Large, legacy Tier One manufacturers in the automotive space are in for a tough time in the 2020s. OEM consolidation, market saturation, tight margins and the shift to zero emissions powertrain technology are pressuring parts suppliers to do more than cut costs, such as becoming major IP and design contributors to their customer’s operations.
This is the background to the big news of BorgWarner’s acquisition of Tier One heavyweight Delphi Technologies in a $3.3 billion all-stock transaction.
The combination of BorgWarner ($10.2 billion net sales) and Delphi ($4.4 billion net sales) creates a parts behemoth that is significant in that the deal is not an industry consolidation, but rather a combination of two complementary and synergistic technology portfolios.
Auburn Hills, Michigan-based BorgWarner is a legendary 90-year-old auto parts manufacturer of powertrain components, which operates 60 plants in 18 countries worldwide. Delphi Technologies is the powertrain and aftermarket spinoff from Aptiv that represented a fragment of the original GM spinoff in 1999, but has been the subject of much speculation (and litigation) after a Chapter 11 filing in 2005. Delphi Technologies emerged as an automotive electronics and engine component supplier with 24 manufacturing sites globally.
BorgWarner predicts $125 million in cost savings through 2023 as a result of the deal, but what makes this takeover more than just a Wall Street value play is the nature of the two firms’ operations.
BorgWarner is a driveline hard parts specialist, with their components under the chassis and in the engines of multiple products from American, Asian and European automakers. Delphi Technologies specializes in control electronics with some fuel delivery, fuel system management and service products. There is essentially no product line overlap, but the intriguing aspect of this combination is electrified vehicle drivelines.
BorgWarner’s integrated drive module (iDM) combines power electronics, an electric motor and transmission technology in an integrated module that allows vehicle manufacturers to convert their existing combustion-powered vehicles to hybrid applications without having to change the motor or transmission, either on- or off-axis. The system is a 48V solution that can also be used for pure electric driving, as well as hybrid modes such as stop/start and regenerative braking.
Another related technology is the company’s power recovery turbine technology, eTurbo—a turbocharger with integrated power electronics and a motor-generator attached to the same shaft as the turbine. When functioning as a motor, it assists the turbine to provide a supplemental boost to the engine. When more turbine energy is generated from the exhaust flow than required, it functions as a generator, and the excess exhaust energy is converted to electrical energy. The electrical function can also be turned off to return it to a standard turbocharger function.
BorgWarner expects that the eTurbo can be useful to OEMs developing new ICE engines for Euro 7 regulations.
BorgWarner has also formed a joint venture with Vernon, California-based Romeo Power Technology to develop EV battery packs. How does Delphi fit into this arrangement? As a major manufacturer of power control systems with considerable in-house expertise and IP, Delphi Automotive closes the circle and allows BorgWarner to offer a total battery/control/driveline solution to automakers for EV and hybrid applications. One-stop-shopping for automakers means that ICE-based manufacturers can design and build state of the art electrified products immediately, skipping years and millions in product development time and effort.
It also has the potential to alter the auto manufacturing space, as smaller, lower-volume players can order entire driveline assemblies in a package with no emissions testing requirements or certification needed. The result may be a return to the automotive industry of a century ago: many players and many designs in a boutique manufacturing environment of customized vehicles that share common propulsion architecture.
Combined with additive manufacturing, this could make the bespoke engineering of Bugatti and McLaren widely accessible and establish stronger margins in what has become a commodity product for mainstream consumers. We’ll keep you posted on this and future developments in the EV technology space.