Valeo CEO: Electrification and ADAS will see 'once-in-a-lifetime' growth

PARIS -- New Valeo CEO Christophe Perillat says the supplier will ride a surge in electrification and driver assistance systems to increase sales by 60 percent in 2025.

Perillat, a 22-year veteran of the French megasupplier, took charge in January from Jacques Aschenbroich, who started his tensure as CEO in 2009 and led the company to leadership positions in 48-volt mild hybrid technology, ADAS sensors and lidar. 
 

Perillat presented his first strategic plan, called Move Up, at the end of February in Paris. Under the plan, Valeo will deepen its focus on technology to be ready for an “explosion” in growth in electrification and advanced driver assistance systems (ADAS) starting in 2025. At the same time, it will divest itself of 500 million euros in “non-strategic” assets to lighten its debt load.

“The electrification and the ADAS markets are beginning a kind of hyper-growth that will last one or two decades -- acceleration that we have never seen before, a once-in-a-lifetime acceleration,” Perillat told investors, analysts and journalists.

Growth in electrification and ADAS alone will triple Valeo’s potential market, he said.

Valeo earlier this year bought out its partner, Siemens, in a money-losing electric motor joint venture, which Perillat says will start generating cash in 2023 after being fully integrated into Valeo’s balance sheet this July. 

At the same time, Valeo announced a major e-motors partnership with Renault Group, which in the past has made the components in-house.

Valeo’s other business areas -- interiors and lighting -- will also benefit, the CEO said. “In a car where electrification and ADAS are present, there is space for more lighting, around the car, inside the car,” he said, and the interior experience can be “reinvented.”

Valeo ranks No. 10 on the Automotive News list of top 100 global suppliers, with automotive sales of $16.94 billion in 2020. It is the fifth-largest Europe-based supplier.

The supplier won’t need to shed so-called “legacy” activities -- those linked to internal combustion -- to stay competitive, Perillat said.

“We are often asked if we have significant legacy business,” he said. “The answer is, no. Products specifically related to internal-combustion engines represented 11 percent of our sales in 2021, and will go down to 4 percent in 2030.”

Products related to EV and hybrids will go to 48 percent from 39 percent of sales during that time frame.

On the financial side, Perillat is aiming for an annual growth of 13 percent until 2025, with sales reaching 27.5 billion euros. Earnings before interest and taxes (Ebit) will be at 6.5 percent of sales at minimum, he said. Free cash flow will be 800 million to 1 billion euros by then.

Those figures represent an increase from 2021, when sales were 17.3 billion euros, and EBIT was 4 percent. Free cash flow was 292 million euros, below expectations.

At the same time, Perillat is seeking to deleverage Valeo, partly by selling “nonstrategic” assets for a value of 500 million euros. He declined to say what businesses might be sold, adding, “I have my list, and I’m going to work with the team as soon as possible to make it happen.”

Perillat said that original equipment (OE) sales would increase to about 24 billion euros in 2025 from 14.8 billion euros in 2021, with 70 percent of that business already on the order books. That will be driven by an increase in overall industry, he said.

“We know there’s going to be a sharp volume recovery increase, and this is going to come soon as soon as the electronic shortage is easing up,” Perillat said, adding that Valeo would see annual growth of 13 percent through 2025, ahead of IHS Markit’s forecast of 6.5 percent.

By business area, he said powertrain would grow at 15 percent annually because of electrification; thermal systems, by 11 percent, also benefiting from electrification; ADAS will see 19 percent growth; interiors by 14 percent; and visibility (lighting and wipers) by 10 percent.

Despite a recent trend toward insourcing of electric components, Perillat said that 40 percent of the high-voltage powertrain business would remain outsourced to supplies, including 30 percent of e-motors, 40 percent of inverters and 90 percent of onboard chargers.

“There’s still room for suppliers like Valeo,” he said.

Valeo’s business for 48-volt mild hybrids, which he called a “transitional technology,” still has lots of life in it, he said, starting with a need for European automakers to comply with the coming Euro 7 pollution standards. And mild hybrid technology could be used as a primary drive system for micro-mobility vehicles such as electric bikes, scooters and three-wheelers, Perillat said, with a potential 500 million euros in sales by 2030.

Other growth areas for Valeo include:

• Thermal management: Because of the need to maintain battery temperatures for safe charging and optimal range, an electric car will have two and a half times the content of an internal combustion car by 2025, Perillat said. Valeo expects sales to automakers to reach 5 billion euros in 2025 from 3.3 billion euros last year.
• ADAS: Perillat said the market was “safety driven,” with increasing regulations meaning higher content per vehicle. Up to 30 percent of premium cars will be equipped with SAE Level 3 automation by 2030, he said, and they will need lidar, an area where Valeo is a clear market leader, with 160,000 units on the road and three generations of its Scala system, which has appeared in cars from Audi, Honda and Mercedes-Benz. ADAS sales will reach 4 billion euros in 2025, up from 1.9 billion in 2021 -- with a 21 percent margin by that time.
• Interiors: The introduction of ADAS and autonomous driving, along with 5G connectivity will lead to a “reinvention” of the interior. “Passengers are expecting more and more from their cars,” Perillat said. “They want to feel in a kind of personal cocoon where they are both at home and safe.” That means products such as head-up displays with augmented reality and “smart” surfaces, increasing content value by 14 percent. Sales will reach 2 billion euros in 2025, up from 1.2 billion in 2021.
• Lighting and wipers: Far from a commodity, Perillat said, there are increasingly high barriers to entry as lighting becomes more sophisticated. Electrification has freed up the fascia from the need for ventilation, so designers can use it as a space to create a brand signature through new uses of lighting, he said, and wipers will be used to keep ADAS sensors clean. Visibility sales will reach 6 billion euro in 2025, up from 3.9 billion euros in 2021.

In many of these areas, Perillat said, Valeo will find added value because of the technological demands from electrification and ADAS. As an example, he cited thermal management: “Radiators and condensors have been the same for 30 years. We have made them better. We have made them thinner, but basically it’s the same technology, so prices have been going down through competition,” he said.

But electric vehicles have much more sophisticated thermal needs, including heat pumps and battery cooling systems. For these new components, he said Valeo can “reset the price at higher levels, or match the price with higher margins, than what it was before.”