Faced with the transformation of the auto industry, which is superimposed on electrification and intelligence, auto supply chain companies have adopted different response strategies. These strategies can be roughly divided into three types: transfer, Split, and merger.
Transformation
The most typical one is that ZF announced on August 3 that it will no longer develop components for internal combustion engine transmission systems from January 1, 2021. The development focus of the group will focus on long-range hybrid and pure electric vehicles.
Split the business.
In December 2017, Delphi divided the company into two, and the electronic and safety and electronic and electrical architecture business segments formed a new company, Abofu, focusing on accelerating the promotion of active safety, autonomous driving, interconnection and other technologies. The powertrain business segment is independent as the new company Delphi Technology.
In October 2018, Honeywell split its turbocharging business into a new company, Garrett. Earlier, Johnson Controls split the Adient and seat business, Autoliv split Vininger, and Virginia split the exterior business. China announced the split of the powertrain business as early as 2018, but it has not yet been carry out.
Mergers and mergers between companies and businesses
In recent years, ZF acquired TRW for USD 13.5 billion, Infineon acquired Cypress for 9 billion Euros, ZF acquired WABCO for USD 7 billion, Tenneco acquired Federal-Mogul for USD 5.4 billion, Hitachi and Honda's parts companies merged into Japan's third-largest parts suppliers, etc. Small and medium-sized mergers and acquisitions are constantly emerging.
The latest case of "merger", the largest acquisition in the auto parts industry in 2020, was hammered on October 2-BorgWarner announced the completion of the acquisition of Delphi Technology, valued at approximately US$3.3 billion.
Delphi was once the world’s largest auto parts company. Delphi Technology has inherited the name of the previous parent company. In contrast, BorgWarner is relatively low-key, and its popularity and influence seem to be less than Delphi’s, so that the acquisition was just disclosed to the outside world Left the impression of "snake swallowing elephant".
In fact, according to the 2019 financial report data, BorgWarner's global sales are 10.168 billion U.S. dollars, Delphi Technology's global sales are 4.4 billion U.S. dollars, and Delphi Technology's volume is less than half of BorgWarner's volume, and the combined value is 14.568 billion U.S. dollars. In the list of the top 100 global auto parts suppliers compiled by "Automotive News" in 2020, the two ranked 25th and 51st respectively, and are expected to enter the top 15 after the merger.
The protagonist of this acquisition, BorgWarner, is an American company dedicated to power system solutions. Its products and technologies involve internal combustion engines, hybrids, electric vehicles and transmission systems, and four-wheel drive systems.
In the 1990s, BorgWarner and Volkswagen jointly developed the DCT dual-clutch transmission. After that, Volkswagen launched the DSG (Volkswagen's DCT trade name) dual-clutch transmission, which, together with the TSI supercharged direct injection engine, constitutes a "golden power combination" sweeping the Chinese auto market, making an important contribution to Volkswagen's growth as the world's number one. In addition, turbocharging in the golden power portfolio is also BorgWarner's strength.
The acquired company, Delphi Technology, has a short history. Its parent company, Delphi, was the product of GM's split and listing of its parts and components business in 1999. At that time, it was the world's largest auto parts company and could produce almost everything from screws to engines. part. After that, Delphi went through bankruptcy protection, a second IPO, and continued to divest and lose weight until it was split into two again in December 2017.
The news of the merger and acquisition was as early as the end of January 2020. The first reaction of the stock market was that Delphi's stock price soared by more than 60% and BorgWarner's stock price fell by 7%.
The changes in the stock prices of the two companies are worth pondering. They represent the current capital market’s declining view of traditional cars and the increasing trend toward electrification and autonomous driving in the automotive industry. The two companies after the spin-off of Delphi correspond exactly to two directions: Anbofu focuses on autonomous driving to represent the future, and Delphi Technology’s strengths are traditional automotive powertrains, which seem to represent the sunset industry.
