Veoneer boss expects to reach key milestone this quarter

Radar and driver-assistance software specialist Veoneer expects to achieve a key financial milestone. In the final three months of 2020 the Swedish company is on track to have organic sales growth for the first time since it was spun off from Autoliv in 2018. CEO Jan Carlson shared the company's outlook for the rest of 2020 and for 2021. He also explained why the move to full autonomous cars is taking longer than expected and outlined the big potential Veoneer sees from its collaboration with U.S. tech giant Qualcomm. He spoke with Automotive News Europe Managing Editor Douglas A. Bolduc earlier this month via video chat.

What is your outlook for the fourth quarter? Are you still expecting to achieve organic sales growth in the period?
Yes, things look good so far. The outcome should be organic growth for the first time [since the company became operational in 2018]. That is something we are really looking forward to. We also said our RD&E [research, development and engineering] would come down [by a net $100 million] and we are on track to do that too.

For the full year, however, are you still estimating a $250 million hit to organic sales because of lower demand caused by the pandemic?
Yes, I think that we will be in that ballpark. We haven't seen that much of a hit lately, in fact, we have benefited from the same rebound as many companies in the industry. This is a bit strange given the circumstances caused by the second wave of the virus.

How much of an impact have the new lockdowns in Europe had?
It's not that visible at the moment. We haven't seen any big declines due to the second wave as demand is holding up. But as I said, that is a bit odd given the severity of the second wave that is hitting all of us.

What is your outlook for 2021 for Veoneer and the industry as a whole?
For Veoneer I think the first half will continue to be strong because of high global demand. This will further accelerate our organic growth in 2021. For the industry as a whole, IHS Markit is forecasting western European sales will increase by 12 percent next year to 14 million units and global sales are expected to rise 9 percent to 82 million, both increases come after big declines in 2020. A lot of this will depend on the distribution of the COVID-19 vaccine. Assuming that goes well, I think things will gradually go back to normal.

Veoneer cut $100 million from R&D and expenditures to reduce the company's operating loss and conserve cash. Will that be enough or will the cuts have to be deeper?
We will continue to drive efficiency at Veoneer so we can continue to reshape the company to make it more focused. This will include utilizing partners whenever possible for things such as application engineering and scalable types of activities. This has been fruitful for us. Therefore, we will continue to look for ways to increase our efficiencies, but we will do this without sacrificing on technology because we need to maintain a technology edge.

How much of a hit did your work force take because of the pandemic?
We reduced our work force by about 500 people. The head count was approximately 5,000 at the end of the third quarter in 2019 and about 4,500 at the close of Q3 2020. We also outsourced some employees to subcontractors.

How is your collaboration with Qualcomm developing?
If you look to the overall ADAS market, it is estimated to grow to $40 billion to $50 billion by 2030 [from about $10 billion now]. We are trying to attack the market with a product that combines our drive policy and perception stack with the new-generation of Qualcomm's Snapdragon Ride platform. We aim for SOP [start of production] in 2024. To achieve that we said in August that we will need to get our first order within 12 months.

What level of autonomy will your jointly developed product offer?
At the start, our focus is will be on Level 2 [advanced driver assistance systems already offered on many cars] and Level 2 Plus, but we expect to see some interest for Level 3 [in which responsibility can be exchanged between the driver and the car; however, the driver must be ready if the system encounters a situation it cannot handle] and we will go into Level 4 [self-driving systems] when we see that coming. But for the time being, we are seeing the greatest amount of interest for Level 2 Plus.

What does Level 2 Plus mean at Veoneer, because it is not an officially recognized level of autonomy?
Although the car can do more, meaning the driver can be assisted to a higher extent at higher speeds, the driver is still responsible and remains in control at all times. We also believe the Level 2 Plus will require the addition of some type of driver monitoring systems to make sure the driver remains in control.

What about Level 3 autonomy?
We are not limiting ourselves to Level 2 Plus. For the time being, that is where our customers predominantly are. When demand rises for Level 3, we will also move into that. But for the time being, it's the lower levels that have the bigger volumes and wider interest.

Did Veoneer need to collaborate with Qualcomm to replace capabilities it lost when its Zenuity joint venture with Volvo was broken up?
I don't think it has replaced anything that we had with Zenuity. Qualcomm had very little software capability at the level where we are, and we did not have any SoC [system on chip] partner. It's a very complementary partnership.

Zenuity lasted for just three years. Does that mean it was a failure?
Zenuity was a great thing for Veoneer, and I believe it was also great for Volvo. We did something together that we couldn't have done alone. For Volvo, it was important to develop a better, more advanced [autonomous driving ] system as fast as possible, which they have and they will continue to develop. For Veoneer it was important to have the ability to have products that could be offered to the bulk of the volume market. Also, the joint venture was launched in 2017, and since then the pace of the industry's acceptance of self-driving cars and the speed of development of the technology have changed.

What was the key technology that Veoneer took with it as part of the breakup?
We took responsibility for Zenuity's Z1 software and integrated that into our perception stack or perception layer of our visions systems. So we combined the drive policy layer, the decision-making layer with the perception layer into Veoneer. Thereby we became complete when it came to the software, but to run that software we needed a competent SoC partner.

Did Veoneer seek out Qualcomm or vice versa?
When Veoneer announced it had the complete software stack [for advanced driver assistance systems], the interest came from Qualcomm to further explore a deeper collaboration. They realized that the combination of Veoneer and Qualcomm could become a leading player in this area in the industry.

