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Grupo Antolin expects strong profits despite chip crisis, increasing price pressure

The drive toward zero emissions is challenging suppliers to reduce the weight of every component. Grupo Antolin CEO Jesus Pascual is working to keep pace with that trend while protecting the supplier’s bottom line despite facing tougher cost-cutting demands from automakers and the chip shortage.

in Automotive News Europe, by Andrea Malan, 20-07-2021


“We are undoubtedly suffering because of the semiconductor situation,” Grupo Antolin CEO Jesus Pascual said. “We currently see work stoppages of days or even weeks at all of our customers.”

The drive toward zero emissions is challenging suppliers to reduce the weight of every component because lighter cars are more energy efficient, and in the case of electric cars less weight improves range. Spain’s Grupo Antolin is working to keep pace with this trend while protecting its bottom line despite tougher cost-cutting demands from automakers, rising raw materials prices and the shortage of semiconductors. CEO Jesus Pascual outlined Grupo Antolin’s strategy in an interview with Automotive News Europe Correspondent Andrea Malan.

How much of an effect has the semiconductor shortage had on Grupo Antolin’s business and what overall impact do you expect?

We are undoubtedly suffering because of the semiconductor situation. We currently see work stoppages of days or even weeks at all of our customers. Therefore, our sales will decline compared with both 2019 and the second half of 2020.

What effects has the shortage had on your production?

Our lighting and electronics divisions are suffering because of shortages, which is why we have created a task force to address these issues. Fortunately, we are not a big consumer of semiconductors so we are suffering less than many of our customers and suppliers.

When do you expect the situation to improve?

We forecast a loss of 2 million units in global car production this year because of the semiconductor shortage, mainly in Europe and North America. On a positive note, we expect our production to exceed expectations in the third quarter because many of our customers that normally shut down their plants during the summer will stay open to try and recover lost output. A true recovery, however, won’t start until the fourth quarter. We expect the crisis to end in 2022. In any case, we believe this will be a one-off problem that won’t cause any lasting consequences.

What makes you so optimistic?

Car demand is strong all over the world. Inventories in North America are at historically low levels and used car prices are rising. In Europe, too, you sometimes have to wait six to eight months for a new car. So, we have some difficult months ahead of us, but once the chip problem is solved, production is going to be driven by this strong demand.

Will Grupo Antolin’s 2021 revenue be lower than in 2019?

Yes. We expect to have 4.3 to 4.4 billion euros in sales this year, down from 5.2 billion in 2019.

When will you return to or surpass your 2019 level?

In terms of profit, in 2022 we expect to beat the 8.3 percent EBITDA margin [earnings before interest, tax, depreciation and amortization] we had in 2019. Actually, we already expect to post better results than 2019 in the last part of this year.

Did the chip shortage have a negative effect on the relations between Grupo Antolin and the automakers?

The chip crisis is happening as we deal with other challenges such as the recent rise in oil and commodities prices. And we are not finished with the pandemic, which triggered a sudden drop in our volumes, for which we need to be compensated. All these issues have impacted our good relations with our customers. In addition, the current level of overcapacity within the industry means there is intense competition in the market between suppliers.

Could you elaborate?

I’ve been working in this industry for 37 years and every year customers have asked for  price cuts. Over the last few years the requests have been for cuts of 5 percent annually. This is currently being driven by the huge investments automakers are making, particularly in electrification. They are now asking for significant price cuts as a prerequisite of being assigned any production program. At the same time, volumes decline and material prices rise. We can reduce prices when possible, but we are unable to deliver on every cost-reduction target that customers ask for. To cope with this pressure, we have worked hard over the last two years to improve productivity. Our ability to increase profitability this year compared with 2019 is because of a dedicated effort to cut our own costs.

What measures did you take?

The company is speeding up its digitalization programs in production, sales, invoicing and more. As part of the shift to Industry 4.0, our focus is on quality, maintenance and internal logistics. We will start to see the positive effects of these projects in the short term. It’s in our hands to be more competitive. In this sense, we are also analyzing our footprint in Europe to possibly reduce our fixed costs.

Does the plan to reduce your footprint in Europe put factories in your home market of Spain at risk? Can Spain remain competitive in this new automotive landscape?

The fact we will reduce the footprint in Europe does not mean we will do it in Spain, where we have very productive factories. But as I often tell the unions, Grupo Antolin does not produce in Spain because we are Spanish, but because we can be competitive in Spain. This has to be the mentality of the workers in Spain. As long as we are able to maintain top level productivity and quality, we will have factories in Spain. That is not only true for us, but for the entire Spanish automotive industry.

