Al Root
The blockbuster deal between Rivian Automotive and Volkswagen will affect more than just those two car makers. One potential loser is the parts supplier Aptiv.
Tuesday, Rivian and Volkswagen announced plans to form a joint venture to engineer electrical architecture and software for electric vehicles. Rivian is getting up to $5 billion, while VW will be able to use Rivian's technology in its EVs. The deal affirms the value of Rivian's technology and provides needed capital to the start-up.
Rivian stock was up 27% in early trading Wednesday at $15.15 a share, while the S&P 500 and Dow Jones Industrial Average were down about 0.2% and 0.3%, respectively.
Shares of Aptiv, however, were down 9.3% at $66.54 after catching a downgrade from Piper Sandler analyst Alexander Potter. The call is all about the Rivian/VW deal.
"Most people don't appreciate the gulf that separates 20th-century auto makers from new-age companies like Tesla and Rivian," wrote Potter. "It's not about batteries or electrification. Instead, old-school car companies are struggling with a more fundamental question; namely: what should car companies make."
He believes car companies are realizing they need to control their own electrical architecture, design, and onboard computers, and write their own software.
The problem for Aptiv is that shift could mean less business. The company supplies electrical architecture and software for cars, among other things. "Aptiv is still relevant, but the bull case seems unrealistic," wrote Potter.
He sees operating profit margins below 13% far into the future, while Aptiv's long-term goal is to get margins to about 17%.
Potter cut his rating to Sell from Hold and took his price target to $63 from $78 a share.
To be sure, one joint venture working on EV architecture doesn't mean Aptiv would be completely cut out of that area of its business. And exactly how the joint venture between Rivian and VW will develop can't be known yet.
Overall, Wall Street still likes the stock. Almost 80% of analysts covering the company rate shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Aptiv is $101 a share, far higher than Potter's call.
He has the lowest price target on the Street. The next lowest is $75 a share. The top price target is $145.
Coming into Wednesday trading, Aptiv stock was down about 18% year to date, mainly because of concern about the overall level of car sales, rather than EV joint ventures. Most auto-parts supply stocks are down. Magna International stock had fallen 29% so far this year, while Lear stock was off 19%.
Write to Al Root at allen.root@dowjones.com
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June 26, 2024 10:15 ET (14:15 GMT)
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