Garrett Motion Inc. (GTX)
Garrett Motion is a supplier of turbocharging systems and related engine-efficiency technologies to automobile manufacturers worldwide. The company designs and manufactures turbochargers that increase engine power while reducing fuel consumption and emissions. It serves a global customer base of vehicle makers ranging from mass-market producers to luxury brands, and its products are installed in tens of millions of vehicles annually.
The turbocharger and why it matters
A turbocharger is a device bolted to an engine that compresses incoming air, forcing more oxygen into the cylinders, which allows the fuel to burn more completely and produce more power. A turbocharged engine delivers power comparable to a much larger, naturally aspirated engine—but with a smaller displacement, less weight, and lower fuel consumption. This efficiency gain is why turbochargers have become standard in modern vehicles.
Garrett Motion manufactures the turbocharger assembly itself: the compressor wheel, turbine wheel, shaft, bearing system, and casing. It also produces related technologies: electric hybrid turbochargers (which use a small electric motor to assist the turbine), waste-heat recovery systems, and air-handling components. Collectively, these products are sold to vehicle manufacturers under long-term supply agreements.
The company serves every major automotive manufacturer in the world: Volkswagen, General Motors, Ford, BMW, Daimler, Renault, Hyundai, Geely, and many others. A single car model may contain one, two, or three Garrett turbochargers depending on whether it is a gasoline or diesel engine and the desired performance level.
The original equipment manufacturer supply model
Garrett Motion operates in the automotive supply chain as an original equipment manufacturer (OEM) supplier. This means the company does not sell turbochargers to consumers; it sells to vehicle makers, who install them in vehicles before those vehicles are sold to customers. A consumer who buys a turbocharged car does not choose the turbocharger brand—the car manufacturer chose it during design.
This model has several implications for Garrett Motion’s business. First, sales are driven by vehicle production volumes. When a car manufacturer increases production, Garrett Motion produces more turbochargers. When production falls during a downturn, Garrett’s sales fall proportionally. This creates cyclicality: the company’s revenue and profitability are closely tied to global automotive cycles.
Second, the company sells through long-term supply agreements called programs. A vehicle manufacturer agrees to source turbochargers from Garrett Motion for a specific vehicle model over a defined program life (often 8 to 10 years or the production run of the model, whichever is shorter). Volumes and pricing are largely fixed at the time the program is awarded. Garrett wins new programs by competitive bidding against other turbocharger suppliers (primarily Boehringer-Mahle and Mitsubishi Heavy Industries’ turbocharger division).
Third, the company invests heavily in engineering and capital equipment to design and produce turbochargers to each customer’s specifications. A new program typically requires several years of development before production begins, and the company must invest in tooling and production facilities. The profitability of a program is determined largely at the time of award—higher quoted prices and lower manufacturing costs yield higher profit margins, but once the program is underway, there is limited ability to renegotiate.
The shift to electrification and existential risk
Turbochargers are optimized for internal combustion engines. They make gasoline and diesel engines smaller, lighter, and more efficient. However, the automobile industry is in the early stages of a shift toward electric vehicles (battery-powered cars that do not have internal combustion engines at all). Electric motors do not need turbochargers. A vehicle with an electric motor has different efficiency and power-delivery characteristics that turbocharging cannot address.
This is an existential challenge to Garrett Motion’s core business. As vehicle manufacturers produce more electric vehicles and fewer gasoline and diesel vehicles, demand for turbochargers will decline. The company has acknowledged this risk explicitly and is investing in the development of technologies for electrified vehicles—primarily in e-motors and power electronics. However, the core turbocharger business remains the largest source of revenue and profit in the near term (through the 2020s), and the transition to electrified propulsion is ongoing and uncertain.
The timeline matters enormously. If the industry transition to electric takes 10 to 15 years (i.e., 2035 to 2040), Garrett Motion has time to diversify its business and shrink gracefully. If the transition accelerates, demand for turbochargers falls faster than the company can develop and commercialize replacements, and profitability could deteriorate sharply.
Technology, competition, and complexity
Turbocharger design is deceptively complex. The turbine spins at speeds exceeding 100,000 revolutions per minute and operates at extreme temperatures. Materials, aerodynamics, and thermal management are critical to performance and durability. Garrett Motion’s engineering capability and manufacturing expertise are what allow it to compete for programs against other suppliers.
The company faces competition from a small number of other global turbocharger suppliers. Mitsubishi Heavy Industries (Japan), BorgWarner (US), and Boehringer-Mahle (Germany) are the primary competitors. The market is concentrated among these few suppliers because the capital investment and engineering capability required create high barriers to entry.
Garrett Motion also competes indirectly against the trend toward larger, heavier batteries and the eventual disappearance of internal combustion engines. Every year that a vehicle manufacturer moves a model from diesel to gasoline or from turbo to non-turbo gasoline engine represents market loss for the company. Conversely, any trend toward turbodiesel (which Garrett supplies heavily) or hybrid vehicles (where an internal combustion engine works alongside an electric motor) supports demand.
Organizational history and independence
Garrett Motion was spun off in October 2018 from Honeywell International, which had owned the turbocharger business for decades. The spin-off was designed to allow Garrett Motion to operate independently and pursue strategic opportunities with more agility than a Honeywell subsidiary could. The company went public at that time.
The independence has been complicated by the broader automotive and energy transition. The company emerged from the spin-off with debt, and the global shift toward electrification has created pressure on the core business model. Management has pursued both cost reduction and investment in new technologies to mitigate the transition risk.
How to research Garrett Motion as an investment
Garrett Motion’s annual 10-K (SEC CIK 0001735707) details the company’s programs by customer and vehicle type, the geographic mix of production, and the cost structure of manufacturing. The risk section openly discusses the threat posed by electrification and the company’s strategy to develop new products.
Key metrics to monitor include revenue by region and customer, gross margin trends (are manufacturing costs rising faster than pricing?), and capital intensity (how much the company must invest to produce each turbocharger). Watch also the company’s debt level and free cash flow—the capital-intensive nature of the business and the transition risk mean the company requires adequate liquidity.
The company’s pipeline of new technologies for electrified vehicles is critical. Read carefully what management says about the pace of development, partnership agreements with vehicle manufacturers, and the expected revenue contribution from non-turbocharger products in the future. The trajectory of this transition will largely determine the long-term viability of an investment in Garrett Motion.