Eltek Ltd. (ELTK): PESTLE Analysis [Nov-2025 Updated]

You're looking for a clear map of the external forces shaping Eltek Ltd. (ELTK), and honestly, it's a complex picture. The core takeaway is this: Eltek's fate remains deeply tied to defense spending and geopolitical stability, but their near-term opportunity lies in mastering next-gen printed circuit board (PCB) technology and optimizing their supply chain against inflation.

Here's the quick math on the environment they're navigating. The defense sector provides a stable, high-margin base, but it comes with intense regulatory scrutiny. Plus, global component price volatility is defintely chipping away at margins, forcing a relentless focus on operational efficiency.

Political Factors: Stability and Control

The political landscape for Eltek Ltd. is all about stability and control. Geopolitical stability, especially in the Middle East, directly impacts both operations and investor confidence. A flare-up can instantly slow down production or spook the market. That's the reality of being a key defense supplier.

A huge part of their revenue relies on US Foreign Military Financing (FMF) tied to Israeli defense contracts. This means Eltek Ltd. is deeply exposed to US political and budgetary cycles. Also, strict export control laws, like the International Traffic in Arms Regulations (ITAR), dictate precisely where and how their specialized PCBs can be sold. You can't just ship these high-tech parts anywhere.

The good news is that government defense spending cycles create long-term contract visibility-you know the work is coming-but the downside is that procurement is notoriously slow. It's a stable check, but you have to wait for it.

Economic Factors: Inflation and Growth

The immediate economic pressure point for Eltek Ltd. is the supply chain. Global volatility for key raw materials, like copper and specialized resins, directly impacts their Cost of Goods Sold (COGS). When copper prices spike, their margins shrink instantly.

Also, within Israeli high-tech manufacturing, they face strong inflationary pressure on labor and energy costs. To be fair, everyone is dealing with this, but it's particularly acute in a high-skill, high-energy manufacturing environment. Plus, the Israeli Shekel (ILS) against the US Dollar (USD) creates currency risk, affecting how much export revenue is actually worth when converted back home. That's a constant headache for the finance team.

Still, the demand is there. Projected 2025 revenue growth is conservatively estimated at between 5% and 7%, driven largely by their existing aerospace backlog. That's a solid, if unspectacular, growth forecast for the year.

Sociological Factors: Talent and Transparency

The people side of the business presents two major challenges: talent and transparency. Eltek Ltd. faces an acute shortage of highly skilled engineering and manufacturing labor in Israel. You can't build next-gen PCBs without the right talent, so the focus on workforce training to adapt to advanced manufacturing techniques is defintely a must-do.

Beyond the factory floor, there is increasing investor and customer demand for transparent Environmental, Social, and Governance (ESG) reporting. Customers in the defense and medical industries demand not just a quality product, but a responsible supplier. Honestly, your corporate culture must align with these strict quality standards, or you lose the contract. It's that simple.

Technological Factors: Mandatory Innovation

Technology is not an option for Eltek Ltd.; it's mandatory. The market is forcing a mandatory shift toward High-Density Interconnect (HDI) and flexible printed circuit boards (FPCBs). These are the smaller, lighter, and more complex boards needed for modern defense systems and medical devices.

This means continuous Research and Development (R&D) investment is crucial just to meet next-generation specifications. Automation of production lines is also necessary-not just to be fancy, but to counter rising labor costs and increase yield (the number of good boards you get from a batch). Plus, your cybersecurity infrastructure must be robust to protect the highly sensitive intellectual property (IP) and client data you handle. One breach and your defense contracts are gone.

Legal Factors: Non-Negotiable Compliance

The legal environment is defined by strict oversight, mostly because of the industries Eltek Ltd. serves. Strict compliance with US International Traffic in Arms Regulations (ITAR) is non-negotiable for their defense-related products. Mess that up, and you're out of business.

As a Nasdaq-listed company, they also have to adhere to all Israeli corporate, labor, and securities laws, plus mandatory compliance with global product safety and quality standards, like AS9100 for aerospace. What this estimate hides is the sheer cost of maintaining this level of compliance. Also, new data privacy regulations require careful handling of customer and supplier information, adding another layer of complexity to their IT systems.

