Business Overview and History
Garrett Motion's history dates back to the 1950s when it played a pivotal role in developing a turbocharged commercial vehicle for Caterpillar. This marked the beginning of the company's journey as a key player in the automotive technology space. Over the decades, Garrett has maintained strategic relationships with major commercial vehicle OEMs, solidifying its position as an industry-leading provider of turbochargers for both light and commercial vehicles.
In the 2010s, Garrett continued to innovate and expand its product portfolio. A significant milestone was the launch of its first modern 1.0-1.5L VNT gasoline application with a major OEM, which saw increasing adoption in the industry. The company also remained committed to the commercial vehicle and industrial sectors, developing turbochargers that enhance engine performance and facilitate lower emissions across various applications.
The year 2020 brought challenges for Garrett Motion, as the company and certain of its subsidiaries filed for Chapter 11 bankruptcy protection. However, demonstrating resilience and strategic acumen, Garrett emerged from bankruptcy in April 2021 with a reorganized capital structure. Throughout this period, the company maintained uninterrupted operations and continued to service its global customer base.
Post-bankruptcy, Garrett has focused on reinforcing its leadership position in the turbocharger industry. The company has made substantial investments in research and development to maintain its technological edge, resulting in the launch of new product applications across its gasoline, diesel, and commercial vehicle portfolios. Additionally, Garrett has expanded its global presence by investing in manufacturing, engineering, and technical capabilities in close proximity to its customers worldwide.
Financials
In 2024, Garrett reported total revenue of $3.48 billion, a decrease of 10.6% year-over-year, primarily due to softness in the global automotive industry, particularly in Europe and China. Despite the challenging industry conditions, the company was able to maintain a strong financial position, reporting net income of $282 million and generating $358 million in adjusted free cash flow, representing a 60% conversion rate of adjusted EBITDA.
For the fourth quarter of 2024, Garrett reported revenue of $844 million, net income of $100 million, quarterly operating cash flow of $131 million, and quarterly free cash flow of $157 million. This represents a year-over-year decline in revenue of 11%, mainly due to reduced diesel production in Europe and weaker gasoline demand in China and North America. However, Garrett was able to improve its gross profit margin to 21.6% in Q4 2024 compared to 20.0% in the prior year quarter, driven by improved variable and fixed cost productivity, commodity and transportation cost reductions, energy deflation, and a favorable product mix.
For the full year 2024, Garrett delivered an adjusted EBITDA margin of 17.2%, which was up 90 basis points compared to the prior year. The company noted that if adjusted for the impact of foreign exchange and divestiture activity during the year, the effect of the volume decline was almost completely offset by their operational performance of more than $100 million. This reflects the impact of structural fixed cost productivity actions and their ability to flex their variable costs in a volatile industry environment.
Turbocharger Business: A Cornerstone of Garrett's Success
Turbochargers have been the foundation of Garrett's business, and the company has maintained its leadership position in this market. In 2024, turbocharger sales accounted for approximately 85% of the company's total revenue. Garrett has a long-standing relationship with major global OEMs, supplying highly engineered turbocharging solutions that help automakers meet increasingly stringent emissions standards and improve fuel efficiency.
The company's turbocharger business has demonstrated resilience, even in the face of industry challenges. In 2024, Garrett secured new light vehicle gasoline turbocharger wins across all geographies, reinforcing its position in the U.S. and growing its presence in China. The company also made significant progress in the commercial vehicle segment, winning several natural gas on-highway applications in China that are expected to launch in 2026.
Garrett is a global leader in the $11 billion OEM turbocharger industry, with a long history of technology leadership in diesel and gasoline engine turbochargers. The company has maintained strategic relationships with key commercial vehicle OEMs for over 70 years and holds industry-leading positions for both on-highway and off-highway applications. Turbochargers allow OEMs to reduce engine size without sacrificing vehicle performance, thereby increasing fuel efficiency and decreasing harmful emissions.
In 2024, the company's diesel and gasoline turbocharger products accounted for 67% of its net sales, with gasoline turbochargers representing 43% and diesel turbochargers representing 24%. Gasoline turbocharger sales decreased by 13% year-over-year, primarily due to soft demand in China and North America, partially offset by program ramp-ups in Europe, the rest of Asia, and South America. Diesel turbocharger sales decreased by 17% year-over-year, driven by lower passenger vehicle demand in Europe, partially offset by sustained demand for pickup trucks in North and South America.
Diversifying into Zero-Emission Technologies
As the automotive industry continues to evolve towards electrification and zero-emission solutions, Garrett has been proactively investing in developing new technologies to address these emerging market needs. In 2024, the company dedicated more than 50% of its total R&D expenditures, which amounted to $187 million, towards zero-emission technologies.
Garrett's efforts in this space have yielded positive results, with the company securing new awards for its fuel cell compressor portfolio, which is the broadest in the industry. The company has also made significant progress in its E-Powertrain and E-Cooling compressor technologies, moving from the prototyping stage to vehicle testing and securing the first production awards, with launches expected as early as 2027.
