Copper prices and demand are taking off, partly because more people want electric cars.
That is a problem for the companies that want to capture that buying interest. The higher prices cut into their margins, which are razor thin to begin with. Car makers already have trouble making as much money selling an EV as they do from a traditional gasoline-powered vehicle.
That doesn’t mean the problem can’t be tackled. Rising prices can bring out creativity, in this case at Aptiv (APTV), one of the world’s largest car-parts suppliers.
Aptiv is a leader in green, connected, and safety technology for the industry. Green, in this context, means vehicle electrification. Connected refers to the software that is slowly changing the way consumers think about their cars.
(TSLA), for instance, uses over-the-air software updates, so a Tesla can suddenly be better one morning than it was the night before, even though it was driven off the lot long ago. Many of those upgrades deal with autonomous driving and safety, Aptiv’s third focus.
Aptiv is a well positioned supplier. Those are the three big automotive trends these days.
But as cars get more electric and more computer-like, they tend to need more wires, which are made of copper. A typical gasoline-powered car has roughly 55 kilograms of copper wiring, according to Aptiv. An EV needs another 10 to15 kilograms, roughly speaking. At current copper prices, which are up about 33% year to date, the difference in production costs is more than $100 per vehicle.
That sound insignificant, but
(F), for instance, makes $1,000 to $2,000 in operating profit per car, depending on the year. The copper increase eats away 5% to 10% of total operating profit. And that doesn’t factor in the complexity of having more wires in the vehicle.
EVs are more expensive than gas-powered cars to begin with because batteries and electric motors are pricier than an engine, transmission, and fuel tank. That is another reason adding costs to EVs is anathema to auto makers. It is tough enough to make money already when prices for EVs look unfavorable compared with similar traditional automobiles.
Aptiv, however, has found a way to make an EV with less copper than a gasoline-powered car. They call it their smart vehicle architecture, or SVA. Bill Presley, president of Aptiv Signal & Power Solutions, illustrated the issue with four pennies, a dime, and a business card.
The four pennies are the wheels, while the dime is the car’s central processor, communicating with the front of the car. When you electrify a car, you place the battery pack, the business card, right in the center of the four pennies. The problem is that leaves no space for the computer. Moving the dime behind the card, or the computer behind the battery, increases the distance to the front.
A greater distance equals longer copper wires.
What Aptiv has done with SVA is break the dime apart, essentially creating more little computers responsible for different things. Instead of each sensor running a line to the central computer, lines can go to little computers, which can talk to one another.
The total wiring goes down with SVA. Roughly 15 to 20 kilograms of copper vanishes from an EV that would otherwise have about 65 to 70 kilograms of wiring.
Vehicle electrification, of course, is still good for copper demand. Not everyone has adopted Aptiv’s SVA solution, but pricing pressure always creates a need to save. That has created an opportunity for Aptiv.
Aptiv stock is up about 15% year to date, better than the comparable gains of the
Dow Jones Industrial Average.
Shares trade at about 28 times estimated 2022 earnings, a premium to the price/earnings ratios of both the S&P 500 and other auto suppliers. The valuation reflects the company’s unique and leading position in the three critical end markets.
Write to Al Root at [email protected]