Environmental Factors: The Cost of Global Access

The environmental factor is becoming a major gatekeeper for global sales. Compliance with the European Union's Restriction of Hazardous Substances (RoHS) directive is essential for accessing key global markets. If your product has banned materials, you can't sell it there.

There is also increasing pressure to reduce manufacturing waste and improve energy efficiency in high-power processes like etching. Eltek Ltd. needs to track and report on the use of conflict minerals in the supply chain, which is a major due diligence task. Plus, increased scrutiny on water usage in the PCB etching and cleaning processes means they need to invest in better water management systems. It's all about sustainability becoming a cost of doing business.

Action: Finance and Operations: Draft a 12-month raw material hedging strategy for copper and resins by end of Q1 2026 to mitigate supply chain volatility risk.

Eltek Ltd. (ELTK) - PESTLE Analysis: Political factors

You're an investor in Eltek Ltd., an Israeli-based manufacturer of high-end Printed Circuit Boards (PCBs), so you know the political landscape isn't just news-it's a core business driver. The near-term outlook for Eltek is a study in two opposing forces: a massive, immediate surge in domestic defense spending, which is a huge tailwind, but also a looming, structural risk from the phase-out of a key US military aid mechanism. We need to map both to understand the true political exposure.

Geopolitical stability in the Middle East directly impacts operations and investor confidence.

The company operates directly in a high-risk geopolitical zone, and that reality is baked into its stock price and operational costs. Eltek Ltd.'s headquarters and primary manufacturing are in Petach Tikva, Israel. The ongoing, elevated security situation means the company faces risks like labor disruption, supply chain volatility, and mandatory reserve duty call-ups for key personnel, which can slow production. To be fair, this instability also drives demand: defense sales accounted for approximately 63% of Eltek Ltd.'s total revenues in the third quarter of 2025, a clear sign of its critical role in the Israeli defense ecosystem. That's a double-edged sword, defintely.

Here's the quick math on the domestic opportunity: The Israeli government, citing security challenges, announced a defense spending increase of 42 billion NIS (about $12.5 billion) for 2025 and 2026. This is on top of the current annual defense budget, which is around 110 billion shekels (approximately $32 billion) in 2025. This surge means a sustained, high-volume demand for Eltek Ltd.'s specialized PCBs, which are critical components in missile defense and advanced systems.

High reliance on US Foreign Military Financing (FMF) for key Israeli defense contracts.

Eltek Ltd. benefits indirectly from the massive US Foreign Military Financing (FMF) program to Israel, which is formalized under a 10-year Memorandum of Understanding (MOU) running through 2028. Under this MOU, the United States annually provides Israel with $3.3 billion in FMF grants, plus an additional $500 million for cooperative missile defense programs. This funding underpins much of the long-term procurement for Israeli defense companies. The challenge, however, lies in the Off-Shore Procurement (OSP) clause, which allows Israel to convert a portion of the FMF into shekels to spend on Israeli-made defense articles, like Eltek Ltd.'s PCBs.

The OSP is phasing out to zero by the end of the MOU in fiscal year (FY) 2028, a major structural headwind. For FY2025, the OSP amount is set at $450.3 million, a significant reduction from previous years. This means Eltek Ltd. and its domestic customers must increasingly compete for the shrinking OSP pool or pivot to direct commercial sales to the US defense prime contractors that receive the FMF. This is a clear action item: Eltek Ltd. needs to grow its direct US market share to offset the OSP decline.

Export control laws, like ITAR, dictate where and how specialized PCBs can be sold.

Because Eltek Ltd. manufactures high-end, specialized PCBs for military and aerospace applications, its export activities are strictly governed by the US International Traffic in Arms Regulations (ITAR). This isn't a hurdle, it's a cost of doing business and a competitive moat. Eltek Ltd. is officially ITAR compliant, which is crucial for selling to US customers and to Israeli defense contractors who integrate US-origin components. Their US subsidiary, Eltek USA Inc., is registered with the Directorate of Defense Trade Controls (DDTC) and holds a Manufacturing License Agreement (MLA).

This compliance means their technical data and physical products are tightly controlled, but it also certifies them as a trusted supplier for the most sensitive programs. The current political climate favors allies, but any future changes to US foreign policy or a shift in the classification of certain PCB technologies could introduce new licensing requirements, so constant vigilance is required. It's a high barrier to entry for competitors.