As OEMs increase the electrification of their vehicle offerings, primarily through the addition of hybrid powertrains, Garrett provides a comprehensive portfolio of turbocharger and electric-boosting technologies to manufacturers of these hybrid-electric vehicles. The company's electric-boosting technologies, which augment standard turbochargers with electrically assisted boosting and electrical-generation capability, enable further optimization of engine performance and position Garrett well as the automotive industry continues to adopt more hybrid-electric vehicles.
Additionally, Garrett is investing in technologies to support the growing battery electric vehicle (BEV) and fuel cell electric vehicle (FCEV) markets. The company is developing solutions and increasing its R&D spend, focusing almost 60% of its total R&D expenditures in 2024 on zero-emission technologies, such as fuel cell compressors and high-value electric vehicle components, including E-Powertrain and E-Cooling Compressor technologies. These products are intended to address key challenges in areas like energy efficiency, weight, and packaging that OEMs face as they continue to progress on electrification.
Operational Excellence and Financial Discipline
Garrett's management team has demonstrated a strong focus on operational excellence and financial discipline, which has enabled the company to navigate the challenging industry conditions. In 2024, the company implemented strategic permanent and variable cost measures, which, combined with its ability to flex its cost structure, allowed it to deliver a 17.2% adjusted EBITDA margin for the full year.
The company's robust cash flow generation has also been a key strength, with Garrett reporting $358 million in adjusted free cash flow in 2024, representing a 60% conversion rate of adjusted EBITDA. This strong cash flow has enabled the company to reduce its total debt by $203 million in 2024, while also returning significant capital to shareholders through a $296 million share repurchase program, which reduced the company's share count by 13% compared to the end of 2023.
Liquidity
As of December 31, 2024, Garrett had a debt-to-equity ratio of -2.26, indicating the company has a highly leveraged capital structure. The company had $125 million in cash and cash equivalents and $600 million of available borrowing capacity under its revolving credit facility, for total liquidity of $725 million. Garrett's current ratio was 0.93 and quick ratio was 0.71, suggesting the company may have some liquidity challenges.
Aftermarket and Performance Products
Garrett's aftermarket business, which accounted for 13% of net sales in 2024, has strong brand recognition globally and is known for boosting performance, quality, and reliability. The company operates through a distribution network of more than 340 distributors covering 165 countries. As turbocharger penetration rates continue to increase, Garrett expects its installed base and aftermarket opportunities to grow. The company is also working to broaden its aftermarket portfolio with its Remanufactured (REMAN) offering, which has increased the number of applications by over 300.
Outlook and Risks
For 2025, Garrett is guiding for net sales of approximately $3.4 billion, a 1% decrease compared to 2024 on a constant currency basis. The company expects to deliver adjusted EBITDA of $575 million, representing a flat performance compared to 2024 when excluding the impact of foreign exchange. Garrett also anticipates generating $345 million in adjusted free cash flow, which would represent a 60% conversion rate of adjusted EBITDA.
The 2025 outlook reflects an improvement in the commercial vehicle market both on-highway and off-highway, which will partially offset the continued softness expected in the light vehicle industry. Excluding the negative effect of foreign exchange, Garrett's adjusted EBITDA is expected to be flat in 2025 compared to 2024, and their adjusted EBIT is expected to be down only 10 basis points due to a slightly higher stock compensation and depreciation. The company plans to execute productivity gains and pass through pricing in the relatively flat revenue environment.
Garrett expects to dedicate greater than 50% of their R&D spend in 2025 to zero emissions technologies, while still meaningfully investing in turbo technologies.
While Garrett's outlook remains cautiously optimistic, the company faces several risks that could impact its future performance. These include ongoing macroeconomic and geopolitical uncertainties, continued volatility in the global automotive industry, and the company's ability to successfully execute its strategic initiatives in the zero-emission vehicle market. Additionally, Garrett's reliance on a limited number of large customers could expose the company to potential revenue fluctuations.
Industry Trends
According to industry sources, global turbocharger production decreased from approximately 50 million units in 2023 to 49 million units in 2024, and is expected to further decrease from 2025 onward based on current expectations of electric vehicle penetration. However, Garrett believes turbocharging will continue to be a key technology for automakers to meet increasingly tough fuel economy and emissions standards.
Conclusion
Garrett Motion Inc. is a technology leader in the automotive industry, with a strong foundation in the turbocharger market and a growing presence in the rapidly evolving zero-emission vehicle space. The company's operational excellence, financial discipline, and strategic investments in innovative technologies position it well to navigate the industry's challenges and capitalize on emerging opportunities. As Garrett continues to innovate and diversify its product portfolio, investors will be watching closely to see how the company leverages its competitive advantages to drive long-term growth and shareholder value.