BorgWarner Inc. (BWA), Gentex Corporation (GNTX), Tenneco Inc (TEN): Automotive Suppliers – Performance Review, Part Two

This is the second part of my review of the recovering automotive suppliers industry. The companies within this industry are facing an era of changing demand. Products need to be replaced and redesigned due to stricter safety and environmental regulations.

Let’s review another three automotive suppliers are see how they are performing.

Strong performance despite Europe’s weak demand

BorgWarner Inc. (NYSE:BWA) is a global supplier of motor vehicle parts and systems, primarily for power-train applications.

The company reported net earnings of $1.22 per diluted share for the first-quarter, six cents down from last year. Net sales reached $1.85 billion, a 3% decrease compared with the first quarter of 2012. Despite the results, management has not changed its projections of annual sales growth between 2% and 6%.

BorgWarner Inc. (NYSE:BWA) is putting its focus on fuel economy and improved emissions products like DualTronic, a dual-clutch transmission system that gives a 15% increase in fuel efficiency. The company expects its demand to triple, reaching 8 million units by 2016. In addition, operational efficiency and cost controls enabled BorgWarner to raise its operating margin to 11.7%, despite the challenging sales environment. I strongly support these initiatives.

However, BorgWarner Inc. (NYSE:BWA)’s dependence on light-vehicle production in Europe, a market that comprises nearly half of its sales, more than offsets growth in other categories. Plus, strong competition in path-breaking categories and continuous pricing pressure limits profits.

A market-share king of a growing kingdom

Gentex Corporation (NASDAQ:GNTX) creates and produces electrochromic auto-dimming rear-view and side mirrors, and camera-based lighting-assist features for the global automotive industry.

The company’s net sales for the first quarter decreased 7% compared to prior-year’s quarter, driven primarily by annual customer price reductions. Gentex experienced an increased penetration of its auto-dimming mirrors which was offset by lower light vehicle production in Europe and Japan/Korea.

Gentex Corporation (NASDAQ:GNTX) has strong growth prospects for its mirrors, as 23% of current worldwide vehicle production includes interior auto-dimming mirrors. This percentage is expected to grow to 45% in 10 to 12 years, as some features will become standard. There are also prospects to bring Gentex’s technology to office and airplane windows over the long term. The company signed contracts to supply auto-dimming passenger windows for Boeing.

R&D investment is key for the company as it allows it to maintain competitive advantage. Having more than 700 patents worldwide, some valid through 2031, Gentex Corporation (NASDAQ:GNTX) has a dominant market share of 88%. This narrow economic moat should be able to protect the company for a long time. In addition, Gentex has a debt-free balance sheet and enough cash flow to allow the company to keep investing and growing.