Government defense spending cycles create long-term contract visibility but slow procurement.

The nature of government defense procurement is that it moves slowly but provides excellent long-term visibility once a contract is secured. Eltek Ltd.'s customers are major defense companies who operate on multi-year programs. For example, in August 2025, Eltek Ltd. announced a $2.4 million order from a leading Israeli defense company, with delivery scheduled mainly throughout 2026 and 2027. This kind of long-term order book is a key benefit of the defense sector.

The recent Israeli budget increase of 42 billion NIS for 2025-2026 is intended to 'replenish depleted stocks and support the IDF's ongoing operations,' which points to immediate procurement deals. This is a fast-track opportunity, but it also means the company is exposed to the political risk of budget debates and revisions, especially as the government attempts to finance the increase by imposing a 3.35% cut across other ministries.

• Monitor the US FMF OSP reduction from $450.3 million in FY2025 to $0 by FY2028.
• Capitalize on the Israeli defense spending surge of 42 billion NIS for 2025-2026.
• Maintain strict ITAR compliance to secure US-linked defense contracts.

Eltek Ltd. (ELTK) - PESTLE Analysis: Economic factors

Global supply chain volatility for key raw materials (e.g., copper, resins) impacts COGS.

The core business of manufacturing Printed Circuit Boards (PCBs) means Eltek Ltd. is directly exposed to price swings in commodity markets. We saw this reality play out in 2025, particularly with materials like copper and various resins (epoxies and laminates) essential for the boards. Copper, a critical metal for component termination and circuitry, has shown extreme volatility in its pricing throughout 2025 due to persistent global inflationary pressures and supply chain disruptions.

This volatility is a major headwind for Cost of Goods Sold (COGS). For example, Eltek's Gross Profit for the third quarter of 2025 dropped to $1.6 million (a 12% margin) from $3.5 million (a 26% margin) in the same period last year. While currency was the main culprit, the underlying cost of materials is defintely a factor in keeping that margin compressed. The company must constantly re-evaluate its inventory hedging and supplier contracts just to maintain margin stability.

Strong inflationary pressure on labor and energy costs within Israeli high-tech manufacturing.

Operating a high-tech manufacturing facility in Israel means facing structural cost pressures, primarily from labor and energy. Although high-tech employment growth in Israel has stagnated-with about 403,000 people employed in H1 2025-the demand for specialized manufacturing and R&D talent remains high, keeping wages competitive. This is a tough spot: you need the best people, but they cost more in dollar terms.

The most immediate economic pressure, however, is the strength of the Israeli Shekel (ILS) against the US Dollar (USD), which directly inflates NIS-denominated expenses like salaries and local utilities when translated back into USD for reporting. The company is actively working to improve production efficiency by mid-2026 to help offset these high fixed costs.

Currency risk from the Israeli Shekel (ILS) against the US Dollar (USD) affects export revenue.

Currency fluctuations represent the single largest near-term economic risk for Eltek. As an Israeli exporter with the majority of its revenues in USD but a significant portion of its operating costs in ILS, a stronger Shekel acts as a tax on profitability. The depreciation of the USD against the ILS was the primary driver for the sharp decline in gross profit margin in Q3 2025.

Here's the quick math on the currency headwind:

The total financial expenses for the first nine months of 2025 were $0.8 million, compared to financial income of $1.0 million in the same period in 2024, a clear reversal driven by the exchange rate.

Projected 2025 revenue growth is conservatively estimated at between 5% and 7%, driven by aerospace backlog.

Despite the currency and cost pressures, the company's revenue growth remains positive, driven by strong demand from its core defense and aerospace customers. Sales for the first nine months of 2025 totaled $38.55 million, which is a 7.77% increase from $35.77 million in the first nine months of 2024.

Conservatively, we project full-year 2025 revenue growth to land between 5% and 7%, anchored by the substantial backlog in the defense sector, which accounted for approximately 63% of total quarterly revenues in Q3 2025. The company is also expanding its capacity, targeting an annual revenue potential of $55 million to $65 million once the new 40-meter coating line is fully qualified in 2026.

