EV push prompts ‘reinvention’ among auto parts suppliers

Automakers’ loudly promoted investments in electric vehicles are shaking a quiet but huge industry: their parts suppliers.

Suppliers that historically built components for internal combustion engines are feeling increasing pressure to adapt to battery power. It has not always been a smooth change.

The challenges are summarized in two companies linked to the former Delphi Automotive, which was once one of the largest suppliers in the United States.

BorgWarner and Aptiv aren’t household names to most drivers, but their parts help build cars and trucks for manufacturers like Ford and Volkswagen. Together they have more than 200,000 employees – more than Ford or General Motors alone.

Michigan-based BorgWarner has a long history of producing parts for gas-powered vehicles. It generated 19% of its revenue last year from the sale of turbochargers, which use exhaust gases from combustion engines to spin a turbine and increase power. “To make the transition to electric vehicles, they have to totally reinvent themselves,” said Baird analyst Luke Junk.

As part of the reinvention, BorgWarner last week announced plans to buy a business from China’s Hubei Surpass Sun Electric that makes electric chargers for up to Rmb410 million ($58 million), its second charging deal. of electric vehicles in two months after buying California’s Rhombus Energy Solutions for $185 million.

The transition to electric vehicles is “probably broader” for BorgWarner than for its automaker customers, Paul Farrell, the company’s chief strategy officer, said in an interview. After all, “they still make cars on some level.”

BorgWarner began its transformation two years ago by buying the powertrain spin-off from Delphi Automotive, which itself was formerly part of General Motors. The $3.3 billion deal, the largest in its 94-year history, further strengthened BorgWarner in the combustion engine supply business with products such as fuel injection systems and ignition products,

But it also brought a key technology for electric vehicles to the company: inverters that convert DC electricity stored in a battery into AC power that can run a motor.

The acquisitions are part of BorgWarner’s plan to reshape itself for the electric age. Last year, Chief Executive Frederic Lissalde said the group expected electric vehicle-related products to account for 25% of sales by 2025, and up to 45% in 2030, thanks to a combination of growth combustion, mergers and acquisitions and the sale of internal combustion-related businesses. . In 2022, the company expects EV-related product revenue to be $850 million, or about 5% of sales.

Negotiation can bring companies new technologies to sell to their current customer base. According to Dealogic, the number of transactions in the US automotive supply chain for the year to date is 72, compared to 49 for the same period two years ago.

“I didn’t hear CEOs worrying about that until two years ago, like starting to really rethink their mergers and acquisitions,” said Kim Borden, partner at McKinsey. “There are certainly people, even now, today, who still accept that their wallet does not match their future.”

Lissalde told investors last month the company was on track to post $3.7 billion in electric vehicle revenue in 2025. But CFO Kevin Nowlan said sales plans for 3 $.5 billion worth of internal combustion-related businesses were “temporarily suspended” until debt markets settle.

A different situation awaits Aptiv, which is how Delphi Automotive renamed itself after the powertrain spin-off five years ago. Aptiv retained other, mostly high-tech, Delphi businesses.

Companies manufacture wire harnesses, cables and connectors; engineering plans for this electrical architecture; design automatic braking and lane departure prevention systems; and also developing self-driving technology.

Aptiv’s business includes electrical systems for cars © akub Porzycki/NurPhoto via Reuters

Electric vehicles require more wiring and connectors from Aptiv than traditional cars and trucks. The company could earn about $500 per internal combustion vehicle if it sold all of the relevant products it makes, Junk said.

On an electric vehicle, sales per vehicle go up to $1,200. Vendors such as Aptiv are “essentially making this transition with the same products,” the analyst said.

Aptiv chief executive Kevin Clark told investors this month that its electric architecture sales business for electric vehicles “was effectively profitable from day one” because the company is already selling products “on a vehicle out of 3.5 manufactured in the world”.

Some auto parts suppliers are simply “better positioned as this transition takes place,” said Fitch Ratings analyst Stephen Brown. “It’s the worst-positioned vendors that really need to focus on transforming their business.”

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