Vitesco has been winning large amounts of new business due to the industry’s transition to electrified powertrains

Business Strategy & Outlook

Vitesco will capitalize on vehicle electrification arising from global clean air regulation. Vitesco’s products are used in internal combustion engines, hybrid electric, battery electric, and fuel cell electric vehicles. The company’s electrified vehicle powertrain product lines should support revenue growth in the mid-single-digit range, despite non core ICE product lines which are declining. The company benefits from its ability to continuously innovate, a global manufacturing footprint, highly integrated long-term customer ties, high customer switching costs, and moderate pricing power from new technologies. Vitesco has been winning large amounts of new business due to the industry’s transition to electrified powertrains. While 2021 electrification sales amounted to EUR 888 million (from more than one operating segment) out of the consolidated total of EUR 8.3 billion, 2021 electrification order intake was EUR 5.1 billion. Vitesco has a cumulative EUR 16.8 billion electrification order intake backlog (EUR 51 billion total order intake backlog). Once an order is taken, development for a vehicle powertrain takes two to four years, during which Vitesco incurs development costs without any associated revenues. The production phase, when revenue is generated, lasts between five-10 years.

Vitesco’s large number of new contracts in development phase, relative to the low number in production, leads to net losses through 2024 and break even in 2025 for the electrification technology operating segment. The segment’s 2025 revenue is EUR 1.95 billion, up from EUR 587 million in 2021. Vitesco to wind down contract manufacturing for its former parent, Continental AG, with revenue dropping from EUR 1.05 billion in 2021 to zero in 2028. Noncore ICE revenue to decline from about EUR 2.0 billion in 2020 to EUR 665 million in 2031. Because of high growth electrified powertrain business, from a 2019 base, 4% average annual consolidated revenue growth during the 10-year, roughly 1-3 percentage points higher than expectations for 1%-3% long-term growth in global light vehicle demand.

Financial Strengths

Vitesco maintains a solid balance sheet and liquidity that, relative to other parts suppliers, makes for strong financial health. Vitesco has ample liquidity and can generate sufficient free cash flow to meet its current financial obligations and weather cyclical downturns. The firm maintains a low level of debt as its net debt / total capital was negative 7.6% (indicating a net cash position) at the end of 2021. The firm has two multicurrency revolving credit facilities including a EUR 750 million core credit facility and an incremental EUR 250 million credit facility. At the end of 2021, Vitesco had EUR 1,614 million in liquidity, including available credit facilities and a EUR 614 million cash balance. Short-term debt was EUR 69.8 million and long-term debt was EUR 199.1 million for a total debt balance of EUR 268.9 million. Vitesco ended 2021 with a 0.3 net adjusted debt/ EBITDAR ratio which takes into consideration cash, operating leases, and rent expense

Bulls Say

Global clean air legislation enables Vitesco’s top-line growth to exceed worldwide growth in demand for light vehicles.
The firm’s global manufacturing footprint enables the firm to participate in global vehicle programs and capitalize on global demand.
As automakers consolidate purchases with fewer suppliers, large firms such as Vitesco are in the best position to gain share because they can offer a wide range of products at attractive prices.

Company Description

Vitesco is a global Tier I automotive supplier of internal combustion engine (ICE), hybrid electric (HEV), battery electric (BEV), and fuel cell electric (FCEV) vehicle powertrain components and systems, operating through four segments including electronic controls, sensing & actuation, electrification technology, and contract manufacturing. The company was spun off from Continental AG on Sept. 16, 2021. ICE powertrain products include electronic controls, sensors, actuators, turbochargers, hydraulic components, pumps, and emissions technologies. HEV, BEV, and FCEV products include battery management systems, onboard chargers, battery junction boxes, emotors, inverters, converters, thermal control, electronic control units, pumps, flow control valves, sensors, and actuators.

(Source: Morningstar)

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