Car parts suppliers adapt to autonomous cars

November 13, 2018 06:01 CET

Valeo has kept pace as the automotive industry moves toward more electrification and autonomous driving technology. The company, which is a leader in traditional parts such as windshield wipers, is also a pioneer in future technologies such as the lidar systems that will be crucial to self-driving vehicles. Valeo CEO Jacques Aschenbroich spoke to Automotive News Europe Correspondent Peter Sigal about how the French company is adapting to the industry’s game-changing megatrends.

Valeo is a leader in 48-volt technology. How do you see this sector evolving?

A few years ago, it was relatively limited, mostly for stop/start technology. After the very fast decline of diesel – faster than anybody expected — the mild hybrid started to become mainstream. In the years to come, probably every gasoline engine will have some form of mild hybrid. When we look at the global market, we believe we will have a 35 percent to 40 percent market share for 48-volt mild hybrids. We have strong competitors, but we have a very solid technology and we have been able to optimize our process and products.

As Europe and China move toward full-electric vehicles, is mild hybrid an interim technology?

If we look ahead 10 years, the size of the battery-electric market will be about 10 percent to 15 percent of the total, depending on the country. So 85 percent of the market will be mainly gasoline — and that market will have a very high proportion of 48-volt mild hybrids.

How will the technology be used?

Today, we are used to a car that isn’t specialized — an internal combustion car can be a short-range city car or a long-range highway car. But we think there will be a market for small city cars. At this year’s Paris auto show, we presented an all-electric urban prototype powered by a 48V Valeo [electric] motor. It can reach 100 kph, has a range of 150 kilometers and does not emit any CO2. It would be a dream to be able to drive 100 kph in a city such as London, Paris or Frankfurt! The technology to power this car can be 48-volt based, so having a car would be much cheaper. It could solve the problem of cities banning internal combustion or diesel. People who live in the city center could still own a car.

Jacques Aschenbroich: “We have strong competitors, but we have a very solid technology.”

You are a leader in sensors, cameras and other autonomous driving technology. What applications do these future technologies have today?

You will have two markets for autonomous cars. You will have robotaxis, which will come very soon, probably starting in the U.S. with Waymo, and autonomous cars that you and I can buy — that will be a long way off. However, advanced driver assistance systems today have all kinds of sensors, and Valeo has the automotive industry’s broadest range of sensors. That helps us develop complex software that will fuse those sensors together for autonomous driving.

Most people agree that autonomous driving will not be possible without partnerships or alliances. What are your key partnerships?

It will all depend on what part of the value chain you want to be involved in. Where we absolutely want to be involved, where we don’t need partners, is in the sensors and the first level of software. Of course, we have a well-known partnership with Mobileye [which makes frontal cameras], which has significant orders, but we are the only one today with lidar on the market. That is our territory. Then you can look at the top of the pyramid, where you organize self-driving networks. We have to understand how it works. But I’m not really convinced that’s a market for suppliers. Waymo and our traditional customers, the automakers, invest a lot in that part of the business. If we put too much money there, we will one day become a competitor of our customers. That’s not what we want to do. We might have a strategy and positioning in the value chain that is quite different from some of our competitors. That’s good.

The EU is considering emissions targets for 2030 that are 35 percent lower than those planned for 2021. What does it mean for Valeo and large suppliers in general if you need to reduce emissions by 35 percent in 2030, instead of, say, 20 percent?

I’m not sure it’s a problem for the supply industry. It’s a problem for the whole industry. Achieving a 35 percent reduction over what we have today means a very, very big proportion of electric cars. The industry as whole is ready but the questions are: Will the consumer be ready? And, will the cost of such a device align with what consumers can afford? During a dinner with industry leaders French President Emmanuel Macron made a very interesting suggestion. Instead of just talking about 2030 standards for new cars to solve the pollution problem, could we find a way to accelerate replacing older cars, which are emitting most of the air pollution? It’s an interesting concept: How to balance the short and long term?

How would a fast changeover to electric cars affect your employment, manufacturing or engineering operations?

