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Direct Impact From VW Allegations for U.S. Suppliers Seen as Limited - Deutsche Bank

September 22, 2015 9:56 AM EDT
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Deutsche Bank analyst Rod Lache commented on implications for U.S. auto suppliers resulting from allegations against VW. Companies mentioned in the report include BorgWarner (NYSE: BWA), Delphi Automotive (NYSE: DLPH), and Tenneco (NYSE: TEN).

The analyst noted implications for U.S. auto parts companies are relatively modest, with penetration of diesel engines in U.S. relatively low at less than 3%.

"We estimate BorgWarner has roughly $100 content per vehicle ($14 MM annual revenue for U.S. sales) on the VW 2.0 liter diesel in question. For Tenneco the exposure is roughly $50 per vehicle ($7 MM annually for VW’s U.S. sales of this engine)," said Lache.

The shift away from Diesel in Europe is more serious, thinks Lache, but this is already incorporated into his U.S. supplier estimates.

"Europe accounts for the majority of diesels sold in passenger vehicles (diesel penetration ~50%). However, even if this business were to decline by 10% between 2014 and 2020 (which is unlikely given expected growth in the European market), this would represent a ~$150MM revenue headwind for BorgWarner over the next five years (30bps per year). We also believe that close to 2/3 of this impact could be offset by the additional growth in gasoline turbochargers and EGR valves. A similar (10%) decline for Delphi would represent a $100 MM cumulative headwind over the next 5-years. This should be mitigated by additional gasoline direct injection growth, cutting this impact in half (20 bp annual revenue headwind for DLPH’s Powertrain business)," added the analyst



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