Valeo Buys Out Siemens From EV-Components Venture in $317 Million Deal

(Bloomberg) -- Valeo SA agreed to acquire Siemens AG’s stake in their five-year-old electric-car components venture to bolster its position in the rapidly expanding EV market.

Valeo declined as much as 2% in Paris trading on Thursday after saying it would buy the 50% holding for 277 million euros ($317 million). The deal will raise the French company’s net debt by 741 million euros.

The acquisition “reveals poor prospects for profitability,” Citigroup Inc. analyst Gabriel Adler wrote in a note, saying the company’s outlook on margins and revenue for the business is weaker than expected.

The unit is expected to break even this year on a pretax cash flow basis and improve revenue and profit margins in the coming years. Valeo also announced a plan to develop a new electric motor with Renault SA. 

“Strategically, this is a very important step for Valeo,” Chief Executive Officer Christophe Perillat said on a call with journalists late Wednesday. “The terms of the deal are good and it comes at the right time.”

EV Shift

Auto-parts makers are overhauling their operations to keep pace with an accelerating shift to battery-powered cars. Faurecia SA this week unveiled new financial targets and branding after taking control of rival Hella Gmbh & Co. in a bid to sharpen its own EV offerings.

Valeo and Siemens joined forces on Valeo Siemens eAutomotive GmbH in 2016 to make e-motors, axles and powertrain electronics for plug-in hybrids and fully electric vehicles.

On Wednesday, Perillat said the market “is growing very strongly” and predicted annualized 17.5% growth to 92 billion euros in 2030.

Carmakers like Stellantis NV and Volkswagen AG are rolling out new EV models and production plans, but it’s unclear to what extent major parts like motors will be made in house. Perillat reiterated a previous forecast put forth by the company that 40% of the overall market will be outsourced to automotive suppliers. 

By the end of 2022, more than 90 electric and plug-in hybrid models will be fitted with Valeo’s electric powertrain systems, motors, inverters or onboard chargers, it said.

Siemens said the sale of its stake would boost its profits by around 300 million euros in its fiscal second quarter. The company has been revamping its portfolio to focus on software and away from equipment. 

Valeo mapped out a series of financial targets for the Erlangen, Germany-based unit that will be combined with its own ‘Powertrain Systems’ business. These include:

• Pre-tax cash flow of 350 million euros in 2025
• Annual sales growth of more than 12% to reach 8.5 billion euros by 2025
• EBITDA margin to widen from 5.8% in 2021 to more than 8% in 2022 and more than 11% in 2025

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