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On Wednesday, JPMorgan analyst Rebecca Wen upgraded Nexteer Automotive Group Ltd. (1316:HK) (OTC: NTXVF) stock from Neutral to Overweight, setting a new price target at HK$8.00, up from the previous HK$5.50. Wen’s optimism is based on Nexteer’s recent order win with Tesla (NASDAQ:TSLA) Cybercab for its steer-by-wire (SbW) technology. Despite Nexteer’s fiscal year 2024 earnings falling short by 20%, Wen believes that the company’s stock price will be influenced more by its SbW order wins than its earnings performance. As a result, JPMorgan has raised the price target to HK$8.00 based on 18 times the projected 2026 earnings.
Nexteer’s steer-by-wire technology, which eliminates the need for a physical connection between the steering wheel and the wheels, is a key factor in the upgrade. This technology is increasingly important in the development of autonomous and electric vehicles, such as the Tesla Cybercab.
The upgrade comes amidst ongoing tariff concerns within the North American auto industry. On February 1, 2025, former US President Donald Trump imposed a 25% additional tariff on imports from Canada and Mexico, which was subsequently paused for 30 days on February 3, 2025, and again until April 2, 2025. Around 20% of Nexteer’s revenue is derived from trade between Mexico and the United States.
In October 2024, JPMorgan conducted an analysis on the potential impact of the tariff hike, known as the Trump 2.0 Tariff Hike, on auto parts players. The analysis predicted that if a 25% additional tariff were to be implemented in Mexico, it could result in a margin impact of more than two percentage points for Nexteer in 2025, assuming the tariff costs are split evenly with customers. Despite these risks, the recent order win with Tesla appears to have provided a positive outlook for Nexteer’s future.
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