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2 Auto Equipment Providers to Buy as Technology Reshapes Industry
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The Zacks Automotive - Original Equipment industry is navigating a challenging landscape. Vehicle demand remains below pre-pandemic levels, with affordability limiting any meaningful volume recovery. At the same time, electrification and software-led vehicles are shifting revenues toward technology-heavy components, while higher spending on R&D and retooling puts pressure on margins. Tariffs add further cost uncertainty and favor suppliers with established regional manufacturing. We therefore see returns concentrating in companies with strong engineering capabilities, disciplined cost control and localized footprints, while those with narrow portfolios or limited flexibility face a more difficult environment.
Despite a weak industry backdrop, select industry players such as Mobileye Global (MBLY - Free Report) and Hesai Group (HSAI - Free Report) are positioned to benefit from the growing adoption of advanced driver-assistance systems and the shift toward higher-value, technology-led content per vehicle.
About the Industry
The Zacks Automotive - Original Equipment Industry comprises companies that design, engineer, and manufacture components and systems for vehicle manufacturers. These products span powertrain, driveline, metal forming, safety, and structural technologies supporting electric, hybrid, and internal combustion vehicles. OEM suppliers focus on improving vehicle safety, performance, efficiency, and cost competitiveness while meeting increasingly stringent regulatory and emissions standards. The industry primarily serves global automotive manufacturers, with demand closely tied to vehicle production volumes and model mix.
Themes Shaping the Industry Dynamics
Weak Buying Power Holding Back Demand: Even with supply chains largely repaired, vehicle sales are yet to return to pre-pandemic levels. Mobility Global, as reported by Tirereview, forecasts U.S. light-vehicle sales of 16.1 million units in 2026, still short of the 17 million SAAR seen before the pandemic. The core issue is cost of ownership. Households are stretched by pricier food, housing, energy, insurance and fuel, while car payments sit well above earlier levels. With budgets squeezed, fewer buyers can commit to a vehicle, which weighs on equipment makers whose revenues track vehicle volumes.
Shift to Electrified, Software-Led Vehicles: As automakers move toward electric, hybrid and software-defined models, the components they buy are changing. Redesigned platforms need lighter structures, EV-specific driveline parts, advanced safety systems and integrated electronics. This is shifting supplier revenue toward newer, technology-heavy products, while parts tied to older vehicle designs lose importance. Full autonomy is still distant, but electrification and driver assistance are already changing the component mix. Suppliers with strong engineering and matching portfolios gain share, while slower adapters risk falling behind.
Rising Costs of Staying Competitive: Keeping pace with new technology is expensive. Suppliers face higher spending on research, skilled labor and factory retooling for new platforms and materials. New features and tougher performance standards typically demand large upfront outlays before any payback. This makes lean operations, disciplined use of capital and optimized supply chains essential. Firms that hold down costs while continuing to invest in innovation can better protect their margins through market ups and downs.
Tariffs Forcing Sourcing and Production Changes: Trade policy is reshaping how and where U.S. auto parts are made. A 25% Section 232 tariff covers certain imported components, including engines, transmissions and electrical parts. This makes costs harder to predict and pushes automakers to have suppliers build nearer to assembly plants. Local production cuts long-term tariff and supply-chain exposure, but requires more capital and adds execution risk. Suppliers already operating regional facilities hold an edge over smaller, more concentrated competitors.
Zacks Industry Rank Indicates Gloomy Picture
The Zacks Automotive - Original Equipment Industry is part of the broader Zacks Autos/ Tires/ Trucks sector. It carries a Zacks Industry Rank #197, which places it in the bottom 20% of roughly 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates mixed to dull 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence about this group’s earnings growth potential. Over the past year, the industry’s earnings estimates for the current year have declined 9.6%.
Before we present a few stocks that you may still want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Automotive - Original Equipment Industry has underperformed the S&P 500 and its sector over the past year. The industry has lost 11.5% over this period compared with the sector’s 6% decline. In contrast, the S&P 500 has risen 18.6%.
One-Year Price Performance
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 17.68X compared with the S&P 500’s 18.22X and the sector’s 25.51X.
Over the past five years, the industry has traded as high as 22.86X and as low as 8.45X, with the median being 18.21X, as the chart below shows.
