By Nathan Gomes
(Reuters) – Aptiv said on Wednesday it would spin off its electrical distribution systems (EDS) business into a new company as it seeks to focus on its advanced driver assistance technology, sending shares higher of the automotive parts supplier by 5%.
The move comes as the Dublin-based company takes further steps to boost profitability, after cutting its annual sales forecast in October, as major automakers realign their electrification efforts to adapt to a market unstable.
“We believe the spin-off of EDS makes sense as it is a much lower margin business, with an estimated adjusted EBITDA margin of 9.5% for 2024, compared to 18.8% for the remainder activity,” said Garrett Nelson, an analyst at CFRA Research.
Nelson called the transaction a “value-creating move” and said the shares could justify a higher multiple.
The EDS division, which manufactures essential power distribution and signal systems for electric vehicles, is expected to be spun off by March 31, 2026.
After the separation, Aptiv (NYSE:) will focus on delivering comprehensive sensor technology to the cloud, including advanced driver assistance systems and in-cabin software.
The company’s main customers include major automakers such as Detroit Three, Volkswagen AG (OTC:) and BMW (ETR:).
The automotive industry faced a difficult second half of 2024, penalized by competition from Chinese companies and a drop in consumer demand due to inflation and economic concerns, which led many manufacturers to give the priority to SUVs and hybrids with higher margins.
US President Donald Trump also revoked the previous administration’s executive order on electric vehicles, which aimed to ensure that half of all new vehicles sold in the country by 2030 are electric.