Allison Transmission (ALSN) has established itself as the dominant supplier of automatic transmissions for medium- and heavy-duty commercial vehicles over its 100-year history.

As vehicle electrification increases, the company is leveraging its expertise in propulsion systems to expand into hybrid and electric technologies. With its strong market position and ongoing innovation, Allison appears well-positioned for continued leadership and growth.

The company currently supplies more than 70% of the automatic transmissions used in North American vocational vehicles such as refuse trucks, concrete mixers, and school buses.

Its fully automatic transmissions provide more efficient operation, better drivability, and lower maintenance costs than manual or automated manual transmissions.

Allison’s transmissions are the standard equipment from leading manufacturers on many Class 6-8 trucks.

Due to its early-mover advantage and the high switching costs associated with replacing transmission models already integrated into vehicle designs, Allison enjoys solid customer relationships and an extensive installed base.

This creates a recurring aftermarket revenue stream through commercial vehicles’ estimated 15 to 20-year lifespan.

Allison is also adept at cross-selling new transmissions and services to fleet customers as their operations expand.

Looking ahead, the adoption of electric and hybrid-electric technologies is expected to increase significantly across commercial vehicle markets to meet tightening emissions regulations.

Allison is well-positioned for this transition with its eGen Flex and eGen Power fully electric and hydraulic hybrid-electric propulsion solutions. These systems can improve fuel efficiency by 10-30% depending on the duty cycle.

The company has also made strategic minority investments in companies developing electrified components to enhance its electrification capabilities.

It has consistently beaten its own guidance, demonstrating an ability to navigate short-term volatility through its diverse customer base and technology leadership.

While Allison’s innovative prowess and market leadership are compelling, its financial performance further solidifies its position as a high-quality business.

The company’s strong financial health is underscored by its impressive 29% Uniform return on assets ”ROA” and 12% asset growth last year. These metrics show its efficiency in utilizing its assets to generate substantial profits and its ability to expand its operational base.

Despite these strong financial indicators, Allison’s stock trades at a relatively modest 11x Uniform P/E ratio, far below the corporate average.

This pessimistic valuation shows the market’s concerns about the automotive industry’s cyclicality.

Allison’s dominant market position, proven products, strong customer relationships, and ongoing innovation in electrified solutions provide a compelling long-term growth outlook—even as near-term headwinds may impact broader vehicle markets in the short run.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

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