Portfolio Optimization And EV Investments Will Shape Future Markets

Key Takeaways

• Strategic focus on high-growth, high-margin segments and portfolio optimization is expected to improve efficiency, margins, and long-term earnings growth.
  
• Investments in automation, e-mobility, and supply chain localization position Continental to capitalize on industry shifts while maintaining margin discipline and resilience.
  
• Persistent operational inefficiencies, market headwinds, and rising costs threaten profitability and growth, with limited flexibility to adapt to shifting global trade and industry trends.

Catalysts

A technology company, provides solutions for vehicles, machines, traffic, and transportation worldwide.

• The spin-off of Automotive (Aumovio) and continued portfolio optimization—including divestiture of non-core and lower-margin businesses and measures to streamline costs (e.g., headcount reduction, plant closures, SG&A and R&D savings)—are positioning Continental to focus capital on higher-growth, higher-margin segments. This is expected to drive operating margin improvement, stronger capital efficiency, and long-term earnings growth.
  
• Continental’s strong order intake in areas like radar systems, ADAS, and autonomous mobility, alongside its leadership in safety and automation technology, is supporting expanded content-per-vehicle. This positions the company to benefit from rising OEM demand for connected, digital, and autonomous features, thus enhancing revenue growth and gross margins.
  
• The accelerating shift toward EVs and increased demand for e-mobility solutions—where Continental is investing and growing—are helping diversify beyond traditional powertrains. This underpins sales opportunities in battery management, software, and advanced electronics, supporting future topline expansion as electrification ramps up globally.
  
• Resilience in the tire replacement and premium segments (especially in truck and PLT) and effective price/mix management are offsetting raw material cost headwinds and OEM weakness. The continued focus on value creation (rather than market share at any cost) is expected to keep price discipline intact, supporting stable or improving segment margins.
  
• Continental’s global manufacturing footprint and efforts to localize supply—including increased USMCA-compliant production and investments in North American and Mexican capacity—help mitigate tariff and supply chain risks. This provides better order visibility, reduces operational disruptions, and supports both revenue stability and margin resilience.

Continental Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Continental's revenue will grow by 2.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 4.8% in 3 years time.
• Analysts expect earnings to reach €2.0 billion (and earnings per share of €10.45) by about May 2028, up from €1.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €2.4 billion in earnings, and the most bearish expecting €1.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, down from 12.9x today. This future PE is lower than the current PE for the GB Auto Components industry at 12.9x.
• Analysts expect the number of shares outstanding to grow by 1.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.0%, as per the Simply Wall St company report.

Continental Future Earnings Per Share Growth

Risks

• Heightened trade barriers and tariffs, particularly between the US, China, and Europe, create significant volatility and uncertainty for Continental’s automotive and tire exports; the company’s limited ability to quickly shift production or supply chains could increase costs, squeeze margins, and reduce revenue, especially if tariffs persist or escalate.
  
• Ongoing operational underperformance and continued weak demand in ContiTech, including a 6% organic sales decline and weak industrial and non-automotive markets, indicate risk of long-term stagnation or earnings drag, offsetting growth elsewhere and dampening overall profit growth.
  
• Persistent restructuring and spinoff costs (in the low to mid-three-digit million euro range), alongside frequent headcount reductions and plant closures, reflect ongoing operational inefficiencies; these could result in unpredictable net margins and leave the company exposed if cost savings are not realized as planned.
  
• Slowing global light vehicle production and weakening truck replacement demand, particularly in North America and Europe, threaten volume growth in both the automotive and tire divisions; this long-term trend toward market contraction may suppress revenue and limit economies of scale.
  
• The increasing complexity of digital transformation, high R&D costs, and dependence on successful pricing power in competitive markets raise the risk that Continental could face eroded profitability if higher compliance, IT investment, or price-based competition (especially if unable to consistently pass on costs to OEMs) outpaces its ability to grow earnings.

Valuation

• The analysts have a consensus price target of €78.889 for Continental based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €100.0, and the most bearish reporting a price target of just €60.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €42.3 billion, earnings will come to €2.0 billion, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €74.78, the analyst price target of €78.89 is 5.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.