Global fuel efficiency and air quality standards are tighter, so automakers must find a way to generate more power despite smaller and cleaner engines that must operate a growing array of electronic and safety features.
Battery-powered electric vehicles are efficient and don't emit pollution but consumers aren't flocking to them so far in Nissan's (NSANY) Leaf, Tesla's (TSLA) Model S and Model X or General Motors' (GM) Chevrolet Volt.
That's why Delphi Automotive (DLPH) is working on software that will give your conventional engine more of a boost by making it into a sort of hybrid that works with 48-volt lithium ion batteries to replace some of the lost horsepower.
Delphi says it two vehicles soon will be introduced with these batteries, but declines to be more specific. Later this year, Volkswagen's (VLKAY) Audi luxury brand will begin selling a SQ7 crossover with a mild hybrid system that delivers additional power.
So-called "mild hybrid" systems that join a battery-powered electric motor to a conventional gasoline engine for additional power have been tried before but largely were overshadowed by gas-electric hybrids such as Toyota Motor's (TM) . But tougher government standards are forcing automakers to consider giving mild hybrids another try.
Delphi, which specializes in the software that controls the system rather than the battery or the associated components, could see a lot of revenue from this switch. Each hybrid system would cost automakers $1,000 to $1,200, with the software comprising a significant portion of that.
"One out of every 10 cars sold globally in 2025 will be a 48-volt, mild hybrid," predicted Jeff Owens, Delphi's chief technology officer. "To put that into perspective, that's 11 million units a year, three times the volume of pickup trucks sold annually and more than half of the world's anticipated diesel passenger car market."
Delphi, incorporated in the United Kingdom though based in Troy, Mich., is one of the most successful turnaround stories in the U.S. auto industry. Following its 2005 bankruptcy the former GM parts subsidiary shifted its strategy away from commodity parts and components like steering and radiators and toward electronics, safety, environmental and other high-margin equipment.
Since its initial public offering in 2011, Delphi shares have more than tripled in value compared to a Dow Jones Industrial Average that is up 48% over the same period. In the past year, largely due to worries about the possibility of a slowing auto industry in the U.S. and China, the stock has lost 21.4% in value against a Dow that is down only 1.7%. Shares closed Monday at $68.58.
Mary Gustanski, a Delphi vice president for engineering, said the 48-volt battery system "will make up for these stop-start efficiency systems that cause a lag from a start - the kind of thing we're trying to avoid when we buy these luxury cars."