TE Connectivity (NYSE: TEL) is a global industrial technology leader providing connectivity and sensor solutions critical to the electric vehicle (EV) revolution. While not a pure-play EV stock, TEL’s exposure to the EV market is substantial and growing, with its transportation solutions segment benefiting from the secular shift toward electrification. The company’s connectors, sensors, and high-voltage components are essential for EV powertrains, battery management, and charging infrastructure.
Our thesis is that TEL offers a compelling risk-adjusted upside over the next 6-12 months, driven by a recovery in global auto production, accelerating EV adoption, and the company’s strong position in high-growth adjacent markets like industrial automation and data centers. With a diversified revenue base, robust balance sheet, and a history of returning capital to shareholders, TEL provides a more stable way to play the EV theme compared to many pure-play EV names that are still loss-making.
Why TE Connectivity?
TEL is not just an EV play; it’s a play on the broader electrification and connectivity megatrend. The company generates over 40% of its revenue from the transportation sector, with a significant and growing portion tied to EVs. As automakers ramp up EV production, TEL’s content per vehicle increases substantially, providing a natural revenue tailwind. Moreover, TEL’s exposure to industrial automation, medical, and data communications diversifies its risk and provides multiple growth engines.
Financially, TEL is a cash-generative machine. In fiscal 2025, the company generated over $2.5 billion in free cash flow and returned over $1.5 billion to shareholders through dividends and buybacks. Its balance sheet is investment-grade with manageable leverage, providing ample flexibility for M&A and organic investments.
12-Month Catalysts
- Auto Production Recovery: Global auto production is expected to rebound in 2026, with light vehicle production projected to grow 2-4% year-over-year. This will directly benefit TEL’s transportation segment.
- EV Content Growth: TEL’s content per EV is 2-3x higher than in traditional internal combustion engine vehicles. As EV penetration rises, particularly in Europe and China, TEL’s revenue per vehicle will increase.
- Margin Expansion: The company has been executing on operational excellence initiatives, targeting 50-100 basis points of annual margin improvement. With volume recovery, operating leverage should drive further margin expansion.
- Capital Deployment: TEL has a strong track record of M&A and share buybacks. Any accretive acquisition or accelerated buyback could be a catalyst for the stock.
Key Risks
- Auto Market Cyclicality: A prolonged downturn in global auto production or a slower-than-expected EV transition could negatively impact TEL’s transportation segment.
- Commodity and Supply Chain Risks: TEL is exposed to copper and other commodity prices, as well as supply chain disruptions, which could pressure margins.
Valuation
TEL trades at approximately 15x forward earnings, a discount to its historical average and to the broader market. Given its expected earnings growth of 8-10% over the next few years, the PEG ratio is below 1.5, suggesting the stock is reasonably valued with room for multiple expansion if execution continues.
Balance Sheet Strength
TEL has a strong balance sheet with net debt to EBITDA of around 1.0x, investment-grade credit ratings, and robust free cash flow generation. This provides a solid foundation for continued capital returns and strategic investments.
Conclusion
TE Connectivity offers a balanced way to gain exposure to the EV theme without the volatility of pure-play EV stocks. With a clear set of catalysts, improving fundamentals, and a reasonable valuation, we believe TEL is a strong addition to our Electric Vehicle Portfolio.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always conduct your own research and consider your risk tolerance before investing.