Electric autos are overhyped, bet on cleaner burning engine suppliers, Deutsche Bank says
Deutsche Bank is increasingly bullish on auto suppliers, saying recent advances in battery technology are making conventional engine cars more competitive against electric vehicles. "A consistent theme within our research in recent years was that electric vehicle powertrains will eventually approach cost parity vs. more advanced internal combustion powertrains. … But we found that our previous forecast underestimated innovation, efficiency improvement, and cost reduction in internal combustion," analyst Rod Lache wrote in a note to clients Wednesday. "Somewhat surprisingly, some of the innovations in batteries will help sustain ICEs [internal combustion engines]. ... Prospects for business units focused on internal combustion efficiency and emissions appear brighter than we previously thought." A car's powertrain, which delivers kinetic power to the road, includes its engine, transmission and drive shafts. The analyst raised his rating on BorgWarner to buy from hold. He increased his price target on the company to $51 from $41, representing 25 percent upside from Tuesday's close. He also reiterated his buy rating and increased his price target on Delphi Automotive to $99 from $88, representing 27 percent upside. Lache cited new improvements in 48V lithium ion battery technology, which will lower costs and increase the ability to charge in a wider range of temperatures. "Automakers have ramped up the development of 48V electrical architectures … they will be used to achieve significant fuel efficiency gains through very mild hybridization (rather than the original thinking, which was to use 48V to achieve more efficient electrical architectures--e.g. thinner wires)," he wrote. "This has dramatically reduced the projected cost of complying with global fuel economy and CO2 mandates." As a result, Lache expects 95 percent to 96 percent of global automobiles in 2025 will still use "increasingly efficient" internal combustion engines. BorgWarner will be a big beneficiary of the trend as more than 60 percent of its sales are from the powertrain business, according to the analyst. "Within our coverage universe no company has historically been more directly associated with fuel efficiency/CO2 reduction than BorgWarner," he added. Delphi will also thrive as more than half its business comes from its electrical architecture segment as automakers upgrade to 48V hybrid technology, Lache said. — CNBC's Michael Bloom contributed to this story.

Delphi headquarters Gary Malerba | Bloomberg | Getty Images