ZF Friedrichshafen: Restructuring for Resilience Amidst Market Headwinds

ZF Friedrichshafen AG reported sales of €19.7bn for the first half of 2025, down 10.3% from €22bn in 2024, largely due to the transfer of its axle assembly business to a joint venture with Foxconn. The company faces structural challenges, including US tariffs, trade tensions, and a slowdown in the electric vehicle market, prompting a major restructuring aimed at enhancing profitability and efficiency by 2027. Despite a decline in sales across most regions, adjusted EBIT improved to €874bn, reflecting effective cost control. Free cash flow also increased significantly to €465bn from a negative €494bn in the previous year. With a solid liquidity position of approximately €8bn against net debt of €10.5bn, ZF is strategically navigating current market conditions while cautiously revising its sales outlook for the second half of the year, focusing on long-term competitiveness and growth opportunities. Given the current market conditions and ZF's proactive measures to restructure and improve performance, the outlook on earnings can be categorized as somewhat more optimistic . While challenges remain, the company's ability to improve FCF and maintain a strong liquidity position suggests it is well-prepared to handle current headwinds and seize future opportunities. We maintain our market weight position and continue to buy the ZFFNGR 7 30 , which was the biggest mover (+1.5 pts) of the day in our auto parts coverage.