Magna International is well-positioned for the electric vehicle revolution.
Magna is making electric vehicles great again
Lee Samaha (Magna International): The key to Magna's investment case lies in its components' relevance to growing EV production. Management argues that Magna's exposure to areas like fuel tanks, manual transmissions, and four-wheel drive (products not relevant for EVs) is relatively small. Meanwhile, its exposure to body exteriors and structures (not impacted by the shift from internal combustion engines to EVs) is large, and it's investing in its already significant and expanding products that benefit from the shift.
The latter includes battery enclosures and powertrain electrification. An example includes the recent announcement of a $470 million investment in expanding its operations in Ontario to produce EV battery enclosures, not least for the Ford-F150 Lightning.
As such, the long-term future is bright, and management believes it can grow sales more than overall light vehicle production due to increasing its content per vehicle on EVSs.
However, near-term Magna's profit margin and cash flow generation are negatively impacted by a combination of higher-than-expected cost inflation (a common theme in the auto industry) and investments needed to fuel future growth. Still, if Magna can reach its target of $1.8 billion in free cash flow in 2025, this $16.3 billion market cap company will look like an excellent value.
