Garrett Motion: Is This Undervalued Industrial Innovator Ready to Turbocharge Shareholder Returns?

In the high-stakes arena of industrial innovation, few companies have navigated the crosscurrents of legacy and transformation as deftly as Garrett Motion (GTX). Over the past year, the company has demonstrated a rare blend of operational resilience, disciplined capital allocation, and a forward-leaning strategy to position itself at the forefront of the electric vehicle (EV) transition. Yet, despite these strengths, its stock trades at a discount to its intrinsic value and industry peers, raising a critical question: Is the market underestimating a company that could become a linchpin in the global shift to zero-emission technologies?

Operational Resilience and Free Cash Flow: A Foundation for Stability

Garrett Motion's 2024 financial results underscore its ability to adapt to volatile market conditions while maintaining profitability. Despite a 10% decline in net sales to $3.475 billion, driven by soft demand in China and Europe, the company improved its net income margin from 6.7% to 8.1% and boosted adjusted EBITDA margins to 17.2%. These metrics reflect a business model that prioritizes cost discipline and operational efficiency, even as it faces headwinds from decelerating diesel production and the lingering challenges of transitioning from traditional turbochargers to electrified systems.

Free cash flow, a critical metric for long-term value creation, fell to $358 million in 2024 from $422 million in 2023. However, this decline was largely attributable to strategic capital expenditures in R&D and manufacturing upgrades for next-generation products, not operational inefficiency. The company also used its liquidity to strengthen its balance sheet, repaying $985 million in debt and repurchasing $296 million of shares. These actions, coupled with a new $250 million share buyback program and a $50 million annual dividend announced in Q4 2024, signal confidence in its ability to generate consistent cash flows.

Strategic Positioning in the EV Transition: Innovation as a Growth Catalyst

The EV transition is not a distant horizon for Garrett Motion—it is a present-day battleground. In 2025, the company unveiled two groundbreaking technologies at Auto Shanghai: the 3-in-1 E-Powertrain and the E-Cooling Compressor. The E-Powertrain, which integrates a high-speed electric motor, inverter, and reducer into a single compact unit, reduces weight and size by up to 40% compared to industry benchmarks. This innovation is already in volume production readiness, with a partnership with SinoTruk targeting commercial deployment by 2027.

Meanwhile, the E-Cooling Compressor, leveraging oil-free centrifugal technology, addresses a critical pain point in EVs: efficient thermal management. With over a dozen pre-development programs underway, this product is poised to become a standard component in electric trucks, buses, and passenger vehicles. Garrett's Gen 3 Fuel Cell Compressor further cements its role in the hydrogen economy, offering best-in-class efficiency and scalability for fuel cell platforms.

These advancements are not theoretical. They are rooted in Garrett's deep expertise in air and gas compression, high-speed electric motors, and advanced control systems—capabilities honed over decades in the internal combustion engine (ICE) era. While the rise of EVs threatens to disrupt traditional OEM relationships, Garrett has turned this challenge into an opportunity. Its partnerships with Chinese automakers like HanDe and its expansion of R&D centers in Wuhan and Shanghai position it to capitalize on the world's largest EV market.

Market Valuation: A Dislocation Between Present and Future

Garrett Motion's stock currently trades at a forward EV/EBITDA of 6.2x and a P/E ratio of 8.4x, both significantly below the industry averages of 8.3x and 18x, respectively. This valuation disconnect suggests that investors are underappreciating the company's dual strengths: its established profitability in legacy markets and its high-conviction bets on electrification.

Consider the numbers. GTX's gross margin of 20.7% and net profit margin of 8.1% in 2024 outperform many of its peers, particularly those still struggling to pivot to EVs. Yet, its market capitalization of $2.35 billion—a 61.7% discount to intrinsic value estimates—fails to reflect the $300 million to $390 million in adjusted free cash flow projected for 2025 or the $3.3 billion to $3.5 billion in sales expected despite macroeconomic headwinds.

The price-to-book ratio of -3.27, while a red flag for traditional investors, masks the intangible value of Garrett's R&D pipeline. Unlike pure-play EV stocks like Tesla or Rivian, which trade at multiples based on aspirational growth, GTX offers a balanced mix of near-term cash flow and long-term innovation. This dual capability allows it to serve as a “bridge” between legacy automotive systems and next-gen EV infrastructure, a role that could become increasingly valuable as regulators and consumers demand rapid decarbonization.

The Case for a Re-rating

For investors seeking exposure to the EV transition without the volatility of speculative tech plays, Garrett Motion represents a compelling case. Its 2025 outlook—a $3.3 billion to $3.5 billion revenue range with adjusted EBITDA of $545 million to $605 million—points to a business that is both resilient and scalable. The company's ability to secure contracts with major Chinese automakers, combined with its $250 million share repurchase program and 15.4% shareholder yield, further enhances its appeal.

However, the path to re-rating is not without risks. The EV transition is accelerating faster than some OEMs anticipated, and supply chain bottlenecks for critical minerals could delay production timelines. Additionally, while Garrett's ICE technologies remain relevant in markets like China, where 75% of exports in 2024 were ICE-powered, the long-term sustainability of these margins is uncertain.

Conclusion: A Deep-Value Opportunity in the Making

Garrett Motion is not a flashy name in the EV space, but it is a company with the technical expertise, financial discipline, and strategic vision to thrive in the post-combustion era. Its current valuation—trading at a discount to peers like BorgWarner and Cummins—reflects a market that is still grappling with the implications of its electrification roadmap. For investors willing to look beyond short-term sales declines and focus on the long-term potential of its E-Powertrain, fuel cell, and thermal management solutions, GTX offers a rare combination of stability and growth.

In an industry where the future belongs to those who can adapt, Garrett Motion is not just keeping up—it is setting the pace. Whether you're a long-term holder or a value investor, this is a stock worth watching closely.