Investors Like Delphi's Work on Connected Cars and EVs

Delphi's market moves make investors happy.

Timothy Healey
    May 15, 2017 8:00 AM  PT
Investors Like Delphi's Work on Connected Cars and EVs
author: Timothy Healey    

One sure way to make your investors happy if you're an automotive supplier is to stay ahead of the game.

Delphi has done just that, by making inroads in the EV and connected-car spaces.

And investors are rewarding the company for those efforts.

Delphi Shifts Towards New Tech

Its most recent effort is to spin off its internal-combustion engine operations, leaving the rest of the company free to focus on technology.

That has led to a boost in share price, but it also shows that there are challenges for anyone who's working with the so-called "legacy" part of the automotive industry. Even though the legacy side of the business is likely to be around for quite some time – full adaption of electric vehicles, let alone fully autonomous vehicles (regardless of powertrain) is some time off.

Still, investors like to focus on the future, and no one wants to ignore electric cars, connected cars, and self-driving cars, especially since there will be some level of increased presence in the market for all three. Even if all three technologies only have a small market share in the near (or distant) future, no one wants to miss the boat.

Which is why Delphi shares increased by as much as 12 percent last week after the company announced its plan to split into two entities, one of which will focus on internal-combustion engine tech while the other looks at electrification and automation.

"There's a whole element of the componentry of the car that Wall Street values at a lower level," Delphi Chief Executive Officer Kevin Clark said to Reuters in an interview on Wednesday.

Delphi's Not The Only One To Split Things In Two

German supplier Robert Bosch GmbH has done something similar, selling its starter and alternator business to a Chinese supplier.

European and Chinese regulations, which are becoming stricter when it comes to the pollution from internal combustion engines, are also driving the trend.

Electric vehicles may also finally become a larger part of the market in the next few years, as the recently launched Chevrolet Bolt EV and the upcoming Tesla Model 3 duke it out to become among the first so-called "affordable" EVs to also offer real-world ranges well above 200 miles per charge.

Even Delphi rival Visteon is shifting gears, with a changed focus to connected-car and infotainment technology.

This doesn't mean the venerable internal-combustion engine is dead. For starters, the EV market is still only around one percent, and even if the Bolt and Model 3 are sales successes, two models won't be enough for a huge boost.

Clark even told Reuters that the new internal-combustion engine division has room to grow.

A lot depends on what happens in the next three to five years – if connected-car and autonomous-driving tech accelerates during this time frame, as Clark predicts, these investments will pay off. But even if that doesn't happen, these technologies will be a bigger part of the market at some point. It just remains to be seen how soon.