Garrett Motion (NASDAQ:GTX) executives outlined the company’s effort to expand beyond its legacy turbocharger business into electrified propulsion, cooling and industrial air-compression applications, while maintaining investment in its core automotive and commercial-vehicle markets.
Speaking at an investor conference, Chief Financial Officer Sean Deason said Garrett’s experience in turbocharging, developed over more than 70 years and rooted in aerospace technology, has provided the foundation for new products. The company’s technology portfolio includes high-speed rotating machines, electric motors, power electronics, software and airfoil bearings.
“We love turbocharging. We are going to be here to make turbos until we are the last man standing,” Deason said. “But taking these five building blocks and moving them into these new technologies, we are putting all these components together to really bring something unique” in electric powertrains and cooling.
Industrial compression and cooling opportunity
Garrett is targeting industrial and commercial markets with compressors designed for refrigerant, HVAC and air-compression applications. Deason said the company’s fuel-cell compression technology, which it began developing more than a decade ago, has helped advance its capabilities in high-speed electric motors and efficient air compression.
The company also has signed an agreement with Ingersoll Rand to provide industrial air compression, according to Deason. He said Garrett’s airfoil-bearing technology avoids organic lubricants by operating on a cushion of air, which can provide clean air and improve energy efficiency for users.
Nils Martens, Garrett’s senior vice president of strategy, business development and advanced technologies, said the company believes it can differentiate itself against established compressor providers through energy efficiency and automotive-scale manufacturing capabilities.
Martens said Garrett is seeing potential efficiency improvements of 10% or more in certain applications. He added that many of the components used in the company’s new compressors are already in production and can be reconfigured for industrial products.
“If you can bring a new technology that is superior in the energy efficiency, and we’re talking about a step change, 10% efficiency gains and more in several applications, that’s a major saving,” Martens said.
Turbo market expected to remain resilient
Deason said a slower-than-previously-expected adoption rate for battery-electric vehicles, particularly in the U.S., has supported demand for hybrid vehicles and internal-combustion applications. He said hybrids can be favorable for turbocharger demand because they tend to use more turbocharged engines.
The company expects its turbocharger revenue in 2035 to be comparable with its 2025 turbo revenue, though the business mix is expected to shift. Deason said growth in commercial vehicles, off-highway equipment and industrial applications is expected to offset declining passenger-vehicle demand over time as electrification advances.
Industrial turbocharger demand is being supported by the need for backup and prime-power generation, Deason said. While data centers are contributing to demand, he said the opportunity is broader and includes diesel- and natural-gas-powered generators used for power generation.
Garrett expects to generate about $230 million in industrial turbo revenue this year and about $300 million next year, Deason said. He added that the installed base of generators could also expand the company’s aftermarket opportunity over time. Aftermarket sales currently represent roughly 10% to 11% of Garrett’s revenue and include some of its highest-margin products, he said.
China, margins and capital allocation
Garrett continues to compete in China, where Deason said it is winning business in traditional internal-combustion, hybrid and export-oriented engine programs. He said Chinese automakers are increasingly looking for global suppliers as they expand into other markets.
Martens added that Chinese manufacturers are beginning to localize more production in Europe as European requirements for local content increase. Garrett’s existing position in China and global supply capabilities could support those expansion efforts, he said.
Deason said the company’s turbocharger products remain technologically differentiated rather than commoditized. He said the industry is consolidating around major providers, while Garrett is gaining exposure to higher-margin commercial, industrial and aftermarket applications.
The CFO also described Garrett’s cost base as roughly 80% variable, citing its reliance on suppliers for activities such as casting and semiconductor placement while retaining quality-critical assembly processes. He said the company has a lean working-capital structure and receives customer payments before paying suppliers in some cases.
Garrett is also applying artificial intelligence to product simulation, which Martens said can accelerate development, reduce hardware testing costs and support more robust products. Deason said the company sees additional AI opportunities in administrative functions but is taking a cautious approach to implementation and security.
On capital allocation, Deason said Garrett will fund business investments first before returning excess cash to shareholders. The company has repurchased 44% of its shares outstanding since the first quarter of 2023 and recently authorized a new $250 million share-repurchase program for next year, he said. Garrett is targeting the return of 75% of adjusted free cash flow to investors this year and has repaid $100 million of term loan B debt during the year.
Management said any acquisition would need to be highly compelling, as Garrett believes it already has the internal technology capabilities needed to pursue its stated growth strategy in industrial, commercial-vehicle, aftermarket and electrified-product markets.
About Garrett Motion (NASDAQ:GTX)
Garrett Motion Inc is an automotive technology company that develops and manufactures solutions designed to improve vehicle performance, efficiency and emissions. Its products serve passenger vehicles, commercial vehicles and off-highway applications, supporting both internal-combustion and electrified powertrains.
The company is best known for its turbocharging technologies, including turbochargers and related air-management systems. Garrett also develops electric boosting systems, fuel-cell compressors, thermal-management products and other components intended to support hybrid, electric and fuel-cell vehicles.
