Here's Why Magna (MGA) is Poised Well to Ride on EV Mania
Widespread usage of technology and rapid digitization have resulted in fundamental restructuring of the automotive market. A host of factors such as pollution issues, technical superiority, stringent fuel-emission standards and increasing adoption by customers have turned the fortunes in favor of electric vehicles. Consequently, auto equipment suppliers are actively reorienting their business model to adapt to the changing dynamics. With the technology shift in full swing, the companies now have to develop components that comply with emission standards and meet the critical requirements of new-age vehicles. One auto equipment provider that is making considerable strides in revving up electrification capabilities is Magna International MGA.
Magna’s E-Mobility Efforts are Indeed Praiseworthy
Last December, Magna inked a joint venture (JV) deal with South Korea-based LG Electronics to develop e-motors, inverters, on-board chargers and related e-drive systems, as automakers are fast shifting gears to electric. The JV — named LG Magna e-Powertrain — will help the firms expand electric powertrain offerings by capitalizing on existing engineering expertise and technological capabilities. Magna’s proficiency in electric powertrain systems and top-notch automotive manufacturing will complement LG Electronics’ strength in component development for e-motors as well as inverters.
Magna’s opportunities in electrification extend beyond the powertrain. Its strong competitive position in battery enclosures also augurs well. Heavy EV spending by legacy automakers has prompted Magna to invest $70 million over the next five years to construct an EV battery-component plant in Michigan. The state-of-the art facility will be designing battery enclosures for General Motors’ GM new GMC Hummer EV. Production at the new plant is set to commence in early 2022.
Last month, Magna hit a major milestone with the production of its 100,000th eDrive gearbox (in collaboration with Jiangling Motors) for China-based EV players including NIO Inc. NIO and XPeng XPEV. Magna’s competitive advantage in building e-components is helping it secure additional contract wins in China — which is the world’s largest EV market.
In March 2021, Magna accelerated its powertrain electrification capabilities with the new eBeam technology, which would aid it in electrifying pickup trucks without compromising on functionality and capability. The firm’s strategic collaboration with Israeli startup REE Automotive to jointly manufacture and assemble modular EVs is also set to bolster prospects.
This year, Magna launched two advanced electrified propulsion systems — connected PHEV drivetrain and next-gen battery electric drive systems — to demonstrate its EV prowess. While the connected PHEV drivetrain lowers emissions by 38%, next-gen AWD eDrive technology enhances range by 20% and boosts driving dynamics.
At the start of this year, Magna expanded collaboration with EV startup Fisker for the development of an Advanced Driver Assistance System (ADAS), namely Fisker Intelligent (FI)-Pilot, showcasing its efforts in the self-driving space as well. The technology will be deployed to the Fisker Ocean sport utility vehicle. The agreement marked a significant expansion of the EV platform sharing, vehicle engineering and manufacturing cooperation announced between the two companies last October. With the deal, Magna will be providing Fiskera with the complete ADAS package and a flexible EV platform.
Investors should note that Magna intends to become carbon neutral in European and global operations by 2025 and 2030, respectively. Last year, 12% of Magna’s global energy buy was from renewable sources and the firm is committed to transition all operations to renewable energy sources. Additionally, the company recycled more than 91% of total waste outputs from operations in 2020. This is in sync with Magna’s sustainability goals, which include becoming carbon neutral and improving fuel economy.
The company remains focused on innovation and technology development, and expects hybrid and electric technologies to bolster the top line, going forward.
Should You Invest in Magna Now?
Well, Magna has an impressive track record of being a company that major automakers can rely on when they need to boost manufacturing capacity or anchor design, and engineering and supply chain expertise. The company stands to benefit from key emerging trends including electrification and autonomous driving. Healthy balance sheet of the firm with low leverage and high liquidity fuels investors’ optimism. Magna’s commitment to return shareholders’ capital via dividends and buybacks is also commendable.
However, the company is currently facing some near-term challenges. It expects to witness short-term hiccups amid global chip shortage. Also, prices for key manufacturing materials including steel and copper are on the rise, which may put pressure on gross margins. Supply issues particularly in chemicals and resins are anticipated to result in higher commodity costs for the remainder of the year. As it is, the technology change will require Magna to make substantial amount of investment, which may dent its near-term margins.
Having said that, don’t let minor hiccups diminish your faith in the stock. The company has a long-term expected EPS growth rate of 7.6%. So, if you capitalize on the rosy EV market prospects with a not-so-traditional option, this auto equipment provider should certainly be on your watchlist. Magna currently carries a Zacks Rank #3 (Hold). So, stay invested in in the stock if you already hold it and don’t miss the opportunity to buy any dips. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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