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.