Magna International Inc. (TSX: MG)(NYSE: MGA) unveiled some big news earlier this week. The company announced that it would be entering the Chinese market through two key joint-venture agreements as it plans to sell and manufacture electric vehicles in a country where pollution is a big problem.
The joint ventures will see Magna partner with Beijing Electric Vehicle Co. Ltd. to work together to engineer and manufacturer the vehicles. The first production is expected to happen in 2020, and annual capacity at the plant in China could allow the companies to produce up to 180,000 vehicles every year.
Big opportunity in a different part of the world
The move is a big one for Magna, as the company is stepping well outside its comfort zone. As noted by CEO Don Walker, “These joint venture operations mark an historic milestone for Magna. For the first time we will be providing our customers with cars engineered and built outside our complete vehicle manufacturing facility in Graz, Austria.”
One of the big challenges that comes with manufacturing outside your home plant is just how much control you will have over the process and whether the quality will remain the same. Magna will certainly face some new challenges in China, but it will also have some amazing growth opportunities.
In the release, the company notes that it’s expected that by 2020 there will be as many as five million all-electric vehicles in China. There potential for Magna in this market is massive, and it’s just the latest move from a company that has been showing that it is serious about being a big player when it comes to creating next-generation vehicles.
The move is part of a growing trend by the company
Earlier this year, Magna announced that it would be investing $200 million into Lyft, as it looks to develop a complete self-driving system that could be then sold to manufacturers. The company has already done a lot of the work with the development of its MAX4 system, which uses cameras and sensors to create an autonomous driving experience.
However, the missing piece is the integration with the manufacturer’s platform, and by working with Lyft, it believes it will be able to provide a more complete solution to its customers.
Takeaway for investors
Although Magna is taking on some risk, it is being aggressive in markets where the upside could be significant. Driverless vehicles are the next big thing, as it seems everyone wants to be the first to launch a completely autonomous vehicle.
Magna is nowhere near as popular as Tesla Inc. (NASDAQ: TSLA) in this space, but that’s what makes the stock a great buy. Magna trades at a multiple of just 10 times earnings and around twice its book value. With the amount of potential growth that could be available in light of the recent deals that Magna has made, the stock could be a steal at this price.
Year to date, the stock has risen more than 15%, and it is on a good trajectory, but there’s definitely a lot more potential from this stock going forward.
