NFI Group Inc.: Navigating Supply Chain and Tariff Challenges to Unlock Value in a High-Growth Backlog

In the volatile world of global manufacturing, companies that can adapt to supply chain disruptions and geopolitical pressures often emerge as long-term winners. NFI Group Inc. (NFI), a leading manufacturer of bus and coach vehicles, is no exception. Despite near-term headwinds—including tariffs on steel, aluminum, and imported goods—the company has demonstrated operational resilience through strategic refinancing, supplier diversification, and a robust backlog of $13.5 billion. For investors, the question is whether NFI's proactive measures position it to unlock value and sustain EBITDA growth in the second half of 2025 and beyond.

Strategic Refinancing: Strengthening the Balance Sheet

NFI's 2025 refinancing efforts were a masterstroke in stabilizing its financial position. By securing a $700 million revolving credit facility and issuing $600 million in 9.250% second lien secured notes, the company increased its liquidity to $326.7 million—a $198.8 million improvement from Q1 2025. This move not only reduced leverage but also provided flexibility to fund operations, R&D, and production scaling.

The refinancing's impact is evident in NFI's Q2 2025 results: Adjusted EBITDA rose 19.2% year-over-year to $70.8 million, and Return on Invested Capital (ROIC) improved to 7.9% from 3.5% in 2024 Q2. These metrics signal a stronger ability to convert capital into returns, even as the company absorbs non-recurring costs from debt restructuring.

Supply Chain Resilience: Diversification and Cost Control

One of NFI's most critical operational moves in 2025 was diversifying its seat supplier base. By onboarding a new North American supplier ahead of schedule, the company reduced production bottlenecks and cut costs. This proactive approach, combined with cost-reduction initiatives in the UK, helped NFI maintain profitability despite inflationary pressures.

The seat supplier strategy is part of a broader effort to mitigate global supply chain risks. By avoiding over-reliance on single-source providers, NFI has minimized delays and improved production flexibility. This resilience is crucial as the company ramps up output to meet a five-year demand forecast of 22,769 equivalent units (EUs) in North America alone.

High-Growth Backlog: A Catalyst for EBITDA Expansion

NFI's $13.5 billion backlog—comprising 6,082 firm EUs and 10,116 option EUs—represents a significant growth engine. With 35.3% of the backlog in zero-emission buses (ZEBs), the company is well-positioned to capitalize on the global shift toward sustainable transportation. This backlog not only ensures steady revenue but also provides pricing power, as the average EU price has risen 3.2% year-over-year to $840,000.

The Book-to-Bill ratio of 119.9% in Q2 2025 further underscores strong demand. With production rates set to increase and ZEBs accounting for 35–40% of manufacturing sales in 2025, NFI's EBITDA margins should benefit from economies of scale and higher-value contracts.

Tariff Mitigation: Passing Costs to Customers

Tariffs on imported materials have been a thorn in NFI's side, but the company is actively negotiating surcharges with customers to offset these costs. This strategy, combined with contractual price increases, should limit the impact on margins. CEO Paul Soubry has emphasized that NFI is “confident in its ability to pass on a significant portion of these costs,” ensuring that near-term profitability remains intact.

Investment Implications: A Buy for the Long Haul

For investors, NFI's strategic moves present a compelling case. The company's liquidity improvements, supply chain resilience, and high-growth backlog create a strong foundation for EBITDA expansion. While near-term risks—such as rising tariffs and inflation—persist, NFI's ability to adapt and innovate mitigates these concerns.

The key metrics to watch are:
1. Backlog Execution: Can NFI convert its $13.5 billion backlog into cash flow without compromising margins?
2. ZEB Penetration: Will the 35–40% target for zero-emission buses drive higher average selling prices?
3. Tariff Impact: How effectively can NFI pass on surcharges to customers?

Given these factors, NFI appears undervalued relative to its growth potential. The stock trades at a discount to peers like BYD and Proterra, despite a stronger balance sheet and larger backlog. For long-term investors, this is a compelling opportunity to invest in a company that is navigating today's challenges while building tomorrow's sustainable transportation infrastructure.

Final Verdict

NFI Group Inc. is a prime example of how strategic foresight can turn headwinds into tailwinds. By addressing supply chain risks, securing liquidity, and leveraging a high-growth backlog, the company is well-positioned to deliver sustained EBITDA growth and shareholder value. While the road ahead is not without obstacles, NFI's proactive approach and propulsion-agnostic product portfolio make it a resilient player in a rapidly evolving market. For investors with a medium-term horizon, NFI offers a compelling blend of risk mitigation and growth potential.