ALV - Autoliv: Targeting China Is The Right Move But Patience Is Needed

2024-04-17 13:26:07 ET

Summary

• Car production soared in 2023, but growth is expected to slow.
• Autoliv maintains a dominant position in the car safety segment, in China they generate 22% of their revenue.
• Chinese auto manufacturers are releasing new models for the local market and ramping up exports to Europe and the USA.

Thesis

Passenger vehicle production soared last year, with supply still catching up to demand created over the past 3 years. Forecasts for 2024 indicate a slowdown to 3% annual growth. Autoliv, Inc. ( ALV ) maintains a dominant global position in the car safety segment, including within China, where they generate 22% of their revenue. China's auto manufacturers are releasing large quantities of new models intended for both the local and foreign markets, and exports have begun to ramp up, particularly to Europe and the USA. Autoliv is strategically placed to benefit from these tailwinds, but the question remains: how long before this moves the bottom line numbers for Autoliv, and how will shareholders benefit? My takeaway leaves me with the opinion that shares are trading at fair value, top-line growth is forecast to moderate, and China's vehicle exports will take years to achieve adequate volume to move the needle for ALV. For existing shareholders, I see little reason to sell an existing position thereby triggering potential capital gains; however, new investments at the current share price are unlikely to achieve alpha in the market over the short and medium term. For investors who plan to start a position with the intention of holding the shares for the long term within a diversified portfolio, they can expect to achieve reasonably stable returns from a combination of growing dividends and share repurchases.

Introduction

Autoliv is the leader in mobility safety, with a 45% market share. The corporation develops, manufactures, and markets safety systems globally to a broad selection of leading auto manufacturers. These systems encompass a range of products, such as airbags, seatbelts, steering wheels, passive safety electronics, and pedestrian protection systems....

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