Accelleron: ABB’s Crown Jewel?

Apr 4, 2025 7 min read

Thierry

“You can make a lot of money by investing in spin-offs.”

– Joel Greenblatt, Investor and Author

arvy’s teaser: ABB’s spin-off Accelleron dominates the turbocharger market with a 40% share, a razor-blade business model, and booming demand for cleaner fuel solutions. Has ABB said goodbye to something they will regret?

Spin-offs.

This is a type of corporate action in which a company “splits off” a division as a separate company.

Well-known spin-offs include Zoetis, Ferrari and PayPal. All great success stories along the way. On the flip side, it has become clear that over the years, companies such as Pfizer (the inventor of Viagra), Fiat Chrysler Automobiles and eBay have spun off their crown jewels. All three spin-offs were ultimately able to flourish as independent companies and unfold their full potential (chart 1). Given that these are not isolated cases, if a spin-off occurs, we will keep our eyes and ears open. There could be a big winner lurking around the corner.

In 2022, our beloved power and automation technology group ABB did the same in Switzerland.

They spun off their turbocharger division.

Accelleron Industries.

Chart 1: Spin-Off Market Caps and Growth Factors

Source: Grok, prompt by arvy

Undisputed Market Leader

Accelleron Industries? Many may not recognize the name.

This raises two key questions: What exactly does the company do? And why on earth did ABB spin it off?

Holding a dominant 40% market share, Accelleron is the world’s leading manufacturer of turbochargers (chart 2) for large combustion engines. These are essential in industries like shipping, locomotives, power stations, and industrial plants.

If you’re not sure what a turbocharger does – and don’t worry, I didn’t either – here’s a simple analogy:

A ship’s engine needs oxygen to burn fuel efficiently. A turbocharger works like a supercharger, compressing air and pushing it into the engine – just like blowing on a fire to make it burn hotter.

Accelleron’s technology enables ships to travel faster, operate more efficiently, and minimize their environmental footprint – all by up to 10%.

Still, turbochargers for ships, locomotives, and power plants don’t exactly scream “green energy,” right?

That’s precisely why ABB spun it off.

As a company deeply committed to sustainability, ABB saw Accelleron’s business – 50% of which is tied to marine applications – as a strategic misfit. Despite strong margins and market leadership, it no longer aligned with ABB’s long-term vision, leading to the spin-off.

And just like that, Switzerland gained a new industry leader as an independent company.

A leader with some seriously compelling characteristics.

Let’s dive in.

Chart 2: Accelleron’s Turbocharger – Turbochargers for the marine industry.

Source: Accelleron’s Turbocharger – Turbochargers for the marine industry.

Razor Blade Business Model

Industrial businesses are often cyclical, experiencing dramatic ups and downs.

However, some companies have mastered a two-pillar strategy known as the Razor Blade Business Model – a setup where the initial product is sold at a lower price, while ongoing sales of related services drive long-term profitability.

Think of Gillette: they sell the razor at an attractive price, but once you’re in, you keep coming back for the blades. That’s where they earn the big money.

In the industrial sector, this works similarly – but with maintenance contracts.

These contracts can last 25 years or more, providing high levels of visibility, stability, and, most importantly, profitability.

A prime example?

Safran, a business we own. The company sells aircraft turbines at minimal margins to Airbus and Boeing but secures long-term, high-margin maintenance deals.

And Accelleron follows the same playbook.

With 75% of its revenue from maintenance – and growing – Accelleron has built a powerful recurring revenue stream. Turbocharger servicing is required every 5,000 to 7,000 operating hours. While scheduling can be flexible, skipping maintenance simply isn’t an option.

And there’s a strong moat.

Entering this business takes 15 years to build a profitable installed base. Accelleron supports over 180,000 turbochargers globally (chart 3) and boasts an unmatched service network with 100+ service centers. Every year, it adds another 10,000 turbochargers to its base!

This results in high profitability, reduced cyclicality, exceptional 28% returns on invested capital, and low debt levels.

And now, a “dirty” business is about to get greener.

Chart 3: Exposure to different fuel types and technologies in service, products and R&D

Source: Accelleron Industries, Annual reports

Solution is to Make Fuel Cleaner

While combustion engines may eventually disappear from cars and private transport, the situation in shipping and heavy industries is entirely different.

With current technology, an electric-powered ocean vessel wouldn’t even leave the harbor – the battery would simply be too heavy. A viable solution is decades away.

Yet, sea freight remains essential. Around 90% of global goods are transported this way, particularly heavy cargo. Shipping is cheap but dirty, accounting for 3% of global man-made CO₂ emissions.

The answer?

Cleaner fuel.

That’s why decarbonization and efficiency are now the industry’s top priorities – exactly where Accelleron is leading in R&D (again, chart 3). Take this: 180 prototypes of next-generation fuel-efficient engines are currently being tested – every single one powered by an Accelleron turbocharger.

ABB’s spin-off is in a strong position to claim its green credentials. Turbochargers are not the problem; they are part of the solution.

Mmm… This also raises the question for me…

Has ABB also just spun off a crown jewel?

Chart 4: Accelleron Industries since IPO 2022