Strategic M&A Wins And Global Manufacturing Footprint Will Help Delphi Capitalize On Industry Trends

Summary

A spree of acquisitions and divestitures has positioned Delphi to take advantage of mega-trends in the automotive space.

One of Delphi’s important competitive advantages has been its ability to build a uniquely efficient cost structure and global manufacturing footprint.

Delphi’s expertise in electrical infrastructure and strong ties with OEMs will allow it to capitalize on the autonomous car revolution on the horizon.

Abstract

Delphi Automotive (NYSE:DLPH) has gone through a directional upheaval that included a swirl of M&A activity and refocusing on high-technology, high-margin segments. Wall Street was appropriately bearish after the enacted changes, with many analysts trimming price targets. Modest stock gains in 2015 and 2016 signal a broad market misunderstanding of the impact of these changes on the company’s revenue generation, cost structure and ability to capitalize on long-term transportation industry changes.

Industry Overview

Delphi Automotive operates in the automotive electronics manufacturing industry, and its major industry competitors are Robert Bosch, GmbH (OTCPK:BORUF) and Denso Corporation (OTCPK:DNZOY). Delphi’s market share within this industry is 11.1%, beating Robert Bosch’s (9.6%) and Denso Corporation’s (8.3%) (IBISWorld). As the amount of electronic parts in the average vehicle grows, it is imperative for players in the industry to stay up to date with technological innovations in order to stay competitive. This is due to this industry being one of the most technologically intensive in the automotive sector and being subject to speedy technological advances, especially those in the vehicle automation and electrification spheres. Industry revenue and profit margins are closely linked to the sale of automobiles since the primary use of automobile electronics is in new vehicle manufacturing, making both consumer confidence and demand highly influential in the revenue volatility in the industry.

Transportation Industry Trends & Delphi

The auto industry is a complex one to analyze as it is affected by a plethora of external factors and currently lies in an evolving but uncertain state. This was evident in 2015, a year in which the market as a whole was fairly stagnant as it had positive forces such as technological advances and strategic engineering planning clash with negative international economic forces and conflicting market confidence. Nonetheless, 2016 has seen a less stagnant growth in the market, a phenomenon that can be attributed to international economic trends as well as a more conscientious move towards future smart and even automatic cars. The effects of this are visible in the revenue breakdown section of this article.

Alec Pisanelli
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