Key growth drivers are clear:

• Defense sector sales are robust, comprising 63% of Q3 revenue.
• Operational leverage means incremental revenue should contribute approximately $0.50 to gross profit per dollar.
• Nine-month 2025 sales already show a 7.77% year-over-year increase.

Eltek Ltd. (ELTK) - PESTLE Analysis: Social factors

You need to see the social landscape not just as a compliance checklist, but as a direct operational risk and a talent opportunity. For Eltek Ltd., the key social factors in 2025 center on the acute Israeli labor market crunch, the non-negotiable quality culture required by the defense and medical sectors, and the growing investor pressure for transparent Environmental, Social, and Governance (ESG) performance.

Acute shortage of highly skilled engineering and manufacturing labor in Israel.

The biggest near-term social risk for Eltek is labor stability and skill integration. Israel's labor market continues to see a high demand for engineers, and while there's been some fluctuation in the high-tech sector, the need for specialized manufacturing and physical science engineers remains intense. This means recruiting and retaining the right talent is expensive and difficult. We see this pressure reflected in the company's Q3 2025 results, where management cited 'instability' in production processes, partly due to the integration of newly recruited engineers and production staff still gaining experience with new systems. This isn't a small issue; it directly impacts the gross margin.

Here's the quick math on the staffing challenge and its impact:

• Eltek's staffing was up approximately 10% since January 2025 to meet rising demand, particularly from the defense sector.
• The integration of this new workforce is a key factor in the production instability mentioned in the Q3 2025 earnings call.
• The sharp decline in Gross Profit Margin for Q3 2025 to 12% (down from 26% in Q3 2024) was primarily driven by currency erosion, but operational instability from new staff and equipment ramp-up is a clear secondary factor.

You can't just hire a new engineer and expect them to be immediately productive in a complex Printed Circuit Board (PCB) environment. That lag time is a real cost.

Increasing investor and customer demand for transparent Environmental, Social, and Governance (ESG) reporting.

While not a primary driver of day-to-day operations like quality is, ESG is rapidly moving from a 'nice-to-have' to a 'must-have' for investors and large defense/medical customers. The trend is clear: by 2025, an estimated 60% of the workforce will be millennials who prioritize a company's CSR commitment. For a company like Eltek, which serves the high-end defense and medical markets, a formal and auditable Social pillar (the 'S' in ESG) is critical for supply chain resilience and securing large contracts.

Eltek has a formal Corporate Social Responsibility (CSR) Policy and a robust Code of Conduct. This is the foundation, but the market now demands metrics. The Social component focuses on:

• Workplace Safety: Health and safety is a top priority, with a commitment to achieving measurable, progressive improvement.
• Non-Discrimination: Explicit policies against discrimination based on religion, gender, race, and other factors.
• Ethics Training: All new employees and contractors are required to complete a Code of Conduct training program.

To be fair, Eltek needs to move beyond policy statements to publishing quantifiable social KPIs (Key Performance Indicators) to satisfy sophisticated investors. This is a clear opportunity to 'unlock value' by simply providing the data.

Corporate culture must align with strict defense and medical industry quality standards.

For Eltek, quality isn't a department; it's the core of the corporate culture. The company's business model is built on manufacturing complex, high-reliability PCBs for sectors where failure is not an option. This cultural requirement is codified through a comprehensive set of global certifications and compliance standards that act as a high barrier to entry for competitors.

This commitment to quality is what allows Eltek to command a premium in their niche. Their culture is one of zero-compromise, which is defintely a strength, but also a source of operational cost pressure.

Here is a snapshot of the non-negotiable quality and compliance standards that define Eltek's operational culture:

Focus on workforce training to adapt to advanced manufacturing techniques.

The company is in a transitional period, absorbing significant additional capacity and technology upgrades. The most concrete example is the new production hall, which is in the final stages of preparation for the installation and commissioning of a new coating line. This new equipment represents advanced manufacturing technology, and the social challenge is ensuring the existing and new workforce can operate it efficiently.

Management's focus is on improving manufacturing efficiency to recover the Gross Profit Margin, which requires heavy investment in human capital. This means moving beyond basic onboarding to specialized, continuous training.

Actions taken to address this skill gap include:

• Conducting internal and external training, including technology seminars with international experts.
• Focusing on integrating newly recruited staff, whose inexperience is currently causing production instability.
• Prioritizing the development of effective work methods and fostering professionalism among employees as part of the Quality Policy.

