BorgWarner’s Investment Potential
BorgWarner (NYSE:BWA) specializes in automotive solutions for both internal combustion engine (ICE) and electric vehicles, boasting a substantial economic moat due to strong intellectual properties, switching costs, and tangible cost advantages.
The company’s robust performance in Q1-Q3 of FY23 has been overlooked by investors, resulting in heavily discounted stock prices based on various metrics and intrinsic value calculations.
BorgWarner is well-positioned to capitalize on the burgeoning electric vehicle (EV) market through continuous innovation and distinctive designs, further accentuated by a potential 65% discount on shares, labeling BorgWarner as a Strong Buy.
BorgWarner: A Brief Overview
BorgWarner specializes in manufacturing solutions for ICE, hybrid, and electric vehicles, crafting a diverse range of products including traditional combustion turbochargers, eBoosters, emissions systems, battery packs, and automotive software.
Amid the transition from ICE vehicles to hybrid electric vehicles (HEVs), battery electric vehicles (BEVs), and alternative-fuel vehicles, BorgWarner adeptly diversifies its product portfolio to secure a robust position in the evolving automotive industry. Its foray into eBoosters, eTurbos, and other essential components for electric vehicles not only sustains its relevance but also expands its competitive advantage.
BorgWarner operates more than 61 manufacturing facilities across 19 countries and boasts a workforce of over 38,000 employees, including 7,500 engineers. The recent spin-off of its Fuel Systems and Aftermarket segment as PHINIA was aimed at unlocking additional value perceived in these two business segments.
Frédéric B. Lissalde, who assumed the role of CEO in 2018, brings a wealth of industry expertise and automotive engineering experience to steer BorgWarner toward continued success.
BorgWarner’s Impenetrable Economic Moat
BorgWarner’s extensive industry knowledge and continuous innovation have bolstered its position with a wide economic moat, particularly in response to the long-term trend of governments advocating for more efficient and powerful engines.
The company’s recent acquisitions, including Eldor Corporation’s Electric Hybrid Systems Business and Hubei Surpass Sun Electric Charging business, signify a concerted effort to enhance its e-power product lineup, reflecting its strategic focus on the EV automotive landscape.
The Charging Forward 2027 strategic initiative marks BorgWarner’s concerted push into the EV domain, aiming to gradually shift manufacturing volumes from ICE-related components to electric power-oriented products for automakers.
BorgWarner’s substantial investments in electric vehicle technologies position the company to offer a comprehensive portfolio of EV-related solutions, supplementing its long-term industry knowledge and ensuring its relevance as the automotive industry undergoes a seismic shift.
The supplier contracts BorgWarner secures with automotive OEMs further fortify its moat, with lengthy contract periods tying the company closely to OEM manufacturers, which, in turn, bolsters revenues and production volumes, while also deterring potential competitors from replicating BorgWarner’s R&D and innovation prowess.
