E-mobility has been gaining momentum in recent years and it’s no secret that electric vehicles (EVs) are becoming more popular than ever. The International Energy Agency predicts the number of electric cars on the road to reach more than 300 million by 2030, up from just 16.5 million in 2021.
With the EV revolution taking the automotive industry by storm, companies are scrambling to position themselves as leaders in this transformative era. While established automakers and flashy EV startups often grab the headlines, there is a hidden gem that is quietly powering the future of mobility, BorgWarner BWA.
BorgWarner is a leading supplier of propulsion systems and components for both conventional and electrified vehicles. The company has been investing heavily in its electrification strategy, expanding its product portfolio, focusing on innovation and new technologies and securing contracts with major automakers. In this article, we will explore BorgWarner’s electrification strategy and goal, and assess if it is a winning investment for long-term growth.
A Look Into BWA's Turbocharged EV Initiatives
BorgWarner has been making significant strides in the EV space. The company’s commitment to sustainable mobility and advanced technology has propelled it into a prime position to benefit from the EV revolution. It is likely to benefit from the soaring EV popularity and expects hybrid and electric technologies to be its major revenue drivers. For the current year, BorgWarner anticipates eProducts revenues to range from $2.3 billion to $2.6 billion.
Frequent electrification-related business wins are praiseworthy. The firm’s booked eMotor volumes are expected to increase from 0.3 million units in 2021 to 2 million units by 2025, representing a CAGR of around 60%. BorgWarner has booked programs that will support approximately 2 million eMotor, 3.1 million inverters and close to 4 million e-heaters by 2025. The company is on track to achieve more than $5.6 billion of revenues by 2025 through sales of eProducts, thanks to new business awards and strategic actions.
BWA’s Charging Forward project to accelerate its electrification strategy is indeed proving to be a game-changer. Since launching its Charging Forward strategy in March 2021, BorgWarner has accomplished significant progress in attaining its targets. The company is making steady progress in ensuring that a minimum of 25% of its revenues are derived from battery electric vehicles (EV) by 2025. Impressively, its organic EV bookings for 2025 have already surpassed the target of $2.5 billion, reaching $3 billion.
Moreover, the company's EV-focused mergers and acquisitions have exceeded expectations, with five strategic acquisitions completed in areas such as battery packs, e-motors, power electronics, and direct current fast charging. The acquisition of the charging business of SSE in China—completed in March 2023— has expanded BorgWarner's footprint beyond Europe and North America. The acquisition of Drivetek AG in December 2022 strengthened BorgWarner’s specialty power electronics capabilities. The buyout of Rhombus Energy, completed in August 2022, complemented BorgWarner’s existing European charging footprint and expanded the firm’s portfolio in North America. The buyout of Santroll's light vehicle eMotor business, closed in March 2022, bolstered BorgWarner's scale in eMotor product leadership. The acquisition of AKASOL, completed in February 2022, expanded BorgWarner’s commercial vehicle electrification capabilities and positioned it to capitalize on the fast-growing battery systems market.
At its Investor Day held yesterday, BWA unveiled the next exciting chapter of its Charging Forward strategy, aimed at strengthening its position as a pioneering technology leader in eProducts. As part of its 2027 Charging project strategy, BorgWarner is focused on achieving substantial objectives. It aims eProducts revenues to exceed $10 billion by 2027, accounting for nearly 50% of its total sales. By leveraging economies of scale and expecting eProducts revenue growth to outpace research and development (R&D), the company aims to deliver approximately 7% margins and generate positive free cash flow within its eProducts portfolio by 2027.
Concurrently, BorgWarner announced the revamp of its logo yesterday, its first logo change in over three decades. It is a testament to BWA’s electric evolution and Charging Forward strategy.
The Zacks Rundown
BorgWarner is part of the Zacks Automotive—Original Equipment industry, which currently ranks in the top 36% of all Zacks Ranked industries, indicating solid prospects. By focusing on leading companies from the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
BWA has exceeded earnings estimates in three of the past four quarters and missed once, with the average surprise being 15.3%. The Zacks Consensus Estimate for BorgWarner’s full-year 2023 earnings is $5 per share, implying 8.7% growth from last year. The sales estimate for 2023 of $17.38 billion suggests a 10% increase. The consensus mark for 2024 sales and EPS indicates growth of 7% and 14.7%, respectively, on a year-over-year basis. Encouragingly, the company is witnessing northbound revision in its estimates. The consensus mark for 2023 and 2024 EPS has moved up by 12 cents and 15 cents, respectively, over the past 30 days.
Despite all the excitement, BWA has an attractive valuation. At 8.84X earnings, it’s way below 19.62X for the industry, 16.77X for the sector and 18.98X for the S&P 500. Even on the basis of the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the company is trading cheap. It is currently trading at 6.63X compared with the industry’s 21.93X, S&P 500’s 12.97X and the sector’s 12.27X. Evidently, the company currently has a Value Score of A.
Get Ready to Ride the EV Wave With BWA
BorgWarner’s solid track record, diversified customer base, strategic acquisitions, commitment to innovation and technological leadership make it well-equipped to meet the evolving needs of the electrification market. BorgWarner's rapid transformation is now etched even in its new logo. The company’s manageable debt-to-capitalization of 35% and attractive valuations boost confidence. Shares of the company have gained more than 16% year to date, outperforming the industry’s 7% growth.
Image Source: Zacks Investment Research
As BorgWarner enters a new chapter in its remarkable electrification journey, make sure to add this stock to your portfolio as it appears primed for continued outperformance.
BWA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
2 Other Top-Ranked Players From the Auto Space
Ford F: It is one of the leading automakers in the nation. A strong vehicle mix supported by F-series trucks and SUV models, combined with a robust EV lineup, should drive Ford’s growth.
Ford currently sports a Zacks Rank #1 and has a Value Score of A. The Zacks Consensus Estimate for F’s 2023 sales implies year-over-year growth of 7.5%. The consensus mark for Ford’s 2023 and 2024 EPS has moved north by 4 cents and 3 cents, respectively, over the past seven days. Over the trailing four quarters, the stock surpassed estimates on two occasions for as many misses, the average surprise being 24.3%.
General Motors GM: One of the world’s largest automakers, General Motors held the largest share of the U.S. auto market at 16% in 2022. General Motors’ compelling portfolio witnesses strong demand for quality full-size pickups and SUVs.
GM currently sports a Zacks Rank #1 and has a Value Score of A. The Zacks Consensus Estimate for General Motors’ 2023 sales implies year-over-year growth of 4.5%. The consensus mark for GM’s 2023 and 2024 EPS has moved north by 14 cents and 22 cents, respectively, over the past 30 days. Over the trailing four quarters, the stock surpassed estimates on three occasions and missed once, the average surprise being 15.5%.
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