The Case for Investment
BorgWarner (NYSE:BWA) is a pioneering force in the automotive sphere, producing a diverse array of ICE and EV components, solutions, and parts. The company’s sturdy economic moat, rooted in substantial intellectual properties, switching costs, and concrete competitive advantages, sets it apart.
The market has seemingly overlooked a notably favorable Q1-Q3 of FY23, as the company’s shares remain deeply undervalued both by traditional metrics and The Value Corner’s proprietary intrinsic value calculation, presenting an alluring investment opportunity.
BorgWarner’s strategic positioning to capitalize on the burgeoning EV market, bolstered by ongoing innovation and distinctive designs, coupled with a staggering 65% discount in shares, underscores its status as a Strong Buy in my evaluation.
Unveiling BorgWarner’s Background
BorgWarner is an automotive industry stalwart, specialized in crafting solutions for ICE, hybrid, and electric vehicles. The company boasts a diverse product portfolio, ranging from traditional combustion turbochargers to cutting-edge eBoosters for electric motors, along with an array of automotive components, including emissions systems, ignition technology, heaters, battery packs, and automotive software.
Amidst the transformative shift from ICE vehicles to HEVs, BEVs, and alternative fuel vehicles, BorgWarner has continually reinvigorated its product range to solidify its foothold in the automotive industry. By venturing into eBoosters and eTurbos and providing essential components for electric vehicles, the company hasn’t just maintained relevance but has also expanded its competitive edge.
As of Q3 FY23, BorgWarner operates across 61 manufacturing locations spanning 19 countries and employs over 38,000 individuals, including 7,500 engineers. The recent spin-off of its Fuel Systems and Aftermarket segment as PHINIA reflects BorgWarner’s commitment to unlocking inherent value.
At the helm of BorgWarner is Frédéric B. Lissalde, who assumed the role of CEO in 2018, leveraging his extensive industry experience and educational background in automotive engineering to steer the company’s growth trajectory.
Delving Into BorgWarner’s Economic Moat
BorgWarner’s dominance in automotive solutions manufacturing and development has fostered a formidable economic moat, fortified by decades of industry knowledge and unwavering innovation. The company’s strategic response to the global push for efficiency and environmental responsibility has been pivotal in maintaining its supplier relationships and relevance with major automakers.
Embracing a forward-looking approach, BorgWarner has tactically acquired businesses to swiftly expand its e-power product lineup. Notable acquisitions, such as Eldor Corporation’s Electric Hybrid Systems Business and Hubei Surpass Sun Electric Charging business, underscore the company’s commitment to positioning itself as a linchpin in the EV automotive landscape.
Underpinning its transformation is the Charging Forward 2027 strategic initiative, emblematic of BorgWarner’s concerted efforts to curtail ICE-related manufacturing while exponentially ramping up its offerings of electric power-oriented products to automakers.
BorgWarner’s robust investment in electric vehicle technologies and its comprehensive portfolio of EV-related solutions underscore its resolve to not only stay relevant but to thrive in the evolving automotive terrain, cementing its status as an indispensable industry player.
In sum, BorgWarner’s industry prowess engenders a substantial economic moat, as the capital and time required for competitors to match its R&D and innovation outlays would be exorbitant. Additionally, the company’s long-term supplier contracts with automotive OEMs further buttress its moatiness, ensuring sustained revenues and production volumes.
