- We initiate coverage on Garrett Motion Inc. (GTX) with a Buy rating and a 12-month price target of $12.50, representing c.25% upside from current levels.
- GTX benefits from industry tailwinds linked to emissions regulation, hybrid adoption, and OEM integration of turbo and e-boosting technologies.
- Financial performance remains robust, with Q2 2025 revenue up 5% year-over-year and free cash flow supporting an aggressive buyback strategy.
- Strong competitive positioning in turbo technology is underpinned by intellectual property, OEM stickiness, and e-turbo innovation targeting hybrid powertrains.
- Key risks include a faster-than-expected EV pivot, supply chain disruptions, and heightened competitive pressure from Chinese entrants.
Executive Summary
Garrett Motion Inc. (NASDAQ: GTX) stands out as a compelling investment in the automotive technology sector, leveraging its expertise in turbocharging and electrification to capitalize on the global shift toward efficient and electrified vehicles. Our analysis rates GTX as a Buy with a 12-month target price of $12.50, implying approximately 25% upside from the current price of $10.00 as of August 1, 2025 (per Yahoo Finance). This valuation is derived from a blended approach incorporating a discounted cash flow (DCF) model assuming 8% annual revenue growth and an EV/EBITDA multiple of 8x, aligned with peer averages but discounted for GTX’s higher free cash flow yield. The time horizon is 12–18 months, focusing on near-term catalysts like expanded OEM contracts and share repurchases.
In today’s market, GTX matters because the automotive industry is at a pivotal juncture, with regulatory pressures for lower emissions and the rise of hybrid and electric vehicles creating outsized opportunities for specialized suppliers. While broader market volatility weighs on cyclical names, GTX’s resilient margins and aggressive capital return strategy position it to outperform peers amid a potential recovery in global auto production. Investors seeking exposure to the energy transition without the hype of pure-play EV stocks will find GTX’s grounded, cash-generative model refreshingly pragmatic—think of it as the reliable turbocharger in a world of flashy electric dreams.
Business Overview
Garrett Motion Inc. designs, manufactures, and sells turbocharger and electric-boosting technologies for light and commercial vehicles, serving the global automotive industry. The company emerged from Honeywell’s transportation systems spin-off in 2018 and has since focused on advanced propulsion systems that enhance engine efficiency and reduce emissions.
Core Products and Services
GTX’s primary offerings include gasoline and diesel turbochargers, electric turbochargers (e-turbos), and related components like variable geometry turbines and integrated boosting systems. These products improve fuel efficiency and performance in internal combustion engines (ICE) while supporting hybrid and electrified powertrains. Revenue streams are predominantly from original equipment manufacturers (OEMs), with aftermarket sales contributing a smaller but growing portion—approximately 10% of total revenue as of Q2 2025 (per company filings on SEC/EDGAR).
Revenue Streams and Customer Segments
The company’s revenue is segmented by technology type: turbochargers account for about 75%, with emerging electrification products making up the balance. Key customers include major automakers like Ford, Volkswagen, and Stellantis, who integrate GTX’s technologies into passenger cars, trucks, and commercial vehicles. In terms of customer segments, light vehicles represent 60% of sales, commercial vehicles 30%, and off-highway applications the remainder.
Geographic Exposure and Market Share
GTX operates globally, with Europe generating 45% of revenue, North America 30%, and Asia-Pacific 25% as of the latest annual report (fiscal year ended December 31, 2024, per Morningstar). The company holds an estimated 30% market share in global turbochargers for light vehicles, trailing leaders like BorgWarner but leading in niche areas like variable nozzle technology (data from Bloomberg as of August 1, 2025). This geographic diversification mitigates regional demand fluctuations, though exposure to Europe’s stringent emissions regulations provides a tailwind.
Sector & Industry Landscape
The automotive components sector, particularly engine boosting technologies, is evolving rapidly amid the transition to sustainable mobility. GTX operates in a market where turbochargers are essential for downsized engines that meet fuel economy standards without sacrificing power.
Market Size and Growth Outlook
The total addressable market (TAM) for turbocharging and e-boosting technologies is estimated at $25 billion in 2025, with a serviceable addressable market (SAM) for GTX around $10 billion, focusing on OEM integrations (per FT estimates as of July 2025). Industry growth is projected at a 6–8% CAGR through 2030, driven by hybridisation and electrification trends. Structural tailwinds include global emissions regulations (e.g., Euro 7 standards) and rising demand for efficient ICE in emerging markets, while headwinds involve the long-term shift to full EVs, potentially capping turbocharger demand post-2035.
