The 2017 split of Delphi Automotive created two automotive suppliers with distinct focuses. Delphi Technologies concentrates mainly on powertrains, while Aptiv's key businesses are sensors, software, active safety and driving assistance.
Kevin Clark was named CEO of Delphi in 2015 and retained the chief executive title at Aptiv. He spoke to Automotive News Europe Correspondent Peter Sigal about the challenges of staying ahead of the technology curve.
What has been the reaction from customers to the creation of Delphi Technologies and Aptiv?
Customers understood that their requirements in the powertrain area and the areas where Aptiv operates were becoming more complex and technology-intensive, and that having two very good businesses that were well-capitalized would increase the focus on each one's strengths. The feedback has been extremely positive.
In 2018, Aptiv outperformed the industry by about 10 percentage points in a very challenging year. What was the key to that performance?
It starts with our product portfolio. One of the rationales for the separation is that it would let us leverage opportunities in what we call the brain and nervous system of the vehicle, in both hardware and software. We did extremely well in active safety, with growth above 50 percent, and in high-voltage electrification, where we grew by roughly 60 percent. We had bookings in electrification last year of over $1 billion (more than 890 million euros), and new customer awards of $4 billion. And, we won five awards in 2018 for what we call our Automated Driving Satellite Compute Platform.
What does a satellite architecture entail?
You move some of the software and computing capacity out of the perception systems -- in this case, radar and cameras, and you centralize it. That allows you to consolidate a lot of the vehicle's "brain" into a domain controller -- it's almost like having a file server in the vehicle. In turn, it's easier for the automaker to package, and you can use lower-cost radars, for example. It's also less expensive to repair in the event of an accident.
Today, there are about 100 electronic control units on a premium vehicle that are focused on providing power and intelligence for discrete items. Our view is that they will mostly be consolidated into four or five central compute controllers. Active safety would be one of those, the user experience integrated cockpit controller would be another, as would body/chassis/powertrain.
What are some of the specific product lines that are doing well?
Within active safety, it's satellite architecture. We had roughly $3.9 billion in awards last year, and I expect we will be at the same level again this year. We will go from five automakers using our active safety solutions a few years ago to more than 20 in 2022. In electrification, we are strong in power and data distribution as well as connectors for high voltage.
How do you see Aptiv's two business units, Active Safety and User Experience, and Signal and Power Solutions, evolving?
Our AS & UX business will grow roughly 10 points over [global] vehicle production in the next several years. That is being driven by active safety, and the unit overall will grow faster than 10 points over the market in China. Our Signal and Power Solutions segment will grow by four to six points globally, also faster in China because of the growth in high-voltage electrification. Overall, in electrification, we expect more than 50 percent growth, driven by the need to meet CO2 standards in Europe and the push to put more electric vehicles on the road in China.
What are your current forecasts?
We expect vehicle production to be down 3.5 percent globally -- down 3 percent in North America, 4 percent in Europe and 9 percent in China. Our own outlook for revenue growth is about 6 percent, so roughly 9.5 points over the market.
Where are you focusing your investments?
As we look at future platforms -- those we think will generate revenue starting around 2025 -- autonomous driving is one of our focus areas. We see it as an extension of our active safety technology: the algorithms, the perception systems, sensor fusion and the computer requirements. Our outlook for 2025 is that we will have roughly $500 million in revenues from Level 4 autonomous driving.
Level 3 technology, which we consider to be advanced driver assist systems, will add another $500 million by then. The second area is in data. Cars are creating a tremendous amount of data. Through our acquisition of Control-Tec a few years ago we can efficiently collect data, but more importantly, organize and process it in a way that helps our customers be more efficient. For example, shortening development time to save automakers money. We are also using data in post-production to help monitor fleets and reduce warranty costs. A third use for data will ultimately be collecting and selling it to non-automotive customers.
Are you looking beyond traditional automakers for new sources of revenue?
