Piper Sandler analysts on Tuesday downgraded Aptiv (NYSE:APTV) stock to Underweight from Neutral and reduced their price target on the stock from $78 to $63 amid concerns about the company's competitive position in the automotive technology market.
APTV shares fell more than 6% in premarket trading.
The reassessment followed a new announcement made by Rivian (NASDAQ:RIVN) regarding the formation of a joint venture with Volkswagen, which aims to develop in-house electrical architecture and vehicle software.
“At first glance, this may seem unrelated to Aptiv, but in our view, the rationale for the JV is a red flag for the APTV thesis,” analysts said in a note.
Although APTV remains relevant, Piper Sandler believes the bull case “seems unrealistic,” at the moment, analysts added.
They note that the company’s 17% long-term operating margin target relies on selling its smart vehicle architecture (SVA) to automakers lacking in-house development capabilities. However, companies like Tesla (NASDAQ:TSLA), Rivian, and some Chinese OEMs, which control ECUs and software internally, are able to develop vehicles notably faster.
“Relying on a 3rd-party (like Aptiv) to deliver similar products will always be slower, and if APTV insists on earning a 17% margin, it will also be more expensive,” Piper Sandler’s team wrote.
“We're not saying APTV is irrelevant — in fact APTV is a supplier to Tesla and Rivian — but in these cases, Aptiv is a “build-to-print” contract manufacturer with limited design input,” it added.