EV/EBITDA Ratio (Past 5 Years)
2 Stocks Worth Buying
Mobileye: The company builds technology for driver assistance and self-driving cars. Its product range includes EyeQ chips, along with Supervision, Chauffeur and Drive, which keeps it well placed as the auto industry moves toward autonomy. The core EyeQ business is gaining from the growing use of camera-based driver-assistance systems, share gains with customers and rising exports from Chinese automakers.
In the first half of 2026, revenues grew 13%, even though production at its main customers fell 3%. This shows the company is growing faster than its end market. Mobileye has raised its 2026 revenue forecast to $1.97-$2.02 billion and expects slightly more than 39 million EyeQ units to ship. Its product mix is also shifting toward higher-value offerings. A new high-volume Cloud-Enhanced ADAS award from Stellantis begins in 2027, and its profit per unit is expected to match Surround ADAS and be more than double that of base ADAS. Surround ADAS should lift average selling prices from 2028.
Mobileye currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for MBLY’s 2026 and 2027 EPS implies year-over-year growth of 36% and 7%, respectively.
Hesai: The company designs and sells 3D lidar sensors for passenger cars, commercial vehicles and robots. It is strengthening its position by expanding beyond cars into robotics. More than 50 embodied AI companies worldwide work with its JT128 lidar, and GGII ranks it No. 1 in China’s humanoid and quadruped robot lidar market. In automotive, Hesai held a 44% share of China’s long-range ADAS lidar market in June 2026, and it has led that market for 17 months in a row.
It also won new design deals with Great Wall Motor, Li Auto, GAC Toyota and Volkswagen, which shows growing acceptance from both Chinese and global automakers. Looking ahead, its Picasso 6D SPAD-SoC chip is ready for the start of production. Lidar built on Picasso, called ETX, is being validated by customers and is moving toward information and quotation requests from global automakers and robotaxi operators, which could open new growth avenues.
HSAI currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for HSAI’s 2026 and 2027 EPS implies year-over-year growth of 42% and 74%, respectively.
View the Zacks #1 Rank List
Image: Bigstock
2 Auto Equipment Providers to Buy as Technology Reshapes Industry
The Zacks Automotive - Original Equipment industry is navigating a challenging landscape. Vehicle demand remains below pre-pandemic levels, with affordability limiting any meaningful volume recovery. At the same time, electrification and software-led vehicles are shifting revenues toward technology-heavy components, while higher spending on R&D and retooling puts pressure on margins. Tariffs add further cost uncertainty and favor suppliers with established regional manufacturing. We therefore see returns concentrating in companies with strong engineering capabilities, disciplined cost control and localized footprints, while those with narrow portfolios or limited flexibility face a more difficult environment.
Despite a weak industry backdrop, select industry players such as Mobileye Global (MBLY - Free Report) and Hesai Group (HSAI - Free Report) are positioned to benefit from the growing adoption of advanced driver-assistance systems and the shift toward higher-value, technology-led content per vehicle.
About the Industry
The Zacks Automotive - Original Equipment Industry comprises companies that design, engineer, and manufacture components and systems for vehicle manufacturers. These products span powertrain, driveline, metal forming, safety, and structural technologies supporting electric, hybrid, and internal combustion vehicles. OEM suppliers focus on improving vehicle safety, performance, efficiency, and cost competitiveness while meeting increasingly stringent regulatory and emissions standards. The industry primarily serves global automotive manufacturers, with demand closely tied to vehicle production volumes and model mix.
Themes Shaping the Industry Dynamics
Weak Buying Power Holding Back Demand: Even with supply chains largely repaired, vehicle sales are yet to return to pre-pandemic levels. Mobility Global, as reported by Tirereview, forecasts U.S. light-vehicle sales of 16.1 million units in 2026, still short of the 17 million SAAR seen before the pandemic. The core issue is cost of ownership. Households are stretched by pricier food, housing, energy, insurance and fuel, while car payments sit well above earlier levels. With budgets squeezed, fewer buyers can commit to a vehicle, which weighs on equipment makers whose revenues track vehicle volumes.
