Garrett Motion — Key Risks

The Shift to Electric Vehicles Threatens the Core Business

This company's main product — turbochargers — is only used in combustion and hybrid engines, not in battery electric vehicles (BEVs). As automakers race toward electrification, the long-term demand for turbochargers could shrink meaningfully. The company is investing in new electric vehicle components to adapt, but those technologies are still in early development with no guaranteed commercial success, and that R&D spending depends on profits from the very turbocharger business that is under pressure.

Heavy Reliance on a Small Group of Customers

The top ten customers made up roughly 62% of net sales in fiscal year 2025, with the single largest customer accounting for about 12%. Automaker customers can typically cancel supply contracts without penalty and are not required to purchase minimum volumes, which gives them significant leverage to demand lower prices or walk away entirely.

$1.44 Billion in Debt Creates Serious Financial Constraints

As of December 31, 2025, the company carried $1,439 million in gross outstanding debt. This level of debt limits its ability to invest in new technologies, respond to downturns, or make strategic moves. The debt agreements also include restrictive covenants (rules the company must follow) that further limit operational and financial flexibility — a covenant violation could trigger demands for immediate repayment.

China and Mexico Exposure Makes Tariffs a Material Risk

The company has significant manufacturing operations in both China and Mexico, two countries directly in the crosshairs of recent U.S. tariff actions. Since early 2025, broad U.S. tariff measures have been announced alongside retaliatory responses from trade partners. There is no guarantee the company can pass these cost increases on to customers, and the U.S.-Mexico-Canada Agreement is up for renewal in 2026, adding further uncertainty.

Structural Pricing Pressure from Automaker Customers

Supply contracts with automakers typically include automatic price step-downs over time — meaning the company earns less per part each year even if its own costs stay flat. Combined with customers' ability to terminate contracts at will, this creates a structural drag on margins that is difficult to escape in a highly competitive, limited-customer industry.

Turnaround Bets on China and India May Not Pay Off

The company has made substantial investments in manufacturing and R&D in China and India, banking on long-term growth there. If demand develops more slowly than expected, or if state-sponsored local competitors emerge with government backing, those investments could generate poor returns that are difficult to redirect elsewhere.