- Magna Internation is a huge, Canada-based supplier and auto manufacturer.
- Magna is a low-key giant, but its 12-month stock market performance has been impressive.
- CEO Swamy Kotagiri took over in January and thinks the company is ready to take on the EV market.
- See more stories on Insider’s business page.
Magna International is the biggest car company you’ve never heard of. The Canadian firm is the world’s largest contract manufacturer of vehicles for other automakers, through its Magna Steyr arm in Austria, and it’s also an important supplier of parts, as well as a leader in developing electrified engineering platforms and advanced driver-assist systems.
Until recently, the $40 billion annual revenue firm and its 158,000 employees have operated behind the scenes. But as auto markets recover from the COVID-19 pandemic, Magna has been putting notable financial points on the board. In the past year, its stock has risen almost 160%, to a $90-plus level.
For Swamy Kotagiri, who took over as CEO in January, it is satisfying that Magna is finally getting that kind of recognition. And, he told Insider, it’s well deserved.
“In 2020, despite COVID, we did what we had to, addressing our cost base,” he said in an interview following a presentation at Magna’s investor day this week. “We started seeing results as investors came back in the second half,” he added.
Magna’s uniqueness is an advantage
From Kotagiri’s perspective, the uniqueness of Magna is driving positive investor sentiment. As a parts supplier and manufacturer with no car brands to support or dealers to satisfy, it has less direct exposure to consumer sentiment. And Magna doesn’t have to concern itself with whether it should kill off its sedans to build more SUVs, a tough call that Fiat Chrysler Automobiles (now Stellantis) and Ford made.
“Compared with the incumbents and new entrants,” Kotagiri said, alluding to the likes of Tesla and Rivian, “Magna can come with a value proposition that’s much more significant.”
The company’s 2020 strategy produced a financial trifecta: the stock price rose, free cash flow clocked in at almost $6 billion from 2018 to 2020, and the company spent $4.7 billion to return capital to investors through share buybacks and a dividend.
In fact, Magna maintained and recently increased its dividend, which now stands at $0.43/share. General Motors and Ford had to suspend dividends and buybacks during the pandemic to conserve cash. They haven’t yet reinstated their dividends, although both have enjoyed stock-price recoveries over the past 12 months. GM in particular has climbed above $50/share for the first time since its 2010 IPO.
Still, Big Auto was hit hard by the COVID-19 pandemic and by a two-month shutdown of North American production in early 2020. Roughly 1.5 million fewer cars and trucks were sold in the US last year than in 2019, and GM and Ford have together committed almost $60 billion to fund a switch to electric vehicles over the next two decades.
“We are disciplined about our capital allocation,” Kotagiri said. “I always like to think about profitability today and growth for the future being two sides of a coin. If you don’t get cash, how do you build?”
He added that Magna’s first priority is to put money into the business for growth, then to direct any excess cash back to investors.
Ambitious plans for investment in megatrends
On the growth side, Magna isn’t skimping. The company plans to spend $600 million annually on engineering to attack what it calls “megatrend” areas, such as electric-vehicle powertrains and drive-assist, as well as battery pack designs.
“We understand the different systems, and have the capability to bring those systems together,” Kotagiri said.
Those trends could have negative impacts as well. The advent of electrified drivetrains could undermine Magna’s existing all-wheel-drive and four-wheel-drive technologies, for example. But the company is already preparing for a shift to the electronic setups that could replace those configurations.
Helpfully, Magna is also a leader in technologies that won’t be disrupted by the changeover to EVs, such as chassis, electrical components, and seats. And according to Kotagiri, even the major shift from internal combustion to electrification isn’t something that’s going to knock Magna off its feet.
“A lot of these [systems] are coming from existing product lines,” he said. “It’s a very natural, smooth transition for us. That’s why we are so positive.”