Garrett Motion Inc. (GTX) | The Buildout — AI Infrastructure
The Verdict
Garrett Motion makes highly engineered turbochargers and, increasingly, high-speed compressors. The core business is turbocharging for cars, trucks and industrial engines; the growth leg applies the same rotating-machinery skill to electric traction and thermal management. Its place in the AI build-out is indirect but physical: large-bore turbos go into the stationary engines that back up or supplement data-center and grid power, and the company is developing large oil-free compressors for data-center and industrial cooling. Management frames this as a power-generation and cooling story that reaches beyond data centers alone.
| Market Cap | — |
| Revenue (TTM) | $3.8B |
| Revenue Growth | +8.5% |
| EBITDA Margin (TTM) | 13.4% |
| Net Debt | $1.3B |
| Earnings Beats | 6 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Guidance was raised twice in 2026: the full-year midpoint moved to $3.8B in net sales, $580M in adjusted EBIT and $430M in adjusted free cash flow.
- Management says it wins about 50% of the awards available to it each year, and the Q2 growth came while the light-vehicle market was falling.
- Industrial turbo sales passed $80M in the first half toward a roughly $200M full-year view, which management called ahead of what it shared two months earlier.
- Net leverage fell to 1.8x from 1.92x, with $788M of total liquidity and, management said, no near-term debt maturities.
- Management reaffirmed a framework of returning about 75% of adjusted free cash flow to shareholders, with a $250M buyback authorization ($115M used year-to-date).
What We’re Watching
- Second-half industrial sales are implied at roughly $120M versus just over $80M in the first half — a steep ramp to hit the ~$200M full-year view.
- The light-vehicle industry outlook was cut and second-half volumes are expected slightly lower, so growth depends on share gains continuing.
- The Trane exclusivity structure has been deferred twice, and data-center cooling production is not slated until end-2027 to early-2028.
- Customer concentration is high and rising: Stellantis 12%, BMW 11% and Ford 11% of FY2025 sales, with the top three at about 34%.
The near-term thesis is strengthening on execution: two guidance raises, a record adjusted EBIT margin, and an industrial ramp that came in ahead of what management shared two months earlier, all while the light-vehicle market softened. The medium-term thesis is still unproven — the AI-attributable revenue is a small, undisclosed slice, the data-center products do not contribute materially until 2028, and the Trane exclusivity and zero-emission composition remain unquantified. The open question is whether the industrial line is durable compounding or a second-half phasing that fades.
Earnings Beat
Garrett reported Q2 2026 net sales of $976M, up 7% year over year and 5% at constant currency, with growth across all verticals despite lower light-vehicle production. Reported gross margin was 6.4%, down from 24.0% in the prior quarter. On the company's adjusted basis, EBIT was a record $152M at a 15.6% margin, up 200 basis points year over year even with an 80 basis point currency headwind, and adjusted free cash flow was $122M, an 80% conversion.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $976M | $985M | $913M | +6.9% |
| Gross margin | 6.4% | 24.0% | 24.8% | -1840bps |
| EBITDA | $22M | $178M | $146M | −84.9% |
| EPS | $0.53 | $0.49 | $0.42 | +25.0% |
| Industrial turbo sales | >$80M year-to-date | n/a | n/a | FY2026 view ~$200M |
I'm very excited about this 200 MEG, but we should not expect that it represents a high share of our revenue next year.— Olivier Rabiller, 2026-07-29
Management tone: Management moved from partial-range conservatism to a full across-the-board raise while keeping its macro caution. On the Q1 call it raised the top end and midpoint but held the low end given "macroeconomic uncertainties and geopolitical events." On the Q2 call it raised the 2026 outlook across every measure, citing strong first-half performance and a positive mix trend, but still described the geopolitical and macro backdrop as "not exactly the clearest." It also used the quarter to talk down the near-term revenue from its new data-center award.
Management Guidance
For 2026, management guides to a $3.8B net sales midpoint (4% growth at constant currency), adjusted EBIT of $580M at a 15.3% margin, and adjusted free cash flow of $430M. The raise was driven by stronger product mix and operating performance, partly offset by unfavorable currency. Assumptions carried from the Q1 filing include light-vehicle production down 1% to 3%, commercial-vehicle production up 1% to 2%, and an average euro/dollar rate of 1.17; the Q2 call trimmed the light-vehicle industry outlook and updated currency for a stronger dollar.
Trajectory
Revenue has stepped up over the past year: $891M in Q4 FY2025, $985M in Q1 FY2026 and $976M in Q2, with the sequential dip in Q2 described as seasonal and currency-related rather than a demand break. The growth is share and mix, not end-market volume — management cut its light-vehicle industry outlook for 2026 and still grew the top line. On the company's adjusted basis, EBIT margin rose from 15.3% in Q1 to 15.6% in Q2, up 200 basis points year over year despite an 80 basis point currency headwind, helped by industrial, commercial-vehicle and aftermarket mix and by a productivity program that turned positive after a first-quarter drag.
The Model
The model projects FY+1 revenue of $3,855M and EBITDA of $717M (18.6% margin), then FY+2 revenue of $4,055M and EBITDA of $768M (18.95% margin). The near-term figure is close to the company's own 2026 outlook — a $3.8B sales midpoint and, per the Q1 filing, adjusted EBITDA of $647M–$727M — and depends on the industrial ramp in the second half. The FY+2 step assumes the power-generation line keeps compounding and that the cooling and e-powertrain categories start contributing revenue from 2027.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $3.6B | $3.9B | $4.1B |
| YoY Growth | — | +7.6% | +5.2% |
| EBITDA | $600M | $717M | $768M |
| EBITDA Margin | 16.7% | 18.6% | 18.9% |
Projections are the median of 4 independent model runs. The model’s revenue sits 2.0% above analyst consensus.
