Will Vitesco outperform the market?
That's hard to say because the situation is still volatile. Despite this, we have adjusted our guidance upward to increase revenue to 9 to 9.2 billion euros from a previous outlook of 8.6 to 9.1 billion euros for the full year, up from 8.3 billion last year. We expect to improve our EBIT margin to 2.3 to 2.5 percent from 1.8 percent last year. So, we will have a robust 2022. When it comes to 2023, it's too early to make a prediction, but we are sticking to our goals of having 5 billion euros in sales from our electrification business unit by 2026, up from 888 million last year, and 10 to 12 billion euros by 2030.
How is raw materials inflation affecting you, and how are you offsetting this?
For steel, aluminum, copper and so on, we have clauses in our contracts for most of our raw materials to base pricing on an index. Therefore, if the steel price goes up, we are compensated by our customers for the difference during a certain time period. Throughout 2022, we have had really constructive discussions with our customers on both categories.
How exposed is Vitesco to a potential gas shortage caused by Russia’s decision to limit supplies to Europe? Are you replacing natural gas power with other sources?
That is not a direct headache for us because we use very little gas to power our production processes. We mostly use it for heating purposes at our facilities. The bigger risk is that we are hit indirectly, for example, if steel production is reduced or stopped because if they can't run their plants then cars cannot be built. Based on discussions with our customers, we have the understanding that the risk is being well managed. Therefore, the impact will not be as high as some people predicted two or three months ago.
What are some of the key lessons Vitesco learned from the chip crisis and how with this help you better offset this problem in the future?
As an industry we learned we need better information, and it needs to cover a long period of time. That is a change because this industry has a legacy of: I order, then I get. This game is more or less over because we now have components that you have to plan two or three years in advance to get. We have more and more customers giving us data not only for 2023 but also for 2024. Having this long-term outlook has made it much easier for us to negotiate with our suppliers. Another trend is that we no longer give our suppliers orders for a range of the volume we will need; now we give them firm orders. If we continue to move in this direction, we will have more transparency, better data and therefore we can better secure our capacities.
Is there a way for suppliers to buy and sell their chips?
Yes, there are platforms offering this. It's anonymous so you don't know which company is offering what. The company sends in the information with the complete specifications. The goal is to manage the information of who has what to help optimize the overall situation.
Which chips are hardest to get and why?
It's the chips that are more specific for automotive applications because we normally use them for 10 years and longer. That means you're using an older technology, for instance 60, 80, 90 nanometers technology, when the trend in the chip industry is to go down to 20, 10 or even fewer nanometers. Naturally, chip suppliers will invest in 20 and 10 nanometer technology, and they don't want to invest in bigger sizes because to them it's old technology that they consider outdated. But the automotive industry can't follow this trend of redesigning things every two to three years because that would be extremely difficult for us. That is the unfortunate situation we are in.
Are you concerned about de-globalization?
We are not seeing a trend toward de-globalization, although we are seeing some countries introduce stricter rules on imports and exports. Our answer to this is to produce 90 percent of our demand for a particular market in that market. That is why we have production in places such as China, Korea, the U.S., Mexico and Europe. Therefore, this trend is not impacting us. What would have an effect is if China said there could be no more European products or no more U.S. products in the country. But they can't afford to do this because they are exporting to the U.S. and to Europe.
With the EU’s decision to mandate zero-emission sales in 2035, how do you see the electrification market developing by then?
We somehow anticipated that decision and I have been saying for a while that I don't see the combustion engine surviving beyond 2035, especially in Europe. As a result, in Europe we will see an even steeper ramp-up of electrified powertrains, which plays in our favor because our content in an electrified car is five times higher than in a combustion car. The sooner that electrified vehicles come into the market and gain market share the better for us.
How do you see the plug-in hybrid market developing?
We consider all hybrid solutions as a bridge technology. That is why we don't specifically develop products for plug-in hybrids. We have platforms for inverters, motors and so on that can be used in plug-in hybrids as well as battery-electric vehicles. So, wherever the market goes, we can follow. Based on the data, by 2030 the trend will be heavily toward battery-electric vehicles. They will be the winner of the race.
What are some of the potential roadblocks to EV adoption, and how are you preparing for them?
If you completely change from one technology to the other one, there will always be roadblocks. I don't see the cost as a roadblock because if you look at the total cost of ownership, battery-electric vehicles even without any incentives are already cheaper than comparable combustion cars. That includes maintenance and consumption. It is the cheaper way to be mobile. What continues to be a challenge is the charging infrastructure. I have had a battery-electric vehicle for six months and have driven 22,000 km during that time, and I find that the charging infrastructure is the biggest hurdle to adoption.