For Those Who Love Tesla – A Legitimate Tesla Competitor at 19 P/E

For the last few years investors have been fascinated by electric vehicles and the technology allowing vehicles to become increasingly autonomous. At the front of just about everyone’s mind when it comes to this sector is Tesla. Tesla certainly has grabbed the headlines, but there are other public companies producing the technology for electric and autonomous vehicles. One of these companies is Delphi, which also makes for a very interesting investing opportunity.

One of the coolest features of the Tesla Model X and Model S is the ability for Tesla to download software updates to the car while it’s sitting in the garage. The updates fix bugs or add enhancements. Tesla sends a text letting the owner know an update is required and asking if it would be OK to do the update on a particular date at 3 a.m. This technology is incredibly interesting to many automakers because it allows for a vehicle to receive updates “over air” without having to be taken to a dealership’s service department. As it turns out, that technology is now becoming available to other automakers … courtesy of Delphi Automotive PLC. Delphi’s system for “over air” updates can already be found in the 2017 Chevrolet Bolt EV.

Delphi is putting together a number of software and hardware systems that will allow other automakers to duplicate, and in some ways improve upon, what Tesla has been doing. Delphi has been marketing its over air aftermarket system to automakers, claiming that it will allow automakers to access and update vehicles as old as the 2010 models. The system will allow changes to engine control, the braking system and infotainment system computers over the airwaves. Delphi is currently negotiating with a number of automakers to have its system built into new car models by 2020. Bear in mind, Delphi has operations in 46 countries, not just one.

In order to catch up with Tesla, Delphi has been snapping up companies that provide bits and pieces of the different systems. This past January, Delphi purchased a Plymouth, Michigan, startup company called Movimento for their over air system for an undisclosed sum. Delphi also purchased a company called Control-Tec back in 2015 for its data analysis technology. These acquisitions with others and Delphi’s own technology have made the company one of the most advanced in the autonomous vehicle sector, as you can see from the chart to follow from Navigant Research.

The bottom line is Delphi is not only one of the leaders in autonomous driving systems, but with their new over-the-air update system, the technology side of their company could become a huge chunk of future revenue as some major automakers begin to integrate these capabilities into their new models. Since our first pick in the automotive technology area, Mobileye, was acquired by Intel, we have positioned Delphi to replace them. Delphi has integrated Mobileye technology into a multi-level package with radar, sonar, GPS, etc. We do not know all of the components, but they are quietly stepping to the forefront.  And, they have a “familial” relationship with GM from which Delphi was spun off 18 years ago, so there is a ready market for their developments. So, when you see GM at the head of the list above, know that is a collaboration with Delphi.

A huge sign that this is not just a side project, but the company’s new focus, Delphi is selling off its power train business and other low margin OEM auto parts products, turning it into a pure automotive technology company. Yes, earnings will initially drop as these businesses are sold, but share repurchases with the receipts of the sales will partially mitigate the initial loss of earnings.

We do own Delphi, for our clients and personally. If the technology is interesting to you and a low PE approach is within your investment comfort space, you might consider adding Delphi to your portfolio.

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