Legacy Demand Will Diminish As EV Shifts Erode Margins

Key Takeaways

• Accelerating shift to electric and autonomous vehicles threatens Forvia's traditional products and narrows its long-term market opportunities.
  
• High leverage, cost pressures, and regulatory demands constrain Forvia's ability to invest in innovation or defend margins.
  
• Strategic growth in Asian markets, operational synergies, order diversification, advanced R&D, and disciplined financial management underpin Forvia's outlook for sustained margin, revenue, and cash flow improvement.

Catalysts

Manufactures and sells automotive technology solutions in France, Germany, other European countries, the Americas, Asia, and internationally.

• As the rapid transition to electric vehicles intensifies, Forvia faces significant risk of declining demand for its legacy product portfolio-including traditional seating, interiors, and exhaust-related components-which are likely to lose relevance as automakers prioritize software, electronics, and lightweight EV-centric solutions. This trend threatens long-term revenue streams and could undermine organic growth prospects.
  
• The shift toward increased ride-sharing and autonomous vehicles may gradually reduce per-capita car ownership and overall vehicle production volumes, resulting in a smaller addressable market for auto suppliers like Forvia and increasing the risk of persistent revenue stagnation or decline across core business lines.
  
• High financial leverage resulting from the HELLA acquisition continues to restrict Forvia's balance sheet flexibility, forcing the company to focus aggressively on asset disposals and cost cutting rather than strategic investment. This sustained deleveraging imperative increases exposure to higher interest costs and limits the company's ability to meaningfully invest in innovation, likely resulting in margin and earnings pressure in the medium to long term.
  
• Intensifying price competition and continued supply chain volatility in automotive electronics and specialty components threaten Forvia's ability to protect operating margins, especially as global OEMs squeeze suppliers and local Chinese competitors grow more sophisticated. This environment is likely to create persistent downward pressure on net margins and increases the risk of earnings volatility.
  
• Growing regulatory scrutiny and rising sustainability requirements present a double-edged sword: While Forvia invests heavily in ESG and low-CO2 solutions, these upfront costs and ongoing compliance investments reduce near-term profitability and could require even greater capital expenditures, further eroding free cash flow and delaying meaningful improvement in net margin and overall return on capital.

Forvia Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Forvia compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Forvia's revenue will decrease by 0.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -0.7% today to 1.7% in 3 years time.
• The bearish analysts expect earnings to reach €458.2 million (and earnings per share of €1.51) by about July 2028, up from €-185.2 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 4.3x on those 2028 earnings, up from -10.7x today. This future PE is lower than the current PE for the GB Auto Components industry at 10.0x.
• Analysts expect the number of shares outstanding to grow by 0.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.02%, as per the Simply Wall St company report.

Forvia Future Earnings Per Share Growth

Risks

• Forvia's expanding presence and strong partnerships in fast-growing Asian markets, especially China and India, position the company to capture above-market sales growth and margin expansion, supporting higher long-term revenues and earnings.
  
• The ongoing integration of HELLA and realization of substantial cost and operational synergies, combined with targeted cost-saving initiatives like EU-FORWARD, are likely to structurally improve operating margins and cash flow over time.
  
• A robust, diversified order intake-including multi-year contracts with leading OEMs in both traditional and new energy vehicle segments-provides significant business visibility, underpinning long-term revenue and earnings stability.
  
• Forvia's sustained investment in R&D for next-generation automotive technologies such as electronics, software, low-carbon materials, and hydrogen mobility positions it as a key supplier in emerging, higher-growth niches, offering long-term potential for margin and earnings improvement.
  
• Strong balance sheet management, including deleveraging efforts, targeted asset disposals, and optimization of CapEx and working capital, reduces financial risk and supports improved net margins and cash generation in future years.

Valuation

• The assumed bearish price target for Forvia is €7.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Forvia'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 €39.0, and the most bearish reporting a price target of just €7.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €27.2 billion, earnings will come to €458.2 million, and it would be trading on a PE ratio of 4.3x, assuming you use a discount rate of 12.0%.
• Given the current share price of €10.07, the bearish analyst price target of €7.0 is 43.9% 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.