Feedback on Our Report "Auto Parts at Crossroads: SDVs a New Challenge"

Research evidence excerpt

Investors seem to broadly agree with our view that the shift to SDVs will put pressure on the value added by traditional Tier 1 suppliers. Some also pointed out that changes in the industry structure pose a combination of challenges, including the shift to SDVs, electrification, and competition with local Chinese companies.

We recently published Auto Parts: Auto Parts at Crossroads: SDVs a New Challenge (13 Oct 2026). As Japanese OEMs accelerate the introduction of SDVs in the lead up to 2030, we are concerned about a shift in value added from traditional Tier 1 suppliers to semiconductor and software companies, and even to in-house operations at automakers. Investors broadly agreed with this view. The main feedback from investors is as follows. (1) Are structural challenges already priced in? We believe the weak share prices and valuations of Japanese auto parts companies to date mainly reflect intensifying competition with local Chinese suppliers, which is already a growing concern.

Japanese OEMs have begun increasing procurement from local Chinese suppliers to improve cost competitiveness and product appeal etc., and we expect this trend to continue. Meanwhile, we expect Japanese OEMs to accelerate their shift to SDVs toward 2030, with the impact on share prices still to come. Domain-based E/E architectures have already been partially adopted (ADAS + cockpit) in some models, but we expect the increasing rollout of Level 2++ autonomous driving and other technologies to accelerate the shift to SDVs. This is likely to increase the value added by integrated software and semiconductors (automotive SoCs), raising concerns about a shift in value added away from existing Tier 1 suppliers. (2) Is the situation similar for the US and European auto parts industry? In the