NFI Group Rides the Wave of Transit Modernization: A Strategic Bet on Clean Diesel and Hybrid Solutions

North America's transit systems are undergoing a historic fleet modernization, driven by aging vehicles, environmental regulations, and rising ridership. Amid this shift, NFI Group Inc. (TSX: NFI) stands out as a leader in providing hybrid and clean-diesel solutions, which remain critical to cities balancing sustainability goals with practical infrastructure needs.

### NFI's Dual Play: Clean Diesel Meets Modern Demand
NFI's success hinges on its ability to supply both zero-emission buses (ZEBs) and advanced clean-diesel/hybrid models. While electric vehicles (EVs) dominate headlines, clean diesel and hybrids remain vital for regions lacking EV charging infrastructure or facing budget constraints. NFI's Xcelsior® clean-diesel buses, for example, use ultra-low sulfur fuel and advanced emissions controls to meet stringent environmental standards, making them a pragmatic choice for transit agencies like New Jersey Transit (NJ TRANSIT) and New York City Transit (NYCT).

Recent contracts underscore this strategy. In Q2 2025, NJ TRANSIT awarded NFI a landmark deal for up to 750 60-foot clean-diesel buses—a deal worth $1.5 billion in equivalent units (EUs). This follows a 2024 NYCT contract that included 3,050 EUs of battery-electric and clean-diesel buses. Such deals reflect NFI's unique position: it caters to both the immediate need for low-emission vehicles and the longer-term transition to fully electric fleets.

### Backlog Strength Signals Future Revenue
NFI's backlog reached a record $13.7 billion as of Q1 2025, with 36.5% allocated to ZEBs. The NJ TRANSIT contract alone added $1.5 billion in EU backlog, demonstrating the company's ability to lock in multiyear revenue streams. This financial visibility is critical for investors, as it insulates NFI from near-term demand volatility.



### Financial Resilience Amid Challenges
Despite supply chain hurdles—most notably seat shortages delaying North American deliveries—NFI reported strong Q1 2025 results. Revenue rose 16% year-over-year to $841 million, while Adjusted EBITDA surged 84% to $62.7 million. A new $845 million credit facility further strengthens liquidity, allowing NFI to weather disruptions while scaling production.

CEO Stephen Talaga emphasized: “NFI is executing on its backlog, and our diverse portfolio positions us to capitalize on both near-term modernization needs and the long-term shift to zero-emission transit.”

### The Case for NFI: A Balanced Play in Transit Tech
Investors often overlook the role of hybrid and clean-diesel solutions in urban mobility. While EVs will dominate the future, cities like New York and New Jersey still require reliable, cost-effective vehicles for high-capacity routes. NFI's propulsion-agnostic approach—offering diesel, electric, and hybrid options—gives it an edge over single-tech competitors.

Moreover, NFI's aftermarket services, including parts distribution and training programs, deepen customer relationships. NJ TRANSIT's dedicated NFI Parts warehouse, for instance, ensures seamless maintenance, reducing downtime and fostering long-term loyalty.

### Risks and Opportunities
- Supply Chain: Seat shortages remain a near-term headwind, though NFI is pivoting to alternative suppliers.
- Regulatory Shifts: Accelerated ZEB mandates could squeeze demand for diesel hybrids, but NFI's ZEB backlog (36.5% of total) mitigates this risk.
- Geographic Diversification: NFI's UK operations face softer demand, but North American contracts dominate its growth trajectory.

### Investment Thesis: Buy the Backlog, Hedge the Transition
NFI's stock (NFI) has underperformed broader markets in 2025, partly due to supply chain concerns. However, its robust backlog and improving margins suggest it's a buy for investors with a 3–5 year horizon. Key catalysts include:
1. Delivery ramp-up for NJ TRANSIT's 750-bus order (starting 2026).
2. Federal funding flows for transit modernization under the U.S. Bipartisan Infrastructure Law.
3. Resolution of supply chain bottlenecks.

At current valuations, NFI offers a compelling risk-reward trade-off: it's exposed to fleet modernization tailwinds while maintaining flexibility to adapt to evolving emission standards.

### Conclusion: NFI's Hybrid Strategy Pays Dividends
NFI Group is not just a bus manufacturer—it's a solutions provider for cities navigating the messy transition to sustainable transit. While EVs will eventually dominate, the next decade will see a mix of clean diesel, hybrids, and ZEBs. NFI's dual focus on all three ensures it remains indispensable to transit agencies. For investors, this makes NFI a solid bet on North America's ongoing infrastructure renaissance.

Consider NFI for a portfolio needing exposure to decarbonization and infrastructure growth, but monitor supply chain progress closely.