Underinvestment And Fierce Competition Will Erode Future Valuation

Key Takeaways

• Slow technological adoption and reliance on external partners are reducing product differentiation and hindering long-term competitiveness and profitability.
  
• Heightened competition and economic volatility in key markets are causing sustained pressure on sales, market share, and income stability.
  
• Expanding electrification, strategic partnerships, and focus on profitable models are strengthening margins and earnings resilience, amid digital transformation and robust growth in key Asian markets.

Catalysts

Engages in the development, production, and sale of passenger vehicles, and its parts and components in Japan, Europe, North America, Oceania, the rest of Asia, and internationally.

• The accelerating global transition toward electrification and tightening emission standards is expected to continue outpacing Mitsubishi's technological progress, as evidenced by its decision to deprioritize in-house battery electric vehicle development in favor of rebranded OEM models, which will likely erode product differentiation and threaten long-term revenue growth and margin expansion.
  
• Intensifying competition from technologically advanced and newly established brands, especially in key Southeast Asian markets, is causing extended pricing pressures and oversupply, as seen in Thailand and Indonesia, leading to shrinking market share and putting sustained downward pressure on overall net sales and operating income.
  
• Mitsubishi's persistent lag in advanced vehicle technology, particularly autonomous driving and software-defined vehicles, is likely to make its lineup increasingly obsolete compared to peers, systematically reducing market relevance and putting medium
• to long-term earnings growth at risk.
  
• Ongoing dependency on volatile and economically unstable emerging markets, combined with rising trade protectionism and shifting global trade flows, continues to expose Mitsubishi to unpredictable earnings swings, foreign exchange losses, and mounting cost pressures-directly impeding both revenue and net income stability.
  
• Chronic underinvestment in research and development and a reliance on external alliances for EV and advanced product pipelines are likely to constrain innovation and future competitiveness, resulting in declining net margins as the company faces higher procurement costs and struggles to keep pace with secular shifts in the automotive sector.

Mitsubishi Motors Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mitsubishi Motors compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mitsubishi Motors's revenue will decrease by 2.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 1.5% today to 0.9% in 3 years time.
• The bearish analysts expect earnings to reach ¥22.8 billion (and earnings per share of ¥17.1) by about July 2028, down from ¥41.0 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 27.0x on those 2028 earnings, up from 15.6x today. This future PE is greater than the current PE for the JP Auto industry at 7.6x.
• Analysts expect the number of shares outstanding to decline by 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.99%, as per the Simply Wall St company report.

Mitsubishi Motors Future Earnings Per Share Growth

Risks

• The company is accelerating electrification, launching new hybrids and plug-in hybrids, and leveraging strong demand in markets like the Philippines and Vietnam, which could boost long-term revenue growth and margin expansion.
  
• Mitsubishi is strengthening its product lineup across core regions and focusing on higher-margin models such as the Outlander series, which has recently driven improvements in both unit sales and operating profit, supporting stable earnings growth.
  
• The company is engaging in deepened partnerships within the Renault-Nissan-Mitsubishi alliance and with others like Foxconn and Honda, which is likely to create substantial cost synergies, enhance new model development, and allow resource-sharing, favorably impacting operating profit and net margins over time.
  
• There is an emphasis on digital transformation, connected car services, and financial service expansion (e.g., Mitsubishi Motors Finance Philippines Corporation), opening up incremental revenue sources and supporting higher profitability.
  
• Even amid economic headwinds and intense competition, the company's sustained cost-cutting momentum, market-share gains in select growing ASEAN markets, and focus on capital allocation have led to maintained or increasing dividends and rising shareholders' equity, indicating resilience in long-term net earnings and cash generation.

Valuation

• The assumed bearish price target for Mitsubishi Motors is ¥330.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Mitsubishi Motors'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 ¥550.0, and the most bearish reporting a price target of just ¥330.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ¥2588.9 billion, earnings will come to ¥22.8 billion, and it would be trading on a PE ratio of 27.0x, assuming you use a discount rate of 11.0%.
• Given the current share price of ¥439.9, the bearish analyst price target of ¥330.0 is 33.3% lower.
• 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.