Schaeffler: power shuffle

It is hard to tell now who will gain and lose from electric vehicles

 In the 19th century, tens of thousands worked in Chile’s saltpetre mines. Within a few decades, synthetic nitrates all but wiped out the industry. But investors concerned that electric vehicles might inflict a similar fate on Schaeffler are too bearish.On Tuesday, the German industrial components group said margins before interest and tax would be 11-12 per cent this year, rather than the 12-13 per cent previously forecast. Free cash flow will also be lower than expected.

Analysts at UBS expect consensus earnings per share forecasts to come down by about 15 cents as a result. The shares fell 10 times that amount, which seems odd given that margin pressure was already evident a month ago. First quarter results, released in May, showed group margins at their lowest level in five quarters. The automotive division’s return on sales dropped by 100 basis points.The share price fall instead reflects fears that Schaeffler will be one of the losers from the industry’s switch towards electric propulsion. About four-fifths of its revenue comes from supplying small but vital components such as bearings to carmakers. Many of them end up in engines and transmission systems, and many will not be needed in an electric car that has far fewer moving parts. Heavy investment for the electric era —

Schaeffler also makes “e-axles” containing a motor and gearbox — is one reason for lower profitability and free cash flow now. More competitive pricing on existing products is also unhelpful. It seems carmakers, who are themselves investing heavily in electric propulsion, are squeezing their suppliers to help pay for it.Carmakers have big plans for electric vehicles: Volkswagen alone plans to produce a million of them by 2025, while Daimler expects them to account for a quarter of unit sales. The Paris accord calls for a fifth of cars to be electric by 2030. But there is no guarantee that such ambitious targets will be met. Mass-market electric cars remain prohibitively expensive without subsidy. And lower oil prices and a hydrocarbon-friendly US administration may yet slow the shift away from petrol and diesel. Some of

Chile’s saltpetre towns subsequently became copper cities. Similarly, some auto components groups will successfully adapt to the electric era. It is just hard to predict now who those winners will be.