Car manufacturers make a comeback, teeming with opportunities for potential doubling of profits
The auto supplier industry is currently facing a crisis, with many companies grappling with the shift towards electric mobility and cost advantages of Chinese electric vehicle manufacturers. Amidst this turbulence, analysts are favouring certain companies, one of them being Continental, a major auto supplier.
Continental, a German multinational automotive company, is known for its low net debt, estimated to be below its operational profit (EBITDA) for 2024. The company's tire business is valued at 9.4 billion euros, while its independent auto supplier business is valued at 4.3 billion euros. Together, these businesses amount to 13.7 billion euros, around 14% more than its current market value.
The company's planned split could potentially bring shareholders an additional 1.7 billion euros, according to Bloomberg. This split could present an opportunity for investors, especially considering that companies with stable or higher operational margins (EBIT) of more than 5% and moderate debt, ideally well below four times their annual operational profit (EBITA), are considered resilient to turbulence.
The BÖRSE ONLINE editorial team has identified Continental as a favorably valued title based on its operational margins and moderate debt. The BÖRSE ONLINE special offer provides 3 issues for 9.90 euros instead of the regular price of 17.40 euros, offering readers in-depth analyses and hot stock tips. The complete analysis of the supplier industry and companies with the potential to double your money can be found in the current issue of BÖRSE ONLINE.
Meanwhile, automakers are delaying and cancelling electric vehicle projects, putting further strain on suppliers. This crisis is not just limited to China but is being felt in Western markets as well. However, the crisis may offer potential for rewarding investments in the long run.
In the auto industry, stocks like Volkswagen and Mercedes-Benz Group are currently significantly undervalued. Despite facing high uncertainty and challenges like tariff impacts and margin pressure, both companies have potential for large value creation for shareholders. Volkswagen's price/fair value ratio is 0.52 and Mercedes-Benz's is 0.56, indicating potential for nearly doubling shareholder value if forecasts improve.
Many suppliers are negotiating to salvage advance payments from automakers, with three-quarters complaining about inadequate payments. This underscores the financial pressure that suppliers are under, making it crucial for investors to choose their investments wisely.
In conclusion, the auto supplier industry is facing a significant crisis, but it also presents opportunities for investors. Companies like Continental, with its favorable valuation and resilience to turbulence, could be a promising investment. However, it is essential to conduct thorough research and consider the risks involved before making any investment decisions.
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