In our business, we are “local for local” — for Europe we produce in Europe, for China we produce in China. The intercontinental flow is minimal; thus capital expenditures and employment would probably be neutral globally. In the last 10 years we have reduced our exposure to diesel, so we won’t be affected as much as some competitors [by the decline of diesel sales]. We do have a significant business in clutches and transmissions that would be affected, but on the other hand, if we keep moving ahead with inverters, battery chargers and DC to DC inverters for electric cars, in terms of manpower it would be equal. The question becomes: Where do we invest? That will be related to the attractiveness of various countries.

Thermal management — including heating and air conditioning — is one of your core divisions. How will that change as we move toward more electric cars?

In electric cars, an electron can be used only once — to heat or cool the car, or to move the car. The competition for the electron will be extremely high. We have a lot of concepts that we are presenting to our customers to optimize the management of air conditioning. I’m confident that we will be able to sell them.

Mass-market automakers such as Renault and PSA are preparing a range of plug-in hybrid models. What does this mean for Valeo?

It’s not clear what will be the balance between full-electric cars, hybrids and gasoline-powered cars. For us it’s the best of several worlds. If it’s a world where we have lots of electric cars, very often they will be based on high-voltage technology – which is what we develop together with Siemens (in a joint venture). Some hybrids, or even electric cars, will use 48-volt technology. The consumer will ultimately decide, and we are well positioned in each of the market segments. For us the only question is the speed at which each one of those segments will grow.

Meet the boss

Name: Jacques Aschenbroich
Title: Valeo CEO
Age: 64
Main challenge: Ensuring that Valeo remains a leader in the fields of powertrain systems, thermal management, visibility and comfort as well as driver assistance.

Are there any gaps in Valeo’s portfolio right now?

It would be arrogant to say that nothing is missing. We have made some acquisitions in the last two years — Gestigon in telematics, FTE Automotive in actuators, Spheros in thermal management for buses. We have also become a majority shareholder in lighting supplier Ichikoh, and we have formed a cooperation in Korea (with PHC, for torque converters). It’s strange to say it that way when we have done five moves, but they were relatively small acquisitions, a few hundred million euros each, except Ichikoh, which was close to 1 billion, but our main driver is organic growth, so I don’t expect to make any significant acquisitions in the quarters to come. We will continue to invest in our technology.

We have seen more and more suppliers spin off or sell divisions that they do not consider to be central to their core strategy. Can you look at your portfolio and see any divisions that do not fit with your long-term strategy?

No. We see more and more joint development between our four business groups. None of them is in any strategic dead end. All of them are very much on top of the evolution of technology. We have the financial means to grow all of them. For example, we are the worldwide leader in sensors, and we are a leader in wipers. If you wear glasses, and they are dirty, you are blind. If you imagine a car where the lidar sensor is dirty, it’s the same problem. We have developed technology where we use our wiper and our driver assistance business to offer a whole system — the sensors and the way to keep them clean.

In July, Valeo cut its profit forecast for the year, citing the effect of the introduction of WLTP and RDE type approval tests. What led you to change your forecast?

There is a saying that “to be right too early is a big mistake.” We were the first to say that we were seeing a major impact from WLTP on the European market, and we are seeing the Chinese market go down at the same time that raw materials prices are going up. When we said that at the end of July, several of our competitors said, “No. Everything is normal.” Then in August one of those competitors issued a major profit warning, and everybody realized there is a major problem with WLTP in Europe.

What is your outlook for the overall European market for the next 12 to 18 months?

The European market, except for WLTP issues, is on a positive trend. Now, will that trend be broken by political decisions? I hope not. We are in a world that has become much more uncertain. There was a big uncertainty in North America with the renegotiation of NAFTA. It looks like the agreement that has been reached is the best we could expect, although we do not know all the details. There’s a big uncertainty in Europe — Brexit — and nobody knows what is going to happen. We don’t know yet if it will be a hard landing or a soft landing.

What will Valeo be like in 10 years?

In the last 10 years, we have been able to position ourselves in the market segments that are growing the fastest and will impact the automotive industry the most – electrification and driver assistance. There are lots of products and market segments that will grow from those trends. So, if we continue to make the right choices, we will keep our leadership in each one of our businesses. A leader doesn’t mean the biggest, it means the one that is leading the market trends, and that’s what we hope to be.

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