August 9, 2018 06:01 CET
Delphi Automotive shook up the supplier world in May 2017 when it announced its intention to divide the company into two entities: Delphi Technologies, which would focus on powertrains, and Aptiv, which will concentrate on future technologies such as autonomous driving. Liam Butterworth, who led Delphi’s powertrain unit, was named CEO of Delphi Technologies in December. He spoke with Automotive News Europe Correspondent Peter Sigal about the challenges and opportunities ahead for the company.
Delphi Technologies recently released its first quarterly report as a stand-alone company. How is the transition going?
We are in a great place as a business. The spinoff was executed seamlessly, and it was completed about four months ahead of schedule. We announced our 2017 results in February. Among the highlights: We had very strong revenue of $4.8 billion, 22 percent growth in China, and new business booking of $7.1 billion, which is about 10 percent higher than the prior year. About $2 billion of that was in electrification.
Is Delphi Technologies nimbler now as a stand-alone company? For example, if a trade war broke out or a significant regulatory shift occurred, are you more able to respond quickly?
Yes, both in terms of macro factors and also in how we operate globally with our customers. We pride ourselves on being a very nimble, flexible, responsive company. Now that we are a stand-alone company, everything that we do strategically and operationally is a reaction and response to what’s going on in the powertrain space. When we were part of a larger group there may have been some conflicting dynamics taking place because of different product lines within the overall Delphi. We also have a board of directors with a lot of experience in the powertrain space, so we get a tremendous amount of strategic discussion and dialogue regarding the company’s strategy and where we want to take the company.
Was there a sense within Delphi that some of the resources that could have gone toward powertrain and propulsion weren’t going there, because you can’t fund everything all the time?
That wasn’t happening, but that would have started to happen, and that was why we did the spinoff when we did. In 12 to 18 months’ time if we were still part of Delphi, I think there would have been increasing capital allocation decisions that would have not been favorable for the powertrain part of the company.
How has the reception been in the financial markets?
When we first went out on the road last year, there was clearly a misconception around what Delphi powertrain was all about. The perception was that it was a legacy business of Delphi that is no longer of strategic interest, which is not at all the case. We had to educate the investment community about the business in terms of portfolio, technology and customer reach, and global spread across the powertrain universe. The reaction has been favorable, but our task now is to deliver on our commitments and perform as we have done in the past.
Is the portrayal of Delphi Technologies as “old tech” accurate?
It’s not an accurate description of what we offer our customers. We offer solutions across every type of powertrain, whether it’s internal combustion, full-electric, plug-in hybrid or 48 volt, because every automaker is approaching the CO2 challenge in different ways. And as automakers look at different powertrain mixes, software becomes important to control those systems. We have about 1,500 software engineers collaborating with customers to implement that technology.
Will you collaborate with Aptiv?
There are no restrictions in terms of collaborating with Aptiv or any other major Tier 1 supplier. If it makes sense to collaborate with Aptiv, whether on electrical architecture or autonomous technologies, then we would do it.
Your first quarterly report shows that powertrain business sales were up 14 percent, with declines in diesel offset by gasoline. How are the gasoline and diesel markets evolving?
Declines due to diesel have been mainly offset by growth in the core technologies of GDI [gasoline direct injection] and power electronics. We have been proactively planning for the decline in light duty diesel for quite some time.
Have you had to shift production or retrofit plants as diesel volumes fall?
I have been running this company [Delphi powertrains] since 2014 and one of the things we did was to map out how we wanted to take the company forward from a portfolio and manufacturing footprint standpoint. Even then, there were questions about the future of light duty diesels. We decided that we would stop investing in that technology, and as such we did quite a significant amount of restructuring from a manufacturing standpoint.
What are your main profit centers right now?
The three areas that are the strategic focus of the company are 1) electronics and electrification, 2) highly efficient gasoline systems and 3) commercial vehicle systems. We have very balanced profitability. We have three business units: one is for internal combustion engines based in Luxembourg; our electronics and electrification business, which is based in Shanghai; and our aftermarket business, which is based in the UK.
If you look 10 years into the future, how will that arrangement evolve?
An increasing share of revenues in the future will come from our electronics and electrification business, with growth across Asia, especially in China. Also, we continue to invest in gasoline direct injection, and that will be important for our customers as they move away from diesel. That will continue to drive significant growth for the next four to five years.
How does your global footprint break out?
North American accounts for 25 percent of our revenues. If I look at our plan for the next five to eight years, I would say the main shift is toward Asia. Europe is actually shrinking in terms of weight in the company, whereas North America is remaining at a similar level and will grow with vehicle production in the period. By 2022, our revenue percentage on a global basis will be very closely aligned to IHS vehicle production forecasts. We want to make sure that our bookings are reflective of where vehicle production is.
Why is the per-vehicle content value of your orders for electrified cars up to six times higher than for it is vehicles that have just an internal combustion engine?
If you look at a typical internal combustion engine, maybe a 1.6- or 2.0-liter gasoline engine, the content is about $300 [255 euros] for a GDI system, the valve train and a few associated components. But if you take the electrification portfolio, which is a mixture of onboard chargers, the battery controller and the combined inverter and DC-to-DC converter — those products represent about $1,500. On a plug-in hybrid, which is really the sweet spot for content from a powertrain supplier standpoint, the content is about $1,800 to $2,000 per vehicle. If you go battery electric, all you lose is the internal combustion components, about $300, so we still keep a significant amount of content. Forty-eight-volt technology is lower, about the same as internal combustion. Electrification is good for us.
Are there any other areas of the electrification market that you’re aiming at?
We have products in three areas: DC-to-DC converters, inverters, and onboard chargers, and the associated software for those three products. Beyond that, in terms of battery or motor technology, we won’t be investing in those areas – there are expert companies focused here. However, we’ll partner with battery or motor suppliers in areas where it makes sense for the customer.
You’re also researching intelligent driving. What do you mean by that?
We have advanced projects to control the powertrain software to adapt the vehicle driving dynamics according to where it is on the globe to deliver improved fuel efficiency. For example, if a vehicle is in the city, you could have a different combustion cycle than in other areas.
Meet the boss
NAME: Liam Butterworth
TITLE: Delphi Technologies CEO
MAIN CHALLENGE: Providing customers solutions across every type of powertrain.
Are you spending more on r&d now than under Delphi?
The business was never starved from an r&d standpoint, but it could have been a problem in two years’ time. Our strategies make sure we invest in the most efficient manner, on our three strategic legs: fuel-efficient engines, electronics and electrification, and commercial vehicle applications.
How do you see the aftermarket business developing in the context of increasing electrification?
Aftermarket is about 18 percent of our total revenue. Our mix is pretty broad and many of our products will still be applicable to electrified powertrains as they evolve. We’re working with our customers to understand what they will require in terms of diagnostic and service expertise. In terms of the timing, the sweet spot for our business, where aftermarket really starts to see growth is when vehicles are seven to eight years old. So, while hybrids and electrified vehicles are important to our future, the aftermarket piece is lagging behind a little bit because of that time gap.
Are you involved in any high-tech ecosystems, joint ventures or partnerships?
Not at this time, but we are involved in collaborations with other Tier 1 suppliers. For example, if an automaker asks us to package our inverter technology on an axle or the transmission, then we will work with the chosen transmission or axle supplier that brings value to the automaker. Our strategy is not to hang our hats on one partner. Automakers want suppliers that are independent and flexible.
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