Forvia CEO: 'We needed to grow' as an independent company

For Patrick Koller, since 2016 CEO of Faurecia, now Forvia, the past year has brought significant changes. The supplier was divested from Stellantis following the merger of controlling shareholder PSA Group and Fiat Chrysler to form the new company. And Koller outbid several competitors to win control of the German lighting and electronics supplier Hella. Finally, following the closing of the Hella deal, the supplier  announced its name change to Forvia. Koller spoke with Automotive News Europe News Editor Peter Sigal about being a fully independent company at Forvia’s headquarters in Nanterre, France, west of Paris. 

This is your first year being fully independent from PSA Group. What has been the effect of that?

I'm not sure we would have been able to do the Hella deal with Stellantis being our main shareholder. I do want to say that PSA was a very good shareholder, which supported Faurecia in difficult times, as well as in its growth and its independence. This independence was recognized in the industry, which allowed us to grow. It would have been very difficult to synchronize our agendas [after the creation of Stellantis], and I think our current independence is giving us an agility we would not have in the previous configuration.

Is it necessary to grow to ensure more scale, more scope, as an independent company?

Our scale is not negative, but it's not good enough. We needed to grow because we were not at critical size in the electronics and software fields. We needed to consider M&A for this reason. Hella is perfect because it has two main specialties, one of which, lighting, is a nice add that is aligned with what we are doing in terms of systems, design and safety -- it works very well in our portfolio. Then you have Hella’s electronics and software, which will give us size to achieve leading positions, especially in automated driving and in electrification [energy management].

What kind of synergies do you see with Hella’s business areas?

In purchasing, we can put our volumes together, which we are doing on 11 commodities, to improve performance. This is happening on electronic components, raw materials, plastics and more. But we are also considering the real estate that we are renting or using worldwide. We don't need two offices in Wolfsburg and two offices in Munich, for example. There are several possibilities to reduce the costs in these areas. As another example, we are not vertically integrated in plastic injection toolings, but Hella is, and I think we can measure the benefits of being partially vertically integrated in this area, especially when most tools are coming from China. These are conventional synergies, and maybe the visible part of the iceberg, but when you move from 24 billion in sales now to more than 30 billion in 2025, you have many opportunities directly related to growth, such as your footprint and fixed costs, where it's not so much that you have to reduce head count, but you might not have to increase it as much as the linear model would suggest. 

You are planning to review assets worth 1 billion euros or less and consider divestment to lower debt. Can you explain the thinking behind that?

We sold our exteriors activity [to Plastic Omnium in 2016] because we simply believed that we were not the best-placed [company] to develop that activity. I think it's doing much better inside Plastic Omnium than inside Faurecia. That is exactly the same approach we are considering for the divestments to come. We are looking at activities that are sub-critical to us, to activities we don't think we will be able to bring to a leading position, because this is what we want to achieve with all of our businesses. This might be because of technology content, or because they are considered as commodities. We would have done this whatever the economic circumstances. Given that we will be above 30 billion euros of sales in 2025 [after the acquisition of Hella], we have to be cognizant about the complexity we will face. 

Are there any sectors or product lines you are targeting?

It's risky to talk about divestments before you are ready to act because of customer commitments, but we will soon communicate about at least two of them.

The war in Ukraine has changed the energy landscape in Europe, with the threat of Moscow cutting off supplies to Europe. Are you prepared for energy rationing, or even a worse scenario?

This year, we will spend about 110 million euros globally for energy -- electricity and gas -- so it's not a significant amount. Next year, we will cut our net energy consumption [as part of a plan to become carbon neutral] by about 16 percent, and the cost of inflation will be about 14 percent. So if energy costs increase by 30 percent, it will mean a net 6 percent. It's not so much about us, but what it could mean for the industry. Automakers are using gas for their painting lines, for example, so if we would have energy supply disruptions that would affect volumes.

Global auto production has continued to be well below the 2019 peak. What are your expectations for production volumes, and how does that affect your strategy?

The first element impacting volumes is semiconductors, and I don't think we will see real relief from the shortage until the second half of next year. But this will come to an end, with new capacities, and we will exit this issue. Then you have omicron in China. We have seen that the Chinese authorities are able to exit lockdowns in about six weeks. To mitigate the effects, we have split China into regional automotive clusters, and we consider the amount of cars produced and our sales in each cluster. This allows us to simulate outcomes to manage the situation. These [lockdowns] won’t last forever. The Chinese will need to find a long-term solution, maybe with vaccines. Then you have the war in Ukraine, for which we have no visibility at all. What has made us more conservative in our forecasts than our competitors is we don't see the relief that the industry had counted on in the second half of this year. We are expecting global production to be 74 or 75 million vehicles this year. We were at 73.6 million last year, so we are not far from what was achieved last year.