The successful ramp-up of the new coating line, which is an 'important milestone,' is entirely dependent on the success of this workforce training initiative. Finance: track training investment as a percentage of operating expenses and link it to the sequential gross margin recovery over the next four quarters.

Eltek Ltd. (ELTK) - PESTLE Analysis: Technological factors

You're operating in a market where technology isn't just a competitive edge; it's a non-negotiable entry ticket. Eltek Ltd. is doing the right thing by putting $15 million into its accelerated investment plan, but the key is how quickly they can convert that capital expenditure into high-margin, next-generation product revenue. The technological landscape for high-end printed circuit boards (PCBs) is moving fast, so you must keep pace with the miniaturization trend or risk being left with legacy capacity.

Mandatory shift toward High-Density Interconnect (HDI) and flexible printed circuit boards (FPCBs)

The demand for smaller, lighter, and higher-performing electronics in the defense and medical sectors is making High-Density Interconnect (HDI) and flexible printed circuit boards (FPCBs) mandatory. Eltek Ltd. is well-positioned, as it specializes in these complex, high-quality boards, including flex-rigid types. This is a massive, growing market. The global HDI PCB market is estimated to be valued at $19.59 billion in 2025, with a Compound Annual Growth Rate (CAGR) projected at 8.3% through 2032. For your core market, the HDI PCB for Medical Devices segment alone is projected to grow at a 12% CAGR to 2033, driven by devices like implantables and portable diagnostics.

Here's the quick math on the US defense market, which is critical for Eltek Ltd.:

• Approximately 35% of the North American HDI market demand comes from the aerospace and defense sectors.
• About 25% of R&D investment in the HDI market is now directed toward medical and foldable devices.
• Eltek Ltd. must defintely continue to focus on advanced technologies like Every Layer Interconnection (ELIC) to capture the highest-margin work.

Continuous R&D investment is crucial to meet next-generation defense and medical device specifications

While the large capital expenditure is for capacity, the pure research and development (R&D) spend is the fuel for future product differentiation. Eltek Ltd.'s R&D Expenses for the last 12 months, as of the Q2 2025 financial report, stood at $175.0K. This represents a strong year-over-year growth rate of 42.3% in R&D spending, which is a positive sign of commitment to innovation.

However, given the complexity of defense and medical specifications-which require certifications like AS-9100 and NADCAP Electronics, both of which Eltek Ltd. holds-this investment needs to be sustained and possibly increased. The next generation of defense radar and medical imaging systems requires materials and processes that push the limits of current PCB technology, so R&D is an ongoing cost of doing business, not a discretionary expense.

Automation of production lines is necessary to counter rising labor costs and increase yield

The company is actively tackling efficiency and labor cost issues through its capital investment program. The $15 million accelerated investment plan is specifically designed to expand manufacturing infrastructure and increase annual production capacity from below $40 million to a range of $55 million to $65 million. This is a vital move to counter rising operational costs. What this estimate hides, though, is the near-term pain.

The ramp-up of new production equipment, including the new 60-meter coating lines expected toward the end of 2025, has temporarily impacted profitability. For the third quarter of 2025, the Gross Profit was only $1.6 million (12% of revenues), a sharp drop from $3.5 million (26% of revenues) in the same quarter last year. This decline was attributed partly to temporary efficiency losses and increased labor expenses during the transition. Once the new automated lines are fully commissioned, the expected increase in yield and throughput should dramatically improve margins.

Cybersecurity infrastructure must be robust to protect highly sensitive intellectual property and client data

For a supplier to the US defense and aerospace sectors, cybersecurity is a compliance mandate, not an IT feature. Eltek Ltd. handles highly sensitive Intellectual Property (IP) and client data, which makes it a prime target for state-sponsored and corporate espionage. The company's compliance with the International Traffic in Arms Regulations (ITAR) is the core of its data security strategy.

This compliance is enforced through concrete, auditable mechanisms:

• Eltek USA Inc. maintains registration with the DDTC (Directorate of Defense Trade Controls).
• They have a Technical Control Plan (TCP) approved by the US Department of State.
• They operate under a Manufacturing License Agreement (MLA).

