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American Axle: Better Near-Term Profits, But Long-Term Questions Remain

Stephen Simpson profile picture
Stephen Simpson


  • American Axle posted better fourth quarter results, in line with the outperformance of most suppliers, and growth in its small EV revenue backlog.
  • The company has partnered with China's Inovance Auto to provide 3-in-1 e-drives, leveraging Inovance's capabilities in power electronics and AXL's capabilities in gearboxes.
  • Management has done a good job of taking costs out of the business, and capex needs should be relatively modest over the next three to five years.
  • The long-term competitiveness of AXL in vehicle electrification remains my primary concern. While there's a case for AXL trading to the mid-teens or higher, I'm not sold on the long-term viability of the model.

Writing about American Axle (NYSE:AXL) six months ago, I said that I saw upside into the low double-digits on improved operating leverage and recovering passenger vehicles builds. The shares have since risen about 45% since then (into the low double-digits at $11.42), outperforming names I liked better like BorgWarner (BWA) and Valeo (OTCPK:VLEEY), but not keeping pace with Dana (DAN). I attribute at least some of this outperformance to the outsized operating leverage at American Axle relative to many other companies, as well as underappreciated execution on costs.

American Axle is a tough stock to evaluate today. I’m not that impressed with American Axle’s positioning for electrification, and the company’s still-high debt limits the company’s ability to do much through M&A. On the other hand, the company has made meaningful cost efficiency improvements and if capex can stay in the $300M area for a while, there’s good FCF potential in the near term.

So much comes down to how revenue holds up. With a gradual decline in revenue starting around 2024/2025, these shares would still have solid upside from here, but as with Tenneco (TEN), the high level of leverage means that even small changes in modeling assumptions drive big changes in the fair value.

Building The EV Story, But Is It Too Little Too Late?

Traditionally a developer of axles, driveshafts, and power transfer units, American Axle has staked its electric vehicle future on e-drives (systems that incorporate an inverter, motor, and gearbox into a unit) and components like gears, shafts, and differentials.

Although e-drives are going to be essential components for electric vehicles, there’s a great of deal of debate as to how profitable they will be for auto suppliers like American Axle. Some auto OEMs are going to try to do it all themselves, while others will insource some components (like

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 (2)

I for one am very happy to have kinda ignored the AXL nay-sayers when I bought a few weeks ago...;o)
The new GM full size SUVs now have independent rear axle suspension supplied by AXL. Should be at least double + cost to GM?

Even if many of these pickup any SUV types do go electric, they will still weigh 4,500 to 6,500 lbs+, and still require heavy duty drive line components.
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