Delphi Automotive announced it is planning to spin off its powertrain business so it can focus on technology for electrically powered and self-driving vehicles.
The powertrain business, which is dedicated to internal combustion engine technology, will become a separate publicly-traded company under the plan, leaving Delphi to compete in a potential electronic systems market the company estimates at more than $100 billion a year, nearly twice the size of the internal combustion market.
The spinoff “represents an exciting opportunity for our businesses by creating two independent companies, each with a distinct product focus, a proven business model, and the flexibility to pursue accelerated investments in advanced technologies that solve our customers’ most complex challenges,” Delphi CEO Kevin Clark said in a news release.
Investors reacted warmly to the idea, sending Delphi stock as much as 12% on Wednesday. The shares closed at $87.01, up nearly 11%, representing about $2 billion in added market value.
Delphi was itself spun off as a separate company by General Motors in 1999. As the Detroit Free Press reports, it has emerged as a leader in autonomous vehicle technology, acquiring or making strategic investments in 11 companies that specialize in the technology since 2012.
The powertrain business employs some 20,000 people and has about $4.5 billion in annual revenue, while the electronic systems division consists of about 145,000 employees and had about $12 billion in revenue last year.
Barclays analyst Brian Johnson said the spin-off “improves Delphi’s position in a world of automotive big data” and the company is among the best-positioned to benefit in the coming years as automakers spend more money on systems that manage the data needed by autonomous vehicles to navigate.
Clark cited projections that combustion engines will still power 95% of the world’s cars in 2025, insisting that “there’s all sorts of opportunity within the powertrain segment to develop advanced technologies that enhance the efficiency of the internal combustion engine.”
Powertrain also will be involved in electric propulsion, making inverters and other components for electric and hybrid cars, he added.