Valeo-Siemens has not yet been profitable. What are some of the levers that you can use to reach the margins that you want for Valeo as a whole?
The company has just turned five years old, which means that it’s still a child in certain ways. But during those five years we have created a company that has won the confidence and trust of many customers. It will reach about 1 billion euros in sales this year. It has created eight plants around the world. We have 2,000 engineers in the company and 2,000 patents. Now, how do we turn it positive? We have two levers. The first one is growth, as BEV take rates are going up, because an amount of fixed costs is tied to size. Sales in 2021 were 750 million euros, it’s going to be close to 1 billion euros in 2022 and more in the years to come. The second is cost. We can achieve a lot of synergies -- 120 million euros a year -- just bringing Valeo-Siemens inside Valeo. For example, as Valeo-Siemens grows, it will need more engineers. You can either hire them from the outside or use those who are already within Valeo, such as those working on low-voltage technology. Already we expect to cut losses in half this year.
How is the order book developing for Valeo-Siemens?
We committed to a cumulative amount of 4 billion euros of new orders in 2021 and 2022, and I'm increasingly confident that we are going to achieve that.
Valeo-Siemens will work with Renault to develop and build electric motors, which is interesting because Renault has always made its own motors. What will you bring to that collaboration?
We believe that in the future the overall share of electric motors will be 60 percent insourced and 40 percent outsourced. Renault used to be fully insourced, but they are now thinking about outsourcing some of it. Why? Because they found out that we could bring them something interesting. Renault will continue to build the rotor, without rare earth metals, and Valeo will build the stator, drawing on our experience of producing extremely efficient alternators. It’s about making efficient use of copper, so less in the zones where it is not needed and the maximum density of copper in the zone of the stator where it’s most useful.
Are you thinking about similar partnerships with other automakers, or was this opportunistic?
It's really an opportunistic approach. We had a very good relationship with Renault. But if it turns out that we can have more collaborations either with automakers or with other partners, we will do that. We also have a partnership with STMicroelectronics on silicon carbide technology. So, we are working with automakers in some cases, and on other cases with technology providers such as STMicro. At the end of the day, it's an opportunistic approach. What we want is to have the most affordable, most innovative, most efficient road map for all the products in the vehicle.
Electrification is also going to drive fairly significant growth in Valeo’s thermal control business. Can you explain that?
We think the content per car of the thermal system inside a BEV will multiply two to three times by 2025. First, there is a huge need to cool the battery, especially during fast charging, when you need to extract a lot of calories from the battery quickly. The other part is, I think it's unacceptable for EV drivers to see such a decrease in their range during winter. They bought a car with a range of 400 km. They don't want to see that reduced by 40 percent when the temperature is minus 5 degrees Celsius. It doesn't make any sense to them. Therefore, we see a lot of BEVs turning to heat pumps as a more efficient way to warm the cabin.
Given rising raw materials costs, inflation, the war in Ukraine and the coronavirus crisis, are you still confident of your annual growth forecast of 17.5 percent for high-voltage sales?
Yes, we are. We are hearing two things from our customers. On the one hand, they are announcing quicker and higher penetration of BEVs -- that 100 percent of their cars in Europe will be BEV by 2030, for instance. At the same time they are saying it will be a challenge because of raw materials costs or a lack of charging stations. I think both are true. We were very, very much aware that this transformation would be difficult. We know that it will take a lot of effort to secure raw materials, it will take a lot of effort to grow the technology to where needs to be. It will be a lot of effort to reduce costs. But on the other hand, we also know that the ultimate goal of electrification will happen at the time when it’s predicted to happen, just because it's needed for the overall CO2 equation of the world.
How are you navigating the chip crisis?
The semiconductor shortages have been our daily life for the last 16 months. At Valeo, we have managed to secure our customers and deliver what they have asked us to deliver, 100 percent. It has created a huge amount of work at Valeo that involves all departments, especially supply chain and purchasing. We are developing substitutes and alternatives to be in a position to make quick decisions, in full transparency with customers, to be able to turn around every situation that we had.
What have you changed?
We are giving a more accurate and more long-term forecast to our supply base. The industry typically works with about 15 weeks of forecast. This isn’t working. You need to tell your suppliers what you're going to need, not next week, not next month, but next year and maybe the year after, so we are now giving our suppliers 24 months of accurate forecast.
When do you foresee a return to normal where this won't be your obsession every day?
We see an improvement quarter by quarter, that is for sure. There are some pockets of technologies, families of products or components that are still not produced at the right quantities. But while this was a problem across the board a year ago, now it’s selective.
Are you able to pass through raw materials cost increases, or do you have to absorb more than you would like?
With the average profitability of the Tier 1 suppliers, there is no way we can absorb increased input costs. So, it has to be passed 100 percent -- this includes semiconductor price increases, raw material price increases, transportation cost increases and energy cost increases. We are also seeing salary increases. We are having constructive discussions with all our customers on the topic. On inflation, we expect a net impact on Valeo of 200 million euros for input costs and 60 million euros for salaries.
And we are making very good progress on passing through the cost to our customers. But there is a lag, you are not getting the increase immediately. You might get an increase on July 1 based on the average cost of the first semester, for instance.
Is your relationship with automakers in general better or worse, given all the recent crises and a growing concern about the cost of EVs?
Since 2020 there has been a sequence of crises, and there has never been such a strong feeling in my mind that the automakers need strong suppliers, otherwise they cannot produce and assemble their cars. And on the other hand, there is also a need for suppliers to have strong customers that will help them to grow. Now, how do we reconcile some of the comments we hear? There is a need to reduce the cost new technologies such as ADAS and electrification. And by the way, this is what the industry is doing. But when materials such as steel, copper, aluminum and resin cost more money, this translates into an increase of the cost of the product. I believe the automakers understand that when there is a kilo of steel in the product, it has to be paid at the price for one kilo of steel -- and that if it's not, there won’t be. This isn’t different from in the past. The key is to be transparent with your customers. You have to be supportive and deliver the performance that they expect, and you have to do work on your cost.
