Magna In JV With LG For Electric Vehicle Gear; Street Sees Downside Risk

Magna International Inc. and LG Electronics have partnered up to form a venture to jointly produce electric vehicle (EV) components.

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Specifically, Magna (MGA) said that the joint venture, tentatively called LG Magna e-Powertrain, will manufacture e-motors, inverters, on-board chargers and e-drive systems as automakers are shifting their focus to vehicle electrification. The companies did not disclose financial terms of the venture. According to a Reuters report the joint venture is valued at $1 billion.

The new company will capitalize on Magna’s expertise in electric powertrain systems, including software integration, and LG’s experience in component production for e-motors and inverters.

The move comes as the companies expect the market for e-motors, inverters and electric drive systems to significantly grow between now and 2030.

“This partnership fully aligns with our strategy of being at the forefront of electrification and supporting automakers with a diverse and world-class portfolio,” said Magna’s incoming CEO Swamy Kotagiri. “By combining our strengths, we expect to gain investment efficiency and speed to market with synergies to achieve more, all while continuing to capitalize on the acceleration of the electrified powertrain market.”

The joint venture will include more than 1,000 employees located at LG locations in the US, South Korea and China. The transaction is expected to close in July of 2021, pending LG shareholder approval and regulatory approvals.

LG has already supplied electric vehicle components most notably for GM’s Chevrolet Bolt EV and Jaguar I-PACE, while Magna counts Volkswagen as one of its customers for car components.

Magna shares have had a good run recently, rallying more than 11% over the past month. The stock is now up 29% on a year-to-date basis. (See MGA stock analysis on TipRanks)

Credit Suisse analyst Dan Levy last month lifted the stock’s price target to $74 from $67 and reiterated a Buy rating. The analyst believes that there are three avenues for Magna to gain traction and outperform, namely being a “hidden” play on EV, active safety offering/program wins, and through its use of free cash flow to fund growth.

From the rest of the Street, the stock scores a cautiously optimistic Moderate Buy analyst consensus. Following this year’s share rally, the average price target of $64.82, indicates 8.2% downside potential to current levels.