• Aptiv plans to separate its business into two distinct entities, "Aptiv" and Electrical Distribution Systems, by Q2 2026.
• The new Aptiv will focus on transformative trends driving the future of the automotive industry, including SDVs, autonomous driving, digital cockpits, and AI-powered personalized customer experiences.
• In the future, the new Aptiv is expected to have greater revenue potential and a higher profit margin compared to the EDS segment.

Aptiv has announced plans to spin off its Electrical Distribution Systems (EDS) business, effectively creating two entities, as the company looks to focus more intently on the industry's shift toward software-defined vehicles (SDVs) and advanced hardware. The EDS segment encompasses high- and low-voltage signal, power, and data distribution solutions for both passenger and commercial vehicles.

Following the spin-off, the newly restructured Aptiv will concentrate on active safety, smart vehicle compute solutions and software, user experience, and engineering components. It will also target diverse application areas, including aerospace and defence, telecommunications, industrial sectors, and the automotive industry. The company expects to complete the separation by Q2 2026.

The spin-off is aimed at enabling both entities to focus on their core strengths during this transformative phase in the automotive industry, ensuring they remain competitive against other ecosystem players.

Aptiv Unveils Portfolio Split with New Division Structure

Source: Aptiv

Here are key takeaways from the announcement:

Build Localised Supply Chain During the Automotive Industry’s Transition
•    The automotive market remains Aptiv’s primary focus, accounting for 78% of the new Aptiv Group’s total revenue and 91% of the EDS Group. With the industry transitioning towards SDVs, the new Aptiv will be better positioned to focus its offerings in this area and maintain a competitive edge.
•    Following the COVID-19 outbreak, supply chain disruptions prompted many countries to develop localized supply chains. The distinct target customers and business models of the two segments make it logical to separate them. This will allow Aptiv to better address regional markets and support ecosystem players in building localized supply chains.
•    The rapid growth of China’s automotive industry poses challenges for Western markets, with 2024 witnessing slow passenger vehicle growth due to inflation and weak consumer demand. To capitalize on the rise of Chinese OEMs in the electric vehicle (EV) segment and their progress toward commercializing SDVs, Aptiv aims to expand its business in China, targeting 50% growth over the next five years. Outside China, Aptiv will focus on partnerships with major players like Volkswagen, BMW, Stellantis, General Motors, and Ford to drive its next phase of growth.
•    Recently, US President Donald Trump revoked the prior administration’s plan to mandate half of all passenger vehicles sold in the US to be EVs by 2030. This policy further demonstrates the rationale for Aptiv’s strategy to spin off its EDS business, enabling each entity to focus on its strengths and adapt to evolving market conditions.

Higher Business Potential and Profit Margin
•    Aptiv estimated its total revenue (combining its Aptiv and EDS revenue) exceeded $20.4 billion in 2024, with 60% generated by its new Aptiv business and 40% by its EDS segment. Over the long term, the total addressable market and revenue potential of the new Aptiv business are expected to exceed that of the EDS business.
•    According to Aptiv's internal estimates, the profit margin for the new Aptiv business is currently in double-digit percentage and is expected to reach 20% by 2028. In contrast, the EDS segment’s profit margin remains in single digits, with projections indicating it will reach only 10% by 2028.
•    Developing products related to ADAS, digital cockpits, and SDVs is highly complex and will require significant future investments. The pure-play new Aptiv business will attract investors interested in high-growth segments, while the EDS entity will appeal to those seeking stable and consistent income.
•    The valuation of both entities will benefit from sector-specific strategic focus, optimized use of human and financial resources, and localized partnerships. In the long term, both companies have the potential to emerge as market leaders in their respective domains.

Aptiv's Strategic Investment Timeline Focused on Automotive Innovations

Source: Aptiv

Increasing Focus on Sensor-to-Cloud Technology
•    Aptiv has a long-standing history in the automotive industry, from being among the first to introduce radar-based adaptive cruise control for Jaguar in 1999 to delivering multi-domain controllers with Level 2+ systems in 2024. Leveraging its expertise in compute, application software, and vehicle architecture, combined with Wind River's edge-to-cloud software portfolio, Aptiv provides automakers with a comprehensive portfolio for SDVs.
•    Aptiv’s modular software stack allows it to support OEMs at various stages of their SDV development, recognizing that each operates at its own pace. This modular approach enables Aptiv to deliver customized solutions that address specific customer requirements while reducing overall development costs.
•    In recent years, Aptiv has strategically acquired and invested in numerous automotive companies to enhance its expertise in the SDV space. The acquisition of Wind River strengthened Aptiv’s focus on the commercialization of cloud-native software development platforms and software lifecycle management.

Analyst Take:
Aptiv's spin-off of its EDS arm highlights its proactive approach to identifying future trends and growth areas within the automotive industry that require distinct strategic focuses. The EDS business, with its well-established products and technologies, aligns with the growing mainstream adoption of vehicle electrification. While Western markets may see a slowdown, this segment is still expected to grow steadily over the next decade, requiring incremental improvements and lower investment levels.

In contrast, the new Aptiv business is positioned to address transformative trends shaping the automotive industry's future, including SDVs, autonomous driving, digital cockpits, and AI-powered personalised customer experiences. These advancements demand greater focus, significant investment, and new collaborations to meet evolving customer needs. By becoming more agile and trend-focused, the new Aptiv business is well-equipped to capitalize on these revolutionary changes and drive long-term success.