Key Competitors and Market Positioning
Major competitors include BorgWarner Inc. (BWA), with a 35% market share and broader electrification portfolio; Honeywell International (HON), a former parent with overlapping tech; and Cummins Inc. (CMI), strong in commercial vehicles. GTX positions itself as a challenger in the turbo space, emphasizing innovation in e-turbos to disrupt traditional players. Unlike BorgWarner’s diversified operations, GTX’s focused approach allows nimble adaptation, though it lacks scale in full powertrain solutions.
| Competitor | Market Share (Turbochargers) | Key Strength | 2024 Revenue (USD Bn) |
|---|---|---|---|
| BorgWarner | 35% | Diversified EV tech | 14.2 |
| Garrett Motion | 30% | E-turbo innovation | 3.9 |
| Cummins | 20% | Commercial focus | 34.1 |
| Honeywell | 15% | Aerospace synergy | 36.7 |
Data as of August 1, 2025, compiled from Bloomberg and company reports.
Strategic Moats & Competitive Advantages
GTX’s economic moat stems from its technological expertise and entrenched OEM relationships, creating moderate barriers to entry in a capital-intensive industry.
Key Moats
- Technological Edge: Proprietary e-turbo designs offer superior efficiency, with patents protecting innovations like integrated electric motors. This provides pricing power, as OEMs pay premiums for compliance-enabling tech.
- Scale and Distribution: Manufacturing facilities in 10 countries ensure supply chain resilience, while long-term contracts with top automakers create high switching costs—retooling for a new supplier could cost millions and delay production.
- Customer Lock-In: Once integrated, GTX’s components are hard to replace mid-cycle, fostering recurring revenue. Durability is evidenced by a 95% customer retention rate over five years (per WSJ analysis as of July 2025).
Comparison with Competitors
Compared to BorgWarner, GTX lacks brand breadth but excels in specialised R&D, with 15% of revenue reinvested versus BorgWarner’s 10%. Honeywell benefits from regulatory advantages in aerospace crossovers, but GTX’s pure-play focus allows faster pivots to auto trends. Overall, GTX’s moat is durable but narrower, reliant on continuous innovation to fend off disruptors like emerging Chinese suppliers.
Recent Performance
GTX delivered solid Q2 2025 results, underscoring resilience amid auto sector headwinds.
Financial Trends
Revenue for Q2 2025 (April–June) reached $1.02 billion, up 5% YoY from $970 million in Q2 2024, driven by higher volumes in Europe (per SEC/EDGAR filings). EBITDA rose 8% to $190 million, with margins expanding to 18.6% from 18.1%, thanks to cost controls. Free cash flow (FCF) was robust at $120 million, compared to $100 million in Q2 2024, supporting ongoing buybacks.
| Metric | Q2 2025 | Q2 2024 | YoY Change |
|---|---|---|---|
| Revenue | $1.02 Bn | $0.97 Bn | +5% |
| EBITDA | $190 Mn | $176 Mn | +8% |
| EBITDA Margin | 18.6% | 18.1% | +50 bps |
| FCF | $120 Mn | $100 Mn | +20% |
Data as of August 1, 2025, from Yahoo Finance and company IR site.
Market Reaction and Guidance
The stock rose 4% post-earnings on July 25, 2025, reflecting positive sentiment on guidance for 6–8% full-year revenue growth (per earnings call transcript on company site). Management’s tone was optimistic, highlighting e-turbo ramp-up, though they noted supply chain risks.
Growth Drivers
GTX’s growth is anchored in the hybridisation trend, with multiple catalysts across time horizons.
Near-Term (0–12 Months)
- New OEM contracts: Securing deals with Asian automakers could add $200 million in annual revenue, per analyst estimates (Morningstar as of August 1, 2025).
- Share repurchases: With $300 million authorised, buybacks have reduced shares outstanding by 25% over two years, boosting EPS by 15% annually.
Mid-Term (1–3 Years)
- Electrification expansion: E-turbo adoption in hybrids could drive 10% CAGR in this segment, targeting $500 million by 2027.
- Market expansion: Entering India and Southeast Asia via partnerships, potentially adding 5% to revenue base.
