LA TRIBUNE- The automotive industry is going through a period of uncertainty. However, what can you foresee about the outcome of this period?
LAURENT FAVRE – We are currently moving forward with reduced visibility over the coming months and years. This is a first in the history of the automotive industry where growth was often written and where supply chains were locked into pre-established growth models. But this industrial model had experienced the first cracks before the Covid crisis, particularly during the trade tensions between China and the United States. The health crisis has only amplified what we had glimpsed, i.e. the flaws and risks of an industrial model based on interdependence between suppliers and between major regions of the world. There has been a collective realization and what we believed to be a well-oiled supply chain has found its limits.
This industrial model is shaken up by a series of events that are very short-term…
We are not only facing a short-term crisis but also facing a deep and lasting transformation. First, geopolitical tensions are likely to persist. Global warming will also increasingly impact the global supply chain. Until now, we lived in a world of abundance… We must now learn to manage shortages: energy, labour, raw materials… Even recycled materials will run out.
What conclusions do you draw from this in the evolution of the Plastic Omnium model?
We must continue to gain in agility with leaner and more flexible cost structures. We are also going to accentuate the regionalization of our production and our supplies. They were already avenues that we were exploring before the crisis, because that is the meaning of the story. But we have to speed up. There is, however, one question that we cannot resolve. Between public aid, delayed deliveries due to shortages but also with the evolution of mobility behavior, it is becoming complicated to assess the real size of demand. Our assumption is that we will not return to the pre-crisis level. We must therefore be prepared for this scenario. And we have already taken steps by transferring production capacities to more dynamic regions. We recently closed a site in Germany and opened a factory in Indonesia. We believe that Europe will suffer more than other regions of the world. The market is over-equipped, and the regulations, which prohibit the production of thermal cars in 2035, will necessarily have an impact on volumes. However, the decline in the market is trend-setting and global. It will force us to grow by value and no longer by volumes. This is the whole purpose of our transformation plan.
European regulations are a constraint but this can be an opportunity for an equipment manufacturer…
Our concern is that supply and demand are finding it difficult to meet due to price differences that can reach 40%. Moreover, renouncing thermal engines, which were the strength of the European automobile industry against the Americans and the Chinese, is tantamount to putting oneself in difficulty. Europe has not left industrialists the possibility of proposing alternative solutions and is giving up the heat engine even though what pollutes is what we put in it. To impose a technology is to deprive oneself of innovations and potential more sustainable alternative solutions.
You were talking about the transformation of Plastic Omnium. Historically, this group has developed around applications on plastics in automobiles. But in recent years, you have multiplied acquisitions and diversifications…
Plastic Omnium is preparing for the transformation of the automotive sector and wishes to be present in the new value chain by relying on its genes and its industrial excellence. Our customers are reviewing their supply strategy and are now expecting more complete offers from their equipment manufacturers, who must become champions in these new businesses. Thus, in lighting, we made two major acquisitions, that of the German AMLS and that of the automotive lighting activities of Varroc. Lighting is expected to grow strongly in the coming years. Our added value is to combine it with our exterior systems activity. With the disappearance of the radiator grille and ventilation grilles on electric cars, exterior light communication takes on more importance. We are aiming for a billion euros in turnover. It’s the same approach on the fuel cell. We are at the forefront in hydrogen tanks, themselves an extension of our gasoline tank business. But we wanted to integrate the entire hydrogen value chain by integrating the fuel cell into our product portfolio. Each time, we assessed the synergies with our traditional businesses before proceeding with diversification. In 2030, 40% of Plastic Omnium’s 15 billion euros in sales will come from products that we do not currently have in our portfolio.
You have also acquired activities in electrification…
We acquired Actia Power, which is a first step for the Group in the electrification of heavy mobility. We do believe that individual urban mobility will be constrained while the transport of goods is set to develop. We expect a billion euros in turnover in this business.
This diversification will cost you dearly, whether in terms of acquisition costs or R&D investments in all these new businesses. Is it sustainable for you?
We have the financial capacity. We act for the long term, and we are an independent group with a family shareholding which is also part of this long-term approach. All of our decisions aim to invest in technologies that will enable us to maintain our leadership in high-growth segments with very high added value.
Valeo has paid dearly on the market, its investments in its JV with Siemens in electrification…
The assessments of financial agencies count, but are not the only compass for our investment decisions. Nevertheless, we have the will to be self-financing, and to generate, despite our investments, between 3 and 4% of free cash-flow each year. This seems healthy and necessary to us. Yes, it is dilutive in our margin, but it prepares our future. We want to create value for the company.
You will also have to manage cost pressures in the coming months and years.…
The biggest challenge for us in the coming years is the impact of inflation on our costs and our profitability. Logistics and energy costs will be subject to very significant increases. We have no control over these inflationary pressures. The lower you are in the value chain, the more difficult it is to pass on these price increases. Trade negotiations are complicated and the sector must find balanced solutions. We are working on our productivity, with our suppliers, but also on our presence in the value chain of tomorrow.