Valeo ready to build on 48-volt, self-driving successes, new CEO says

Christophe Perillat has taken the top executive position at Valeo during the most challenging period for the auto industry in recent memory. He steps into the shoes of longtime CEO Jacques Aschenbroich, who helped build the French megasupplier into a leader in 48-volt electrification, ADAS and lidar, and set up a joint venture to produce electric motors with Siemens. Perillat talked to Automotive News Europe News Editor Peter Sigal about his vision for the supplier at Valeo’s new headquarters in Paris.

You worked under former CEO Jacques Aschenbroich for many years, most recently as chief operating officer. So, you know the company very well. What is your vision for Valeo?

I strongly believe that the transformation that we are seeing in the auto industry is huge, and it will also change the value chain. So, we looked very carefully at how we can not only prepare for that transformation but also be a leading actor in it. In our Move Up strategic plan, we are focusing on key areas where we have developed the right technologies, which are the acceleration of electrification and the acceleration of the ADAS business. And although these are the two main trends, they have consequences on the rest of the car, for example, what I call the “lighting everywhere” effect -- everywhere around the car, inside the car -- and a reinvention of the interior experience because space has been freed by the [removal of the] combustion powertrain.

Move Up is a very simple plan. It's about accelerating growth by focusing on the megatrends of the industry. It's about reducing our cost because at the end of the day we have to be competitive. And it's about making more choices in our product portfolio, and this is where I announced divestments in the order of magnitude of 500 million euros worth of assets.

Valeo has a very strong electrification portfolio, with Valeo-Siemens eAutomotive and your leadership in 48-volt mild hybrids. Do you see that as something you could spin off?

We are doing exactly the opposite, because when we acquired the Siemens shares of Valeo Siemens [a deal expected to close this summer], we decided to integrate it in our new powertrain business group. That will mix conventional and low- and high-voltage electrical activities. The technologies and the competencies for the two technologies are extremely close to each other, so to be prepared for a huge acceleration of high-voltage electrification, I can count on the people, the expertise and the knowledge that today is focused on low-voltage. And it's going to be easy for me to put them under one roof and benefit from a scale effect.

How much longer will 48-volt be a viable market, given the trend toward high-voltage electrification?

We believe that this market will continue to grow until 2030. It is true that beyond 2030 there might be a decrease in passenger car applications, as BEVs [battery-electric vehicles] take most of the share of car production. But at that time, we believe that a lot of adjacent markets will open up. Everything that has wheels and is light can be moved with 48-volt power, and much cheaper than high voltage. We recently started a 48-volt bike motor business, and we already have 14 brands committed to Valeo. Motorcycles can be and will be powered by 48-volt systems. Three-wheelers as well -- we have significant orders in India for 48-volt technologies to power the big rickshaw three-wheelers that are common there. It can even power light four-wheelers such as the Citroen Ami [electric quadricycle], which uses our 48-volt technology.

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.

Valeo has produced nearly 200,000 lidar systems, and the Mercedes S-Class, which uses your Scala system, has just won approval for Level 3 driving on German highways. How do you see the lidar market developing and what will you do to maintain your leadership?

We have the feedback from all these products that are on the road. They have been on cars that vibrate, in hot and cold temperature. We have more than 500 lidar patents. So, we have accumulated a tremendous knowledge, not just in design but also in manufacturing. Our third-generation Scala lidar isn’t a totally different product, but we have improved some components that multiplied the resolution by a factor of 20 beyond the second generation. It will have a larger field of view and more resolution points. It's a much better product.

How do you see the overall autonomous/ADAS market developing?

We are really seeing a dramatic increase of [SAE] Level 2. More than 50 percent of the cars on the road in 2030 will be Level 2, which is a tremendous growth opportunity. We have produced 1.5 billion sensors in the last 30 years. We are going to produce 1.5 billion sensors the next five years. There’s difference between Level 2 and Level 3 in terms of responsibility, and in terms of whether it is a so-called autonomous car. But in terms of sensor fitment it doesn't change much. There are a lot of cars that are Level 2 Plus, which means the responsibility remains with the driver, but the car is stuffed with more and more sensors -- cameras, ultrasonic sensors, radar, lidar around the car, inside the car.

There will be just a small percentage of cars with Level 3 in 2030, but when there is a breakthrough on that level, the rest of the market will follow with increasingly advanced assistance systems. We are behind the only Level 3 cars in the world, the Honda Legend in Japan, and the Mercedes S-Class and EQS in Germany. We are very happy being the engineers who have been able to do it. But when we do that, we are improving our sensing capabilities. We are improving our lidar capabilities, our camera capabilities, our ultrasonic sensors capability, our radar capability.

Why are the announcements of the first Level 3 cars important?

There are limitations to the use of the car, as you know, 60 kph for the Mercedes S-Class. But it's not a small improvement, it's a real step forward, because it's going to be easier to go from 60 to 80 kph and then to 120 kph, than to make the first use case happen.