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BorgWarner Still A Battleground For The Future Of Auto Suppliers

Mar. 05, 2021 8:00 AM ETBorgWarner Inc. (BWA) Stock4 Comments
Stephen Simpson profile picture
Stephen Simpson


  • BorgWarner continues to build its EV capabilities, most recently with the $900M-plus acquisition of Germany battery pack assembler AKSOL.
  • Bears continue to argue that auto OEMs will insource most of their EV powertrain needs, limiting opportunities for suppliers like BorgWarner.
  • Auto OEMs absolutely will try to insource, but some of them will fail and turn to suppliers like BWA, and components/systems like power electronics will be harder to insource.
  • BorgWarner shares look meaningfully undervalued on near-term EBITDA margin and long-term revenue/FCF growth in the mid-to-high single-digits.

There are two pretty distinct camps where BorgWarner (NYSE:BWA) is concerned. Bears argue that the company will be unable to replicate its dominance in combustion engine powertrains in the coming EV world, and that the company will see OEM in-sourcing limit its opportunities to offset declines in its conventional business.

Bulls argue that, yes, while there will be some in-sourcing, very few OEMs will be able to insource all of their needs, and many of those that try will ultimately run into problems turn to quality suppliers like BorgWarner. And in the meantime, BorgWarner can continue to generate attractive cash flows from legacy combustion powertrains and hybrids. I’ve long been in that second group, and even after a one-third move up in the share price since my last article (a middle-of-the-pack performance), I’m still bullish on these shares. BorgWarner will need to put forth a convincing case at its March 23 Investor Day to swap skeptics, but I believe the valuation here is still attractive relative to the long-term opportunities.

Continuing To Build For The EV Transition

BorgWarner management had previously made it clear that they weren’t done doing deals to build their EV business, including commentary with fourth quarter earnings, and investors didn’t have to wait long to see a significant deal. On February 15 the company announced the acquisition of AKSOL for EUR 754M.

AKSOL is a German provider of EV battery solutions, specifically battery packs for commercial and industrial applications. AKSOL counts commercial vehicle manufacturers like Daimler (DMLRY) and Volvo (OTCPK:VOLVY) among its client base, as well as French train company Alstom (OTCPK:ALSMY), and has several hundred millions of euros worth of orders booked ahead over the next three to five years (70% of ’24 sell-side revenue estimates are in the books).

BorgWarner isn’t getting AKSOL cheap (1.8x ’24

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor.Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds).

Analyst’s Disclosure: I am/we are long BWA, FR.FR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (4)

07 Mar. 2021
Why will auto companies in source?
Stephen Simpson profile picture
@noon They believe it will be more profitable.
dancing diva profile picture
Thanks for the balanced article.
vireoman profile picture
I always enjoy your articles on BWA. My cost basis is $30, and don't plan on selling until we see the $60s.
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