To be fair, this level of compliance means Eltek Ltd. already has a robust framework in place, including strict protocols like the one that mandates no direct communication between the customer and the Israeli factory, funneling all sensitive data through the ITAR-compliant US subsidiary. This operational separation is a strong, tangible security measure that protects the integrity of the supply chain and client IP.

Finance: Track the ramp-up schedule of the new 60-meter coating lines and model the expected gross margin recovery by Q2 2026.

Eltek Ltd. (ELTK) - PESTLE Analysis: Legal factors

Strict compliance with US International Traffic in Arms Regulations (ITAR) for defense-related products.

As a key supplier of Printed Circuit Boards (PCBs) to the US defense and aerospace sectors, Eltek Ltd. must maintain strict compliance with the US International Traffic in Arms Regulations (ITAR). This is not a choice; it is a prerequisite for generating a significant portion of the company's revenue. For the third quarter of 2025, defense sales accounted for approximately 63% of quarterly revenue, underscoring the critical nature of this compliance.

Eltek USA Inc., the North American subsidiary, is registered with the US Department of State's Directorate of Defense Trade Controls (DDTC) as an Exporter of Defense Articles and Services. This registration requires a rigorous internal control structure, including a Technical Control Plan (TCP) and a Manufacturing License Agreement (MLA). This operational constraint is a major factor in daily business.

• Maintain DDTC registration annually.
• Enforce Technical Control Plan (TCP) to secure sensitive data.
• Prohibit direct communication between US customers and the Israeli factory under the MLA.

Adherence to Israeli corporate, labor, and securities laws (as a Nasdaq-listed company).

Eltek Ltd. operates primarily out of Israel but is listed on the US Nasdaq stock exchange, creating a dual-regulatory burden. The company must comply with all Israeli corporate and labor laws, plus the stringent reporting and governance standards of the US Securities and Exchange Commission (SEC) and Nasdaq. The filing of the 2024 Annual Report with the SEC on April 8, 2025, confirms ongoing adherence to US securities laws.

Near-term risk includes the evolving Nasdaq continued listing standards. In 2025, Nasdaq has proposed or enacted stricter procedures, including an accelerated delisting process for companies with a listing deficiency and a Market Value of Listed Securities below $5 million. While Eltek's market capitalization fluctuates, maintaining compliance with minimum bid price and market value requirements is a constant legal and financial focus. This is defintely a risk for smaller-cap companies.

Mandatory compliance with global product safety and quality standards (e.g., AS9100 for aerospace).

The high-end nature of Eltek's products-complex, high-quality PCBs for defense, aerospace, and medical industries-mandates adherence to specific global quality and safety certifications. These are non-negotiable legal and contractual requirements from customers.

The company holds the following key certifications, which require continuous auditing and investment to maintain:

• AS-9100: Quality management system for the aerospace industry.
• NADCAP Electronics: Accreditation for special processes in the aerospace and defense industries.

Beyond quality, environmental compliance remains a tangible risk. For example, in January 2023, Eltek received a notification regarding an alleged breach of the Israeli Clean Air Law from 2019-2020, with an intended penalty of approximately $0.6 million. This single event illustrates that environmental laws can translate directly into material financial liabilities.

New data privacy regulations require careful handling of customer and supplier information.

The most pressing legal change in 2025 is the overhaul of Israeli data protection law. The Protection of Privacy Law (PPL) Amendment No. 13 is scheduled to take effect on August 14, 2025, significantly raising the compliance bar for all organizations operating in Israel, including Eltek Ltd.

This amendment aligns Israeli standards closer to international frameworks like GDPR (General Data Protection Regulation) and introduces a strengthened enforcement framework. The Israel Privacy Protection Authority (PPA) gains extensive new powers to investigate and impose substantial administrative fines. For Eltek, which handles sensitive customer and supplier data related to defense and medical contracts, this means a significant increase in compliance investment.

The new law introduces specific corporate governance obligations:

• Boards of Directors must establish and oversee comprehensive privacy policies.
• Certain organizations must appoint a Data Protection Officer (DPO) for the first time.

The reader's action is clear: Finance and Legal need to budget for DPO costs and system upgrades to meet the August 2025 deadline. Start the DPO search now.

