By Nathan Gomes

(Reuters) - Aptiv said on Wednesday it would separate its electrical distribution systems (EDS) business into a new company, as it looks to focus on its advanced driver-aid technology, sending shares of the auto parts supplier up 5%.

The move comes as the Dublin-based company takes extra steps to boost profitability, after cutting its annual sales forecast in October, as large automakers realign their electrification efforts to adjust to a bumpy market.

"We think the spin-off of EDS makes sense because it is a much lower-margin business, with an estimated 2024 adjusted EBITDA margin of 9.5% versus 18.8% for the rest of the business," CFRA Research analyst Garrett Nelson said.

Nelson called the transaction a "value-creating move" and said the shares could warrant a higher multiple.

The EDS division, which makes crucial power and signal distribution systems for electric vehicles, is expected to be separated by March 31, 2026.

Post-separation, Aptiv will focus on providing a complete sensor-to-cloud technology, including advanced driver assistance systems and in-cabin software.

The company counts major automakers such as the Detroit Three, Volkswagen AG and BMW as key clients.

The auto industry had faced a challenging second half in 2024, hurt by competition from Chinese companies and a decline in consumer demand due to inflation and economic concerns, leading many manufacturers to prioritize higher-margin SUVs and hybrids.

U.S. President Donald Trump has also revoked the previous administration's executive order on EVs that sought to ensure half of all new vehicles sold in the country by 2030 were electric.

(This story has been refiled to remove an incorrect image)

(Reporting by Nathan Gomes in Bengaluru; Editing by Shilpi Majumdar)