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3 Original Auto Equipment Stocks to Watch as Industry Dynamics Evolve
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The Zacks Automotive - Original Equipment industry is positioned to gain from acquisitions and collaborations, as well as a diverse customer base and expanding global footprints of original equipment manufacturers. Deployment of automation tools has been offering improved efficiency, productivity, quality and safety while lowering labor expenses of the manufacturers. The newly introduced tax incentive by the Trump administration for car buyers is also expected to boost demand for new cars, which will support demand for original equipment. Players, such as Gentex Corporation (GNTX - Free Report) , Adient plc (ADNT - Free Report) and American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) , are expected to gain from this accelerating demand momentum.
Industry Description
The Zacks Automotive - Original Equipment Industry comprises companies that design, produce and provide passive safety systems for the automotive sector. These systems aim to improve safety, boost efficiency, reduce overall ownership costs and streamline fleet management, supporting individuals who tackle some of the toughest jobs globally. Companies that design, engineer and manufacture Driveline and Metal Forming technologies to support electric, hybrid and internal combustion vehicles are also part of the same industry. The industry supplies equipment to the U.S. government and big car manufacturers. Some companies also engage in equipment financing and leasing solutions for their customers, primarily through third-party funding arrangements.
Factors Influencing the Outlook of the Original Equipment Industry
Automation Technology Boosting Efficiency: Automation uses advanced technology and machines to handle tasks previously performed by humans to improve efficiency, productivity, quality and safety while lowering labor expenses. This innovation has revolutionized manufacturing by enabling faster and more efficient production. For OEMs, it offers a competitive edge by reducing costs, offsetting high labor expenses and enhancing efficiency. Automation also enables quicker adaptation to market changes, improves product quality and supports the streamlined production of electric and next-generation vehicles, which are critical factors for staying competitive in the global marketplace.
New Tax Incentive for Car Buyers to Offer Some Respite: Under the recently enacted "One Big Beautiful Bill," car buyers can now take advantage of a new tax incentive that allows them to deduct up to $10,000 annually in auto loan interest from their federal taxable income. This deduction applies to interest paid on loans for eligible vehicle purchases and is available for new cars bought between 2025 and 2028. The bill is expected to attract new car buyers and boost demand for new vehicles assembled in the United States.
Anticipated Decline in Vehicle Production to Hurt Demand: Demand for auto equipment depends on the production level of the auto manufacturers. However, when the demand for new vehicles starts declining, the auto manufacturer scales back their production. Currently, rising inventories of new vehicles, particularly unsold EVs, highlight weak demand in the U.S. market. While sales remained flat in May and rose slightly in June, dealership lots saw stockpiles grow as new model-year vehicles accumulated. Consequently, some automakers have scaled back on the production of new vehicles. Per the National Automotive Dealer Association, new-vehicle sales are projected to decline in the second half of 2025 following a strong first half. This is expected to result in lower North American light-vehicle production in the second half of the year, which will hurt the demand for auto equipment.
Tariff on Imports Raises Costs for U.S. Equipment Manufacturers: The U.S. government has adopted a protectionist approach to encourage automakers to increase domestic production. Protectionism refers to policies that limit international trade to safeguard local industries through tariffs, quotas and subsidies. Starting in May 2025, the U.S. government implemented a 25% import tax on engines, transmissions and other essential auto components. As a result, equipment manufacturers are facing higher costs.
Zacks Industry Rank Indicates Upbeat Near-Term Prospects
The Zacks Automotive - Original Equipment Industry is part of the broader Zacks Autos/ Tires/ Trucks sector. It carries a Zacks Industry Rank #91, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates upbeat near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.
Based on the positive industry outlook, we will present a few stocks that you might consider adding to your watchlist. Before that, let’s discuss the industry’s recent stock market performance and valuation picture.
Industry Lags the S&P 500 & Sector
The Zacks Automotive - Original Equipment Industry has underperformed the S&P 500 and its sector over the past year. The industry has declined 3% over this period against the S&P 500’s growth of 16.6%. The broader sector has returned 18.5% in the same time frame.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) ratio.
Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 18.57X compared with the S&P 500’s 17.77X and the sector’s 22.63X.
Over the past five years, the industry has traded as high as 22.21X and as low as 8.13X, with the median being 13.04X, as the chart below shows.
