EV Migration Will Erode High-Value Demand And Disrupt Supply Chains

Key Takeaways

• Electric vehicle adoption and new materials are shrinking Gestamp's market and eroding pricing power, putting sustained profitability at risk.
  
• Supply chain fragility, regulatory costs, and dependence on a few key automakers heighten revenue volatility and pressure future cash flows.
  
• Broad geographic and customer diversification, innovation in electric vehicle solutions, and disciplined financial management position Gestamp for resilient growth, profitability, and expanding future opportunities.

Catalysts

Designs, develops, and manufactures metal components for the automotive industry in Western Europe, Eastern Europe, Mercosur, North America, and Asia.

• The migration from internal combustion engine vehicles to electric vehicles reduces the complexity and number of components needed, directly shrinking Gestamp's addressable market for high-value stamped metal parts and threatening its ability to sustain current revenue levels over the long term.
  
• As global trade uncertainty and protectionist policies escalate, Gestamp's globally distributed but interlinked supply chain faces mounting risks of disruption and additional costs, which could undermine efficiency and lead to higher operating expenses, depress net margins, and erode earnings quality.
  
• Increasing regulatory and consumer pressure to sharply lower emissions and minimize material waste will necessitate substantial ongoing capital expenditure for compliance and process changes, raising costs and compressing free cash flow generation for years, even as top-line growth slows.
  
• Heavy reliance on a concentrated set of major automotive OEM customers exposes Gestamp to major negative swings in revenue and profits if it loses core contracts amid platform redesigns or industry margin pressure, a risk exacerbated by greater pricing pressure as automakers seek to cut costs during the EV transition.
  
• The rapid innovation pace in new lightweight composites and modular EV platforms, combined with rising competition from lower-cost Asian suppliers, accelerates obsolescence for traditional metal-stamping processes and threatens to structurally reduce Gestamp's volumes, pricing power, and long-term return on capital.

Gestamp Automoción Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Gestamp Automoción compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Gestamp Automoción's revenue will decrease by 0.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.3% today to 2.2% in 3 years time.
• The bearish analysts expect earnings to reach €261.1 million (and earnings per share of €0.45) by about July 2028, up from €160.3 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 7.1x on those 2028 earnings, down from 11.3x today. This future PE is lower than the current PE for the GB Auto Components industry at 11.1x.
• Analysts expect the number of shares outstanding to decline by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.32%, as per the Simply Wall St company report.

Gestamp Automoción Future Earnings Per Share Growth

Risks

• Gestamp's global and customer diversification, with operations in 24 countries and established relationships with leading Chinese, European, and American OEMs, enhances revenue visibility and resilience to regional downturns, supporting stable or growing revenues.
  
• The successful execution of the Phoenix Plan in North America, already improving EBITDA margin from 6.4% toward a targeted 8%, demonstrates effective operational turnaround strategies that could lift overall company profit margins and net earnings in the coming years.
  
• Ongoing investments in innovation, especially in lightweight solutions and advanced manufacturing for new electric vehicle models, position Gestamp to benefit from secular industry shifts toward EVs and lightweighting, potentially expanding high-margin product lines and future revenue streams.
  
• Deepening partnerships with rapidly globalizing Chinese OEMs, and a strong presence at industry events like the Shanghai Auto Show, create opportunities for Gestamp to grow its business alongside the expansion of Chinese brands in Europe and Latin America, supporting long-term sales growth.
  
• The company's disciplined CapEx management, robust liquidity of over 2.1 billion euros, low net debt-to-EBITDA ratio, and consistent 30% dividend payout policy enhance financial stability and shareholder returns, increasing the likelihood of maintaining or growing net profits and dividends over time.

Valuation

• The assumed bearish price target for Gestamp Automoción is €2.2, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Gestamp Automoción'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 €4.17, and the most bearish reporting a price target of just €2.2.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €12.1 billion, earnings will come to €261.1 million, and it would be trading on a PE ratio of 7.1x, assuming you use a discount rate of 14.3%.
• Given the current share price of €3.19, the bearish analyst price target of €2.2 is 44.9% 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.