Will the merger of PSA and Fiat Chrysler Automobiles that created Stellantis put additional pressures on suppliers?

The competitive landscape has clearly changed in Europe. We are now down to just two very big customers: Volkswagen Group and Stellantis. The formation of Stellantis will impact suppliers because the new group wants to achieve synergies. Therefore, if you want to get some projects from Chrysler, the group review the business that you have with PSA and will ask for synergies. We have already faced this situation with Volkswagen. Big interiors suppliers such as us will face more frequent competition with our direct rivals, but it is the smaller suppliers that will suffer the most. I’m talking about companies that deliver locally to PSA or FCA. They will have a hard time because they do not have the capability and global reach to leverage.

You mentioned the need to make huge capital investments. The percentage of your revenue reinvested into R&D peaked at 7 percent in 2018 and you told us last year your target now 6 percent. Did you cut investments last year due to the pandemic?

We invested 7 percent of sales only in the three years after the 2015 purchase of Magna Interiors business (2016-18). In 2019 we invested about 5.5 percent of our sales. We cut the number in 2020 to 4.5 percent to protect our liquidity during the pandemic. For this year and in the future we expect to invest 5 to 5.5 percent of revenue into R&D.

Has Grupo Antolin benefited from the move toward electrified vehicles and if so, how?

Automakers normally want to offer more and more diversified lighting in the interiors, both decorative lighting and functional lighting meant to communicate with the driver. In the last year we have done a lot of work in this field particularly for electric cars. We are talking with our customers about how to provide more thermal comfort to passengers, taking into account that electric cars don’t have an engine to generate heat that can help warm the interior. We are working on radiant surfaces integrated in our doors and instrument panels.  All in all, while our work on interiors for traditional cars and electric cars is not dramatically different, we still believe we can add significant value to battery-driven cars. We also striving to reduce the weight of our parts, which will be key for the range of electric vehicles.

Is innovation or cost the driving factor with customers when the purchasing components for EVs?

Innovative players such as us expect to win more business in electric cars, but the lowest price will win the contracts. That is because our customers want to make electric cars more affordable. A lot of people cannot afford to pay 30,000 euros for a car.

Grupo Antolin displayed its new smart cockpit at the 2021 Shanghai auto show. It includes parts made with natural materials, dynamic lighting, a driver monitoring system and screens that are integrated into the instruments panels.

Coming back to the weight reduction, where can Grupo Antolin contribute and what are you working on?

The company is working to reduce the weight of our components through innovation. We have developed double slush skin technology that reduces the weight of our instrument panels by up to 1 kg. We already offer this technology on some production cars. Including Skoda Octavia compact sedan and Fabia small hatchback. We are also working with other brands. We also offering the customers the chance to reduce the wiring in their headliners by using functional printing processes. This cuts the weight of the headliner module by nearly 1 kg. Furthermore, we use plastics with gas inside the foam to cut weight of the doors. To do this, we inject gas into the plastic to make it lighter, but it still has a very good resistance to impact.

Many cars now have configurable instrument panels. What’s the next step for cockpits?

We presented a smart cockpit demonstrator with our solutions at the 2021 Shanghai auto show. This demonstrator included parts made with natural materials, dynamic lighting to create different driving scenarios, a driver monitoring system and screens that are totally integrated into the instruments panels. There are many areas where we can offer improvements working with our customers. We are also working on some programs where we deliver the entire cockpit or instrument panel to the customer.

Speaking of China, when we spoke last year you were building a new plant there. What is your outlook for the market and what are your expansion plans?

In China we went from sales of 200 million euros in 2013 to 500 million euros now. Our ambition is to achieve 1 billion euros in sales in 2025 or 2026. We have opened a new R&D center in China, where most of the people are working on electronics. With our partners in China, we are developing a complete auto interior systems to the customers. Growth in China is a strategic goal for us. We have a partnership with Chinese electronics firm NAEN to jointly develop advanced integrated electronic products. Furthermore, we will soon open a new plastics factory to improve our industrial footprint there. Lighting will play a key role for us in China. We currently have two big lighting factories there. One is in Suzhou, where we produce interior lighting, and the other is in Guangzhou, where we produce electronics. This factory is growing very quickly.


MEET THE BOSS

  • NAME: Jesus Pascual
  • TITLE: Grupo Antolin CEO
  • AGE: 57
  • MAIN CHALLENGE: Cutting production costs to cope with increasing price pressures from automakers.

 

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