E-Mobility And Energy Efficiency Will Drive Future Transformation

Key Takeaways

• Expansion in electrified mobility and adoption of high-value, energy-efficient components are driving revenue growth, gross margin improvement, and premium segment positioning.
  
• Enhanced scale, cost efficiency, and growing aftermarket services are set to boost earnings quality, net margins, and recurring revenue streams.
  
• Heavy reliance on legacy segments, margin pressures, and elevated costs from restructuring expose Schaeffler to risks amid electrification shifts and limited flexibility for investment or growth.

Catalysts

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

• Strong growth in E-Mobility (+10% sales in Q2, substantial outperformance vs. BEV market, and high quality/order intake like the new Chinese NEV contract) signals Schaeffler is successfully capitalizing on the shift to electrified mobility, which should drive top line expansion and improved gross margins.
  
• Adoption of energy-efficient, high-value components (example: wind business growth in China, emerging strength in aerospace bearings, and ongoing order intake for industrial automation) positions Schaeffler to benefit from global carbon-reduction and energy efficiency trends, supporting both revenue growth and margin resilience as demand shifts toward premium products.
  
• The accelerating mix shift to E-Mobility and hybrid systems, combined with significant order intake (notable book-to-bill strength in HEV) and synergies from the Vitesco merger, is expected to increase scale and drive both revenue diversification and margin expansion over the next few years.
  
• Ongoing cost efficiency and capital allocation discipline (synergy realization ahead of plan, shrinking capital employed, and strict capex/workforce management) are set to boost net margins and free cash flow, with additional upside as transformation-related one-offs subside.
  
• Growth in aftermarket and digital service businesses (noted for highest margins and recurring revenues within Vehicle Lifetime Solutions), along with rising industrial demand in selected segments, is likely to enhance earnings quality and support operating margin improvement through increased contribution from higher-margin and recurring revenue streams.

Schaeffler Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Schaeffler's revenue will grow by 7.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.9% today to 5.3% in 3 years time.
• Analysts expect earnings to reach €1.4 billion (and earnings per share of €1.01) by about August 2028, up from €-852.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.5x on those 2028 earnings, up from -6.1x today. This future PE is lower than the current PE for the GB Auto Components industry at 14.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.67%, as per the Simply Wall St company report.

Schaeffler Future Earnings Per Share Growth

Risks

• Exposure to declining internal combustion engine (ICE) powertrain demand remains a significant risk, as the Powertrain & Chassis division experienced falling sales and continues to be highly dependent on mature European OEMs, making future revenues vulnerable to the accelerating shift toward electrification.
  
• Margin pressures from negative mix (with E-Mobility growing but still not covering fixed costs, and legacy segments declining) and persistent foreign exchange headwinds have already diluted group profitability, implying continued risks to net margins until the E-Mobility business reaches scale.
  
• Schaeffler's high share of sales to European OEMs (e.g., Volkswagen, Mercedes, Stellantis) exposes it to regional cyclicality, greater bargaining power among consolidating automakers, and price competition, which may cause volatile or shrinking revenues and earnings, especially as procurement dynamics shift.
  
• Increased R&D intensity in stagnating or shrinking segments such as chassis and ICE/hybrid platforms reflects high operating costs without commensurate sales growth, risking inefficient capital allocation and pressuring net margins if innovation does not translate into outsized market share gains.
  
• Ongoing restructuring, integration costs following the Vitesco merger, and elevated debt levels (with leverage ratio above long-term target, and free cash flow suppressed by one-off costs) may constrain Schaeffler's ability to invest, maintain dividend growth, or respond to new market disruptions, limiting upside for earnings and shareholder returns.

Valuation

• The analysts have a consensus price target of €5.377 for Schaeffler 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 €7.5, and the most bearish reporting a price target of just €4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €27.2 billion, earnings will come to €1.4 billion, and it would be trading on a PE ratio of 4.5x, assuming you use a discount rate of 8.7%.
• Given the current share price of €5.54, the analyst price target of €5.38 is 2.9% lower. 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.