An Auto Parts Winner in a Greener Future

The global auto industry is in an all-out drive toward a cleaner and greener future.However, for some suppliers to the auto industry, it has not been a pleasurable joyride.

Instead, current conditions are more like driving on a icy, treacherous mountain road in the middle of a blizzard. Only the most skilled drivers will make it to the bottom of the metaphorical mountain intact.

Tough Sledding for Auto Suppliers

Most auto suppliers are already feeling a squeeze due to rising energy prices and rampant inflation in other parts of the supply chain. They have little choice but to shoulder most of the extra costs of making their components sustainable to help the automakers meet their environmental targets.

And make no mistake: the carmakers are pushing their suppliers hard. For example, Reuters reports that BMW expects all of its battery and many of its steel and aluminum providers to produce materials made using renewable energy, while Volvo Car is targeting 25% recyclable plastic in its cars by 2025.

Consequently, many suppliers to the automobile industry are making large investments to “green” their companies, doing everything from developing recyclable parts to using renewable energy.

Simultaneously, many of these same firms have little leeway to raise the prices they’re charging automakers, which are themselves focused on reducing costs. Automakers are spending tens of billions of dollars to shift their focus to producing electric vehicles.

This difficult situation faced by the auto parts industry was summed up nicely by Joe McCabe, CEO of the research firm AutoForecast Solutions, who told Reuters: “We use the term disruptive all the time, but it’s much more than just disruptive. We’re going to see a real big shakeout the next five, 10 years in the auto supply chain.”

In other words, the auto industry’s move to a greener future, alongside the supply-chain problems that began during the pandemic and soaring costs, has killed the profit margins for auto parts suppliers and created a perfect storm for the industry.

It is likely that only the strongest and shrewdest companies will survive this extinction event in the sector. The rest will go the way of the dinosaur.

One company that I believe will survive is TE Connectivity (TEL). It is able to pass along price increases to its customers, and it pays a dividend, too. Continue reading "An Auto Parts Winner in a Greener Future"

This Stock Is Best In Class In The High Growth Auto Parts Industry

Daniel Cross - Contributor - Equities

The S&P 500 is expected to return around 10% for 2015 – year-to-date though, it's only up 2.35%. Yields on bonds are slowly tracking higher in advance of the Fed interest rate hike, but still remain far below historical averages. Commodities haven't fared well either with oil plunging in the past year and gold trading relatively flat. However, there's no such thing as a market without opportunity.

The auto parts industry is growing at a tremendous rate – for one company, the 5-year expected EPS growth rate is over 20%. In April, I wrote about the opportunities in the auto industry for manufacturers. The auto parts segment is a great way to play off of that angle.

A significant tailwind for the industry is the fall in gas prices that we've seen over the last few months. While prices have begun to rise again, consumers have already been logging more miles in their vehicles since they can travel further for the same cost. Increased wear and tear on motor vehicles translates into high demand for auto parts. Continue reading "This Stock Is Best In Class In The High Growth Auto Parts Industry"