Electric Vehicle Shift Will Weaken Traditional Film Demand

Key Takeaways

• The rise of electric vehicles and shared mobility models threatens XPEL’s core market and could limit future revenue growth.
  
• Escalating regulatory pressures and growing competition are likely to compress margins and increase earnings volatility for XPEL.
  
• Successful diversification into new protection films, strong global demand, and supply chain adaptability position XPEL for resilient growth and reduced risk from market or geopolitical shocks.

Catalysts

Manufactures, installs, sells, and distributes protective films, coatings and related services.

• The shift toward electric vehicles, which increasingly use new body materials and minimized exterior bodywork, threatens to significantly reduce demand for XPEL's traditional paint protection film and core offerings, potentially causing a long-term decline in revenue and stalling growth in its most profitable segments.
  
• Broader consumer adoption of vehicle-sharing, subscription models, and autonomous fleets could cause a secular drop in personal vehicle ownership, directly lowering the number of vehicles accessorized or protected and thereby shrinking XPEL’s total addressable market, which would impair both future revenue and net income growth.
  
• Intensifying environmental scrutiny and expected global regulation of plastics and polymer-based materials may drive up compliance costs for XPEL’s protective films, squeezing gross margins as the company will be forced to either absorb the costs or risk raising prices in a more price-sensitive aftermarket.
  
• XPEL remains structurally dependent on the automotive aftermarket for its top-line growth, and with limited meaningful diversification into non-automotive sectors, is especially vulnerable to automotive sector slowdowns or cyclical declines, resulting in elevated revenue volatility and weaker earnings visibility.
  
• Large, diversified materials companies and new low-cost competitors continue to enter the protective film space, threatening XPEL’s pricing power and competitive moat; this escalating competition is likely to compress gross and EBITDA margins over the coming years, undermining long-term profitability.

XPEL Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on XPEL compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming XPEL's revenue will grow by 13.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 10.9% today to 12.1% in 3 years time.
• The bearish analysts expect earnings to reach $76.4 million (and earnings per share of $2.83) by about May 2028, up from $47.4 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 16.4x on those 2028 earnings, down from 22.7x today. This future PE is greater than the current PE for the US Auto Components industry at 14.1x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.86%, as per the Simply Wall St company report.

XPEL Future Earnings Per Share Growth

Risks

• The company demonstrated strong revenue growth of 15.2 percent year-over-year and robust performance across multiple geographies, showing resilience and potential for continued top-line growth as global demand for vehicle protection increases.
  
• XPEL expanded its gross margin to 42.3 percent and indicated opportunities for further margin improvement over the midterm, suggesting that operating leverage and economies of scale could lead to rising net margins and ultimately higher earnings.
  
• New product launches in architectural and windshield protection films, alongside ongoing innovation, point toward a successful diversification strategy into adjacent markets, which could create additional streams of revenue and help de-risk dependence on automotive films.
  
• The company indicated solid momentum in most international markets, particularly in Europe, the Middle East, and China, aligning with long-term secular trends of increasing vehicle ownership and miles driven in emerging markets, which could drive sustainable multi-year revenue growth.
  
• XPEL’s ability to adapt supply chains and mitigate tariff risks using diverse manufacturing locations has reduced exposure to geopolitical uncertainties, providing stability for gross margins and cash flow, thus supporting a positive long-term earnings outlook.

Valuation

• The assumed bearish price target for XPEL is $38.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of XPEL'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 $55.0, and the most bearish reporting a price target of just $38.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $632.0 million, earnings will come to $76.4 million, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $38.85, the bearish analyst price target of $38.0 is 2.2% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.