Faurecia is a leader in emissions controls, but as the move toward full electrification gathers momentum, how do you see that business evolving?

First, I want to note that costs for battery-electric vehicles have increased by 3,000 to 4,000 euros in the past six months [because of raw materials pricing]. And with the increase in EV volume, government incentives will have to be absorbed by the consumers and automakers. For the moment, the economic equation is not favorable. That's one point. Another point is that we are lacking charging infrastructure and infrastructure to bring energy to different locations. So, there are intentions, and we understand the intentions, but maybe we will also see some pragmatic decisions in the way we will deal with it. Zero emissions will happen. Climate change is of such importance that we have to do it, but we also have to consider “well-to-wheel” impacts. If we are obliged to produce electricity with coal, then putting a significant number of EVs on the road is not a solution. Time will tell us what the real rhythm [of EV adoption] will be, even if the end point is clear. 

What does that mean for Faurecia’s profits?

For us, our internal-combustion engine exposure won't exceed 10 percent of our sales in 2025. No automakers have started to develop new internal-combustion engines, which means that the engines we have are the ones that will equip the vehicles until the end of ICE and this is providing an interesting business. It will be necessary to continue to improve them, of course, but with limited R&D and capex. That also means that [emissions] regulations such as Euro 7 will mean increased content, so even if volumes go down the content will compensate, at least partially, for the loss of volumes. What's also important is the residual value of this business, and for many companies that might be negative. That means at the end [of internal combustion] you will have to restructure. But our hydrogen business should mean that we won't have to. 

Speaking of hydrogen, you have won a number of fuel cell contracts -- SAIC, Stellantis, Hyvia, Hyundai, the state of California -- recently. Is the market developing faster or slower than you thought?

It's developing at the pace we forecasted, but it's a race against time, because if you don't win the main contracts that are put on the market now, you won't have the volume to industrialize the system. The first one to have that will have a significant cost advantage for the next projects. At the beginning of the race, everyone can pretend that they are winning, but when the race in launched you can see who is ready.

Are we ready to put hydrogen heavy trucks on the road?

We have the technology to do it, and the infrastructure is not a big deal. In Europe we have logistics corridors, and it’s very clear where trucks have to stop, to take a break or refuel. In European corridors you don't need more than 400 refueling stations. That said -- and this is different than what I would have said two or three years ago, I don't think this is the main market for hydrogen. I think it will be light-commercial vehicles and and light trucks in the U.S. They're big, they need power and autonomy, and batteries alone are not the right solution. 

Is true "green hydrogen" -- using renewable energy to extract hydrogen -- possible?

Hydrogen has to be green, because that's the essence of hydrogen. Producing it with oil or coal doesn't make sense. Only through renewable energy will we have hydrogen at volumes and costs that make sense. 

Are your seating customers interested in using more renewable or recycled materials, and are they willing to pay more?

The answer is no. Why? Simply because consumers won't pay more. We have to find new solutions. We clearly have to work more on the recycling part, on the circular economy, on repairs, and so on. The other thing that will change, and it's not limited to seating, but more for the full interior -- I'm not sure consumers will accept to see their mobility assets depreciating the way they are today. A vehicle loses 25 percent of its value in the first year. Maybe we will have the possiblity to upgrade vehices to maintain their value, not only the electronic part over the air, but also the hardware, because their life cycles might increase. The maintenance of an EV is significantly lighter and easier than a thermal powertrain. If your car can be maintained at a very high level there is no need to replace it, so long as it’s fulfilling your needs. These needs might change during the time you own it. You might start out single and five years later you have two kids, so maybe the vehicle can be adjusted for these new-use cases, and we can do this with hardware changes, such as reconfiguring the interior. 

What can be done in the interior of an EV to save energy?

I'm not sure it’s necessary to have the same information on three different displays, which is sometimes the case today. And I'm not sure that we need to have active functions that you have no intent to use. With algorithms, you can significantly reduce power consumption; for example, you can really make a difference on displays by considering the light coming from the outside and people's habits. And, take the seat: It's reasonable to have an electric backrest because you are moving it quite a lot, but do you need an electric adjustment for the position of the seat? Your legs don’t usually change geometry, and moving from one position to another takes a long time. You can have mechanical adjustments with memory. We have to reconsider some of these things, and maybe we need to be a little more frugal with the technology. Some vehicles give me the impression that engineers are competing to see how much technology they can pack inside the car. Is it really of value for the end consumer? I'm not sure.

What can you gain with the most advanced energy management? 10 km of range? 

Oh, more than that. it's significantly more than that.