Legacy Parts Will Falter As EV Risk Mounts

Key Takeaways

• The shift toward electric and autonomous vehicles, along with automaker preferences, threatens Nexteer's product relevance and future market share.
  
• Heavy dependence on Chinese business and rising global competition, costs, and supply chain risks could erode profitability and revenue stability.
  
• Strategic wins in next-gen EV and wire technologies, strong China momentum, and expanded offerings support margin growth, diversification, and outperformance versus industry trends.

Catalysts

A motion control technology company, develops, manufactures, and supplies steering and driveline systems to original equipment manufacturer worldwide.

• The accelerated transition toward electric vehicles is likely to erode long-term demand for Nexteer's legacy mechanical and hydraulic steering components, which still make up a significant portion of its product mix, threatening both revenue growth and product margins as EVs increasingly favor simpler architectures.
  
• As major automakers ramp up adoption of autonomous driving technologies, there is a growing risk that they will shift supplier preference to larger Tier 1 companies with greater R&D resources or decide to vertically integrate steering solutions, which would squeeze Nexteer's future market share and long-term earnings.
  
• Heavy reliance on Chinese OEMs for nearly 40 percent of new bookings exposes Nexteer to unpredictable geopolitical and trade risks, including tariffs, export restrictions, and supply chain disruptions, which could impair both revenue stability and net margins as global tensions persist.
  
• Intensification of global price competition among automotive parts suppliers, driven by OEM cost-down mandates and industry overcapacity, is likely to cause sustained margin compression, especially for mid-sized players like Nexteer who lack the scale or diversification of larger competitors.
  
• Persistent cost inflation, especially wage pressures and raw materials volatility in China where a significant share of operations reside, coupled with ongoing supply chain risks, is expected to reduce operational efficiency and erode profitability, resulting in lower net margins over time.

Nexteer Automotive Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Nexteer Automotive Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Nexteer Automotive Group's revenue will grow by 1.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.4% today to 3.3% in 3 years time.
• The bearish analysts expect earnings to reach $148.9 million (and earnings per share of $0.06) by about July 2028, up from $61.7 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 13.2x on those 2028 earnings, down from 32.8x today. This future PE is greater than the current PE for the HK Auto Components industry at 11.7x.
• 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 6.87%, as per the Simply Wall St company report.

Nexteer Automotive Group Future Earnings Per Share Growth

Risks

• Nexteer achieved a record 23 new program launches in the first quarter of 2025, including 14 for battery electric vehicle platforms and 19 representing new or conquest business, which suggests strong alignment with long-term EV growth trends and could support rising revenues and future bookings.
  
• The company secured multiple significant Steer-by-Wire contracts, including with a global EV leader and a leading Chinese NEV OEM, and expects additional near-term bookings in China, pointing to competitive strength in a fast-growing and high-margin technology segment that could drive margin expansion.
  
• Nexteer is experiencing strong bookings momentum in China, with nearly 40 percent of year-to-date bookings from Chinese OEMs, indicating successful customer diversification and participation in one of the world's largest auto markets, which may stabilize or boost earnings despite global volatility.
  
• The strategic expansion into Motion-by-Wire, including Brake-by-Wire and software-defined chassis, leverages core competencies and opens new addressable markets, potentially allowing for greater product differentiation and supporting higher long-term net margins.
  
• Management highlighted above-market revenue growth expectations of 200 to 300 basis points year-over-year, driven by new wins, cost-efficiency initiatives, and margin expansion, all of which could result in stronger-than-expected revenue and profitability trends.

Valuation

• The assumed bearish price target for Nexteer Automotive Group is HK$5.02, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Nexteer Automotive Group'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 HK$8.04, and the most bearish reporting a price target of just HK$5.02.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $4.5 billion, earnings will come to $148.9 million, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of HK$6.34, the bearish analyst price target of HK$5.02 is 26.2% 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.