EV Transition And China Trade Barriers Will Cripple Legacy Revenues

Key Takeaways

• Rapid automotive tech shifts and OEM vertical integration threaten Gentex's core products, revenue streams, and margin stability.
  
• Intensifying competition, decontenting trends, and rising trade barriers limit growth and erode earnings power, especially in key global markets.
  
• Gentex's growth is driven by strong adoption of advanced automotive products, portfolio diversification, operational efficiencies, and disciplined capital allocation supporting margin and earnings resilience.

Catalysts

Designs, develops, manufactures, markets, and supplies digital vision, connected car, dimmable glass, and fire protection products in the United States, China, Germany, Japan, Mexico, the Republic of Korea, and internationally.

• The accelerating adoption of electric vehicles is increasingly pushing automakers toward camera-based digital mirror systems, threatening long-term demand for Gentex's core auto-dimming mirror products and putting its largest revenue stream at risk.
  
• Increasing decontenting by OEMs, especially in China, as they struggle with profitability, is causing advanced Gentex features to be removed from vehicle programs rather than replaced by local competitors, driving down both volumes and revenue potential in a critical growth market.
  
• Rising protectionism, trade barriers, and counter tariffs-especially those impacting exports to China-are not only reducing top-line growth, but also increasing input costs across the supply chain, directly pressuring both revenue and net margins for the foreseeable future.
  
• Gentex faces heightened competition from lower-cost Asian suppliers and new entrants in the vision/electronics module space, a dynamic that will erode pricing power, narrow gross margins, and threaten the company's ability to maintain premium earnings multiples.
  
• The accelerating shift by major global OEM customers toward vertically integrated, camera-based or software-defined safety systems significantly heightens the risk of contract renegotiation, loss of key business, and greater margin pressure, undermining Gentex's long-term earnings and revenue visibility.

Gentex Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Gentex compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Gentex's revenue will grow by 5.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 16.6% today to 17.9% in 3 years time.
• The bearish analysts expect earnings to reach $502.5 million (and earnings per share of $2.47) by about August 2028, up from $395.5 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 12.2x on those 2028 earnings, down from 15.1x today. This future PE is lower than the current PE for the US Auto Components industry at 15.0x.
• Analysts expect the number of shares outstanding to decline by 2.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.65%, as per the Simply Wall St company report.

Gentex Future Earnings Per Share Growth

Risks

• Gentex is experiencing robust growth and strong adoption of its Full Display Mirror and advanced-feature automotive products, leading to increased product launches across several OEMs, which is resulting in rising take rates and expanding content per vehicle, directly supporting revenue and EPS growth.
  
• The company has successfully acquired VOXX and is already executing operational synergies, with management targeting significant improvements in VOXX's gross margins and operating leverage in the next two years, which has positive implications for consolidated profitability and net income.
  
• Gentex is actively diversifying its portfolio beyond the cyclical automotive sector, with new product introductions in smart home (such as the PLACE line for connected home safety) and making progress in large-area device applications for sunroofs and visors, providing new high-margin growth streams that should bolster overall top-line and margin stability.
  
• Persistent margin improvement initiatives, including procurement savings, operational efficiencies, and product mix optimization, have driven core Gentex and consolidated gross margins higher year-over-year and sequentially, with the company on track to reach its long-term gross margin target of 35–36 percent, which may lead to higher net margins and earnings resilience.
  
• Management has demonstrated strong capital allocation discipline, including significant share repurchases and a newly authorized buyback exceeding 18 percent of outstanding shares, which is likely to enhance shareholder returns and support earnings per share growth if sustained over the long term.

Valuation

• The assumed bearish price target for Gentex is $24.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Gentex'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 $42.0, and the most bearish reporting a price target of just $24.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.8 billion, earnings will come to $502.5 million, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $26.62, the bearish analyst price target of $24.0 is 10.9% 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.