Delphi Automotive: Why Electric Cars are a Big, Big Problem For The Part Supplier

DEC 2 2016 BY MARK KANE 22

Delphi Electrification Evolution from Delphi Automotive on Vimeo.

Some analysts expect that electric cars will becoma a big, big problem to parts suppliers such as Delphi Automotive.

Delphi Automotive

Delphi Automotive

The main reason behind the thinking, is that those supply companies are heavily exposed to internal-combustion engine cars, and electrification (and its simplicity) cuts into their revenues, while also forcing new investments.

“Morgan Stanley’s Adam Jonas and team explain why:

We see an emerging risk to top-line growth and profitability for even the world’s best suppliers, particularly those with significant exposure to the internal combustion ecosystem. We believe investors must pay close attention to the challenges facing OEMs as they confront unprecedented pressures to completely reengineer the propulsion system from internal combustion to electric.

Roughly 25% of Delphi’s global profit comes from its powertrain division, a collection of businesses that optimize the combustion of diesel and gasoline through highly engineered pumps, injection systems, fuel delivery, exhaust flow, emission canisters, throttle controls, and sophisticated control modules. We’re not suggesting these products will be replaced immediately, but we do see scope for diminished economic returns given changing OEM priorities that create material risk to the company’s earnings trajectory.”

Morgan Stanley has decreased its price target for Delphi Automotive from $74 to $59.

We are not sure whether it’s as big a problem as Morgan suggests, as Delphi Automotive is also already offering all of the major EV component today; from inverters, through DC/DC converters, battery controllers, battery packs, cooling systems, charging system (on-board and wireless), and recently also autonomous driving systems (with Mobileye and Intel).

That probably should be enough to smoothly enter into a new era of EVs – or at least begin transition.

But then again the actual volume of such e-related contracts is unknown, and may not nearly be enough to displace the amount of lost internal combustion business Delphi supplies today.

Delphi Automotive Winning the Automated Race from Delphi Automotive on Vimeo.

hat tip to ffbj!!!

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22 Comments on "Delphi Automotive: Why Electric Cars are a Big, Big Problem For The Part Supplier"

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Do I need to make the “Buggy whip maker” argument yet again, or are we all already educated enough to understand that as an old technology dies out, those companies must always either evolve or die?

That’s a fact of capitalism, regardless of the product being made.

Not sure about the title of the article. I think the partnership between Delphi, Intel, MobileEye and BMW to develop their autonomous system may be successful or may not. Who knows. The question I see is will this lesd to a standardized off the shelf system or will it be completely fragmented with each OEM using their own solution. These systems are not just going into EV’s but ICE cars too. Delphi will offer to sell its system to all OEM’s just as Nvidia will be doing and others too. Interesting that Nvidia said that Intel is too late to the party. It will take time to sort all this out and we still have a long way to go.

So, this article is trying to spin it as a bad thing that BEVs have far fewer parts which wear out quickly and have to be replaced frequently, as compared to gasmobiles.

This is great news for everyone! Future costs for maintaining the average car will be considerably lower than they are now. Well, it’s great news for everyone who doesn’t get a large part of their income from making car parts which wear out quickly, anyway.

It will be sometime before EVs hit the 10% mark. That still leaves them with a 90% share assuming vehicle ownership levels are flat. Seems like a 10 to 20 yr problem rather than a 1 to 2 yr problem.

Slicing time to the “10% mark”:

Assuming 2016’s global footprint ends at .5%, Goldman’s current CAGR of 32% (others are similar, but just going with them here).
It will be 11 years before 10% of sales is reached.

At the same time, observed 50% annual growth is happening. IHS added 10mm more EVs to their own 10-year cumulative footprint.

In my opinion, and I agree with Yogurt here, this isn’t good for Delphi, Borg Warner, or vertically integrated players like VW. Engine building is not the role VW “NAFTA’d” to Mexico, and they have a Works Council sitting right on the board. It’s probably the reason why they refused to build EV vans for Deutsche Post.

Yes BEVs are a huge gigantic problem for auto parts supliers…
Average number of parts in a ICE 30k
Average number of parts in a BEV 20k

Some will go under in the long run as they not only lose the OEM business they lose the repair and maintance business of machanical parts that will wear out and fail…
BEVs will also be the death of many auto repair shops and auto parts chain stores in the long run…

Not to mention how bad EV’s are for you local dealers money making $ervice department!!

Not to mention all “FICTICIOUS” un-needed repairs that they claim to do under warranty ,that are “NEVER DONE” Where they scam the auto makers out of Time, money & parts ….It happened to me…& Mercedes Paid them!

I have a feeling cabin air filters are going to be getting horrendously expensive…..

Opportunities are plentiful for parts suppliers that embrace change.

Delphi has been making automotive electronics for decades, this is another opportunity to make more.

Precisely, although it’s hard to wait and wait for the evolution of the electric car, it has to be gradual so these industries can have time to evolve along with it.

It seems these parts companies are banking on the autonomous-driving parts industry to partially buoy them and protect them from the losses they’ll take in providing replacement parts for greasy oily complex gas cars.

There could also be a shift going on as a new breed of suppliers that used to supply the chemical/consumer electronics branch mostly are increasingly becoming household names in the EV business, like LG, maker of the “LG Bolt” and the industry’s leading battery supplier after Tesla.

Walk into your average auto parts store and just look around at all the oil and fluids, coolants and filters that won’t be needed anymore when electric cars dominate our roads. It boggles the mind! Will the parts shelves behind the counter be filled with sensors, cameras, circuit boards and solid state memory chips? Will I be going to Rock Auto online to buy that armature, or Jegg’s Performance to get that higher performance supercapacitor to hop up my EV? It’s likely a whole lot of people will have to re-educate and rethink their careers. When I don’t need to replace those brake pads or replace that thermostat, I know tons of folks will be impacted. As I’ve said, that is why there is so much pushback in the legacy auto industry to keep things the way they are. It just has to happen. I think about it a lot. PHEVS act as a bridge in many ways – for tentative consumers unfamiliar with the joys of electric drive, and industries all who depend upon those hundreds of hot, oily friction parts wearing out and needing replacement. An EREV or PHEV still uses the complexities of it’s combustion engine or… Read more »

Even today, you can buy a third-party exhaust kit for the Nissan LEAF from multiple vendors online…

About as effective as the sales manager at the Nissan dealership trying to sell me an extended warranty that came with free oil changes.

“About as effective as the sales manager at the Nissan dealership trying to sell me an extended warranty that came with free oil changes.”

Did that really happen?

The Ford dealer that sold me my Ford Focus Electric regularly sends me coupons for oil changes.

Save them up :-))

Delphi can breathe a sigh of relief, rumor is that Chevy is only going to sell the Bolt in CA & OR in anticipation of the epa mandates being rolled back. Very limited in other states.

GM plans Maven and Lyft, those Bolts will go fast.

Replacement parts is the tough part replacement parts get higher margins and moving ICE parts wear out more.

I believe as electric cars become cheaper than ice cars the volume of sales will rise because new cars will become more affordable for people who have never been able to afford new and that in itself will create new jobs, but indeed dislocation is coming as happens with every new disruptive technology.

But I do believe there will be a 20-30 year period of more higher paying jobs as we transition from a fossil fuel society to an integrated electric home/transport society and the middle class and poor will be the winners and another irony will be that we will have to immigrate more of our Mexico Neighbors to help with the labor shortage.