FOCUS-‘Humble and hidden’ auto suppliers driving the EV revolution – Yahoo Finance

April 10, 2022 by No Comments

* Connector suppliers such as TE find sweet spot with EVs

* TE planning more capacity or to buy other firms to expand

* Going electric means more complex and expensive parts

By Nick Carey and Christoph Steitz

WOERT, Germany, March 22 (Reuters) – The shift to electric cars may pose an existential threat to suppliers of combustion engines but for auto parts firms such as TE Connectivity the challenge is keeping up with demand.

It makes the connectors that link miles of cables in cars to all things electrical, from sensors to fuel injection systems to infotainment – and if there’s anything the cars of an electric era will need, it’s larger and ever more complex connectors.

That’s why TE spent $125 million to open a new building in 2020 dedicated to electric vehicle (EV) parts at a factory tucked away in a shallow valley in the small town of Woert in southern Germany.

And that’s why it’s on the lookout for acquisitions or partnerships to keep expanding its auto business, Chief Executive Terrence Curtin told Reuters: “We’re going to continue to add capacity.”

As legacy auto parts suppliers figure out if and when to sell combustion engine businesses or buy EV parts makers, TE and rivals in the connectors or sensors businesses such as Sensata Technologies, Amphenol Corp and Molex are looking to supply higher-value components and do more development work with carmakers going through a massive transition.

“All these automakers talking about moving their fleets to electric and making promises about range are incapable of doing that without suppliers like TE,” says William Kerwin, an analyst at Morningstar who covers TE, Sensata and Amphenol.

Auto parts account for over 40% of TE’s $15 billion in revenue, making it one the biggest car suppliers most people have never heard of. Its $43 billion market value is far bigger than Nissan and Renault combined – and more than three times heavyweight supplier Continental.

TE has a price-to-earnings ratio of about 18, Amphenol and Sensata are in the 20s, while Continental trades at about 10.

EUROPEAN DEMAND EXPLOSION

TE’s Curtin said car parts suppliers and automakers alike had been caught out by an explosion in demand for EVs in Europe over the past two years – and with everyone playing catch-up TE’s new facility was running at double its planned production.

While a global shortage of semiconductors has hit overall car production, Curtin said automakers have been using the chips they do have to prioritise EVs over fossil fuel vehicles – putting ever more strain on suppliers such as TE.

The challenge TE faces is getting the timing and scale of its expansion right, given the EV transition and shift to self-driving cars could run into speed bumps, such as an end to subsidies or safety concerns, Curtin said.

Because for TE, electrification means going bigger.

The far greater power needed by EVs means TE must develop larger and more complex components to handle the extra current, without causing fires.

TE’s conventional parts have up to five components but its newer EV parts have up to 50 components. The supplier also now buys tonnes of aluminium, which is lighter and cheaper than copper, to make up portions of those larger parts.

In the older part of the Woert factory, machines spit out 16 connectors for fossil …….

Source: https://finance.yahoo.com/news/focus-humble-hidden-auto-suppliers-060000035.html

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