Eltek Ltd. (ELTK) - PESTLE Analysis: Environmental factors

You're looking at Eltek Ltd.'s (ELTK) environmental exposure, and it's a classic case of high-tech manufacturing facing increasing regulatory and supply chain scrutiny. The core challenge is simple: producing complex Printed Circuit Boards (PCBs) is chemically and resource-intensive, but your customers-especially in the defense and medical sectors-demand clean supply chains. We need to map the compliance costs and resource risks to clear actions now.

Compliance with the European Union's Restriction of Hazardous Substances (RoHS) directive is essential for global sales.

Eltek's business model depends heavily on selling high-end PCBs to Europe and the US, so compliance with the European Union's Restriction of Hazardous Substances (RoHS) directive is non-negotiable. This regulation restricts the use of specific hazardous materials like lead, mercury, and cadmium in electrical and electronic equipment (EEE). Eltek maintains a general policy of compliance with RoHS, the Waste Electrical and Electronic Equipment (WEEE) Directive, and the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Regulation.

The real risk here isn't the policy; it's the operational slip-up. We've seen a recent, material example of this regulatory pressure in the company's home country. In January 2023, Eltek received a notification from the Ministry of Environmental Protection about its intention to impose a penalty of approximately $0.6 million for an alleged breach of the Clean Air Law during the 2019-2020 period. This is a clear signal that environmental compliance is a material financial risk, not just a paperwork exercise. You defintely need to ensure internal controls are airtight on air quality and hazardous material handling.

Pressure to reduce manufacturing waste and improve energy efficiency in high-power processes.

PCB manufacturing is an energy-intensive process, particularly for the high-layer-count and flex-rigid boards Eltek specializes in. While the company does not publicly disclose its specific 2025 energy consumption per unit (e.g., kWh per square meter of PCB), its financial reports indicate a clear focus on operational efficiency, which serves as the primary proxy for environmental improvement.

Here's the quick math on the investment: Management stated in the Q3 2025 financial results (filed November 2025) that they are in the final stages of preparing a new production hall for the installation of new coating lines. This investment is aimed at expanding capacity and improving manufacturing efficiency, which directly translates to less energy and material waste per board. This capital expenditure is a necessary strategic action to maintain competitive gross margins-which were already under pressure, dropping to 12% in Q3 2025 from 26% in Q3 2024-while also reducing the environmental footprint.

Need to track and report on the use of conflict minerals in the supply chain.

The requirement to track and report on Conflict Minerals (tin, tantalum, tungsten, and gold, or 3TG) is a critical compliance factor for a US-listed defense supplier like Eltek. The company's due diligence process is formal and documented:

• Reporting Period: The latest filing, submitted in May 2025, covers the 2024 reporting year.
• Supplier Response: Eltek achieved a 100% response rate from the five direct suppliers surveyed using the industry-standard Conflict Minerals Reporting Template (CMRT).
• Risk Disclosure: Despite the high response rate, the company explicitly stated in the May 2025 filing that it cannot exclude the possibility that some of the 3TG minerals used in its products may have originated in the Democratic Republic of the Congo (DRC) or an adjoining country.

This means the risk remains, and the action is continued supply chain transparency. A 100% response rate is good, but the inability to fully certify the origin of all 3TG means the supply chain due diligence (Dodd-Frank Act) must remain a top priority to mitigate reputational and regulatory risk.

Increased scrutiny on water usage in the PCB etching and cleaning processes.

Water usage is a major environmental and operational cost for any PCB manufacturer. The etching and cleaning processes require significant volumes of water, which then becomes effluent (wastewater) that must be treated to remove heavy metals and chemicals before discharge. Eltek operates and maintains effluent water treatment systems to comply with local regulations.

What this estimate hides is the sheer volume: Industry benchmarks for complex PCB manufacturing show water consumption can be as high as $\text{1.5 m}^3$ per square meter of board processed, and that volume must be treated. Given Eltek's location in Israel, a region with inherent water scarcity, the pressure to reduce consumption and improve water recycling is intense. The capital investment in new, more efficient coating lines, as noted in the 2025 financial statements, is a direct action that should, in theory, drive down the water-per-unit metric, though the company has not published a specific 2025 water efficiency target or result.

The table below summarizes the key environmental risks and compliance status for the 2025 fiscal year: