Some analysts expect that electric cars will becoma a big, big problem to parts suppliers such as 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.
hat tip to ffbj!!!
source: Barrons.com blog