Executive Summary / Key Takeaways

• Garrett Motion is strategically expanding its high-speed technology portfolio beyond traditional turbochargers into advanced internal combustion engine (ICE) applications (hybrids, industrial gensets) and rapidly developing zero-emission solutions (E-Powertrain, E-Cooling, Fuel Cell Compressors).
• The company delivered strong financial performance in the third quarter of 2025, with net sales increasing 9% (6% at constant currency) and an Adjusted EBIT margin of 14.7%, driven by operational execution and robust gasoline growth, despite an unfavorable product mix.
• Significant technological milestones include securing the first series production award for E-Powertrain (targeting 2027) and generating strong customer interest in E-Cooling for both mobility and industrial applications, leveraging its unique air foil bearing technology.
• Garrett maintains a disciplined capital allocation strategy, highlighted by a $50 million voluntary debt repayment, a 33% increase in the quarterly dividend for Q4 2025, and substantial share repurchases, aiming to return 75% or more of adjusted free cash flow to shareholders.
• The company's updated 2025 outlook reflects an improved forecast for the automotive industry in the second half of the year and successful tariff recoveries, projecting $3.55 billion in net sales and $510 million in Adjusted EBIT at the midpoint.

A High-Speed Future: Garrett Motion's Strategic Evolution

Garrett Motion Inc., established in 2018, is transforming its core identity from a specialized turbocharger supplier to a diversified leader in high-speed technology solutions. The company designs, manufactures, and sells highly engineered turbocharging, air and fluid compression, and high-speed electric motor technologies to original equipment manufacturers (OEMs) and distributors across the mobility and industrial sectors. This strategic evolution is critical in an automotive industry undergoing a profound shift towards electrification and increased efficiency, alongside growing demand for industrial power solutions. Garrett's overarching strategy is to leverage its deep expertise in high-speed rotating machinery and advanced materials to capture growth opportunities in both advanced internal combustion engine (ICE) applications and emerging zero-emission technologies.

The industry landscape is characterized by a dual transition: the ongoing refinement of ICE technology for improved fuel economy and reduced emissions, and the accelerating development of electric and hydrogen-powered vehicles. Garrett's foundational strength lies in its differentiated technology, which is crucial for both pathways. The company's competitive positioning is rooted in its specialized innovation, allowing it to carve out niches against larger, more diversified players. For instance, while competitors like BorgWarner Inc. (BWA) and Honeywell International Inc. (HON) offer broader portfolios, Garrett's focused expertise in boosting technologies provides a distinct edge in specific, high-performance applications.

Technological Edge: Powering Efficiency and New Frontiers

Garrett Motion's core differentiated technology revolves around highly engineered turbocharging, advanced air and fluid compression, and high-speed electric motors. These technologies are foundational to its offerings across various segments. In traditional ICE applications, Garrett's turbochargers provide tangible benefits such as enhanced fuel economy and significant reductions in emissions, which are critical for OEMs striving to meet stringent global environmental standards. This technological advantage contributes to stronger customer loyalty and recurring revenue streams, particularly in the aftermarket.

The company is making substantial investments in research and development (R&D), with over 50% of its projected 2025 R&D spending dedicated to zero-emission technologies. This strategic focus is designed to build a competitive moat and secure long-term growth. Garrett's R&D spending is expected to slightly increase to 4.6% of sales in 2025, up 10 basis points from 2024.

Key zero-emission initiatives include:

• E-Powertrain: Garrett secured its first series production award from Hande, a leading axle supplier within the Weichai Galaxy, to integrate Garrett's high-speed E-motor and inverter technology into heavy-duty commercial vehicle axle and transmission platforms. Production is targeted for 2027. This 3-in-1 high-speed technology solution is gaining traction, with additional proof-of-concept initiatives secured with two OEMs in Japan and China, demonstrating its substantial potential in a rapidly evolving market.
• E-Cooling Compressor: The company is advancing its oil-free centrifugal high-speed compressor technology for both industrial and mobility applications. This technology leverages high-speed electric motors and unique air foil bearings, initially developed for the automotive industry. It offers superior efficiency, extremely low noise levels, and reduced weight compared to existing industrial technologies. This differentiation is particularly appealing for applications like battery and cabin cooling in commercial electric vehicles, as well as for industrial uses such as rooftop air conditioning systems and cooling solutions for data centers.
• Fuel Cell Compressors: Garrett boasts an extensive portfolio of fuel cell compressors, described as the broadest in the industry with best-in-class efficiency. The company secured one of its largest awards to date for Fuel Cell Compressors from a leading Asian OEM in Q2 2025. While the fuel cell compressor industry's ramp-up has seen some slowdown, its impact on Garrett's overall $1 billion zero-emission revenue goal by 2030 is considered marginal.

