New Czech Facility And USMCA Advantage Will Boost EV Expansion

Key Takeaways

• Expansion into EV components, lightweighting, and nearshoring strengthens Nemak's market position, improves product mix, and secures stable customer relationships.
  
• Operational efficiency initiatives and sustainability focus enhance competitiveness, drive margin growth, and support long-term revenue visibility.
  
• Structural decline in ICE demand, slow EV transition, European exposure, high capital intensity, and normalized margins all threaten Nemak's future growth and profitability.

Catalysts

Develops, manufactures, and sells aluminum components for e-mobility, structure and chassis, and ICE powertrain applications to the automotive industry in North America, Europe, and internationally.

• Nemak's ramp-up of its new Czech Republic facility dedicated to complex EV battery trays for a leading German automaker-and ongoing expansion of its EV and structural component portfolio-positions the company to capture increasing market share as global EV adoption accelerates, supporting long-term revenue growth and product mix improvements.
  
• The shift toward lightweighting driven by stricter global emissions regulations continues to favor Nemak's advanced aluminum solutions, enabling price realization and higher-margin product lines as OEMs increase content per vehicle, which should support further net margin and EBITDA expansion over the coming years.
  
• The growing trend of nearshoring and regional supply chain reconfiguration in North America has enhanced Nemak's operational resilience; its ability to meet USMCA requirements and avoid tariffs secures strong customer relationships and provides a stable, recurring revenue base, while protecting margins from geopolitical disruptions.
  
• Company-wide operational efficiency initiatives-including cost optimization in SG&A, expansion of high-pressure die casting productivity projects, and automation-are driving structural cost reductions and boosting EBITDA per unit, with the potential to deliver sustained margin improvements and higher operating income.
  
• Nemak's commitment to low-carbon aluminum innovation, R&D partnerships (e.g., with Hydro), and top-tier supplier engagement on climate are enhancing its competitiveness as sustainability becomes a procurement priority for OEMs, supporting future revenue visibility in an industry moving toward decarbonization.

Nemak S. A. B. de C. V Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nemak S. A. B. de C. V's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.7% today to 3.6% in 3 years time.
• Analysts expect earnings to reach $191.6 million (and earnings per share of $0.03) by about September 2028, up from $-85.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.2x on those 2028 earnings, up from -7.3x today. This future PE is lower than the current PE for the MX Auto Components industry at 43.6x.
• Analysts expect the number of shares outstanding to decline by 2.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 22.56%, as per the Simply Wall St company report.

Nemak S. A. B. de C. V Future Earnings Per Share Growth

Risks

• Nemak's long-term volume trend remains negative, with unit volumes declining from 50 million to 37–38 million units over the past decade, reflecting a structural headwind as internal combustion engine (ICE) component demand erodes, which risks sustained revenue contraction even as content per unit rises.
  
• The electrification transition remains uncertain and Nemak's own management notes slower-than-expected EV order book fulfillment and OEM delays; failure to capture sufficient share in newer EV components could impair topline growth and stall recovery in volumes.
  
• Nemak continues to hold significant exposure to Europe, where recent results show persistent declines in light vehicle production, uncertain economic conditions, and lower exports-putting pressure on regional revenues and heightening earnings volatility.
  
• High capital intensity and legacy asset footprint risk stranded or underutilized assets; as powertrain demand fades, Nemak may face falling asset utilization, especially in Europe, compressing margins and generating lower return on invested capital (ROIC).
  
• EBITDA per unit and overall margin performance have recently benefited from one-off commercial negotiations and customer lump-sum payments; as these normalize, coupled with a seasonal second-half volume drop and uncertainty about future pricing power, net margins and earnings could come under pressure.

Valuation

• The analysts have a consensus price target of MX$6.0 for Nemak S. A. B. de C. V based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$9.5, and the most bearish reporting a price target of just MX$4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.4 billion, earnings will come to $191.6 million, and it would be trading on a PE ratio of 8.2x, assuming you use a discount rate of 22.6%.
• Given the current share price of MX$4.02, the analyst price target of MX$6.0 is 33.0% higher.
• 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.