For 2026, management guides to a $3.8B net sales midpoint (4% growth at constant currency), adjusted EBIT of $580M at a 15.3% margin, and adjusted free cash flow of $430M. The raise was driven by stronger product mix and operating performance, partly offset by unfavorable currency. Assumptions carried from the Q1 filing include light-vehicle production down 1% to 3%, commercial-vehicle production up 1% to 2%, and an average euro/dollar rate of 1.17; the Q2 call trimmed the light-vehicle industry outlook and updated currency for a stronger dollar.
What Could Go Right — and Wrong
- The industrial and power-generation line holds near the ~$200M full-year level and keeps growing, making the mix shift durable rather than one quarter's phasing.
- Data-center cooling and the MEG 200 turbo convert into revenue ahead of the 2027-2028 schedule, adding a new leg earlier than planned.
- The ~50% award win rate persists, so GTX keeps growing faster than its light-vehicle and commercial-vehicle end markets.
- The 15%+ adjusted EBIT margin holds even if light vehicle recovers, showing it is not purely a mix artifact.
- New categories — centrifugal air compression, BESS cooling and e-powertrain — layer additional revenue onto the core.
- Light-vehicle production falls more than the assumed down-1%-to-3% and share gains cannot fully offset it.
- A mix reversal — light vehicle recovering while industrial slows — compresses the 15%+ margin even with stable volume.
- A China supply disruption or demand shock hits cost and revenue at once, since the same geography is both a supply base and the fastest-growing demand vector.
- BorgWarner and Cummins take share in the industrial and data-center power pools GTX is targeting.
- Currency and component inflation pressure the margin, with FX already an 80 basis point Q2 drag and a stated offset to the raise.
Looking Ahead
Over the next year the story turns on execution. The second half carries the industrial ramp — implied at roughly $120M against just over $80M in the first half — and management expects light-vehicle volumes to be slightly lower, so growth depends on share gains holding. Further out, the company has pointed to the first E-Cooling product shipping in 2027, data-center cooling production at end-2027 to early-2028, an unresolved Trane exclusivity question, and a zero-emission revenue breakout it promised at its May 20 Investor Day.
- H2 2026Industrial ramp — Guidance implies ~$120M H2 industrial sales vs >$80M in H1.
- 2027First E-Cooling ships — First cooling-compressor product; Trane series production from 2027.
- 2027China CV e-powertrain SOP — Second China commercial-vehicle e-powertrain award starts production.
- End-2027 to early-2028Data-center cooling — Data-center-specific E-Cooling compressor production begins.
- By 2030Zero-emission target — Progress against the $1B zero-emission revenue goal by 2030.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $3.5B | $3.6B | $3.8B | +3.1% |
| Gross Margin | 25.6% | 24.5% | 19.5% | 115bps |
| EBITDA | $553M | $600M | $502M | +8.5% |
| EBITDA Margin | 15.9% | 16.7% | 13.4% | +83bps |
| Net Income | $282M | $310M | $357M | +9.9% |
| Free Cash Flow | $317M | $341M | $365M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)19.5%
- EBITDA Margin (TTM)13.4%
- Net Margin (TTM)9.5%
- ROIC54.0%
- FCF Conversion72.7%
- SBC / Revenue0.5%
The Company
Garrett Motion designs, manufactures and sells turbochargers, air and fluid compression, and high-speed electric motor technology for automakers, engine-makers, industrial customers and the aftermarket. Its 10-K describes a two-part strategy: expand turbocharger leadership and apply the same technologies to traction and thermal management. Gasoline turbochargers are now the largest product line — the 10-K notes turbo adoption on gasoline engines rose from about 14% in 2013 to about 51% in 2025 — alongside diesel, hybrid and electric-boosting turbos, commercial-vehicle and industrial turbos, the large-frame Garrett MEG, and early e-powertrain and cooling-compressor products.
Manufacturing sits in low-cost countries: in 2025, more than 89% of products were made in low-cost countries at seven plants in China, India, Mexico, Brazil, Romania and Slovakia, the 10-K says. The company reports no segment financials and operates as a single reporting segment, so product-line and regional splits from the 10-Q are the clearest view of the mix. In Q1 2026, gasoline was 45% of sales and diesel 24%, with commercial-vehicle/industrial at 18% and aftermarket at 12%; Europe was the largest region at 51%, the United States 18% and China 17%.
Business Segments
Competitive Landscape
Garrett competes with independent regional and multi-regional suppliers and with the in-house units of major automakers; its 10-K also points to well-funded start-ups that may have more operational and financial flexibility. Third-party filing quotes name Bosch, Denso, Hitachi, Magna Powertrain, Valeo, Schaeffler and CATL alongside Garrett, and BorgWarner, Cummins and Japanese industrial and marine turbo players also appear. In its new categories — data-center cooling, industrial air compression and e-powertrain — Garrett is the challenger rather than the incumbent.
- BorgWarnerNamed as a competitor; the peer read-through shows it moving into power generation and electrified boosting (a 2 GW turbine-generator plan, eTurbo award, production 2029).
- CumminsListed as both a customer and a competitor; adding 20 GW of genset capacity, developing a 130-liter natural gas genset, and holding a multi-gigawatt hyperscaler backup-power agreement.
- Robert Bosch GmbHNamed in third-party filing quotes as a competitor; not discussed further.
- Denso CorporationNamed in third-party filing quotes as a competitor; not discussed further.
Supply Chain
Garrett buys specialty steels, bearings and castings and sells turbochargers and compressors to automakers, engine-makers and the aftermarket. Its 10-K flags sole-source exposure and a supply chain concentrated in mainland China. No named partner mentions Garrett on its latest call.
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