These technological advancements are not merely incremental improvements; they represent strategic pivots that position Garrett for future growth. The ability to apply its high-speed expertise to new verticals, such as industrial cooling and data center power generation, significantly expands its addressable market beyond traditional automotive applications.

Operational Momentum and Financial Strength

Garrett Motion delivered strong financial results in the third quarter of 2025, reflecting effective operational execution in a dynamic industry environment. Net sales for the quarter totaled $902 million, marking a 9% increase on a reported basis and 6% at constant currency compared to the prior year. This growth was notably driven by a 10% increase in gasoline sales, reflecting significant share of demand gains and new program launches across Europe, China, India, and North America.

Profitability also saw a healthy improvement, with Adjusted EBIT reaching $133 million in Q3 2025, resulting in an Adjusted EBIT margin of 14.7%. This represents a 50 basis point improvement year-over-year. The increase in Adjusted EBIT was primarily attributed to higher sales volumes and the sustained benefits of fixed cost actions and variable cost productivity implemented in the current and prior years. However, the company noted an unfavorable product mix, largely due to the strong growth in gasoline sales, which typically carry a slightly lower margin rate, and continued weakness in the aftermarket, particularly for off-highway replacement parts in North America where customers are undergoing destocking.

For the nine months ended September 30, 2025, net sales increased to $2,693 million, up 2.4% from the prior year. Net income for this period rose to $226 million, a significant increase from $182 million in the prior year, primarily benefiting from $47 million of lower interest expense and $23 million of increased gross profit. Adjusted EBIT for the nine months stood at $388 million, up from $361 million in the comparable prior period.

Garrett's strong cash flow generation underscores its financial health. Adjusted free cash flow for Q3 2025 was $107 million, contributing to a year-to-date total of $264 million. The company ended Q3 2025 with a robust liquidity position of $862 million, comprising $630 million in undrawn capacity from its revolving credit facility and $232 million in unrestricted cash.

Demonstrating its commitment to shareholder returns and debt reduction, Garrett made a voluntary early debt repayment of $50 million on its 2025 Dollar Term Facility on October 23, 2025. This follows the refinancing of its term loan in Q1 2025, extending its maturity to 2032 and upsizing its revolving credit facility to $630 million with a 2030 maturity.

The Board of Directors also approved a 33% increase in the quarterly dividend, raising it to $0.08 per share for Q4 2025, payable in December. Furthermore, the company repurchased $84 million of common stock in Q3 2025, including 5 million shares from Oaktree Capital Management, L.P. for approximately $62 million. Year-to-date through Q3 2025, $136 million of common stock has been repurchased, with $114 million remaining under the current program. These actions align with Garrett's stated goal of distributing 75% or more of its adjusted free cash flow to shareholders over time. Since Q1 2023, the company has reduced its total outstanding shares by 39% through repurchase programs.

Competitive Arena: Differentiated Solutions in a Dynamic Market

Garrett Motion operates as a specialized player in the automotive technology market, focusing on innovation in boosting technologies. The company's competitive standing is shaped by its ability to offer differentiated solutions against larger, more diversified rivals.

Compared to BorgWarner Inc. (BWA), Garrett's specialized, high-performance solutions for fuel efficiency and emissions reduction, particularly in electric-boosting for hybrids, may offer greater operational efficiency in certain applications. While BorgWarner benefits from a larger scale and extensive global distribution, Garrett's expertise in automotive software integration with hardware provides an edge in optimizing vehicle systems. BorgWarner has generally demonstrated stronger revenue growth and cash flow generation, reflecting its broader market reach.

