Premium And EV Tires Will Expand Global Reach

Key Takeaways

• Strategic focus on premium, EV-compatible, and smart tire technologies is unlocking new revenue streams, raising brand value, and supporting margin expansion.
  
• Enhanced sustainability initiatives and operational efficiency efforts are strengthening regulatory compliance, pricing power, and geographic earnings stability.
  
• Exposure to tariffs, currency volatility, premium market reliance, rising costs, and restricted manufacturing flexibility threatens Pirelli's revenues and margins amid shifting global conditions.

Catalysts

Manufactures and supplies tires for cars, motorcycles, and bicycles in Europe, North America, the Asia-Pacific, South America, Russia, and the MEAI.

• Accelerating innovation and capacity conversion toward premium and EV-compatible tires-including expanding high-value manufacturing in Brazil and leading homologations with top OEMs and electric carmakers-positions Pirelli to capture growth from increased demand for advanced, durable tires, supporting future revenues and average selling price.
  
• Pirelli's sustained focus on sustainability (e.g., 70%+ bio-based tires, decarbonization targets, supply chain transparency) aligns with tightening environmental regulations and growing consumer preference for eco-friendly products, enhancing brand value and potentially enabling long-term pricing power and higher margins.
  
• Expansion in North America and Asia, particularly through deepened partnerships with premium local automakers and successful pull-through in the replacement segment, increases top-line growth and reduces geographic earnings volatility.
  
• Efficiency initiatives-including automation, digitization, "factory of the future" projects, and aggressive cost control across manufacturing and SG&A-are unlocking structural margin improvements, while offsetting inflationary and tariff pressures, boosting operating profits.
  
• Pirelli's leadership in smart tire and Cyber Tyre technology, supported by new partnerships and early OEM integrations, positions the company to benefit from rising adoption of connected and autonomous vehicles, opening new revenue streams and supporting future margin expansion.

Pirelli & C Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pirelli & C's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 8.8% in 3 years time.
• Analysts expect earnings to reach €642.1 million (and earnings per share of €0.63) by about August 2028, up from €498.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €563.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.0x on those 2028 earnings, up from 11.5x today. This future PE is greater than the current PE for the GB Auto Components industry at 13.1x.
• 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 12.74%, as per the Simply Wall St company report.

Pirelli & C Future Earnings Per Share Growth

Risks

• Ongoing and potentially escalating U.S. tariffs on tire imports from Europe and Brazil-and possible future changes in trade policy-could drive up costs and negatively affect both revenue (through lost volume/market share in the U.S.) and net margins (from absorbed tariff expenses), especially as Pirelli's North American supply chain remains only partially localized.
  
• Persistent negative impacts from currency volatility, particularly the depreciation of the U.S. dollar and instability in emerging market currencies, threaten to erode revenues and profitability given Pirelli's significant international exposure and reliance on exports.
  
• Heavy dependence on the premium High Value segment (car tires ≥18 inches and prestige OEMs) exposes Pirelli to risks from economic downturns and changes in consumer behavior; a downturn in the luxury or premium vehicle market or shifts towards lower-cost mobility could depress revenue and earnings.
  
• Quickly rising costs for raw materials (€51 million negative impact in H1 2025, expected to remain slightly negative in H2) and continuing regulatory pushes for sustainability and decarbonization could outpace the company's internal cost efficiencies, putting pressure on net margins.
  
• Pirelli's production flexibility is limited by saturated capacity in Mexico and a concentrated manufacturing footprint, making it potentially vulnerable to supply chain disruptions, increased competition from more localized U.S. manufacturers (and low-cost Asian rivals), and delays or costly investments if further localization is required-negatively impacting both revenue and margin growth.

Valuation

• The analysts have a consensus price target of €6.715 for Pirelli & C 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 €7.4, and the most bearish reporting a price target of just €5.2.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €7.3 billion, earnings will come to €642.1 million, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 12.7%.
  
• Given the current share price of €5.74, the analyst price target of €6.72 is 14.5% 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.