We think most of our forecast for $500 million in autonomous driving revenues in 2025 will be with non-traditional automotive companies, so from ride-sharing companies or mobility providers, for example. Our view on autonomous driving is you will first see it adopted by such players, in a robotaxi environment in geofenced urban areas. Autonomous driving technology will continue to evolve, but for traditional automakers there is a level of "automotive grade" that is not required for urban, lower-speed geofenced areas. That business will come in 2030.
Your autonomous vehicle test program with Lyft in Las Vegas has recently completed 50,000 rides with a safety driver onboard. What are the key takeaways from that and what is the next step?
One of the things we have found in a survey of riders is that nine out of 10 would ride in our vehicles again. Clearly it's a safe and positive experience for the passenger. That one out of 10 who wasn't excited about riding in the car again? Virtually all of that relates to vehicle size. Lyft is a great partner. We share data with each other. We are learning a lot about the customer experience and interaction, customer acquisition, and fleet management. How do you manage a fleet of 100 cars? How do you keep them clean and fueled? How does it integrate with a fleet of non-automated vehicles to optimize fleet utilization? We will remove the safety driver from the car in 2020, and you will have a full Level 4 system in a geofenced area within Las Vegas.
Are you nervous about that step?
I wouldn't say I'm nervous. We understand the importance of designed-in safety, as well as putting policies and processes in place to ensure the vehicle operates in a safe manner with little or zero risk. That is something that we are doing today even though we have a safety driver. I would say we are appropriately careful and certainly mindful. Tariffs and trade wars are a concern for the entire automotive supply chain.
How are you offsetting potential effects?
We are big believers in free trade. It promotes growth and effectively has allowed the auto industry to really take hold in countries across the globe. Our business model, for a long time, has been "in region for region" -- we have engineering, development and manufacturing capabilities, and launch capabilities for each specific region. The flows from region to region are relatively small, which has allowed us to minimize the overall impact of any tariffs. To put it in perspective, the new tariff on China was about $75 million in incremental cost year over year. We have reduced that exposure to $50 million and we think we can get it down to $30 million by the end of this year. It would be a similar situation with EU tariffs. Mexico is a little different. It's a very important and efficient supply chain so any changes to that are inefficient and costly to our customers, and ultimately would translate into increased vehicle costs which ultimately affects demand.
Is the slowdown in China the new normal or will the market return to the kind of growth we are used to seeing?
We think it's a reset. Our view on China, beginning about three years ago, is that it had become a mature market. We didn't think we would see that kind of double-digit growth, but we thought there would be significant growth in areas such as active safety, infotainment, user experience, vehicle electrification and connectivity. We adjusted our growth and cost structure to deal with that more mature market. We still believe China is a huge market with tremendous opportunity. It will return to growth but it will be slower, in the low single digits.
When will that be?
Our outlook for next year in China is flat and then low single digit growth rates the year after.
In Europe, you are forecasting overall vehicle production to be down 4 percent this year.
What are the reasons for that?
It will mainly be in Germany and the UK. It's tough to identify the exact drivers, but some of it is a slowdown in underlying GDP growth, but there are also issues such as the new RDE and WLTP [emissions] standards, and Brexit is having an impact on some automakers.
As emission standards tighten, what is your prediction for electrification in Europe?
With the unfavorability of diesel, electrification is the only viable path today [to meet tougher forthcoming CO2 standards]. At one point there was a discussion about seeing a transition from mild hybrids to full hybrid to battery-electric vehicles, but our view is that you will see a much faster move toward full hybrids and electric vehicles.
Where do you see Aptiv in 10 years?
We will continue to evolve with the industry, and we are aiming for a different profile of our revenue base. Just a few years ago, 4 percent of our revenues were outside the auto industry. Today it's 14 percent, and by 2025 we would like to make it 25 percent or more. We would like to diversify outside the automotive market and have a more sustainable, less cyclical business. We are aiming for a business model that includes much higher mix of recurring revenues versus one-time sales from areas such as data and software.