EV/EBITDA Ratio (Past 5 Years)
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
3 Stocks to Consider Right Now
Gentex: The company supplies automatic-dimming rear-view mirrors and electronics to the automotive industry; fire protection products to the fire protection market and dimmable aircraft windows to the aviation market. Its growth avenues in tech products diversify and enhance prospects. Penetration for HomeLink is likely to grow as the demand for connectivity to homes increases. Gentex’s HomeLink Connect app enables users to control their existing home automation devices. The integration of Solace’s technology into its product lines would increase its product design flexibility. The acquisition of VOXX International, completed in April 2025, has expanded Gentex’s product portfolio by adding VOXX’s automotive, consumer electronics and audio businesses.
GNTX currently sports a Zacks Rank #1 (Strong Buy) and has a Value Score of B. The Zacks Consensus Estimate for 2025 sales and EPS implies year-over-year growth of 8.9% and 0.6%, respectively. Gentex has surpassed estimates in three of the trailing four quarters and missed once, the average earnings surprise being 0.77%.
Adient: It is one of the world’s largest automotive seating suppliers. Adient has been gaining customers with its broad range of products. A diverse customer base and international presence have helped the company create a strong market position. Launch execution continues to be an area of focus for Adient and a key building block to win new business. Given the customer and geographic mix, the company’s market position is likely to strengthen going forward. Its push for automation and modularity is paying off in 2025. Automation is cutting labor costs while boosting quality, speed and safety.
ADNT currently carries a Zacks Rank #3 (Hold) and has a Value Score of A. The Zacks Consensus Estimate for fiscal 2025 EPS implies year-over-year growth of 2.2%. Adient has surpassed estimates in three of the trailing four quarters and missed once, the average earnings surprise being 30.34%.
Price & Consensus: ADNT
Image Source: Zacks Investment Research
American Axle: It is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. It is advancing in the electric drive space, with its Inovance collaboration boosting electrification revenues. Its expanding electrification portfolio strengthens its market position. As the shift toward electrification occurs, AXL leads with advanced electric propulsion technology. The company’s efforts to optimize its portfolio via buyouts and divestitures bode well. The acquisition of Metaldyne Performance Group has widened American Axle’s operating scale, customer base and end markets.
AXL currently carries a Zacks Rank #3 and has a Value Score of A. The Zacks consensus estimate for 2025 EPS has improved 4 cents in the past 30 days. American Axle has surpassed estimates in each of the trailing four quarters, the average earnings surprise being 584.14%.
Price & Consensus: AXL
Image Source: Zacks Investment Research
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3 Original Auto Equipment Stocks to Watch as Industry Dynamics Evolve
The Zacks Automotive - Original Equipment industry is positioned to gain from acquisitions and collaborations, as well as a diverse customer base and expanding global footprints of original equipment manufacturers. Deployment of automation tools has been offering improved efficiency, productivity, quality and safety while lowering labor expenses of the manufacturers. The newly introduced tax incentive by the Trump administration for car buyers is also expected to boost demand for new cars, which will support demand for original equipment. Players, such as Gentex Corporation (GNTX - Free Report) , Adient plc (ADNT - Free Report) and American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) , are expected to gain from this accelerating demand momentum.
Industry Description
The Zacks Automotive - Original Equipment Industry comprises companies that design, produce and provide passive safety systems for the automotive sector. These systems aim to improve safety, boost efficiency, reduce overall ownership costs and streamline fleet management, supporting individuals who tackle some of the toughest jobs globally. Companies that design, engineer and manufacture Driveline and Metal Forming technologies to support electric, hybrid and internal combustion vehicles are also part of the same industry. The industry supplies equipment to the U.S. government and big car manufacturers. Some companies also engage in equipment financing and leasing solutions for their customers, primarily through third-party funding arrangements.
Factors Influencing the Outlook of the Original Equipment Industry
Automation Technology Boosting Efficiency: Automation uses advanced technology and machines to handle tasks previously performed by humans to improve efficiency, productivity, quality and safety while lowering labor expenses. This innovation has revolutionized manufacturing by enabling faster and more efficient production. For OEMs, it offers a competitive edge by reducing costs, offsetting high labor expenses and enhancing efficiency. Automation also enables quicker adaptation to market changes, improves product quality and supports the streamlined production of electric and next-generation vehicles, which are critical factors for staying competitive in the global marketplace.
New Tax Incentive for Car Buyers to Offer Some Respite: Under the recently enacted "One Big Beautiful Bill," car buyers can now take advantage of a new tax incentive that allows them to deduct up to $10,000 annually in auto loan interest from their federal taxable income. This deduction applies to interest paid on loans for eligible vehicle purchases and is available for new cars bought between 2025 and 2028. The bill is expected to attract new car buyers and boost demand for new vehicles assembled in the United States.
