the car at all. Also, we have seen that some automakers and suppliers have reduced other functionalities in the car that are not as essential to the overall performance. But there has not been a direct connection to us when it comes to those decisions. We have been fighting just as hard as everyone else to get our chips.

What do you mean when you say Autoliv is not a large user of chips?
I mean that compared with manufacturers of electrical and electronics components. We are a mechatronic supplier, which means we have electronic components in our products that communicate with the vehicle. For example, a steering wheel with autonomous driving functionality will have more semiconductors than a traditional steering wheel.

How does Autoliv feel about automakers such as BMW developing direct relationships with chipmaker and is this something you also plan to do?

We have some direct relationships with chip suppliers. The more standardized the chip is the more likely it is that we would have a direct dialog with the semiconductor maker. When the chip is more unique and for a specific automaker then that relationship is managed by the automaker. It really depends on the product and the uniqueness of the feature. Ultimately, we want to have a solution that creates the best value for our customer.

Have chip prices stabilized?

Things are moving in the right direction. There is improved availability and some improved stability, but it's too early to say that we have the worst behind us. We still need to be very cautious because we saw how fast the chip situation changed as a result of the recent COVID-related lockdowns in China. This could happen again because the pandemic is not over -- and there are other challenges.

How has the war in Ukraine impacted Autoliv.

On the supply side, we had four suppliers in Ukraine and all of them have moved their work to alternative locations outside off the country to secure the volumes they are producing. In terms of our operations in Russia, we had less than 1 percent of our global net sales in the country in 2021. When the war started our operations there came to a halt. We are closely monitoring activities in Russia to evaluate where we go from here.

How exposed is Autoliv to potential gas shortage caused by Russia's decision to limit supplies to Europe?
For us as a company, there is very limited exposure in terms our production. We are also assessing any potential vulnerabilities at our subsuppliers. We know there could be heating issues in the countries where gas is a significant part of a plant's energy portfolio. We see nothing now that indicates that we will have problems, and I think we have good control over our own supply chain. However, we are trying to secure our flexibility in case things deteriorate. The key here is to plan for a wide range of scenarios.

How will Autoliv capitalize on the move to EVs?

Weight and noise become more important in an EV, this requires more sophisticated products, which we have. Also, many EV have more advanced software and electronics. Working with these systems provides us the ability to get more data, which can give our systems more time to react in the event of an accident. That means we can tune our systems even better to protect the passengers and vulnerable road users from fatalities and injuries. With this extra time, we can develop more intelligent products for these more intelligent vehicles.

How will Autoliv capitalize on the move to autonomous cars?

The move to an increased level of driving autonomy is interesting for us as we look to provide better safety systems for both the vehicle occupants and pedestrians. When we talk about the occupants in an autonomous vehicle, you will have different interior layouts. To protect occupants in such environments, you need more advanced safety solutions. When it comes to the vulnerable road users outside the car, we are working with all our traditional customers as well as new customers that are solely in the autonomous environment [such as Nuro, which is using an Autoliv exterior airbag on its third-generation autonomous delivery vehicle]. We are also developing airbags for two wheelers [together with scooter and motorcycle maker Piaggio Group]. I look very positively on the opportunities for us to continue to offer safety solutions for society and mobility on the whole going forward.

One potential downside of the move to autonomous vehicle is that Autoliv would lose steering wheel business. Do you plan to offset that by selling with more airbags?

The steering wheel of today provides a very important interface with the driver, so there are several interesting opportunities to further develop them. Therefore, they will still be needed for the foreseeable future.

What changes are coming?

You will potentially see some interesting solutions such as folding steering wheels and steering wheels with more advanced solutions.

Are there any positive takeaways for Autoliv as a result of coping with the last two years of global crises?

Since Autoliv already had a decentralized organization before COVID and was strongly regionalized -- China for China, Europe for Europe, Americans for Americas –- we found that very helpful during volatile times. We also worked very well, cross-functionally in the different regions to support each other using digital tools. Our ability to work remotely on a global basis is something we will continue to build on

Are you concerned about de-globalization?

Our regionalized setup works whether globalization continues or is rolled back. We already have limited flows across the globe in our value chain. We can support different regions in the different regions to a large extent. So, we are well prepared if this trend continues, but we will also constantly evaluate things to make sure we have the most competitive setup possible.