2024-06-20 14:25:04 ET
Summary
- Valeo has underperformed a weak auto sector as investors fear that weak EV adoption will permanently undermine the company's revenue growth and margin leverage.
- BEV sales have indeed underwhelmed in recent quarters, and Valeo has seen EV powertrain component sales fall on reduced OEM production rates.
- Valeo's broad electrification portfolio, including hybrid powertrain systems, is underappreciated, and OEMs may reprioritize 48V powertrains as a bridge technology.
- Customer in-sourcing remains a risk, but many OEMs are under pressure to improve margins and capital efficiency and will likely turn to outside suppliers at some point.
- Valeo shares appear significantly undervalued, but the market has no interest in an EV-driven story with high near-term R&D spending limiting margins.
When I last wrote about French auto supplier Valeo (VLEEY) (VLEEF) (FR.FP) in September of 2023 , I wrote that, “time will tell if my bullishness on Valeo proves to be patience or folly”. At this point folly remains firmly in the lead, as Valeo has continued to underperform a weak auto sector, including other EV-leveraged auto suppliers like BorgWarner (BWA) and Vitesco (VTSCY)....
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A Challenging EV Environment Means A Longer Wait For Valeo