From Barron's, August 31:
This Company Makes Electric Vehicles for Start-Ups That Can’t. Its Stock Is a Buy.
Enter Magna International (ticker: MGA). The Canadian auto-parts giant ranks in the top three automotive suppliers globally. But in addition to supplying parts, the company’s Steyr division engineers and assembles complete vehicles for global auto makers. In other words, Magna has the assets so others can be asset-light.And that's not all:
Asset-light means businesses are essentially trying to make money without spending money. It’s a sensible approach, especially for electric-vehicle start-ups trying to transform a century-old industry. Car plants are hugely expensive and it can cost billions to develop a single vehicle. “For young companies, [the] most efficient way is to have a contract manufacturing relationship,” says Brian Gu, the president of EV maker Xpeng (XPEV). Newly NYSE-listed Xpeng uses China’s Haima Automobile Group (000572.China) to make its G3 sports utility vehicle.
Combine auto assembly with a business that provides parts to EV makers, and a pickup in auto demand, and Magna stock looks like a winner.
Electric vehicles are the future, but they’re also the present. In 2019, about 2% of light vehicles sold globally were all-electric. Magna sees that number hitting 15% by 2030. That works out to roughly 15 million EVs a year, accounting for normal industry sales growth, a trend that could get a boost by the pandemic.
For Magna, the shift to EVs isn’t an existential crisis. It makes chassis and vehicle bodies for all kinds of cars, and has a powertrain division that offers hybrid transmissions and products for all-electric vehicles, as well. Magna is also a key supplier of things all cars have—regardless of the motor—such as antilock brakes, mirrors, and seats.
Steyr is the icing on the cake. Magna’s assembly division was formed in 2001 after it bought assets from Steyr-Daimler-Puch in 1998. But Steyr, which can make about 200,000 vehicles a year in Europe and another 150,000 in a Chinese joint venture, has been making cars longer than that, starting with the Mercedes G-Class in 1979. Over time, Steyr has manufactured more than 3.7 million vehicles, including the BMW 5 Series, the all-electric Jaguar I-Pace, and the Toyota Supra. It currently has a memorandum of understanding with Fisker to make its Ocean SUV, has had talks with EV start-up Canoo, and manufactures the ArcFox Alpha-T, the first EV to emerge from the Chinese venture.....
In addition to assembling cars, Steyr has thousands of engineers who can design vehicles, too. It’s essentially car development and manufacturing as a service. ........MUCH MORE
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