Nick Carey, Christoph Steitz

WOERT Germany (Reuters). – Although the switch to electric cars could pose a danger to combustion engine suppliers, this shift will be beneficial to parts companies like WOERT. TE Connectivity (NYSE:) The problem is to keep up with demand.

These connectors connect miles of cables to electrical systems, including fuel injection systems, sensors, and infotainment. If there is anything that the automobiles of the electric age will require, it is larger, more complicated connectors.

TE paid $125million to construct a new facility in 2020 that is dedicated to parts for electric vehicles (EVs). The location was in a valley just outside the town of Woert, south Germany.

It’s also on the hunt for partnerships or acquisitions to expand its automotive business. Chief Executive Terrence Curtin stated to Reuters that they are looking to acquire more capacity.

As auto part suppliers of the past decide whether to buy EV manufacturers or sell their businesses, TE, Sensata Technologies and other competitors are evaluating which business models will work best for them. Amphenol Corp Molex (NYSE:) is looking for higher-value components to support carmakers in a major transition.

William Kerwin is an analyst with Morningstar, who covers TE and Sensata.

TE’s $15 billion revenue comes from auto parts, which accounts for more than 40%. It is one of the most important car suppliers that many people have not heard of. The company’s market value of $43 billion is more than Nissan (OTC) Renault (PA:), combined – more than three times heavierweight supplier Continental.

TE trades in the 10s with a price to earnings ratio of 18; Amphenol and Sensata trade at around 20.

EUROPEAN DEMAND XPLOSION

Curtin from TE stated that both automakers and car parts suppliers had been affected by the explosion of demand in Europe for EVs over the past 2 years. TE’s new plant was operating at twice its original production.

Curtin explained that despite a shortage in semiconductors worldwide, overall auto production has been affected. However, the chip suppliers TE are being put under more pressure as they use more of their chips for EVs than fossil fuel cars.

Curtin explained that TE has to decide when and how big it will expand. This is because the EV transition, and subsequent shift to self driving cars, could be hampered by safety and subsidies.

Because electrification, for TE is about going larger.

TE needs to create more complicated components that can handle the increased power of EVs without causing flames.

TE’s traditional parts can have as many as five components, but the newer EV parts can have 50 or more components. For larger parts of the bigger pieces, the supplier buys tons of lighter aluminium which is cheaper and lighter than.

The machines that produced 16 connectors per second in the Woert plant’s older section made just sixteen fossil-fuel cars. Machines in the new facility, including some from Germany’s Manz are more complicated and expensive. They produce larger copper connectors using welded alloy springs. These will be used to charge EV ports at an even slower rate.

TE makes a larger connector that is attached to an EV’s battery module. An EV can have up to 12 modules. It serves as the EV’s brain and measures each cell’s performance, while a small semiconductor determines their temperature.

While the new Woert facility can produce 2,000,000 such connectors per year, demand is still high.

Matthias Lechner, TE’s European, Middle East and Africa head, stated, “We’re going to have to need more,” and added that TE would manufacture more at a Hungary plant and other locations.

Graphic: On the rise: https://graphics.reuters.com/ELECTRIC-VEHICLES/SALES/jnpwebrzwpw/chart.png

Lechner describes TE “humbled and hidden” as he says that its connectors reduce EV charging times by 10 minutes. This is an advantage carmakers have to sell to customers.

Curtin, CEO of TE says that EVs will increase the value and efficiency of parts. Currently, a typical fossil-fuel car costs about $70. This means that the potential payoff is huge.

Research group JATO Dynamics claims that EVs nearly doubled their share of global vehicle sales in 2021 to 6%, with more to come.

McKinsey projects that Europe’s auto-supplier market will increase to 330billion euros in 2030 ($359billion) from its current 216billion. The growth will be driven by electronics, software and EVs. McKinsey also estimates that firms will invest more in growth and reduce chip bottlenecks.

McKinsey partner Timo Meller stated, “We are observing a two-fold transformation.”

Woert, TE, employs 2200 workers and plans to add more engineers and techs.

TE owns three German auto parts factories and five European ones. There are 29 plants worldwide that support its auto business.

Morningstar’s Kerwin indicated that TE has the same risks and opportunities as any other cyclical industry such as auto.

However, he stated that TE has a long-standing relationship with customers. TE also employs engineers to work with carmakers in order to make products for electric vehicles.

Kerwin declared, “The evidence is indisputable that electrification must be pursued if we are to achieve our goals.”

($1 = 0.9194 euros)