The Straw Mattress Guy and the Autoparts Supplier (NYSE:MGA)

On QAV this week, I did a deep dive on an interesting company I'd never heard of before, Magna International (NYSE:MGA).

They're a Canadian automotive supplier or "mobility technology company", that I'm guessing nobody outside of the car industry has ever heard of, despite the fact that they've probably made half the car you have parked in your garage.

They seem to be a genuinely great business that's been around for 70 years, got caught holding the wrong assets at the wrong time, and the market has been punishing it for the last four or five years.

But things seem to be turning around and it seems to be coming back.

Great founding story, a guy called Frank Stronach was born in a tiny village in Austria in 1932.

His original name was Strohsack, which Google Translate says means "straw sack" in German, which was what their beds literally were back in ye olden days, mattresses stuffed with straw.

So somewhere in his family tree, some ancestor was the local bedmaker.

Anyway, he left school at 14 to become a tool and die maker, precision metalworking.

And at the age of 22, 1954, he packed up and moved to Canada, arrived in Montreal, got on a bus to Kitchener, Ontario, and took a job as a dishwasher.

Two years later in 1956, he rented a garage in Toronto and started a company called Multimatic Investments.

He slept on a cot (I hope it was a straw mattress) in the corner of the shop.

It's like your classic Silicon Valley startup story, except it happened in Ontario in greasy overalls with a lathe in the corner.

It took him another 13 years to get his first automotive parts contract in 1969.

Then he merged with a company called Magna Electronics, and in 1973, the whole thing became Magna International.

And along the way, he developed a quasi-socialist view of how to run the business, which I admire.

In 1971, he wrote a formal profit sharing structure directly tied into Magna's corporate charter, where 10% of pre-tax profits goes to employees every year before anyone else gets their cut.

Another 7% goes to management and a minimum of 20% of net profits had to be returned to shareholders as dividends.

And this was written in a way that the arrangement couldn't ever be changed without the consent of employees as well as shareholders and management.

So he believed that employees, as well as management, should have skin in the game.

They'd work harder.

There'd be less industrial action, less waste, better output.

And he turned it into a $40 billion company.

There's also an expectation that directors and members of the board have to hold a significant chunk of company shares, which I like.

I always like to see skin in the game from management.

It's not all roses, though.

By the early 2000s, Stronach had a classic Founder King, Rupert Murdoch style setup, Class A shares for the public and a special share class for himself that gave him a huge amount of voting power.

And by 2010, shareholders had pushed back hard enough that the dual class structure was eliminated.

He got a huge payout, billions of dollars in compensation and basically stepped away from operational control of the company.

So he's been gone for the better part of a decade and a half, which is good because not only did he start a thoroughbred horse breeding company with his daughter, who he then sued for mismanagement, he's currently on trial in Toronto on charges of sexual assault involving seven women - at the age of 93.

Allegations going back to the 80s and 90s, he plead not guilty.

Verdict is expected in the next couple of months with a second trial delayed to 2027.

But I want to be clear, none of this touches the business.

He's been gone for 15 years, as I said.

It's just a sad postscript to the story of the straw mattress guy who built an empire.

So what does Magna actually do?

You can think of them as the company that makes almost everything on or in a car and occasionally makes the whole car.

Four divisions, body exteriors and structures is the biggest, doing about 16 to 17 billion dollars a year.

They make door panels, bumpers, hoods, the structural pillar next to your windscreen.

If you've ever reversed into a shopping trolley, you probably dented something that Magna made.

Margins around 6.7% in Q1 2026.

Power and Vision is the second division, about 15 to 16 billion dollars a year.

They make cameras, driver monitoring systems, mirrors, transmission systems and the eDrive units that power electric vehicles.

Margins here jump from 3.4% to 6.5% in the last year, which is a big turnaround story we'll get to.

Seating systems is about 5.5 billion a year.

They just make seats.

Just-in-time delivery to car assembly lines that was losing money a year ago.

Now it's back to positive.

Complete vehicles is the weirdest one, about four and a half billion dollars a year.

So an automaker comes to Magna and says, we want to make this car, but the volumes aren't big enough for us to bother manufacturing it ourselves, just build it for us.

And Magna does, soup to nuts, the entire vehicle.

It's like Coca-Cola outsourcing the actual manufacturing of Coke to a third party and just managing the brand and marketing.

This is what some car companies do with Magna.

Total revenue guidance for 2026 is 41.5 to 43.1 billion.

So why is it cheap?

They've had a painful few years.

In 2021, 2022, everyone in the auto industry convinced themselves were EVs were the future and they went all in.

Ford went all in, GM went all in, and Magna, as a supplier to all of them, went and spent a massive amount of money building out EV manufacturing capability.

Battery enclosures, electronics, eDrive systems, the works.

Then the EV wave has taken a few hits.

Consumers kept buying big petrol trucks.

I did a show on Ford about a year ago where I remember they took a multi-billion dollar write down on their EV division. (I remember people telling me what a dog Ford was at the time. Their stock is up 47% since then.)

GM pulled back and Magna was left holding a pile of EV assets that weren't going to generate the returns they were supposed to deliver.

So in 2025, they took a 591 million dollar write down.

Then in Q1 2026, another 485 million dollar write down on the lighting and rooftop business they're now selling off... over a billion dollars written off in 18 months.

Then, of course, Trump came in last year and slapped 25% tariffs on imports from Canada and Mexico, which is where Magna makes most of its stuff.

The share price had been around 98, 99 dollars back in 2021.

It hit 33 dollars in April 2025, which aligns kind of perfectly with peak tariff panic and peak EV write down despair.

But now, as we all know, the tariffs were deemed illegal or unconstitutional or something by SCOTUS.

So things are turning around for these guys.

The CEO is an engineer called Swami Kotagiri, who's been at the company for decades and took the chair in 2021 right at the peak of the EV frenzy.

He's the one now selling off the non-core assets, tightening margins and cleaning up the mess.

I won't bore you with all the numbers (I went through them on the podcast), but the key thing that placed it on my buy list this week is the price to operating cash flow of 4.22.

That's a very low multiple for a business of this scale and quality.

We're talking about a company doing 40 billion dollars of revenue with deep relationships across every major automaker in North America, Europe and China. And although I expect we're going to see lots of changes in how people think about buying and owning cars in the next decade, I don't think it's going to happen in the next few years. And my job isn't to predict the future. It's to find value opportunities in quality businesses.

Either way, Magna's probably going to have a big chunk of whatever gets built for a long time to come.

DYOR. Not financial advice. I'm just an guy who makes podcasts for a living.