A moment ago you mentioned that the industry overestimated the speed at which autonomous driving would become a reality. What happened?
The industry got carried away with what the technology was capable of without fully realizing how much validation was still needed, how much legislation was needed and that we would need to manage people's behavior, likely with the addition of driver monitoring systems. Therefore, it will take longer for full autonomous driving to become a reality than what we originally thought, but this will come. In the meantime, we as an industry are gathering a lot of the experience and data on how to support drivers and improve their experience. Overall, the pace of change is accelerating in the industry. We are getting used to more technology in the vehicle and that will push driver assistance systems into the vehicles at a higher pace. I'm optimistic and excited about this, even if it's cumbersome for the supply base because at the end of the day the overall traffic environment will be better.

What is the new timeline for full autonomous driving to become a reality?
While it's still hard to say, I think you will see some pockets of it on this side of 2025. That will grow in the second half of the decade.

Does Veoneer need to add long-range lidar to its portfolio?
We don't think lidar will be a very common solution in passenger cars for systems below Level 3. But we think lidar will come, which is why we have a non-exclusive relationship with Velodyne for robotaxis. We also working in-house on short-range lidar. In addition, we continue to monitor the development of other technology in this space.

Your active safety unit is closing the sales gap on the restraint control systems unit. It trailed by $39 million through three quarters of 2020 compared with a $63 million gap during the same period of 2019. When will the active safety unit become your sales leader?
For several years we have seen a higher order intake for active safety than for restraint control systems. About two-thirds of our order intake is for active safety. We have seen this with our 2020 launches, and this will be continuing in 2021. Therefore, active safety will pass restraint control systems soon.

What is the growth potential for active safety?
Between 2020 and 2025, we expect both the market and ourselves to grow by more than 20 percent annually, and we expect to gain market share. Meanwhile, the airbag controller piece [which is part of Veoneer's restraint controls unit] is growing more or less at the same pace as global light vehicle production, which is a totally different number. So, if you want to be in a growth space, you better be in active safety.

What are your top active safety products?
We have eight customers for our vision systems and 13 customers for our radars. We are also introducing software features that came from Zenuity and have been further developed by Veoneer.

At the end of 2019 your order book was approximately $19 billion. Will that number be higher or lower at the end of 2020?
The end of 2019 included our former brake unit, which we accounted for about $4 billion dollars in orders. Also affecting orders is the overall decline of about 10 percent in global light vehicle production because of the pandemic. Therefore we expect the number to be lower. We will provide that number at the beginning of 2021.

Veoneer has completed a number of divestitures? Are you now back in the market to make acquisitions?
We are in a very strong execution mode right now with the technologies we have. We also have an interesting opportunity with Qualcomm that provides an ocean of opportunities for us. We have a strong product portfolio program in all our core technologies -- radars, vision systems and airbag controllers. So, I think we are in a good place. That being said, we have cooperations with Velodyne for lidar and with Seeing Machines for driver monitoring systems, and we are always scouting out new technologies both on the software feature development and sensor sides. So if anything of interest presents itself, who knows, we may take a look at one. But that is not our top priority today.

A rival supplier says it has a scalable advanced driver assistance system sensor platform with central processor that cuts the integration cost of Level 1 to Level 2 Plus solutions by up to 90 percent, if an automaker deploys it across all new car launches, and 50 percent savings if the automaker's cars use different electrical architectures. Does Veoneer expect to achieve equally huge cost savings?
I have not heard of a 90 percent reduction in cost. If someone says that is possible, I would want to know more about how that was achieved. That being said, you can definitely drive down costs with the scale effects of deploying a technology throughout a fleet. I think this area of the business is evolving, which is why we started a collaboration with Qualcomm, because the industry is undergoing a step change as central computing gets introduced to the architectures.

How much of a cost saving will Veoneer be able to provide?
I wouldn't be so bold to give you a number, but if you can avoid having the development cost again and you can depreciate your investments and the R&D over a higher volume it is possible to drive down costs. This is coming. It will be no different than the price reductions we see when advanced consumer electronics products are sold at a high volume. It's a natural evolution that the auto industry should be ready to handle.

How has COVID-19 changed the way Veoneer does business?
We have cut back on travel. For example, I used be on the road about 180 days a year, and I have not been on an airplane since February. This is the same throughout the company. We also have more than 4,000 Veoneer employees who are working from home. That affects how we do business and how we interact with our customers. Like so many companies, we are using Teams a lot more to meet with customers and to meet internally. This has been working relatively well.

How has it affected your launches, which this year have included the Mercedes-Benz S-Class, the full-electric Volvo XC40 Recharge and the Subaru Levorg?
We are in an unprecedented period for the company when it comes to the number of launches we have had in 2020, and this will continue in 2021. We have been remarkably successful with the launches. I have to give a lot of credit to our team and to the customers for working so closely with us to make them happen.

What has been the key to this success?
It's been a combination of our strong relationships with the customers and their willingness to work together. I give a lot of credit to the Daimler team, the Volvo team and the Subaru team. All of them were extremely cooperative. Despite the pandemic, we had a number of Subaru people coming to our plant outside Gothenburg from Japan because we are launching a stereo vision camera with them. We also went there. The same is true for Daimler and Volvo, although they are a lot closer geographically. The key to making this work is maintaining a strong relationship.