A Challenging EV Environment Means A Longer Wait For Valeo

Summary

• Valeo has underperformed a weak auto sector as investors fear that weak EV adoption will permanently undermine the company's revenue growth and margin leverage.
• BEV sales have indeed underwhelmed in recent quarters, and Valeo has seen EV powertrain component sales fall on reduced OEM production rates.
• Valeo's broad electrification portfolio, including hybrid powertrain systems, is underappreciated, and OEMs may reprioritize 48V powertrains as a bridge technology.
• Customer in-sourcing remains a risk, but many OEMs are under pressure to improve margins and capital efficiency and will likely turn to outside suppliers at some point.
• Valeo shares appear significantly undervalued, but the market has no interest in an EV-driven story with high near-term R&D spending limiting margins.

3alexd

When I last wrote about French auto supplier Valeo (OTCPK:VLEEY) (OTCPK:VLEEF) (FR.FP) in September of 2023, I wrote that, “time will tell if my bullishness on Valeo proves to be patience or folly”. At this

Analyst’s Disclosure:I/we have a beneficial long position in the shares of BWA, PHIN, FR.FP either through stock ownership, options, or other derivatives. 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.