Due to concerns over the negative impact of Rivian's joint venture with Volkswagen, Piper Sandler downgraded its rating for Aptiv to "shareholding".
According to the Intelligence Finance app, Piper Sandler downgraded its rating for Aptiv (APTV.US) to "shareholding" due to concerns over the negative impact of Rivian (RIVN.US) and Volkswagen's (VWAGY.US) joint venture.
On Tuesday, Rivian received billions of dollars in investment from Volkswagen and formed a joint venture to develop next-generation electric architecture and world-class software technology. Although this news seems unrelated to Aptiv, Piper Sandler analyst Alexander Potter believes it is a dangerous signal for Aptiv.
Potter sees Rivian/Volkswagen's joint venture as a sign of "disintermediation" in the electric vehicle industry. While "old-school" automakers are trying to solve more basic issues related to components, new electric vehicle companies must equip themselves with their own smart vehicle architecture (SVA), design their own onboard computers, and write their own code. As the cost of relying on companies such as Aptiv increases, the joint venture between Rivian/Volkswagen highlights the shift towards in-house production.
While Aptiv (APTV) still maintains contact, the bullish scenario of the past no longer seems realistic. The company's 17% profit margin target depends on its SVA provided to automakers who cannot develop these platforms internally. The problem Aptiv faces is that Tesla (TSLA.US), Rivian, and some Chinese original equipment manufacturers can develop vehicles faster because they control the electronic control unit (ECU) and software internally. Piper believes that in order for Aptiv to maintain a 17% profit margin, it must raise prices and accelerate its shift towards in-house production.
Due to the recent cancellation of an SVA order (possibly from Volkswagen), as well as cost-sensitive customers now facing the risk of remaining backlog, Piper lowered Aptiv's target price, reduced its long-term operating margin expectations by 100 basis points, and raised doubts that the company can achieve its target growth rate. The bank currently has a target price of $63.
During Wednesday's trading session, Aptiv's stock price fell more than 10% to a four-year low. The industry's turmoil dragged down the stock prices of BorgWarner (BWA.US), Lear (LEA.US), Magna International (MGA.US), and Forvia SE.