Methode Electronics: A Rebound Story Amid EV and Data Center Growth?

In the ever-shifting landscape of industrial manufacturing, Methode Electronics, Inc. finds itself at a crossroads. The company's fiscal 2025 third-quarter earnings report, released March 5, 2025, underscored a stark reality: while its automotive segment-once a cornerstone of growth-faces headwinds, its pivot to data center infrastructure is beginning to bear fruit. This strategic recalibration, driven by a volatile EV market and surging demand for cloud computing, raises a critical question: Can Methode's transformation into a data center power player offset its automotive woes and position it as a compelling long-term investment?

The EV Dilemma: A Sector in Retreat

Methode's automotive division, which includes electric vehicle (EV) lighting and electrification programs, has been a double-edged sword. For fiscal 2025, the segment reported a 17.2% decline in net sales to $115.7 million, primarily due to the roll-off of an EV lighting program in Asia and slower new EV program ramp-ups. This aligns with broader industry trends: global EV demand has plateaued as supply chain bottlenecks and regulatory shifts create uncertainty. Methode's CEO, Jon DeGaynor, acknowledged the volatility, stating the company is "reallocating resources" from underperforming EV programs to capitalize on the expanding data center market.

The pain is quantifiable. A projected $100 million annualized decline in EV-related sales for fiscal 2026 looms large, exacerbated by delays from key clients and inventory write-downs. Yet, Methode's management insists this is a temporary setback. "The automotive sector is cyclical," DeGaynor noted in a recent earnings call. We're confident in our ability to navigate these challenges as we pivot toward higher-growth areas.

Data Centers: A Strategic Lifeline

If the EV sector is a storm cloud, Methode's data center business is a beacon of light. For fiscal 2025, the Industrial segment-driven by power distribution products for data centers-saw a 4.5% increase in net sales to $111.9 million, with full-year sales in this category surpassing $80 million. This represents a dramatic shift from 2024, when data center sales were just $40 million.

The company's focus on this sector is no accident. As artificial intelligence and cloud computing drive global demand for energy-efficient infrastructure, Methode is leveraging its engineering expertise and global footprint (including facilities in China, Egypt, and Mexico) to secure a foothold. The results are tangible: The company has secured $170 million in bookings for new and extended programs, with 53 new initiatives slated over the next two years. These include innovations in power distribution and thermal management, critical for data centers grappling with rising energy costs and sustainability mandates.

Industry analysts agree that the data center market is a megatrend. Projections suggest it will grow at a compound annual rate of 12–15% through 2030, with AI alone expected to account for 70% of total demand by 2030 according to industry projections. Methode's early investments in this space-such as its ISO-certified facilities and focus on green innovation-position it to benefit from both technological and regulatory tailwinds.

Financial Resilience Amid Transition

Despite a $14.4 million net loss in Q3 2025, driven by a $6.2 million tax expense, Methode's free cash flow remains robust at $19.6 million, a testament to disciplined inventory and receivables management. The company has also reaffirmed its guidance for profitable organic sales growth in fiscal 2026, even as it navigates the EV downturn. This resilience is partly due to its "transformation journey," which includes launching 20 new programs in 2025 and 33 more over the next five quarters.

However, skepticism persists. Critics argue that Methode's reliance on data center growth is speculative, given the sector's capital intensity and competition from larger players like Schneider Electric and Eaton. Yet, Methode's management counters that its niche in power distribution and sensor applications gives it a unique edge. "We're not trying to compete on scale," DeGaynor said. We're solving specific problems for clients who need precision and reliability.

The Road Ahead: A Calculated Bet

Methode's success hinges on its ability to execute its strategic pivot. While the EV sector remains a drag, the data center market offers a path to sustainable growth-if the company can scale its offerings without overextending. Key risks include supply chain disruptions, regulatory shifts in energy policy, and the pace of AI adoption. Yet, the company's proactive approach-securing new bookings, optimizing operations, and aligning with global decarbonization goals-suggests a measured, long-term strategy.

For investors, the question is whether Methode's transformation is a temporary fix or a genuine pivot to a higher-margin, higher-growth model. The answer may lie in its 2026 performance. If the company can maintain positive cash flow while expanding its data center footprint, it could emerge as a compelling story in the industrial sector. But if the EV market rebounds faster than anticipated, Methode's current strategy may prove insufficient.

In the end, Methode's journey mirrors the broader challenges of industrial innovation: balancing legacy businesses with future opportunities. Whether it succeeds will depend not just on market conditions, but on its ability to adapt-a test it has, so far, passed with cautious optimism.