If Delphi Technology is really a sunset industry, why did BorgWarner acquire it for a high price of US$3.3 billion?
BorgWarner`s strategic actions in recent years show that this company has also been actively preparing for industry changes. In 2015, it acquired Remy International for US$950 million to obtain advanced motor technology. Later, it acquired Sevcon, Sevcon, Inc, Rinehart Motion Systems, AM Racing, Romeo and other companies, and strengthened the technology in the fields of power electronics, electronic control ECU, pure electric and hybrid drive solutions, power battery packs and battery management systems And product capabilities.
Tan Yuesheng, BorgWarner`s global vice president and president of China, accepted an exclusive interview with Auto Business Review before the completion of the acquisition. He told the story behind the acquisition and answered many questions.
It can be seen from his description that the direction of electrification and intelligentization of automobiles is undoubtedly the consensus of the industry. The differences are the speed and rhythm of changes, and the length of the transition period. This difference caused different companies to make different judgments and decisions.
Companies like ZF that resolutely turn to electrification are radical reformers, while BorgWarner takes into account the three power technologies of fuel vehicles, hybrids, and electrification, and gradually increases the proportion of electrification, which is more like a moderate gradualist.
In the automotive supply chain reform, the final result to be achieved by the progressives is the same as that of the reformers, except that the transition period is longer and the methods are not so drastic. They are carried out step by step in stages and steps. The acquisition of Delphi Technology is a step in BorgWarner's gradual progress.
Which faction will be closer to the market change process and achieve success? Time will give the final answer.
BorgWarner’s official evaluation of the acquisition is: Delphi Technology has leading power electronics technology, excellent talents, mature production technology, complete supply chain and huge customer base. The combined company will provide customers with a complete set of integrated and independent power electronics products (including high-voltage inverters, converters, on-board chargers and battery management systems) and support services (including software, system integration and thermal management).
Tan Yuesheng commented on the automotive business: "The path we are taking is called the'balanced and flexible drive system' strategy. Our original strategy is balance. Now we have added Delphi. After the acquisition, it will become a A balanced and very flexible strategy."
How to understand "balance"? He explained that the essence of a car is the movement from point A to point B, which can extend to safe point A to point B, and energy-efficient point A to point B. BorgWarner's positioning is for cars-whether it is a hybrid Power, electric vehicles or traditional internal combustion engine vehicles, whether manual or unmanned-provide the most effective, efficient, energy-saving, and environmentally friendly mobile travel from point A to point B.
"If we no longer invest in internal combustion engines, or even spin-off, and fully focus on electrification, it meets Wall Street's expectations, but when it is really operated, the risks are stormy." Tan Yuesheng took the sales of new energy vehicles as an example, 2019 Domestic new energy vehicle sales accounted for 4.68% of total vehicle sales. In the first seven months of this year, the cumulative sales of new energy vehicles fell by 32% year-on-year, and the first eight months fell by 26% year-on-year. “If we all bet on new energy, It is very likely that it will not survive, and the possibility of bankruptcy is very high."
Conservative, Tan Yuesheng's balance may be annotated with this word. It has nothing to do with optimism or pessimism. This is an analysis and judgment on the process of industry change.
How long will electrification become popular? How long can autonomous driving be achieved? Each company has different judgments. For example, GM CEO Mary Barra made her judgment on the Bloomberg TV talk show "David Rubinstein's Leadership Live" in June: "Electric vehicles are popular. It will take decades and autonomous driving will be realized within 5 years."
On the issue of the popularity of electric vehicles, BorgWarner and Mary Bora belong to the same camp.
BorgWarner made the judgment that the popularization of electric vehicles would take decades. This is reflected in the fact that it has made diametrically opposed decisions to ZF. In 2014, BorgWarner proposed a “CHE” balance strategy: in the traditional internal combustion engine (Combustion), At the same time, both hybrid and electric fields are making efforts.
