Best Electric Car Bet: An Irish Software Maker

Jon Markman

Ford ((F) -Get Report) and General Motors ((GM) -Get Report) are betting big that electric vehicles are going to catch on with consumers. The likely winner in this effort is an Irish company you probably don’t know much about.

On Wednesday, Ford announced a $700 million expansion of a factory to build an electrified F150 truck. Not to be left out, GM unveiled more news about Ultium, its new electric drive system.

Electrification is coming. And yet, investors are mostly asleep at the wheel.

Their skepticism stems from the Tesla ((TSLA) -Get Report) story. Despite a high-flying stock price and a celebrity chief executive, Tesla is still mostly making losses because it is spending heavily while making too few cars.

Building new plants and a nationwide charging network is hard and expensive work. It also turns a bright light on the fact that the Silicon Valley upstart remains a production pipsqueak.

Through December 2019, Tesla manufactured only 365,300 vehicles, according to Statista, an online data analytics firm. That figure looks insignificant compared to overall domestic production of 17,047,725.

Ford, GM and the rest of the major automakers had to decide if really they wanted to go down the electrification route when a realistic return on investment might be years away. They made their choice. Now Detroit, Bavaria and Asian carmakers are all-in.

High-end EVs from Audi and Porsche will be here next year. This is a sign for investors to start waking up.

The Wall Street Journal reported in January that GM plans to enter the high-end EV market with a throwback to the glory days of fossil fuels. A smaller Hummer design will ditch its gas-guzzling ways for an electric skateboard drivetrain. That modular platform, Ultium, will be used for new electric SUVs and pickup trucks, too.

Ultium’s versatility was on full display Wednesday. GM managers showed off interchangeable battery systems, motors and drivetrain in multiple configurations for vehicles of all shapes and sizes.

Ford is electrifying its most important ride, the best-selling F-150 pickup. Mangers claim the EV will have more power, faster acceleration and will require 40% less maintenance than its gas powered cousin. These are big claims, especially given a large contingent of Ford pickups are bought by private contractors and fleets to haul drywall, lumber and bricks.

But you shouldn’t chase this car maker, or any other for now. After all, the tech behind them will be the same. So, instead of risky bets on GM. Ford or Tesla, I have a different approach.

The best way to play this trend could be Aptiv PLC ((APTV) -Get Report). The Irish firm builds greener, safer and more connected software solutions for the next generation of automobiles.

During a January presentation at the J.P. Morgan Tech/Auto Forum, Glen De Vos, chief technology officer at Aptiv, noted that many automakers are pushing forward with autonomous vehicle projects with the expectation that limited-scope driverless cars will be active in 2020. Scale deployment is expected in 2025.

De Vos says automakers know that the only way to get there is with a new, fully digital platform based on electrification.

Vehicle makers intend to launch 45 new high-voltage platforms by 2022, spanning hundreds of vehicles and 13% of global vehicle production, according to an Aptiv investor presentation in June. The Dublin, Ireland-based company has booked $4.5 billion in new orders since 2016. And high-voltage electrification system sales are expected to climb to $1 billion annually by 2022, a 40% compound growth rate.

Aptiv won contracts in 2019 for the Tesla Model Y and Model 3 launching in China. The company also won the contract to supply the low-voltage battery system for the Fiat 500 BEV.

Aptiv is a spin out company from Delphi Automotive ((DLPH) -Get Report). the giant automotive powertrain supplier. The company split  September 2017, with Aptiv becoming the new face of its advanced electronics businesses for the self-driving, connected and electric car markets.

Shares trade at 23.7x forward earnings and 1.8x sales. The market capitalization is $22.8 billion.

Given the potential size of the market for vehicle electrification market, and the fact major component buyers like Ford and GM are now getting ready to ramp up production, these metrics look inexpensive.

After climbing to a new in January, Aptiv Shares are down 10% in 2020. Longer-term investors should consider buying the stock on any decline into the $65 range. 

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