Shift to Electrified, Software-Led Vehicles: As automakers move toward electric, hybrid and software-defined models, the components they buy are changing. Redesigned platforms need lighter structures, EV-specific driveline parts, advanced safety systems and integrated electronics. This is shifting supplier revenue toward newer, technology-heavy products, while parts tied to older vehicle designs lose importance. Full autonomy is still distant, but electrification and driver assistance are already changing the component mix. Suppliers with strong engineering and matching portfolios gain share, while slower adapters risk falling behind.
Rising Costs of Staying Competitive: Keeping pace with new technology is expensive. Suppliers face higher spending on research, skilled labor and factory retooling for new platforms and materials. New features and tougher performance standards typically demand large upfront outlays before any payback. This makes lean operations, disciplined use of capital and optimized supply chains essential. Firms that hold down costs while continuing to invest in innovation can better protect their margins through market ups and downs.
Tariffs Forcing Sourcing and Production Changes: Trade policy is reshaping how and where U.S. auto parts are made. A 25% Section 232 tariff covers certain imported components, including engines, transmissions and electrical parts. This makes costs harder to predict and pushes automakers to have suppliers build nearer to assembly plants. Local production cuts long-term tariff and supply-chain exposure, but requires more capital and adds execution risk. Suppliers already operating regional facilities hold an edge over smaller, more concentrated competitors.
Zacks Industry Rank Indicates Gloomy Picture
The Zacks Automotive - Original Equipment Industry is part of the broader Zacks Autos/ Tires/ Trucks sector. It carries a Zacks Industry Rank #197, which places it in the bottom 20% of roughly 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates mixed to dull 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence about this group’s earnings growth potential. Over the past year, the industry’s earnings estimates for the current year have declined 9.6%.
Before we present a few stocks that you may still want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Automotive - Original Equipment Industry has underperformed the S&P 500 and its sector over the past year. The industry has lost 11.5% over this period compared with the sector’s 6% decline. In contrast, the S&P 500 has risen 18.6%.
One-Year Price Performance
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 17.68X compared with the S&P 500’s 18.22X and the sector’s 25.51X.
Over the past five years, the industry has traded as high as 22.86X and as low as 8.45X, with the median being 18.21X, as the chart below shows.
EV/EBITDA Ratio (Past 5 Years)
2 Stocks Worth Buying
Mobileye: The company builds technology for driver assistance and self-driving cars. Its product range includes EyeQ chips, along with Supervision, Chauffeur and Drive, which keeps it well placed as the auto industry moves toward autonomy. The core EyeQ business is gaining from the growing use of camera-based driver-assistance systems, share gains with customers and rising exports from Chinese automakers.
In the first half of 2026, revenues grew 13%, even though production at its main customers fell 3%. This shows the company is growing faster than its end market. Mobileye has raised its 2026 revenue forecast to $1.97-$2.02 billion and expects slightly more than 39 million EyeQ units to ship. Its product mix is also shifting toward higher-value offerings. A new high-volume Cloud-Enhanced ADAS award from Stellantis begins in 2027, and its profit per unit is expected to match Surround ADAS and be more than double that of base ADAS. Surround ADAS should lift average selling prices from 2028.
Mobileye currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for MBLY’s 2026 and 2027 EPS implies year-over-year growth of 36% and 7%, respectively.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: MBLY
Hesai: The company designs and sells 3D lidar sensors for passenger cars, commercial vehicles and robots. It is strengthening its position by expanding beyond cars into robotics. More than 50 embodied AI companies worldwide work with its JT128 lidar, and GGII ranks it No. 1 in China’s humanoid and quadruped robot lidar market. In automotive, Hesai held a 44% share of China’s long-range ADAS lidar market in June 2026, and it has led that market for 17 months in a row.
It also won new design deals with Great Wall Motor, Li Auto, GAC Toyota and Volkswagen, which shows growing acceptance from both Chinese and global automakers. Looking ahead, its Picasso 6D SPAD-SoC chip is ready for the start of production. Lidar built on Picasso, called ETX, is being validated by customers and is moving toward information and quotation requests from global automakers and robotaxi operators, which could open new growth avenues.
HSAI currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for HSAI’s 2026 and 2027 EPS implies year-over-year growth of 42% and 74%, respectively.
Price & Consensus: HSAI