Delphi Opts For A More Aptiv Lifestyle

Delphi Automotive (DLPH) announced it was spinning off its powertrain segment back in May in order to better highlight its burgeoning electronics business. Now the two ‘new’ companies have names and oh boy, they’re ‘good’ ones.

Lets start with the electronics business will be called Aptiv and will trade under the ticker ‘APTV’. No, no one is being held captive. It’s Aptiv, which is sort of like ‘adaptive’ but with so so much more meaning behind it. Current Delphi President & CEO Kevin Clark will lead Aptiv and thinks the name ‘reflects knowledge, adaptiveness and drive, as well as an ability to not only envision the future, but to make it real.’ I’m a bit ashamed to say that I didn’t get that at all when I heard name. I really wonder how they say this stuff with a straight face.

Of the two companies, Aptiv’s business is certainly the more ‘exciting’ segment as it deals more with what many believe to be the future of the automotive industry. Here is how they describe it:

Aptiv, comprises the Electronics & Safety and Electrical/Electronic Architecture businesses, will focus on accelerating the commercialization of active safety, autonomous driving, enhanced user experiences and connected services, providing the software, advanced computing platforms and networking architecture required to do so – the ‘brain’ and the ‘nervous system’ of the vehicle.

There are really too many buzz words to count in there, but in general investors have clearly warmed up to the automotive Tier 1 segment. On the whole, they trade at a much, much higher multiple vs. the OEMs, mainly due to the optimism around the changing automotive landscape and the associated future growth. There is some debate about how things will ultimately shake out for the Tier 1s in the end though, with some a bit more optimistic about the future growth and others believing that there will be plenty of losers in there. Delphi certainly believes it will be a winner and is forecasting over $2b in operating cash flow by 2020 and by 2025 they expect $300m from Level 4 or 5 autonomous systems and $1.8b from Level 1, 2 or 3 systems.

Interestingly, the powertrain segment spinoff will be renamed Delphi Technologies and trade under the ticker ‘DLPH’. It feels somewhat like a jedi-mind trick to toss the word ‘Technologies’ onto the legacy powertrain business after not using it for the company providing a car’s brain and nervous system. New CEO Liam Butterworth is unsurprisingly optimistic about the future prospects Β and believes the company is ‘uniquely positioned with the technical competency and execution capability to deliver advanced vehicle propulsion systems that help our customers meet increasingly stringent regulatory standards while unlocking the power to support the ever-increasing electrical content being added to vehicles.’

Maybe, but the company sure has its work cut out for it. The traditional powertrain is under attack and new players are encroaching on the space, especially in the EV segment. While there is a lot of debate about when the tipping point will be reached, there is consensus that worldwide EV share is going to grow (and the forecasts just seem to grow every year). The company will need to carve out its niche and defend its turf so perhaps a focused management is just what they need in order to compete.

The spinoff is expected to be completed by the end of Q1 2018, but the big ‘unveiling’ of the brands will take place at next year’s CES in January. It really says something about how much the automotive industry has changed that it has such a big presence at CES.

Disclosure: Author holds no position in any stock mentioned