AAM's Electric Ambition: Can Drivetrain Innovation Drive the Next Wave of EV Growth?

The automotive industry's shift toward electric vehicles (EVs) has created a gold rush for suppliers capable of delivering critical components. Among them, American Axle & Manufacturing (NYSE: AXL) is positioning itself as a linchpin in the EV supply chain. As AAM prepares to present at the Deutsche Bank 2025 Global Auto Conference on June 11, investors are scrutinizing whether its driveline systems and global manufacturing scale can cement its role as an EV leader—or if it risks being overtaken by faster-moving rivals. Here's why the stakes are so high.

The Drivetrain Edge

At the heart of AAM's value proposition is its expertise in driveline systems—components that transmit power from the motor to the wheels. For traditional internal combustion engine (ICE) vehicles, these systems are vital for efficiency. For EVs, they are even more critical, as drivetrain design directly impacts range, performance, and cost.

AAM's innovations here are not incremental. The company's lightweight, high-torque driveline technologies are tailored for EVs, reducing energy losses and enabling longer ranges. Its metal-forming capabilities—integral to manufacturing drivetrain housings and gears—also allow it to vertically integrate components, cutting costs for automakers.

This technical prowess has already secured partnerships with major automakers. While the conference presentation may not name new alliances, AAM's global footprint—75 facilities across 16 countries—positions it to scale production for both legacy automakers transitioning to EVs and startups like Rivian or Lucid.

Global Scale vs. the Speed of EV Adoption

AAM's manufacturing network is its secret weapon. Unlike niche EV suppliers, AAM's Tier 1 status grants it access to both established automakers (e.g., General Motors, Ford) and emerging EV players. Its ability to produce driveline systems at scale, backed by low-cost manufacturing in Mexico and China, could make it a go-to partner for automakers racing to meet EV mandates.

But risks loom. EV adoption rates remain uneven. A slowdown in demand—whether due to economic headwinds or battery shortages—could strain AAM's margins. Competitors like BorgWarner or ZF Friedrichshafen also threaten to poach contracts with proprietary drivetrain tech.

The Conference as a Litmus Test

Investors will watch for two key signals from AAM's June 11 presentation:
1. Partnership Pipeline: While no deals were explicitly mentioned in the conference materials, AAM's ability to name automakers committed to its EV driveline platforms would validate its leadership.
2. Sustainability Metrics: AAM's emphasis on reducing environmental impact—via recycled materials or energy-efficient factories—could attract ESG-focused investors.

This conference could be a pivotal moment for AAM. Historically, auto supplier stocks often see heightened volatility around major investor conferences, as analysts and investors reassess fundamentals. A strong showing here could catalyze a re-rating of AAM's multiple, especially if it can demonstrate clear EV drivetrain wins or cost leadership. Historical backtests show that buying AXL five days before the conference and holding for a month has resulted in mixed performance, with returns ranging from a high of 52.2% to a sharp decline of -117% since 2020, averaging -35.5%. This underscores the event's potential to drive volatility, making risk management crucial for investors.

Why Buy Now?

The bull case for AXL rests on two pillars. First, AAM's drivetrain expertise is irreplaceable in an EV ecosystem still grappling with performance and cost trade-offs. Second, its global scale allows it to weather regional demand fluctuations.

Even if EV adoption stumbles in 2025, AAM's ICE driveline business and hybrid drivetrain sales provide a safety net. Meanwhile, its non-GAAP margins, which exclude one-time costs, have trended upward—a sign of operational efficiency.

Risks to Consider

• Competition: Rivals with deeper R&D budgets (e.g., Bosch, Magna) could undercut AAM's pricing.
• Supply Chain Hiccups: Delays in securing raw materials (e.g., aluminum, rare earth metals) could stall production.
• Regulatory Shifts: Government incentives favoring domestic suppliers (e.g., U.S. Inflation Reduction Act) might advantage local competitors.

The Bottom Line

AAM is far from a sure bet, but its strategic positioning in the EV drivetrain market makes it a compelling play for investors betting on the electrification trend. While risks exist, the company's technical edge and global footprint suggest it could outpace broader market volatility.

Recommendation: Buy AXL for a portfolio targeting EV supply chain exposure. Set a price target of $45–$50 by year-end 2025, assuming strong EV adoption and new partnership announcements. Monitor closely for execution risks—but don't dismiss this supplier's chance to power the next chapter of EV growth.