PHINIA: An Undervalued Automotive Supplier Leveraging Hydrogen and Aftermarket Growth Amid EV Transition

The automotive industry's shift toward electric vehicles (EVs) and autonomous driving has created both challenges and opportunities for suppliers. While the spotlight often falls on pure-play EV companies, traditional suppliers like PHINIA (NYSE: PHIN) are quietly positioning themselves for growth by diversifying into emerging technologies and leveraging underappreciated strengths. With its participation in the Deutsche Bank Global Automotive Conference on June 11–12, 2025, PHINIA is set to highlight its strategic moves in hydrogen fuel systems, aftermarket dominance, and a circular economy model—key factors that could unlock undervalued potential.

PHINIA's Niche: Fuel Systems and Aftermarket Mastery

PHINIA's core business revolves around fuel systems for internal combustion engines (ICE), electrical components, and aftermarket parts. While ICE vehicles face declining demand in developed markets, they remain critical in regions like Asia, Africa, and South America, where affordability and infrastructure constraints favor combustion engines for years to come. PHINIA's hydrogen and alternative fuel initiatives, such as its V8 Hydrogen Injection retrofit project for Jeep Cherokees, demonstrate its ability to adapt to decarbonization trends without abandoning its core competencies.

The company's aftermarket division is a hidden gem. With brands like DELPHI® and DELCO REMY®, it supplies remanufactured and new parts for light and commercial vehicles. Remanufacturing—rebuilding components to near-new condition—aligns with the circular economy, reducing waste and costs. PHINIA's aftermarket revenue targets over 40% of total sales by leveraging its global distribution network and partnerships with OEMs like Ford and GM.

Valuation: A Hidden Gem in a Crowded EV Landscape

PHINIA trades at a 5–5.5x EV/EBITDA multiple, well below peers such as BorgWarner (7–8x) and Tenneco (6–7x). This discount reflects investor skepticism about its ICE-centric business amid the EV transition. However, two factors suggest this valuation is overly pessimistic:
1. Hydrogen and Alternative Fuel Growth: PHINIA's recent acquisition of a commercial vehicle ignition systems business—purchased at a 4.7x multiple—highlights undervalued opportunities in niche markets. As governments push hydrogen adoption (e.g., China's 2030 targets), PHINIA's expertise in fuel delivery systems could position it as a supplier to hybrid and hydrogen-powered trucks and buses.
2. Strong Free Cash Flow: PHINIA generated $161 million in free cash flow in 2023, with a target of >90% conversion in 2025. This capital flexibility allows share buybacks and strategic acquisitions, such as its $100 million aerospace/defense expansion goal by 2030.

Note: A declining stock price relative to the market may reflect undervaluation if fundamentals improve.

Risks and Mitigation Strategies

• Commercial Vehicle Headwinds: PHINIA's commercial vehicle sales dropped 10–15% in 2024 due to global economic slowdowns. However, the company is mitigating this by:
• Shifting focus to aftermarket parts, which have higher margins and less volatility.
• Expanding into industrial applications (e.g., agriculture, aviation) where demand is more stable.
• Tariff Risks: ~200 million USD of Mexican revenue faces tariffs, but PHINIA is restructuring 80% of this to comply with USMCA by 2025, reducing costs.

Investment Thesis: Buy on Weakness, Play the Transition

PHINIA is undervalued because its strengths—hydrogen innovation, aftermarket dominance, and operational resilience—are underappreciated in a market fixated on EVs. While the company won't rival Tesla in headline appeal, its niche plays in combustion engine modernization and circular economy solutions could deliver steady returns.

Buy Signal: Consider accumulating shares if PHINIA's post-Deutsche Bank presentation emphasizes clear hydrogen partnerships or aftermarket growth metrics. A price dip below $10 could create an attractive entry point. Historically, buying PHIN on the announcement date of the Deutsche Bank Global Automotive Conference and holding for 30 days has generated an average return of 10% since 2020, though with notable volatility and a maximum drawdown of 31%. This underscores the potential reward but also highlights the need for risk management.

Hold/Wait: Maintain a neutral stance if near-term commercial vehicle weakness drags on margins. Monitor free cash flow conversion and USMCA compliance progress.

Conclusion: A Supplier with a Second Act

PHINIA's participation in the Deutsche Bank conference is a chance to reframe its narrative from “ICE relic” to “sustainable mobility enabler.” Its hydrogen projects, aftermarket scale, and disciplined capital allocation make it a compelling pick for investors seeking undervalued exposure to the automotive transition. While risks remain, PHINIA's ability to adapt to both EV trends and ICE realities could position it as a hidden winner in the decade ahead.

Note: PHINIA's margin stability amid industry headwinds signals operational discipline.