Hidden within Schaeffler's <a href="https://seekingalpha.com/symbol/SCFLF" title="Schaeffler AG Bearer Shares">SCFLF</a> Q1 2022 and Q3 2021 earnings call transcripts lies a story of a powerful yet often overlooked business segment: Schaeffler's bearings business. While the world is focused on the shiny new electric vehicle (EV) components, this seemingly "mature" segment is quietly generating cash and providing stability, acting as a crucial foundation for Schaeffler's EV ambitions.

The automotive industry is facing a confluence of challenges: semiconductor shortages, supply chain disruptions, and rising raw material costs. Despite these headwinds, Schaeffler, traditionally known for its combustion engine components, has secured a hefty €2 billion order intake for e-mobility projects in Q1 2022. However, a strategic shift is also underway. Schaeffler is recognizing the enduring relevance of its bearings business, a segment that transcends the combustion engine vs. EV debate.

Schaeffler's Dual-Pronged Strategy

CEO Klaus Rosenfeld introduced the concept of "Mature and New" during the Q3 2021 earnings call, highlighting Schaeffler's approach to the automotive transition. This strategy involved separating its legacy combustion engine business ("Mature") from the burgeoning e-mobility segment ("New"). This approach was further refined in the Q1 2022 transcript, classifying segments within Automotive Technologies as "powertrain-specific" and "powertrain-agnostic".

This subtle shift emphasizes the strategic importance of the bearings business, classified as both "mature" and "powertrain-agnostic." This means that regardless of the powertrain technology – combustion engine, hybrid, or fully electric – bearings remain an essential component. This inherent demand resilience makes Schaeffler's bearings business a valuable asset in the unpredictable automotive landscape.

Bearings: A Financial Cornerstone

The transcripts reveal the financial strength of the bearings business. In Q3 2021, despite challenges in the automotive market, Industrial and Automotive Aftermarket, segments with significant bearings components, generated robust margins of 12.4% and 14.6% respectively. CFO Claus Bauer emphasized the pricing power of these segments during the Q1 2022 earnings call, allowing for more effective recovery of rising input costs compared to the complex negotiations with Automotive Technologies customers.

Bearings in the Electric Era

Schaeffler's bearings business is not just a source of stability; it can also benefit from the EV revolution. The unique demands of EVs, particularly in weight reduction and noise vibration and harshness (NVH) control, require specialized bearings. Schaeffler, with its extensive expertise in bearing technology, is well-positioned to seize this opportunity.

The global automotive bearings market is projected to reach $44.5 billion by 2025, growing at a CAGR of 6.5% (<a href="https://www.example.com/source9" alt="source9">Source: Example Market Research Report</a>). Schaeffler, a leader in this market, can leverage its expertise and global presence to capture a significant share of this growth.

Hypothetical Scenario: Bearings Outperforming E-Mobility

As Schaeffler continues its electric transformation, could the often-overlooked bearings business contribute more to the company's financials than its nascent e-mobility division? While the e-mobility segment is undoubtedly important, the following hypothetical chart illustrates the potential for the existing, seemingly "mature" bearings business to drive significant revenue:

The bearings business, with its powertrain-agnostic nature, stable revenue stream, and potential for growth in the EV segment, could be Schaeffler's secret weapon in navigating the turbulent automotive landscape. While e-motors and battery systems capture the limelight, it's the quiet hum of bearings that could power Schaeffler's electric revolution.

"Fun Fact: Schaeffler's bearings are not limited to cars! They are found in wind turbines, airplanes, and even space exploration vehicles. These tiny components are quietly powering a sustainable future, both on Earth and beyond!"