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Beyond Tesla: Analyst Reveals an Under-the-Radar Stock to Ride the EV Revolution

The electric vehicle (EV) landscape has transcended the dominance of Tesla and Chinese automakers like BYD. 

Morningstar's Chief Markets Strategist, David Sekera, is widening the scope within the EV ecosystem, particularly focusing on automotive parts suppliers. "While Tesla (TSLA) captures headlines, we discern significant potential in parts suppliers," Sekera commented, singling out BorgWarner (BWA) as a standout example. 

Despite its five-star rating, BorgWarner's stock is currently trading at approximately half of Morningstar's fair value assessment, offering an enticing opportunity for investors. BorgWarner, a supplier to major automakers such as Ford Motor (F) and Volkswagen, expects net sales between $14.4 billion and $14.9 billion this year, slightly below Wall Street estimates. 

Nonetheless, Sekera remains optimistic, highlighting BorgWarner's adaptability to evolving market dynamics in the EV sector. Despite BorgWarner's shares witnessing a 26% decline over the past year, 11 out of 19 analysts covering the stock recommend buying or overweighting it, projecting a potential upside of around 24%.

BorgWarner's Strategic Ventures and Earnings Report

Last week, BorgWarner made significant announcements alongside its earnings report, signaling strategic ventures in the EV market. The automotive parts supplier unveiled the commencement of eMotor rotor and stator production for XPeng (XPEV) Motors, marking a strategic partnership in the burgeoning EV market. 

The newly developed high voltage hairpin 220 eMotor promises impressive power and torque density, along with enhanced efficiency, all at a competitive cost. This innovation will be integrated into XPeng's upcoming X9 MPV and B-class sedan, scheduled for production in Q3 2024. Furthermore, BorgWarner solidified its position in the EV battery space through a strategic relationship agreement with FinDreams Battery, a subsidiary of BYD Company Limited. 

Under this agreement, BorgWarner gains exclusive rights to localize LFP battery packs for commercial vehicles across Europe, the Americas, and select regions of Asia Pacific. This strategic move grants BorgWarner access to FinDreams Battery's cutting-edge blade cells, positioning it uniquely as the sole non-OEM localized manufacturer with an 8-year license to utilize FinDreams Battery's intellectual property related to battery pack design and manufacturing. 

Despite these strategic strides, BorgWarner's Q4 (Dec) earnings report fell short of expectations, with earnings per share (EPS) missing the FactSet Consensus by $0.05. Nevertheless, revenues saw a modest 6.2% year-on-year increase. 

Looking ahead, BorgWarner issued downside guidance for FY24, forecasting EPS and revenues below consensus estimates, with anticipated EPS between $3.65 and $4.00 and revenues ranging from $14.4 billion to $14.9 billion, reflecting a cautious outlook amidst evolving market dynamics.

Technical Analysis

Technical analysis unveils a compelling perspective for BorgWarner's (WBA) stock. The current chart indicates a support level testing a lateral and ascending trend line near the $30.75 price level, representing the March 2022 lows. Should this area offer solid support, investors could anticipate a 27-30% upside moving forward. Resistance levels are anticipated at $34.85, $37.87, and $39.58, closely aligned with the 200-day simple moving average, reinforcing the bullish outlook for BorgWarner's stock amidst its strategic initiatives in the EV market.

BWA technical analysis chart
Image courtesy of TC2000.com

Conclusion

In conclusion, the electric vehicle (EV) revolution presents promising opportunities beyond the realm of industry giants like Tesla. Analyst David Sekera's insights illuminate an under-the-radar stock poised for growth in this dynamic landscape: BorgWarner. BorgWarner's strategic ventures in automotive parts supply and EV battery technology, alongside its recent partnerships, position it as a pivotal player in the EV ecosystem. With careful consideration and strategic investment, BorgWarner holds the potential to offer investors a compelling opportunity to capitalize on the wave of the EV revolution.


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