Brembo: A Strategic Bet on EV Braking Systems and Undervalued Potential

The global shift to electric vehicles (EVs) is reshaping the automotive industry, and Brembo S.p.A. (BRE.MI) stands at the intersection of innovation and opportunity. While its recent financials reflect the challenges of a volatile market, the company's strategic investments in EV-specific braking technology, coupled with its undervaluation relative to peers, make it a compelling long-term play. This analysis explores why Brembo's current share price presents a favorable entry point for investors.

The EV Braking Revolution: Brembo's Structural Growth Opportunity

The rise of EVs has created a paradigm shift in braking systems. Traditional internal combustion engine (ICE) vehicles rely on friction-based brakes, while EVs increasingly use regenerative braking—a system that captures kinetic energy during deceleration to recharge batteries. This technology requires high-performance, lightweight braking components, an area where Brembo has long been a leader.

Brembo's GREENTELL brake system, introduced in 2025, is designed to meet Euro 7 emissions standards and optimize regenerative braking efficiency. The system's ceramic composite materials reduce heat buildup and wear, extending lifespan while enhancing safety. Additionally, the company's acquisition of Öhlins in 2024 has bolstered its expertise in advanced suspension and braking systems, critical for high-performance EVs.

The automotive brake systems market is projected to grow from €31.25 billion in 2024 to €53.93 billion by 2034, driven by EV adoption and stricter emissions regulations. Brembo's early-mover advantage in EV-specific tech positions it to capture a disproportionate share of this growth.

Valuation: A Discounted Multiple in a Premium Market

Brembo's current valuation metrics suggest it is undervalued relative to its growth trajectory and peer comparables. Let's break down the numbers:

Brembo's Key Metrics (Q1 2025):

• P/E Ratio: 18.83 (vs. 11.56 in Q1 2024)
• P/B Ratio: 2.26 (vs. 1.74 in Q1 2024)
• EV/EBITDA: 10.37 (vs. 7.33 in Q1 2024)
• Revenue: €957 million (-4.7% YoY)
• Net Profit: €51.1 million (-31.9% YoY)

While declining profits reflect near-term industry headwinds (e.g., reduced automotive demand, geopolitical uncertainty), the metrics underscore a premium placed on Brembo's long-term growth story.

Peer Comparison:

• Continental AG (CON.DE): EV/EBITDA of 4.39 (vs. Brembo's 10.37) and a P/E of 12.3x.
• Robert Bosch GmbH (BOSCHLTD.NS): A P/E (TTM) of 47.83, reflecting its higher growth expectations.

Brembo's valuation multiples are mid-range versus peers but align with its strategic investments in R&D and acquisitions. For instance, its EV/EBITDA is higher than Continental's but reasonable given its specialization in high-margin EV braking solutions. Meanwhile, its P/B ratio of 2.26 is modest compared to the industry average of ~2.5 for advanced automotive suppliers.

Risks to Consider

1. Near-Term Profit Pressures: Brembo's net profit decline highlights reliance on macroeconomic stability. A prolonged downturn in automotive demand could delay cash flow improvements.
2. Debt Levels: Net financial debt rose to €778.6 million after the Öhlins acquisition, increasing leverage. However, Brembo's focus on stabilizing debt and a conservative dividend policy (€0.30/share) suggest manageable risks.
3. Competitor Imitation: Companies like Bosch and ZF Friedrichshafen are accelerating their EV braking R&D, which could compress margins.

Investment Thesis: Accumulate at €7.60

Brembo's current share price of €7.60 offers a margin of safety for three reasons:

1. Undervalued Growth: The stock trades at a P/E of 18.83, lower than its projected 10%+ CAGR in EV braking solutions.
2. Balance Sheet Flexibility: Despite higher debt, Brembo's liquidity remains robust, with a debt/EBITDA ratio of 2.13—sustainable for its capital-light business model.
3. Strategic Execution: The Öhlins acquisition and Shanghai Innovation Lab signal a commitment to dominating niche markets, reducing reliance on volatile ICE demand.

Conclusion

Brembo is a buy at current levels, with a target price of €9.50–€10.00 over the next 12–18 months. Investors should accumulate positions while the stock remains undervalued relative to peers and its growth potential in EV braking systems. The risks are mitigated by Brembo's technical leadership and the structural tailwinds of the EV revolution.

Recommended Action:
- Entry Point: Accumulate at €7.60–€8.00.
- Stop-Loss: Below €6.50 (2025 lows).
- Hold for: 3–5 years to capture EV market penetration and margin expansion.

The transition to EVs isn't just a trend—it's a seismic shift. Brembo, with its innovation and undervalued stock, is positioned to thrive.