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13 July 2018

Autoliv stock plummets as Veoneer is spun-out

On Monday July 9th, Autoliv’s stock stood at $104. Just a week earlier, that figure was $143, itself down on the previous week’s $150. This represents a 28% drop, and at its lowest point, the stock was only 28-cents away from falling under $100, on July 3rd.

So, what caused this drop? This is bad for Autoliv, right? Well, if you were just going by the numbers in the Riot 50, you would probably come to that conclusion. However, there’s some context to be aware of, which is worthy of some exploration.

On July 2nd, the company announced that it had completed the spin-off of its Veoneer electronics division, (now trading on the NYSE, under the VNE ticker). But this spin-off had been announced in September 2017, as part of Autoliv’s strategy to focus purely on the automotive sector, and in particular its safety system offerings.

Autoliv contributed $1bn cash to Veoneer, to provide some liquidity, and as part of the 9-month process, existing Autoliv shareholders had the option to take stock in Veoneer. It’s worth noting that Autoliv has outperformed the rest of its industry, growing around 28.5% in the past year, compared to 15.4%.

As such, there’s nothing really to panic about here. In fact, this could be a useful lesson for other companies considering similar moves. As it stands, the spin-off has gone smoothly, with no obvious damage in the market caps of either company. The now fully independent Veoneer does have a lot of growing to do before it rivals Autoliv in terms of dollars, but its particular niche has a higher ceiling than its former owner.

Today we are celebrating that we have created two great companies out of one. Each company has strong attributes for individual success, and the separation will allow further focus on each core business to bring enhanced value for customers, stockholders and other stakeholders”, said Jan Carlson, Chairman, President and CEO of Veoneer and Chairman of Autoliv. “I look forward to leading Veoneer’s future development in the active safety and autonomous driving market, while retaining the role as Chairman of Autoliv to provide continuity,” he continued.

Before the split, the Electronics wing consisted of Active Safety Products (ASP), which included things like radar, driver-assist cameras, night vision, and positioning systems, as well as Restraint Control, and Brake Systems. These are the elements that are now under Veoneer’s remit. Passive Safety, the part that remains under Autoliv, comprises airbags, steering wheels, and seatbelts.

To this end, it seems that we will have to start tracking Veoneer instead of Autoliv, inside the Riot 50. Autoliv estimates that the Total Addressable Market (TAM) for the ASP products is around $20bn in 2017, and will grow to $40bn in 2025. The 2016 revenue for the Electronics win stood at $2.2bn in 2016, and is expected to hit $3bn by 2020.

As for Autoliv’s Passive Safety portfolio, the TAM is thought to be around $20bn in 2017 and grow to around $25bn in 2025. Autoliv says it currently has around a 39% market share in this area globally, but thinks it is due to significantly grow that due to its order sheet – estimating that it will pass 50% soon. In 2016, Passive Safety’s sales were $7.9bn, and it thinks it can reach $10bn by 2020.

The TAM estimates tell the two different stories. Veoneer has the much higher market growth, but is itself a much smaller business. In comparison, the somewhat boring world of seatbelts and airbags is only going to grow alongside overall sales of vehicles, so the more exciting prospect is the fancy new electronic division.

This strategy is likely to be repeated by a number of large companies, as they embrace IoT technologies – and then find that their IoT projects and products are far outstripping their core portfolios. Investor pressure to spin these prospects out will add to the likelihood of this occurring, although a fair few will likely go down in flames. Large industrial suppliers, as well as automotive vendors like Autoliv, are most likely to carry out such maneuvers.

Autoliv and Volvo set up a joint venture called Zenuity, back in September 2016. Riot covered a deal that would see Zenuity work with Nvidia and Volvo to combine Nvidia’s hardware with Zenuity’s software, for use in Volvo vehicles. Autoliv confirmed that the 50% in Zenuity now belongs to Veoneer.

Autoliv would be acting as the exclusive distributor, although Volvo gets to source directly from Zenuity. In another Swedish tie-up, Zenuity uses Ericsson’s IoT Accelerator cloud to power its own Zenuity Connected Cloud, which runs its ADAS and self-driving systems. Zenuity also uses TomTom’s AutoStream map delivery service.

In July 2017, Autoliv and Velodyne announced a LiDAR collaboration, to meet surging demand for LiDAR – using Velodyne’s software and ASIC engine, inside an Autoliv unit. Shortly after, in October, Autoliv acquired Fotonic, planning on integrating the tech into Autoliv’s ASP, and complementing the Velodyne partnership.