Autonomous And Electric Trends Will Cut Tire Demand

Key Takeaways

• New mobility trends, electric vehicle adoption, and direct OEM sales threaten long-term tire demand, pricing power, and revenue potential for Michelin.
  
• Rising competition, regulatory costs, and capital requirements will constrain profitability, market share, free cash flow, and the ability to invest in growth or returns.
  
• Strategic restructuring, premium product innovation, and diversification efforts strengthen margins, boost revenue, and enhance earnings resilience while supporting long-term financial and shareholder stability.

Catalysts

Engages in the manufacture and sale of tires worldwide.

• The structural rise of vehicle-sharing, autonomous transportation, and new urban mobility solutions is expected to steadily reduce per capita car ownership and overall annual vehicle miles driven, undermining the long-term demand for replacement tires in key markets and resulting in persistent volume stagnation or decline for Michelin, pressuring both revenues and plant utilization rates.
  
• Accelerated adoption of electric vehicles is likely to fundamentally alter tire replacement cycles and shift OEM relationships, with direct-to-consumer sales by EV manufacturers bypassing traditional suppliers like Michelin, diminishing pricing power and threatening both topline growth and gross margins over time.
  
• Intensifying competition from low-cost Asian manufacturers, especially out of China, is expected to further erode average selling prices and global market share in both original equipment and replacement segments, constraining Michelin's ability to drive revenue growth and compressing net margins despite attempts at product innovation.
  
• Incoming regulatory burdens, such as carbon-related taxes, EUDR compliance, and a proliferation of tariffs, are set to drive substantial increases in operating and input costs. The inability to reliably pass these costs onto customers will widen the gap between rising operational expenses and stagnant or declining net income, undermining cash flow and profitability.
  
• Ongoing heavy capital expenditure required for manufacturing transformation, combined with dependency on slow-growing mature markets in Europe and North America, will continue to restrain free cash flow generation and limit the company's capacity to fund both innovation and shareholder returns, entrenching a long-term drag on earnings potential.

Compagnie Générale des Établissements Michelin Société en commandite par actions Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Compagnie Générale des Établissements Michelin Société en commandite par actions compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Compagnie Générale des Établissements Michelin Société en commandite par actions's revenue will grow by 1.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 5.8% today to 9.0% in 3 years time.
• The bearish analysts expect earnings to reach €2.5 billion (and earnings per share of €3.59) by about August 2028, up from €1.6 billion 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 9.6x on those 2028 earnings, down from 14.2x today. This future PE is lower than the current PE for the GB Auto Components industry at 11.6x.
• Analysts expect the number of shares outstanding to decline by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.8%, as per the Simply Wall St company report.

Compagnie Générale des Établissements Michelin Société en commandite par actions Future Earnings Per Share Growth

Risks

• Michelin's ability to rapidly restructure its manufacturing footprint and exit unprofitable business lines, combined with successful cost-cutting actions, is expected to deliver a €200 million positive impact to segment operating income for the full year, which could drive improved margins and support earnings resilience.
  
• Launch of innovative, premium products such as the CrossClimate 3 and X Line Grip D, alongside recognized performance in sustainability (lowest abrasion rates and improved CO2 performance), reinforce the company's brand strength and pricing power, supporting net revenue and margin growth above industry average over the long term.
  
• Growing segments in specialty tires, including mining and aircraft, are delivering steady or rebounding sales, while recent investments in adjacent businesses (composite polymer solutions) expand revenue streams beyond traditional tires, helping to diversify earnings and reduce dependence on cyclical auto markets.
  
• Michelin maintains a robust balance sheet with four A debt ratings, strong cash generation, disciplined capital expenditure, and a clear commitment to shareholder returns through sustained buybacks and dividends, providing financial stability and underpinning long-term shareholder value.
  
• The company has a proven track record and ongoing investment in digitalization and efficiency-such as local-to-local sourcing, value-add data services, and enhanced distribution strategies-which should improve margins and recurring revenue, supporting durable net earnings even in adverse macro environments.

Valuation

• The assumed bearish price target for Compagnie Générale des Établissements Michelin Société en commandite par actions is €28.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Compagnie Générale des Établissements Michelin Société en commandite par actions'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 €43.0, and the most bearish reporting a price target of just €28.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €27.9 billion, earnings will come to €2.5 billion, and it would be trading on a PE ratio of 9.6x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of €31.43, the bearish analyst price target of €28.0 is 12.2% 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.