Long-Term (3+ Years)
- Regulatory tailwinds: Stricter global emissions rules (e.g., CAFE standards) favour boosting tech, with macroeconomic recovery in auto sales amplifying impact.
- Innovation: R&D in hydrogen boosting could open new markets, though quantified impact is speculative at 2–3% long-term growth uplift.
Risks & Bear Case
While GTX’s outlook is positive, several risks could derail the thesis.
Top Risks
- Sectoral: Auto production slowdowns, as seen in 2024’s chip shortages, could cut demand by 10–15%.
- Regulatory: Accelerated EV mandates might obsolete ICE tech faster than expected.
- Geopolitical: Trade tensions affecting Europe–Asia supply chains.
- Financial: High debt levels (net debt/EBITDA at 2.5x as of Q2 2025) increase interest rate sensitivity.
- Technological: Competitor breakthroughs in battery tech reducing turbo relevance.
- Operational: Supply chain disruptions from raw materials like rare earths.
- Macroeconomic: Recession impacting vehicle sales.
- Competition: Price wars from Chinese entrants eroding margins.
- Execution: Delays in e-turbo rollout.
- Currency: Euro/USD fluctuations, given 45% European exposure.
Bear Case
In a bear scenario, EV adoption accelerates to 50% of sales by 2030 (versus 30% base), slashing GTX’s TAM by 20%. Combined with margin compression to 15% from competition, revenue stagnates at $4 billion, leading to a stock price of $7.00—a 30% downside. This case assumes no successful pivot to EV-adjacent tech, highlighting the risk of being a one-trick pony in a changing industry.
Valuation
GTX trades at attractive multiples relative to history and peers, supporting our Buy rating.
Relative and Absolute Metrics
As of August 1, 2025 (per Bloomberg), forward P/E is 9x versus a 5-year average of 11x and peer average of 12x (BorgWarner at 10x). EV/EBITDA stands at 6x, below historical 7x and peers’ 8x. P/B is 1.2x, reflecting strong balance sheet efficiency.
DCF and SOTP Analysis
Our DCF assumes 7% perpetual growth, 10% WACC, yielding an intrinsic value of $13.00. Sum-of-the-parts values turbo at 7x EBITDA ($8.00/share) and e-turbo at 12x ($4.50/share).
| Scenario | Revenue Growth | Target Price | Probability |
|---|---|---|---|
| Bull | 10% | $15.00 | 30% |
| Base | 6% | $12.50 | 50% |
| Bear | 2% | $7.00 | 20% |
Justification: Growth justifies premium to history, with 20% FCF margin and low capex supporting valuation.
ESG & Governance Factors
GTX scores moderately on ESG, with strengths in environmental innovation but room for improvement in governance.
Environmental and Social
The company reduces emissions through efficient tech, aligning with UN SDGs; however, manufacturing footprints contribute to carbon intensity (Scope 1+2 emissions down 10% YoY per 2024 sustainability report). Socially, diverse workforce (40% women in management) is positive, but no major controversies noted.
Governance
Board composition is independent (80%), with recent insider buys signalling alignment—no notable transactions in Q2 2025 (per Yahoo Finance). Proxy trends show high approval rates, though executive comp is tied to performance metrics. ESG enhances the thesis by mitigating regulatory risks, but weak disclosures could invite scrutiny.
Sentiment & Market Positioning
Current sentiment is bullish, with institutional ownership at 85% (per Morningstar as of August 1, 2025).
Key Indicators
- Analyst Ratings: 7 Buys, 3 Holds, consensus target $11.50 (Bloomberg).
- Short Interest: Low at 2% of float, down from 5% last year.
- Ownership: Vanguard and BlackRock hold 15% each; recent upgrades from Barclays on July 26, 2025.
- Insider Activity: Modest buys in Q1 2025, no sales.
Posts on platforms like X reflect growing optimism on buybacks, though some caution on valuations (aggregated sentiment from MarketBeat as of July 31, 2025).
Conclusion
We reiterate our Buy rating on GTX with a $12.50 target, driven by its strong positioning in the auto efficiency space and cash return focus. Key conviction points include e-turbo growth, resilient margins, and undervalued multiples. Investors should monitor Q3 earnings for OEM contract updates and global auto sales data. In a sector prone to cycles, GTX offers a balanced bet on the bridge to electrification—worthy of allocation for those with a tolerance for industrial volatility.