"The acquisition of Delphi Technology has greatly strengthened our flexibility. If the process is accelerated, we will not fall behind, because we have all the electric drive products, and we can respond regardless of the market trend." Tan Yuesheng said, "Even if Electric vehicles have begun to advance by leaps and bounds in five years, and we have no problems with electric drives. We are definitely at the forefront."
Why can Delphi Technology bring so much flexibility to BorgWarner?
Acquisition value: from perfecting core components to optimizing business structure
BorgWarner's annual sales jumped from 10 billion US dollars to approximately 15 billion US dollars. This is the simplest logic of this acquisition based on paper data.
But if the increase comes from traditional fuel vehicle parts, it doesn't make much sense, because everyone knows that this is a shrinking market.
The greater value of the acquisition lies in two points: the complementarity of the products and technologies of both parties, and the increase in business trends such as electrification.
This is what Tan Yuesheng calls "flexibility". If the electrification process is faster than BorgWarner's original judgment, the electrification technology and products obtained through the acquisition can accelerate the company's transformation speed.
In terms of complementarity, Delphi Technology's products such as the engine fuel injection system, carbon canister, electronic control ECU and transmission controller of the traditional fuel power system can be combined with BorgWarner’s turbochargers, exhaust gas recirculation valves, and engine timing systems. , Transmission and thermal management.
In terms of increased electrification, Delphi Technology has inverters, DC-DC converters, on-board chargers, electronic control systems that include software and hardware, and battery management systems, which not only bring increments, but also compete with BorgWarner’s electronic turbochargers. The compressor, P2 hybrid power module, high-pressure liquid heater, motor, transmission, and battery pack complement each other.
Tan Yuesheng said: "BorgWarner already has motors, transmissions, coupled with Delphi's inverter and control systems, to form a complete electric drive system." This should be the core gain of this acquisition.
BorgWarner's electric drive system is also accumulated bit by bit. I first developed a transmission for electric vehicles in 2008 and entered China in 2015. "In the following four years, almost 70 to 80% of domestically developed electric vehicles were originally made by BorgWarner. This transmission. Although the volume is not large, because the entire electric vehicle sales are not large, but the market share is very high."
After the acquisition of Remy, the company combined the transmission and Remy's motor to form a two-in-one electric drive system. "This system has been supplied to the Great Wall, Weimar, Ideal and other new energy vehicles, and it is not convenient to disclose more supply relationships now." Tan Yuesheng said.
If you add Delphi Technology's inverter and control system, this electric drive system can evolve into a three-in-one.
He emphasized: "We are not the only one that provides the three-in-one electric drive system, but BorgWarner controls all three in its own hands. The development, design, and manufacturing capabilities are in its own hands and have patents. We can Form a most effective electric drive system."
Due to the long cycle of the automobile industry and the need to determine the supply relationship in advance, the supplier's orders, revenue, supply structure, and customer structure in the next few years are clearly visible.
In BorgWarner`s supply in 2023, pure electric components will account for 6%, hybrid components will account for 30%, Delphi Technology`s pure electric components will account for 12%, and hybrid components will account for 29%.
It can be seen from the supply structure that the acquisition of Delphi Technology can significantly enhance BorgWarner's capabilities in the pure electric field.
Research organization HIS Markit predicts the global market that by 2023, pure electric vehicles will account for 8% of new car sales, hybrid vehicles will account for 25%, and traditional fuel vehicles will account for 67%. Comparing this data, it seems that the proportion of electrification of the two traditional parts companies has exceeded the industry level.
The reason for comparing the data in 2023 is that this is the point in time when the two fully integrated, and the new company's revenue and profit changes are also visible to the naked eye.
"By 2023, we estimate that after the complete integration, including some factories, will also merge, it will produce a synergy effect of 125 million US dollars per year, and there will be a profit margin increase of 0.8% to 0.9%, which is immediately visible." Tan Yue Sheng revealed to Auto Business Review.