Why This Acquisition Makes Delphi Automotive a Self-Driving Beast

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Giant auto-industry supplier Delphi Automotive (NYSE: DLPH) said that it has agreed to acquire nuTonomy, a Massachusetts-based self-driving start-up, for $450 million.

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This is a significant deal, one that could help Delphi move into the forefront of providers of self-driving technology -- and one that may give it new ways to bring its technology to market. 

Who is nuTonomy?

NuTonomy, founded in 2013, is a spinoff of research from the Massachusetts Institute of Technology. Its focus has been on applying artificial-intelligence expertise to the development of software for self-driving vehicles. It has about 100 employees, roughly 70 of whom are engineers or scientists. 

NuTonomy's technology is fairly advanced. It has been running a pilot of its own self-driving taxi service in Singapore for a little over a year. More recently, its prototype vehicles (modified Renault Zoe electric cars) have been seen testing on city streets in Boston.

In June, nuTonomy signed a deal with ridesharing start-up Lyft under which nuTonomy will be able to put its self-driving Renaults into service with Lyft, to extend its testing. 

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What's the deal?

In a statement on Tuesday, Delphi said that it has agreed to acquire nuTonomy for $400 million up front, and $50 million in additional "earn-outs" that can become payable over time.

The nuTonomy team, including co-founders Karl Iagnemma and Emilio Frazzoli, will join Delphi's existing autonomous-driving development team. (Many members of that team came to Delphi when it acquired another self-driving start-up, Ottomatika, in 2015.)

Delphi's chief technology officer, Glen De Vos, said that nuTonomy's approach to self-driving software differs from Delphi's -- and that's a good thing.

As you would expect, nuTonomy's [automated driving] software system does have fundamental differences from Delphi's, which was created by Ottomatika and is being industrialized for 2019. While both software stacks utilize a deterministic framework, there are differences in the environmental modeling and path planning elements (what's around the vehicle and how the vehicle decides the safest route to its destination). 

De Vos said that the combination of the two software "stacks" will give Delphi a more robust offering. He described the acquisition as a "game changer."

What it means for Delphi

As I noted above, this isn't the first time that Delphi has acquired a self-driving software start-up. But this is a big deal, in part because nuTonomy is one of the larger and better-funded self-driving start-ups, and in part because of Delphi's existing network of projects and partnerships related to autonomous-vehicle technology.

Last year, Delphi shook the industry when it announced a partnership with machine-vision specialist Mobileye to develop a "turnkey" Level 4 self-driving system by the end of 2019. Chip giant Intel (NASDAQ: INTC) joined the partnership late last year (and acquired Mobileye a few months later), adding credibility to the effort. 

Delphi is also part of a separate-but-related effort with Mobileye, Intel, and German luxury-car giant BMW AG (NASDAQOTH: BAMXF). That effort is aiming to bring a scalable autonomous-vehicle system to BMW's lineup by 2021 -- and to market, for sale to other automakers, soon after. 

Delphi's contributions to both efforts were centered partly on its software expertise (acquired from Ottomatika) and partly on its extensive background in integrating systems into automakers' vehicles for mass production. 

Between Delphi's existing status as a major auto-industry supplier and nuTonomy's network of ridesharing-related agreements, Delphi now has a wider range of ways to bring its self-driving systems to market.

What's next for Delphi: A spinoff

Earlier this year, Delphi announced that it will spin off its "legacy" powertrain business, which supplies parts and technologies for internal-combustion engines to automakers, to focus its future efforts on electric vehicles and autonomous-driving systems. 

That spinoff, set to happen in the first quarter of 2018, will create two publicly traded companies: the legacy business, to be called Delphi Technologies, and the future-tech business, which will take the new name Aptiv. 

With nuTonomy's team and technology added to its already-significant arsenal, Aptiv looks likely to be a formidable competitor in the emerging self-driving technology space. Stay tuned.

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.