Falling Combustion Demand And Rising Trade Barriers Will Erode Margins

Key Takeaways

• Legacy product lines are in structural decline, while slow uptake of new technologies and shifting regulations threaten revenue stability and profitability.
  
• Rising costs, shrinking margins, and high capital outflows jeopardize cash generation, investor returns, and long-term debt reduction.
  
• Strategic innovation, global expansion, and strong order intake are driving OPmobility's resilience, revenue growth, and reduced reliance on weak markets despite industry headwinds.

Catalysts

Designs and produces intelligent exterior systems, customized complex modules, lighting systems, energy storage systems, and electrification solutions for all mobility players in Europe, North America, China, rest of Asia, South America, the Middle East, and Africa.

• As electric vehicle adoption accelerates, OPmobility's legacy product lines, particularly combustion engine components (C-Power), face sustained revenue decline that will not be fully offset by delayed growth in hydrogen and electrified solutions, leading to stagnation or an outright reduction in overall sales as the addressable market shrinks.
  
• Increasing geopolitical protectionism, ongoing tariff uncertainties, and region-specific regulations are forcing OPmobility to constantly rework its supply chain, raising operational complexity and structural costs, which will gradually erode net margins over the next several years.
  
• Overdependence on a handful of major automaker customers and slow demand growth for new technologies expose OPmobility to abrupt order reductions and heavy pricing pressure, resulting in unpredictable revenue streams and significant risk to earnings stability.
  
• The rapid commoditization of EV components and industry-wide vertical integration by OEMs will undermine OPmobility's pricing power and leave its technology investments stranded, compressing gross margins and stifling the profitability of the group's high-growth segments such as modules and lighting.
  
• Persistent heavy R&D and capital expenditure outflows required to keep up with rapid transitions in electrification, hydrogen technologies, and smart systems are likely to outpace free cash flow generation, increasing the likelihood of negative cash cycles and leaving little room for dividend growth or significant debt reduction.

OPmobility Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on OPmobility compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming OPmobility's revenue will decrease by 0.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.6% today to 2.0% in 3 years time.
• The bearish analysts expect earnings to reach €204.3 million (and earnings per share of €1.39) by about July 2028, up from €170.0 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 6.7x on those 2028 earnings, down from 10.4x 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 decline by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.14%, as per the Simply Wall St company report.

OPmobility Future Earnings Per Share Growth

Risks

• OPmobility has demonstrated consistent ability to outperform declining automotive markets by gaining market share across key regions, which may help stabilize or grow revenue and net income even in challenging industry conditions.
  
• The company is capitalizing on secular trends like electric vehicle and hybrid adoption by developing and delivering advanced modules, lighting, and powertrain solutions, positioning itself for long-term demand growth with major automakers, which could support sustained revenue expansion.
  
• OPmobility's geographic diversification, with a rapidly growing presence in North America and Asia and a strong customer pipeline with both legacy and new EV-focused brands, reduces reliance on struggling European markets and may help maintain or lift overall sales and margins.
  
• Continuous investment in R&D, manufacturing efficiency, cost optimization, and product innovation – paired with ongoing business group integration and new product launches – is driving notable improvement in operating margin and free cash flow, strengthening the company's ability to grow earnings.
  
• Success in securing a robust multi-year order book in segments like lighting (€3 billion intake for future years) and dominant market share wins (such as for tailgates with BYD and continued leadership in powertrain components) increases forward visibility on revenues and reduces earnings volatility, supporting the potential for sustained or rising share prices.

Valuation

• The assumed bearish price target for OPmobility is €7.4, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of OPmobility'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 €14.0, and the most bearish reporting a price target of just €7.4.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €10.3 billion, earnings will come to €204.3 million, and it would be trading on a PE ratio of 6.7x, assuming you use a discount rate of 10.1%.
• Given the current share price of €12.35, the bearish analyst price target of €7.4 is 66.9% 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.