Few industries have navigated pandemic-era curves more adeptly than auto parts. While car production has stagnated, aftermarket sales continue to expand as consumers hold onto older vehicles for service and repairs. This bodes well for companies and retailers like O’Reilly Automotive (1.38%) and AutoZone (AZO 1.2%), as well as paint/coating producers such as Axalta Coating Systems (2.7%).
The overall growth of these stocks is driven by several key factors. One is an increasing mileage driven, leading to more replacement parts needing replacement and benefiting aftermarket companies, particularly ORLY and AZO chains. Another major driver is car age itself: this trend requires more maintenance work done regularly which again is particularly beneficial for retail auto part chains like ORLY and AZO chains.
Additionally, government incentives are providing significant value to the industry. Commercial and fleet vehicle owners can receive tax credits when they buy electric vehicles – an added boost for battery producers and electric drive system suppliers like BorgWarner (BWA).
The 2023 ranking of world’s largest original equipment suppliers (OESs) provides evidence of an industry in flux. Many of the world’s 10 biggest original equipment suppliers are shifting toward new technologies and expanding their global presence; this bodes well for all sectors in that it allows more opportunity to address growing consumer interest in alternative fuel vehicles and driverless cars.
At the core of it all lies an exciting newsflash for auto industry investors: little risk of recession. This bodes well for both new car sales and aftermarket sales, keeping replacement parts suppliers optimistic for an upswing in sales in the foreseeable future. Click here for LKQ Corp’s POWR Ratings analysis.