Against Honeywell International Inc. (HON), a diversified industrial conglomerate, Garrett's offerings in specialized turbocharger solutions may provide materially better performance in emissions control and efficiency for commercial vehicles, potentially making its products easier to integrate into existing fleets. Garrett's leaner operational model, focused on core automotive technologies, allows for greater agility in responding to market shifts, whereas Honeywell's vast portfolio, while offering technological breadth, might dilute its focus on automotive-specific solutions. Honeywell typically exhibits stronger growth rates and profitability due to its diversified business.

In comparison to Cummins Inc. (CMI), a leader in engine and powertrain technologies, Garrett's electric-boosting technologies offer significantly greater efficiency in lighter vehicle applications, providing a competitive edge in fuel economy and reduced emissions. Cummins, with its established market dominance in heavy-duty commercial segments, benefits from superior cash flow generation and a robust aftermarket presence. Garrett's strategy emphasizes innovative, software-driven solutions, making it more adaptable to evolving regulations, while Cummins maintains a more traditional engine focus.

Indirect competitors include electric vehicle manufacturers like Tesla (TSLA) and fuel cell technology developers such as Ballard Power Systems (BLDP), which offer alternative propulsion systems that could reduce demand for traditional turbochargers. These alternatives, often more accessible for urban applications or easier to implement in new vehicle designs, pose a long-term threat to Garrett's core ICE business.

Garrett's competitive advantages, or moats, include its proprietary technology in turbocharger and electric-boosting systems, strong engineering expertise, and established relationships with OEMs. Its turbocharger designs, which integrate advanced software for performance optimization, translate into improved vehicle efficiency and reduced emissions, fostering customer loyalty. This technological edge allows Garrett to offer faster innovation cycles, potentially exploiting competitors' slower pivots to electrification and enhancing pricing power in niche areas. However, Garrett's relatively smaller scale presents a vulnerability, potentially leading to higher operating costs and lower profitability margins compared to its larger rivals. High R&D requirements, stringent regulatory compliance, and established supplier networks act as significant barriers to entry, helping Garrett defend its market position.

Outlook and Risks: Charting the Course Ahead

Garrett Motion's revised 2025 outlook reflects an improved forecast for the automotive industry in the second half of the year and the successful recovery of tariffs. The company now projects net sales of $3.55 billion (midpoint), representing flat to 1% growth at constant currency. Net income is anticipated to be $280 million, with Adjusted EBIT reaching $510 million. Cash flow generation is expected to remain strong, with net cash provided by operating activities at $415 million and adjusted free cash flow at $385 million.

This outlook is predicated on an anticipated improvement in the commercial vehicle market, both on-highway and off-highway, which is expected to partially offset continued softness in the light vehicle industry. The company also expects to benefit from sustainable fixed cost actions implemented in 2024 and its ability to execute productivity gains and pass through pricing. R&D spending will continue to prioritize zero-emission technologies, with over 50% of the 4.6% of sales allocated to this area.

Despite this positive outlook, several risks warrant investor attention. The automotive industry remains volatile, and geopolitical conditions, including potential changes in tariffs, could impact demand. While Garrett has successfully passed through tariffs to date, with an estimated $60 million in pass-through if current conditions persist, the broader economic impact of future tariffs remains an uncertainty. The unfavorable product mix, driven by the growth of lower-margin gasoline applications and weakness in the aftermarket, could persist and pressure overall profitability. The long-term transition away from diesel, though managed by Garrett's "last man standing" strategy, also presents a secular headwind.

Conclusion

Garrett Motion is strategically positioning itself as a high-speed technology leader, adeptly balancing its strong foundation in advanced turbocharging with aggressive expansion into zero-emission solutions and industrial applications. The company's recent financial performance, marked by robust sales growth, improved profitability, and strong cash flow generation in Q3 2025, underscores its operational discipline and the efficacy of its strategic initiatives. Garrett's technological differentiators, particularly in E-Powertrain and E-Cooling, are creating new growth avenues and competitive advantages, as evidenced by significant program wins and positive customer feedback.

With a clear commitment to returning capital to shareholders through increased dividends and share repurchases, coupled with a proactive approach to debt management, Garrett Motion presents a compelling investment thesis. While the company operates in a dynamic and competitive landscape, its focused innovation, disciplined execution, and strategic diversification into high-growth areas like data center power generation position it for sustained value creation. Investors should recognize Garrett's ability to adapt to industry shifts and capitalize on emerging technological opportunities, making it a noteworthy player in the evolving mobility and industrial sectors.