Auto Parts Industry: Facing Three Structural Challenges

After (1) electrification and (2) Chinese competition, (3) SDV adaptation is the next challenge. We have downgraded Denso to UW on rising software and semiconductor competition while upgrading Stanley Electric to OW for its value creation in specialist areas. Auto Parts industry In-Line: Although earnings are expected to improve in F3/27 2H as progress is made in passing on higher raw material costs through price increases, there are lingering structural issues, including intensifying competition with Chinese companies and the shift to higher value-added in software and semiconductors. We highlight stocks based on potential CPV growth (increasing content-per-vehicle) and expanding non-automotive businesses (parts and materials for AI datacenters). Tires industry In-Line: The impact of higher raw material costs is expected to become more pronounced from F12/26 2H. We continue to monitor sluggish replacement tire demand following price increases and consumers trading down to lower-priced