A few industry players such as Lear Corporation LEA, Gentex Corporation GNTX and Hesai Group HSAI are positioned to benefit from rising vehicle technology adoption, growing content per vehicle and the transition toward smarter, safer, and more connected automobiles.
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.
Key Investing Themes
Affordability Remains a Key Challenge : The U.S. auto market has remained relatively resilient in 2026 despite economic uncertainty. However, affordability continues to weigh on vehicle demand. High interest rates, elevated living costs and tighter household budgets are reducing consumers' purchasing power, making new vehicle purchases more difficult. Industry forecasts also point to a modest decline of around 3% in vehicle sales this year. Since demand for automotive equipment largely depends on vehicle production and sales, weaker market volumes could slow order growth and create a challenging operating environment for suppliers.
Technology Is Reshaping the Industry :The automotive equipment industry is evolving rapidly as automakers shift toward electric, hybrid, and software-defined vehicles. This transition is increasing demand for lightweight components, EV-focused systems, advanced safety technologies, and electronic content. Autonomous vehicles, electrification and advanced driver-assistance systems are changing supplier requirements. Companies with strong engineering capabilities, innovative product portfolios, and the ability to adapt to new vehicle platforms are likely to gain market share as the industry continues to evolve.
Cost Discipline Is Becoming More Important : As vehicle technology becomes more advanced, suppliers are facing higher development and manufacturing costs. Increased spending on research and development, factory upgrades, skilled labor, and new materials is putting pressure on profitability. At the same time, customers continue to demand better performance and more advanced features. In this environment, efficient operations, disciplined capital spending, and optimized supply chains are becoming critical. Companies that successfully balance innovation with cost control are better positioned to protect margins and deliver consistent long-term growth.
Tariffs Are Driving Supply Chain Changes :Trade policies continue to influence the automotive equipment industry in the United States. Tariffs on imported auto parts have increased costs and encouraged automakers to source more components from regional suppliers. While greater localization can reduce tariff exposure and strengthen supply chain resilience, it also requires significant investment in new manufacturing capacity. Suppliers with established regional production networks are better equipped to manage these changes, while smaller companies may face higher costs and greater execution risks as supply chains continue to adjust.
Zacks Industry Rank Isn't Too Encouraging
The Zacks Automotive - Original Equipment Industry is part of the broader Zacks Autos/ Tires/ Trucks sector. It carries a Zacks Industry Rank #152, which places it in the bottom 38% of more than 245 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 11.2%.
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 12.4% over this period against the sector and the S&P 500’s growth of 3.5% and 20%, respectively.
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 18.18X compared with the S&P 500’s 18.21X and the sector’s 25.07X.
Over the past five years, the industry has traded as high as 22.77X and as low as 7.25X, with the median being 17.51X, as the chart below shows.
EV/EBITDA Ratio (Past 5 Years)
3 Stocks Worth Buying
Lear: The companyremains well positioned in the automotive equipment industry through its two core businesses— Seating and E-Systems— supplying leading global automakers. Its growth outlook is supported by new program wins across both segments, while recent acquisitions are strengthening its capabilities in thermal comfort solutions, vertical integration, and automation. Lear continues to target its thermal comfort module business reaching $1 billion in revenues by 2027, supported by acquired seating assets.
Lear is also focused on improving profitability through its IDEA and restructuring initiatives. The company expects these programs to deliver $75 million in automation savings and $80 million in restructuring benefits in 2026. Strong cash generation remains another positive, with management targeting over 80% free cash flow conversion and reaffirming 2026 free cash flow guidance of $550-$650 million.
Lear currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for LEA’s 2026 and 2027 EPS implies year-over-year growth of 16% each. The consensus mark for 2026 and 2027 EPS has moved north by 17 cents and 11 cents, respectively, over the past 30 days.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: LEA
Gentex: It is strengthening its position in the automotive equipment market by leveraging its expertise in automatic-dimming rear-view mirrors and advanced vehicle electronics. The company is benefiting from the rising adoption of technologies such as Full Display Mirrors, Driver Monitoring Systems, and In-Cabin Monitoring Systems, which are increasing content per vehicle. Beyond its core automotive business, Gentex is diversifying through premium audio, biometrics, fire protection products, and aircraft windows, creating additional growth opportunities.
The company is also investing for long-term expansion, including a new manufacturing facility in Morocco to support European customers seeking localized production. Operational improvements, higher-margin product growth and an improved gross margin outlook are expected to support profitability. With a debt-free balance sheet, strong cash position, and shareholder-friendly capital allocation, Gentex is well positioned to pursue growth while maintaining financial flexibility.
Gentex currently carries a Zacks Rank #2. The Zacks Consensus Estimate for GNTX’s 2026 and 2027 EPS implies year-over-year growth of 9% and 11%, respectively. The consensus mark for 2026 and 2027 EPS has moved north by a cent each over the past 30 days.
Price & Consensus: GNTX
Hesai: It is emerging as a leading player in the 3D perception market, with lidar adoption in advanced driver assistance systems serving as a major growth catalyst. The company expects lidar shipments to nearly double to 3-3.5 million units in 2026, following record deliveries of 1.6 million units in 2025. Hesai’s technology is gaining strong industry acceptance, with its lidar solutions featured across multiple vehicle models from leading automakers including Audi, BYD, Xiaomi, Li Auto and Cadillac.
Innovation remains a key differentiator for Hesai. The company recently introduced Picasso, the industry’s first 6D full-color lidar chip, designed to enhance perception accuracy by combining color imaging with 3D sensing. Additionally, its next-generation ETX platform is expected to begin mass production in late 2026, supporting broader adoption from 2027 onward. With expanding automotive partnerships and advancing technology, Hesai is positioned to benefit from the long-term growth of autonomous driving and intelligent vehicles.
Hesai currently carries a Zacks Rank #2. The Zacks Consensus Estimate for HSAI’s 2026 and 2027 EPS implies year-over-year growth of 54% and 81%, respectively. The consensus mark for 2026 and 2027 revenues implies a year-over-year increase of 55% and 42%, respectively.
Price & Consensus: HSAI
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Lear Corporation (LEA): Free Stock Analysis Report
Gentex Corporation (GNTX): Free Stock Analysis Report
Hesai Group Sponsored ADR (HSAI): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).