Webasto's 2018 global sales dipped 2.2 percent to 3.4 billion euros ($3.8 billion), ending an eight-year growth streak. The decline means the German supplier will need to increase sales by roughly 46 percent to reach its target of 5 billion euros ($5.6 billion) by 2020. Webasto Chairman Holger Engelmann discussed this challenge and more with Automotive News Europe Managing Editor Douglas A. Bolduc.
Can Webasto still reach its global sales target of 5 billion euros ($5.6 billion) by 2020 after last year's decline?
We remain optimistic but we know that with the current market situation it is more than an ambitious target especially since we are committed to investing in our future. Though we are growing, no one really knows how things will develop when you hear news about tariffs here and political changes there every day. If it is exactly 5 billion euros ($5.6 billion) by 2020, time will tell. Achieving this won't just be due to the contracts and orders we already have on hand, it will largely depend on volumes, which are highly impacted by the overall economic situation, making them difficult to predict.
Earnings before interest and taxes fell 19 percent to 202 million euros ($227.4 million) last year and your profit margin slipped to 5.9 percent from 7.5 percent in 2017. What happened?
Last year we invested heavily in our new businesses. It was roughly 65 million euros ($73.2 million) more in 2018 than in 2017. This pretty much explains the drop in the result.
Why do you expect Webasto's profit margin to be below 5.9 percent in 2019 despite forecasting higher sales?
In 2019 we will continue to invest in our new businesses and our core business. This will continue to burden our results. Also, being fiscally conservative, we make sure that costs impact our results in the same year we spend the money. Additionally, we see that production volumes are volatile. This leads us to believe that 2019 will be difficult results-wise. Nevertheless, we will maintain our course because we want to grow and we know we need to keep investing in our further strategic development.
Why did Webasto put 271 million euros ($305 million) into r&d and another 248 million euros ($279.2 million) into investments last year?
We did so to build up a battery business and a charging business as well as expand our electrical heating business. These areas of business may contribute more to our costs than our overall turnover at the moment, however, building up three future-oriented businesses should positively impact our results in the years to come. We are convinced that we are moving in the right direction and we will stick to our plan even in difficult times.
What were the key investments and how do they make Webasto better?
We have focused on developing e-mobility products and enhancing our mechatronic competence. In addition we have further strengthened our core business. Our aim is to make our products better and more innovative to ensure we maintain our technical leadership. When it comes to our global presence, we acquired AeroVironment's Efficient Energy Systems business in Monrovia, Calif., [it's now called Webasto Charging Systems] last year. We are also expanding our footprint in China. This year we will quadruple the size of our plant in Wuhan and open up a new plant in Jiaxing. The number of orders that we have on hand requires this.
What will those expanded plants produce?
We will have a mixture in China. Along with roof systems we will produce electronic components, specifically electrical heaters and charging boxes, at the Wuhan plant and roofs and batteries in Jiaxing. To leverage our current footprint, we are increasingly using the Chinese plants to produce components for the new business areas. The aim is to use the plants, resources and competences of our core businesses to help the new businesses grow faster.
What is your industry outlook for vehicle production for Europe, the United States and China?
At best, the global production volume curve will be flat. There will be no growth and there is a high risk of a decline. The question is how severe this is going to be. This uncertainty is due to tariffs as well as the political situations in Germany and Italy. On the other hand, if the U.S. and China reach a trade agreement, things could start quickly moving in a positive direction.
Will Webasto grow faster than the market? If so, by how much and why?
In the midterm, we should grow faster than the overall global market, especially in China. This is based on the growing demand for roofs, which has resulted in a high backlog of orders for us. Factoring in the successful introduction of our new business areas, we will also be able to increase our global sales by offering a wider range of products. Additionally, we have acquired complete ownership of our former joint venture in South Korea, Webasto Donghee, which will contribute sales of roughly 350 million euros ($394 million) a year.
Last year Webasto added the Jeep Wrangler softtop and you were awarded another SUV convertible project. Can you say who the project is with and update us on the development of the crossover cabriolet niche?
For that order we are investing about 40 million euros ($45 million) in our facility in Plymouth, Mich., to produce this new roof for the crossover convertible. We needed additional manufacturing space for this big project. Production will start at the end of 2020. Unfortunately, I cannot provide more details.
What is the outlook for convertibles?
It remains a dwindling but decent market for us. To offset the decline we have integrated the convertible division into the sunroof division, so we now have one roof systems division. What's interesting is that we conducted a small survey during the Shanghai auto show this year to ask visitors to our booth whether they might be interested in buying a convertible in the future. Of the 400 people who took the survey more than 80 percent said they like convertibles and more than 60 percent said they could imagine buying a convertible in the future. Maybe when the environmental conditions become better in China we will see a huge recovery for the convertible. For the next five years, however, we will remain lean and make the best out of the market while being ready to move when the market goes back up.
What is your outlook for panorama roofs and sunroofs?
We still see growth of roughly 4 percent so it is above the growth of car production. This is because demand for panorama roofs in China is outperforming the overall market.
Does the slowdown in China concern you?
The question is: When these projects reach SOP [start of production] will they achieve our customers' volume targets or will an overall drop in the market result in lower volumes? This is a constant risk. When you look at the overall development of the automotive industry there have always been ups and downs. Right now we are coping with a little bit of a down, but we expect things will bounce back.
Your order book is now valued at 22.8 billion euros ($25.7 billion) and 2.6 billion ($2.9 billion) of that is in your new business area. How is that being spread out?
The 2.6 billion euros is spread across batteries, chargers and the electrical heating units and it is more or less one-third per product group.
Last year you said that satisfying higher-than-expected demand for battery systems for full-electric and plug-in hybrid cars was big challenge. What is your outlook for this part of the market and how will Webasto's business develop here?
The battery market is very dynamic and the upward trend for e-mobility has proved we made the right decision to enter the sector. Currently, we are concentrating on the commercial vehicle market. We already have our first order and plan to start production in late 2019 to early 2020.
Who is the customer?
It's a bus manufacturer, but we can't say which one yet.
How close are you to getting into the passenger car market for batteries?
The passenger car market hasn't been our top priority. We believe that in the beginning a high proportion of the battery packs will be produced in-house by the automakers. We have provided quotes to the automakers but we have not received an order yet.
Is the move toward electrification faster than expected and is that why the Energy & Components division was created?
We created one division to put a focus on it. Unlike in our established core businesses where we are the market leader, the units of this division will function more like startups because the market, competition and technology are all still being determined. Therefore, you need to act a little bit faster, which why we organized it differently.