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Breakingviews: Delphi becomes a pure play bet on self-driving technology

Breakingviews
Antony Currie
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Delphi headquarters
Gary Malerba | Bloomberg | Getty Images

Delphi is going where carmakers can only dream of driving. The $23 billion parts maker is spinning off its powertrain unit to focus on connected and autonomous vehicle technology. These fast-growing, higher-margin businesses will sport a top-tier multiple even if car sales slow. The likes of Ford and General Motors don't have the luxury of following Delphi's lead.

Like other suppliers, Delphi Automotive already trades at a premium to its customers. Before announcing its breakup plan on Wednesday, the company, headquartered in Gillingham, England, commanded a multiple of 12 times this year's estimated earnings. Only Toyota of the major carmakers makes it into double digits, but still falls shy.

The lofty valuation is a consequence of running businesses with better margins. Ford and GM, for example, are hitting the ball out of the park if their pre-tax margin reaches 7 percent. Delphi's was 9.4 percent in the first quarter and may exceed 12.5 percent for the rest of the year, according to analysts surveyed by Thomson Reuters.

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