Legacy Engines And Tariffs Will Limit Future EV Upside

Key Takeaways

• Reliance on traditional powertrain technologies and rising regulatory costs threaten profitability, cash flow, and capacity for innovation as electrification accelerates.
  
• Global supply chain shifts, protectionism, and increased competition in Asia risk shrinking market share and eroding pricing power.
  
• Rapid expansion in electric mobility and renewable sectors, strong operational efficiency, and solid financial resilience position Schaeffler for sustainable growth and margin improvement.

Catalysts

Develops, manufactures, and sells components and systems for industrial applications in Europe, the Americas, China, and the Asia Pacific.

• As electric vehicle adoption accelerates across the globe, core segments of Schaeffler's business remain heavily weighted to internal combustion engine and hybrid components, creating a long-term structural dependency on declining powertrain technologies and threatening multi-year revenue contraction as automotive OEMs fully pivot to battery electric vehicles.
  
• Intensifying localization of automotive supply chains and heightened trade barriers, including persistent tariffs, are expected to shrink Schaeffler's overseas customer base and increase its production costs, putting sustained downward pressure on operating margins and limiting earnings growth potential.
  
• High capital expenditure requirements associated with decarbonization mandates and increasingly strict ESG regulations will force Schaeffler into costly process upgrades and sustainability initiatives, constraining free cash flow and further reducing the company's ability to reinvest in transformative innovation or return capital to shareholders.
  
• The rapid pace of technological change in electrification and digitalization demands deep, ongoing R&D investment; Schaeffler could struggle to maintain competitiveness as larger, more specialized or regionally entrenched suppliers scale faster, risking obsolescence in key product categories and margin dilution from unprofitable product lines.
  
• A geographic shift in automotive manufacturing to Asia, particularly China, exposes Schaeffler to intensified price-based competition and reduced global relevance for European suppliers; this dynamic threatens to erode both market share and pricing power, ultimately weighing on long-term revenue and net profit growth.

Schaeffler Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Schaeffler compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Schaeffler's revenue will grow by 5.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -3.9% today to 3.7% in 3 years time.
• The bearish analysts expect earnings to reach €940.1 million (and earnings per share of €0.99) by about August 2028, up from €-852.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 6.3x on those 2028 earnings, up from -5.4x today. This future PE is lower than the current PE for the GB Auto Components industry at 13.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.84%, as per the Simply Wall St company report.

Schaeffler Future Earnings Per Share Growth

Risks

• The rapid growth in Schaeffler's E-Mobility division, with nearly 10% sales increase year over year, strong order intake, and robust performance in Europe and the Americas, signals that the company is capitalizing on the long-term shift to electric vehicles, which could drive sustained revenue and margin expansion.
  
• Schaeffler's successful outperformance of the BEV (Battery Electric Vehicle) market, with company sales growth of 50.6% compared to the market's 37.7%, indicates the company is increasing its share in a rapidly expanding sector, supporting long-term top-line growth.
  
• Disciplined and effective capital allocation, as well as ongoing progress in reducing capital employed and complexity post-Vitesco acquisition, suggest that operational efficiency will continue to improve, providing a favorable impact on net margins and future earnings.
  
• The company's strong and growing presence in fast-expanding sectors such as wind energy (10% growth in China, driven by renewables) and aerospace bearings (21% growth), combined with investments in automation and digitalization, aligns Schaeffler with powerful secular sustainability and technology trends that bolster revenue stability and long-term earnings.
  
• Solid liquidity, manageable leverage, robust free cash flow generation (€350 million better than last year, with ample capacity for capex discipline), and successful tariff cost recovery mechanisms indicate that Schaeffler is well insulated against near-term macro headwinds such as tariffs and FX, supporting its ability to reinvest in growth and protect profitability.

Valuation

• The assumed bearish price target for Schaeffler is €4.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Schaeffler's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €7.5, and the most bearish reporting a price target of just €4.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €25.7 billion, earnings will come to €940.1 million, and it would be trading on a PE ratio of 6.3x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of €4.85, the bearish analyst price target of €4.0 is 21.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.