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JPMorgan Names BorgWarner, Dana as Top Auto Supplier Picks Amid EV Shift
Summary
JPMorgan has identified BorgWarner and Dana as its top investment opportunities in the U.S. auto parts sector, favoring suppliers with strong hybrid and combustion engine exposure, diversified revenue, and balance sheet flexibility.
JPMorgan has named BorgWarner (BWA) and Dana (DAN) as its top picks among U.S. auto suppliers, highlighting companies strategically positioned to navigate the evolving automotive landscape. In a note to clients, analyst Rajat Gupta emphasized that suppliers with resilient hybrid and internal combustion engine (ICE) businesses, diversified revenues, and strong balance sheets are best equipped for the current market.
Shifting Market Priorities
JPMorgan's analysis favors suppliers demonstrating insulation from international trade pressures and possessing clear earnings catalysts. The firm's criteria underscore a market that is rewarding companies prepared for a slower-than-anticipated transition to battery electric vehicles (BEVs) and a sustained period of hybrid vehicle growth.
Key attributes for the top-rated suppliers include:
- Powertrain Resilience: Strong positioning in hybrid and legacy ICE technologies.
- Revenue Diversification: Significant exposure to non-automotive or aftermarket segments.
- Balance Sheet Flexibility: The financial strength to pursue strategic transactions and return capital to shareholders.
- Valuation Disconnect: A gap between the company's fundamental performance and its current stock valuation.
Top Selections: BWA and DAN
AdJPMorgan rated both BorgWarner and Dana as Overweight, citing distinct strategic advantages for each company.
BorgWarner (BWA)
JPMorgan designated BWA as its top pick with an $85 price target. The firm praised BWA's mix of hybrid and ICE resilience and its non-automotive growth opportunities, noting it benefits from slower BEV adoption. A key growth driver is its industrial and data center exposure, with turbine-generator production set to begin in early 2027. This new venture is expected to generate over $300 million in its first year and has the potential to exceed $2 billion in annualized revenue over time.
Dana Incorporated (DAN)
JPMorgan highlighted DAN for its relative insulation from pressures in China and the European Union and its improved non-automotive business following its Eaton Mobility transaction. The firm set a $40 price target, arguing that Dana's portfolio is now better diversified across light vehicle, commercial vehicle, and aftermarket segments. JPMorgan believes Dana represents the "widest disconnect between fundamentals and valuation" in its coverage, with a clear path to earnings growth through synergies and new program ramps.
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