Aptiv: The journey towards autonomous vehicles and green mobilityVincent Gilles
Chief Investment Officer
February 23 2021 Sustainable Investing
We live in a world that needs to transition. We need new energy systems, new mobility solutions and new consumption habits, amongst others. The history of the tech company Aptiv is a testimony of the fast changing world we live in.
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This communication has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Aptiv: A new frontier for mobility
In 2009, the iconic American automotive giant General Motors went bankrupt. Bondholders proposed a reorganisation of the business through a legal process in the US known as Chapter 11. This was in order to keep the business alive and pay creditors over time.
During that process General Motors was forced to sell its powertrain unit. In 2011, this then listed on the stock market under the name of Delphi. Delphi subsequently became one of the leading manufacturers for the automotive industry.
Then in 2017, Aptiv was created. The spin-off of the powertrain unit kept the Delphi name, and Aptiv retained two divisions. These captured megatrends such as electric vehicles, hybrids and most excitingly, autonomous vehicles. Aptiv sends a powerful message to its customers and investors. It aims to be at the forefront of the “convergence of safe, green, connected solutions in new mobility and autonomous driving”. Let’s take a deeper look.
As cars electrify, so is the electric content in the car. Especially on the high voltage side. Aptiv estimate that the HV equipment for an electric car is 1.5-2.0x higher relative to a traditional ICE car. (Internal Combustion Engine, your typical car running on petrol/gasoline or diesel). Between 2019 and 2023, car makers are intensifying their electrification efforts. According to carmakers announcements, there could be up to 40 new platforms for EV and/or hybrid cars. This is expected to result in a significant increase of this market segment. High Voltage is a small market today roughly $1bn  but can grow at a staggering pace of 40% p.a. to 2022 . Aptiv has a dominant market share in this niche segment, but fast-growing segment, of around 30-35%. 
Autonomous vehicles: the new normal?
Let’s dig into an acronym – ADAS (Advanced Driver Assistance System). A few years ago, cool stuff such as rear cameras, parking assistance, or trajectory sensors were only found on high-end cars (mostly German). It has become mainstream and for the greater good (who has not thanked this system when trying a desperate and bold attempt to park your car when there is barely enough space?). It is still a fast-growing market (today in excess of $5bn) and Aptiv’s market share is above 20% . These systems are absolutely necessary to one of the most promising evolution of mobility: autonomous vehicles.
Aptiv has formed with Hyundai Motor a joint venture (or JV – they have both dedicated $2bn this JV) whose objective is to develop a robot taxi platform. The first model should be ready before the end of the year, and a new version for 2022. Hailing a ride from your smartphone is no longer new (Uber anyone?). However, riding in an electric/hybrid vehicle driven by a computer system is being tested commercially in Las Vegas. For once, what happens in Vegas doesn’t need to stay in Vegas.
These examples of leadership positions can translate into above average operating margins, a solid balance sheet, and a positive generation of cash through the cycle – enabling the company to be at the forefront of innovation. Yes, COVID-19 will likely have adverse effects on financial metrics in 2020, but barring a prolonged economic depression, the profound transformation of the car industry (potentially to “mobility as a service”) should provide secular tailwinds for the years to come.
In a nutshell, Aptiv’s strategic positioning fully aligns with future mobility trends and plays a critical role in offering solutions to tackle climate change. In addition, agencies (CDP, Dow Jones Sustainability Index) widely recognise its corporate governance practices (ESG) as being well above average. Aptiv was notably named for the 8th year in a row as one of the most ethical companies by Etisphere . Lastly, its ability to operationally and financially execute, and its leadership status, make Aptiv a supplier of choice for car makers that are embarked on this fascinating journey. It comes with a dual objective: make the roads cleaner and safer.
This communication has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research .
Investors should note that Clim8 Invest indirectly holds portfolio positions in Aptiva and therefore has an interest in providing a favourable analysis of such investment.
Investments of this nature carry risks to your capital. Investing in private equity involves a high degree of risk. Please invest aware. Please note this information is for illustrative purposes only and it must not be construed as investment advice. Past performance is not a reliable indicator of future results.
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