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Sensing the future: how Valeo drives intelligent mobility

Home / Perspectives / Sensing the future: how Valeo drives intelligent mobility

Tim Crockford, Lead Manager
12 June 2018
Impact

The global market for automotive sensors is worth more than $26bn – and that figure is expected to jump to $43bn by 20211. In the second instalment of our three-part series on future mobility, we explore how intelligent vehicles can improve safety, increase efficiency and cut emissions.

Modern cars are already getting smarter: they can detect and respond to hazardous situations, such as another vehicle slowing suddenly ahead or a pedestrian about to cross the road, by using sensor technology.

Sensors are increasingly being used in vehicles as the automotive industry attempts to meet evolving efficiency standards and environmental regulations. Today, vehicles have an average of between 60-100 sensors on board2 and recent industry figures suggest that this number is likely to grow to as much as 200, based on current trends.

Sensor technology will therefore play an integral role in modernising transportation.

Future mobility: intelligent vehicles  

As documented in our first instalment of this three-part series, future mobility is one of the eight key impact themes that guides our investment decisions for the Hermes Impact Opportunities Fund. In turn, these themes are aligned with the United Nations Sustainable Development Goals. Each theme helps us to define, validate and report on positive corporate impacts.

Recap: What do we mean by future mobility?

Moving towards cleaner, intelligent, shared and connected and autonomous mobility.

We believe this theme will have a significant impact on society and the planet by reducing congestion, cutting emissions, boosting air quality, improving road safety, increasing social mobility and the utilisation rates of vehicle fleets.

A key strand of this theme is intelligent mobility. Governments the world over have pressed ahead with aggressive regulations to drive down emissions from combustion-engine vehicles for many years, and so the level of sophistication required in automobiles to continue to deliver improvements is growing.

Alongside catalytic converters, which reduce the toxicity of exhaust fumes, one of the most significant technology developments in recent years has been the proliferation of sensors throughout modern vehicles.

Sensors have driven staggering advances in efficiency by improving powertrain, engine, petrol-tank pressure, throttle and torque management, among other functions. The safety and comfort of driving has also been enhanced by sensors that enable dynamic braking, side airbags, roll-over sensors, particle filtration, GPS mapping and parking assistance.

This future mobility sub-theme is illustrated well by our exposure to Valeo.

Valeo: reinventing the wheel

French auto-parts manufacturer Valeo is at the vanguard of new technologies. In the past decade, the company has transformed: once a manufacturer of commoditised parts, such as windshields, it is now known for advanced and proprietary engineering, a road taken under the leadership of Chairman and CEO Jacques Aschenbroich since 2009.

Figure 1: Shares in Valeo have risen steadily since 2009

webpost-chartSource: Bloomberg as at 8 June 2018

As well as repositioning the business, Aschenbroich has simplified the company’s structure, consolidating the number of divisions from 11 to four.

Today, Valeo manufactures a range of products from sensors through to software and engine parts, and its electric mobility-focused joint venture with Siemens develops products such as inverters and electric motors. Valeo’s development of sensors to reduce emissions and improve fuel efficiency excites us greatly. That’s because technological progress enabling greater reductions in CO2 emissions is one of the main drivers of growth in the automotive industry amid the growing pressure from governments worldwide and the surge in efficiency standards.

Furthermore, bringing electric vehicle technology down to a competitive cost is crucial if  climate change is to be addressed, given transport is responsible for 14% of global emissions3. Valeo is tackling this by delivering innovation solutions through continued research and development in areas such as vehicle electrification and emissions reduction – and this strategy seems to have paid off so far. For example, it recently developed an electric supercharger that helps improve vehicle performance without increasing fuel consumption. Moreover, the company acquires the highest number of new patents in France every year, and about half of its order intake comes from products developed in the last three years.

But Valeo’s new roadmap does not conclude with the future coronation of electric vehicles as the main form of popular transportation. In addition to its prowess in emissions reduction, Valeo’s driving-assistance systems – such as anti-glare glasses, camera systems, and automated parking – are helping to make driving safer and reduce road accidents.

These capabilities will play a significant role in the development and safety of autonomous vehicles, by providing signals to driving software. What’s more, this will give the business a major role to play in the manufacturing of future vehicles that are either semi or perhaps even fully autonomous, requiring a complex array of situational and positional sensors to navigate the urban landscape.

The road to tomorrow

We target emerging-growth opportunities and believe that many are harboured within the theme of future mobility. In doing so, we seek strong long-term returns from purposeful companies that are focused on society’s underserved needs.

In our view, Valeo generates sustainable impact through its innovative solutions that are driving future mobility. These solutions currently are – and will continue to – help vehicles become more efficient. Through our investments, we encourage positive change and the reduction of negative outcomes, and we therefore believe that Valeo is a solid addition to the fleet of stocks in the Hermes Impact Opportunities Fund.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested.

The above information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.

It should be noted that any investments overseas may be affected by currency exchange rates.

Past performance is not a reliable indicator of future results and targets are not guaranteed.

  1. 1 “Global Markets for Automotive Sensor Technologies,” published by BCC Research in April 2016
  2. 2 “BMW partners with IBM to add Watson’s cognitive computing capabilities to its cars,” published by Forbes in December 2016
  3. 3 Source: “Climate change 2014: Mitigation of Climate Change,” published by the Intergovernmental Panel on Climate Change in January 2015
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Tim Crockford Lead Manager Tim Crockford joined Hermes in 2009 as a research analyst for the European Equities team covering the resources, oil & gas, agricultural chemicals, capital goods and the technology sector. He became lead portfolio manager of the Hermes Europe ex-UK Equity Fund in 2015 and joined Andrew Parry in forming the Impact team in August 2016, which launched the Hermes Impact Opportunities Fund at the start of 2018, which Tim also manages. Prior to joining Hermes, Tim worked at Execution Limited from July 2006 as a primary research analyst working on major projects in the consumer, retail and financial services sectors, and then joined Sourcecap as an analyst in May 2008. Tim was raised and educated in Malta and graduated from the University of Malta in 2006 with a Bachelor of Accountancy (Hons) degree, as well as a Bachelor of Commerce degree. In 2016, Tim featured in Financial News’s ‘40 Under 40 Rising Stars of Asset Management’, an editorial selection of the brightest up-and-coming men and women in the industry.
Read all articles by Tim Crockford

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