Light Vehicle Wins Will Shape Prospects Amid ICE Risks

Key Takeaways

• Expansion into hybrid, electric, and industrial sectors enhances revenue stability and positions the company for diversified, higher-margin growth amid electrification uncertainty.
  
• Strong operational efficiency and gains in key global markets offset segment softness, supporting resilient earnings and healthy cash flow in a shifting automotive landscape.
  
• Heavy reliance on declining ICE markets, slow growth in electrification, margin pressures, and exposure to global risks threaten earnings stability and long-term profitability.

Catalysts

Designs, manufactures, and sells turbocharging, air and fluid compression, and high-speed electric motor technologies for original equipment manufacturers and distributors in the United States, Europe, Asia, and internationally.

• The company secured over $1 billion of long-term light vehicle turbo program extensions and new business wins for hybrid/extended range electric vehicles, significantly increasing forward visibility on future revenues despite industry-wide electrification uncertainty.
  
• Momentum in newly launched large turbo products for genset and marine applications-particularly serving the rapidly expanding data center backup power market-provides access to a new, fast-growing revenue stream that can contribute hundreds of millions in annual sales over the next several years.
  
• Ongoing innovation and proof-of-concept awards in zero-emission technologies (E-Powertrain, E-Cooling, and fuel cell compressors) and expansion in industrial/non-automotive end markets are positioning Garrett to capture higher-margin business opportunities and diversified growth, supporting both revenue and future margin expansion.
  
• Continued operational efficiency improvements and cost control programs are helping maintain robust free cash flow and healthy EBIT margins (with second quarter free cash flow conversion at 98%), increasing underlying earnings power even in a challenging volume and product mix environment.
  
• Strength in gasoline turbo sales, gain in global market share, and new launches in key regions (Europe, Asia) are offsetting softness in diesel and aftermarket segments, indicating the transitionary period before full electrification can be an earnings and revenue tailwind for at least the medium term.

Garrett Motion Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Garrett Motion's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.7% today to 7.1% in 3 years time.
• Analysts expect earnings to reach $268.7 million (and earnings per share of $1.46) by about July 2028, down from $301.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.2x on those 2028 earnings, up from 8.7x today. This future PE is lower than the current PE for the US Auto Components industry at 15.8x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.55%, as per the Simply Wall St company report.

Garrett Motion Future Earnings Per Share Growth

Risks

• Garrett Motion's core business continues to rely heavily on gasoline and diesel turbocharger sales, products whose long-term demand is threatened by accelerating global adoption of electric vehicles (EVs); this secular shift could drive structural long-term revenue decline as the addressable market for ICE components erodes.
  
• Despite growth in zero-emission product lines (e.g., E-Powertrain, E-Cooling, fuel cell compressors), these segments remain relatively nascent compared to ICE-related revenue, posing a risk that the company's overall transition to electrified and non-ICE technologies may not offset declines quickly enough to preserve long-term earnings and margin stability.
  
• The company is experiencing margin pressure due to an unfavorable sales mix (higher proportion of lower-margin gasoline turbo sales and continued weakness in high-margin aftermarket and diesel segments), which, if persistent, could limit expansion in net margins and depress profitability over time.
  
• Increased tariff-related costs, even with partial recovery, and ongoing currency fluctuations highlight continued exposure to global economic and geopolitical volatility, which may compress margins and challenge operating earnings if macro headwinds persist or intensify.
  
• While the company highlights sizable multi-year program extensions and new wins, its financial performance remains vulnerable to industry volume swings, inventory overhang in customer channels, and high customer concentration among global automakers-factors that could negatively affect revenue predictability and overall earnings resilience.

Valuation

• The analysts have a consensus price target of $14.5 for Garrett Motion based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.8 billion, earnings will come to $268.7 million, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $13.06, the analyst price target of $14.5 is 9.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.