Drivers are no longer satisfied with cars that simply convey passengers to their desired destinations. They want to spend less on fuel, actively avoid car accidents, and stay connected to the Internet while on the road. Automotive suppliers BorgWarner (NYSE:BWA), Delphi Automotive (NYSE:DLPH), and Autoliv (NYSE:ALV) are key beneficiaries of these trends.
Notwithstanding the ups and downs of energy prices, fuel economy will always remain a top priority for car buyers. A survey conducted by the Consumer Reports National Research Center in May 2012 validated this assumption. More than half of car owners are willing to trade off both capacity and comfort in exchange for a new car that promises larger fuel savings. The United States, Europe, China and Japan have plans to further tighten fuel economy standards, with the aim of reducing harmful vehicle emissions.
BorgWarner, a global supplier of drivetrain and engine applications driving fuel and emissions savings, is well-positioned to capitalize on fuel economy trends. As an example, its Eco-Launch solenoid valve was named as a finalist for the prestigious 2014 Automotive News Premier Automotive Suppliers' Contribution to Excellence or PACE Awards in October 2013, which honors the best automotive suppliers in the areas of innovation and technological advancement. BorgWarner's solenoid valve technology improves fuel economy by ensuring smoother launches when a driver restarts his vehicle from a stationary position.
BorgWarner has received more than 10 PACE awards in various categories since 2005. Another regular award winner is Delphi, a diversified supplier of automotive parts. In 2012, Delphi won a PACE award for its Multi-Port Folded Tube Condenser or MFTC used in automotive air-conditioning. Delphi's MFTC contributes to fuel savings by enabling higher heat transfer capabilities across a smaller condenser.
An ounce of prevention always beats a pound of cure, especially when it relates to potentially fatal car accidents. That's why passive safety products like seat belts and airbags are increasingly being complemented by active safety products such as radar and infrared sensing systems. These active safety sensors help drivers "detect" vehicles and pedestrians, enhancing protection for drivers and other road users.
Apart from increasing consumer awareness of active safety, regulatory forces also play a part in increased adoption. Going forward, automobile rating programs like the European New Car Assessment Programme or EuroNCAP are increasing the active safety component weighting from 10% to 20% in their assessment criteria. In other countries such as the United States, Japan, Korea, and Australia, active safety will be part of their automobile rating programs starting in 2014.
Autoliv is expected to ride on the increase in demand for active safety products, given that it makes up 20% of active safety products sales. The results speak for themselves. Autoliv grew organic sales from active safety products by 67% in the third quarter of 2013, compared with a top-line growth rate of 9%. Building on this set of strong results, Autoliv has set a target to increase its market share in this category to 24% by 2015.
Apart from Autoliv, Delphi Automotive is another automotive supplier with its sights on the growth opportunities in active safety. It became the first in the world to launch an integrated Radar and Camera System or RACam that combines radar sensing, vision sensing, and data fusion in a single module. As adoption rates rise, demand for systems that integrate various active safety features like Delphi's RACam should accelerate.
Connected cars, as they are called, provide a whole new world of options for drivers and passengers. Delphi's real-time vehicle connectivity product called 'Delphi Connect' represents a step in this direction. With Delphi Connect, car owners can use their smartphone as a key fob (security token), track vehicle location, record details such as trip duration and travel distance, and receive vehicle health notifications such as battery levels.
More importantly, Delphi's customers, the auto manufacturers see potential revenue enhancement and cost reduction opportunities with connected cars. These include lower warranty costs with real time vehicle data monitoring and data collection, and targeted in-vehicle advertising. This should drive demand for Delphi Connect in the connected cars of the future.
Of the three automotive suppliers listed above, Delphi stands out for its exposure to multiple secular trends such as fuel economy, active safety, and connectivity. In addition, Delphi has an edge over its less diversified competitors, as its diversity provides its customers with a one-stop shop to meet their specific needs.
Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Autoliv and BorgWarner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.