Anticipated Decline in Vehicle Production to Hurt Demand: Demand for auto equipment depends on the production level of the auto manufacturers. However, when the demand for new vehicles starts declining, the auto manufacturer scales back their production. Currently, rising inventories of new vehicles, particularly unsold EVs, highlight weak demand in the U.S. market. While sales remained flat in May and rose slightly in June, dealership lots saw stockpiles grow as new model-year vehicles accumulated. Consequently, some automakers have scaled back on the production of new vehicles. Per the National Automotive Dealer Association, new-vehicle sales are projected to decline in the second half of 2025 following a strong first half. This is expected to result in lower North American light-vehicle production in the second half of the year, which will hurt the demand for auto equipment.
Tariff on Imports Raises Costs for U.S. Equipment Manufacturers: The U.S. government has adopted a protectionist approach to encourage automakers to increase domestic production. Protectionism refers to policies that limit international trade to safeguard local industries through tariffs, quotas and subsidies. Starting in May 2025, the U.S. government implemented a 25% import tax on engines, transmissions and other essential auto components. As a result, equipment manufacturers are facing higher costs.
Zacks Industry Rank Indicates Upbeat Near-Term Prospects
The Zacks Automotive - Original Equipment Industry is part of the broader Zacks Autos/ Tires/ Trucks sector. It carries a Zacks Industry Rank #91, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates upbeat near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.
Based on the positive industry outlook, we will present a few stocks that you might consider adding to your watchlist. Before that, let’s discuss the industry’s recent stock market performance and valuation picture.
Industry Lags the S&P 500 & Sector
The Zacks Automotive - Original Equipment Industry has underperformed the S&P 500 and its sector over the past year. The industry has declined 3% over this period against the S&P 500’s growth of 16.6%. The broader sector has returned 18.5% in the same time frame.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) ratio.
Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 18.57X compared with the S&P 500’s 17.77X and the sector’s 22.63X.
Over the past five years, the industry has traded as high as 22.21X and as low as 8.13X, with the median being 13.04X, as the chart below shows.
EV/EBITDA Ratio (Past 5 Years)
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
3 Stocks to Consider Right Now
Gentex: The company supplies automatic-dimming rear-view mirrors and electronics to the automotive industry; fire protection products to the fire protection market and dimmable aircraft windows to the aviation market. Its growth avenues in tech products diversify and enhance prospects. Penetration for HomeLink is likely to grow as the demand for connectivity to homes increases. Gentex’s HomeLink Connect app enables users to control their existing home automation devices. The integration of Solace’s technology into its product lines would increase its product design flexibility. The acquisition of VOXX International, completed in April 2025, has expanded Gentex’s product portfolio by adding VOXX’s automotive, consumer electronics and audio businesses.
GNTX currently sports a Zacks Rank #1 (Strong Buy) and has a Value Score of B. The Zacks Consensus Estimate for 2025 sales and EPS implies year-over-year growth of 8.9% and 0.6%, respectively. Gentex has surpassed estimates in three of the trailing four quarters and missed once, the average earnings surprise being 0.77%.
Price & Consensus: GNTX
Image Source: Zacks Investment Research
You can see the complete list of today’s Zacks #1 Rank stocks here.
Adient: It is one of the world’s largest automotive seating suppliers. Adient has been gaining customers with its broad range of products. A diverse customer base and international presence have helped the company create a strong market position. Launch execution continues to be an area of focus for Adient and a key building block to win new business. Given the customer and geographic mix, the company’s market position is likely to strengthen going forward. Its push for automation and modularity is paying off in 2025. Automation is cutting labor costs while boosting quality, speed and safety.
ADNT currently carries a Zacks Rank #3 (Hold) and has a Value Score of A. The Zacks Consensus Estimate for fiscal 2025 EPS implies year-over-year growth of 2.2%. Adient has surpassed estimates in three of the trailing four quarters and missed once, the average earnings surprise being 30.34%.
Price & Consensus: ADNT
Image Source: Zacks Investment Research
American Axle: It is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. It is advancing in the electric drive space, with its Inovance collaboration boosting electrification revenues. Its expanding electrification portfolio strengthens its market position. As the shift toward electrification occurs, AXL leads with advanced electric propulsion technology. The company’s efforts to optimize its portfolio via buyouts and divestitures bode well. The acquisition of Metaldyne Performance Group has widened American Axle’s operating scale, customer base and end markets.
AXL currently carries a Zacks Rank #3 and has a Value Score of A. The Zacks consensus estimate for 2025 EPS has improved 4 cents in the past 30 days. American Axle has surpassed estimates in each of the trailing four quarters, the average earnings surprise being 584.14%.
Price & Consensus: AXL
Image Source: Zacks Investment Research