Japanese auto parts and tires industry Report Interpretation

Overview

This Japan-focused industry presentation maps the auto-parts and tire landscape, company valuations, operating forecasts, technology shifts, and stock preferences. Morgan Stanley’s central message is that broad industry uncertainty favors suppliers and tire makers with differentiated technology, rising content per vehicle, customer diversification, or non-automotive growth engines.

Core views

Morgan Stanley maintains an In-Line view on both Japanese auto parts and tires. For auto parts, it expects earnings improvement in 2H F3/27 as suppliers make progress passing higher raw-material costs through price increases. However, it emphasizes structural challenges: intensifying competition from Chinese suppliers and a shift in value added toward software and semiconductors. The preferred route to differentiation is higher content per vehicle from xEV and ADAS adoption, plus non-automotive expansion such as AI-data-center components and materials. The report’s preferred auto-parts names are Toyoda Gosei, Nifco, NHK Spring, GS Yuasa and TIER IV. Toyoda Gosei is supported by more airbags per vehicle and increasing orders in India and the US; its target price is ¥6,500 versus a ¥5,089 share price as of September 9, implying 28% upside. Nifco is preferred for growing xEV content value and expansion with Chinese and Korean OEMs, with a ¥5,900 target versus ¥4,921, or 20% upside. NHK Spring is supported by HDD-suspension growth and recovering seat and spring profits; its ¥4,500 target versus ¥3,325 implies 35% upside. The report forecasts HDD suspension demand rising from 1.6bn units in CY25 to 2.2bn in CY28, while NHK’s volume rises from 900mn to 1.24bn and market share remains around 56%. GS Yuasa is favored for expanding ESS and AI-data-center UPS battery orders. Morgan Stanley forecasts sales of ¥678bn in F3/27, ¥714bn in F3/28 and ¥747bn in F3/29, with industrial batteries and power supplies rising from ¥155.4bn in F3/26 to ¥230bn by F3/29. Its ¥7,000 target versus ¥5,229 implies 34% upside. TIER IV is preferred for Level 4 autonomous-driving deployment; the report notes that roughly 800 vehicles in operation are needed to reach recurring profitability and contrasts its open-ecosystem approach with overseas peers’ more closed and vertically integrated models. The report sees technology and business-portfolio shifts reshaping the sector. Denso faces front-loaded R&D and investment for SiC inverters and automotive SoCs, with recovery expected from 2028 onward. Aisin benefits from improving legacy HEV-transmission profitability but still faces the challenge of strengthening software for integrated vehicle control. Vehicle architecture is evolving from many independent electronic control units and complex wiring toward zonal, centralized systems, increasing the importance of software, semiconductors and domain controllers. Chinese suppliers including CATL, Yanfeng, Joyson, Desay, Tuopu and Minth are gaining share, while Japanese players are stable but gradually losing market share. Musashi Seimitsu illustrates the report’s non-automotive-growth theme but remains Equal-weight. Morgan Stanley values its ¥3,500 target as ¥2,500 for auto parts plus ¥1,000 for its HSC business. The HSC valuation uses 21.6x the average F3/28-29 EPS forecast of ¥46.2 and Chinese and Korean capacitor companies and UPS companies as comparables; the auto-parts business is valued at 12.4x F3/28 EPS of ¥202. The base case assumes 12mn HSC cells and ¥120bn sales by F3/31, a 20% operating margin and ¥24bn operating profit. Key execution dependencies include pre-doping equipment procurement, capacity expansion to 6.5mn cells by March 2029, and demand for high-voltage data-center power solutions. For tires, Morgan Stanley remains In-Line but prefers Toyo Tire, whose North American wide large-diameter tire exposure is its main differentiator. Toyo’s ¥5,000 target versus ¥3,584 implies 40% upside. The global tire market is estimated at about $200bn, comprising $115bn PSR/LTR, $60bn TBR and $25bn specialty tires, with total-market CAGR estimated at 3% for 2025-30. Growth is led by 18-inch-plus PSR/LTR tires, while manufacturers also pursue mix improvement, specialty/off-road tires, restructuring and shareholder returns. The tire sector faces a less favorable near-term cost-demand balance: higher raw-material costs should become more pronounced from 2H F12/26, while the report is monitoring weak replacement demand after price increases and consumers trading down to cheaper products. Bridgestone’s strengths include its sales network, vertical integration, multi-brand strategy and mining tires; Sumitomo Rubber is restructuring Dunlop and developing Active Tread and Sensing Core; Yokohama Rubber is pursuing agricultural and mining-tire M&A synergies and stronger Europe/US sales; and Toyo Tire has a strong North American WLTR position. Despite these attributes, Bridgestone, Sumitomo Rubber and Yokohama Rubber are rated Equal-weight in the presentation.

Analysis framework

Morgan Stanley combines industry supply-demand and cost analysis with company-level earnings forecasts, regional and OEM exposure, xEV content-per-vehicle comparisons, technology and portfolio assessments, valuation multiples, and peer comparisons. It then identifies preferred stocks whose earnings drivers are less dependent on the broad auto cycle.

Methodology notes

• Industry AnalysisSupply-demand framework

  Auto-parts and tire demand, raw-material costs, replacement demand, and price pass-through

  The report links sector earnings to demand conditions, cost inflation, the ability to raise prices, and consumer response to higher tire prices.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  OEM exposure, Chinese supplier competition, and changing automotive electronics architecture

  The analysis traces how OEM market shares, supplier relationships, and the shift toward software and semiconductors affect parts suppliers.

• Industry AnalysisVolume-price decomposition

  Content-per-vehicle growth, shipment volumes, selling prices, and product mix

  The report assesses growth through vehicle content, unit shipments, pricing, and mix, including HDD suspensions, batteries, and tires.

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Musashi Seimitsu target-price methodology

  Morgan Stanley sums a ¥2,500 auto-parts valuation and a ¥1,000 HSC-business valuation to derive the ¥3,500 target price.

• Valuation methodsP/E and PEG Valuation

  Earnings-multiple valuation

  The Musashi auto-parts business is valued at 12.4x F3/28 EPS, while the HSC business uses 21.6x average F3/28-29 EPS.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Toyoda Gosei (7282)

  Preferred auto-parts supplier benefiting from rising airbag content and non-Japanese OEM expansion.

  Strengths

  More airbags per vehicle; rising India and US orders.

• Nifco (7988)

  Preferred supplier for xEV content growth and Chinese/Korean OEM expansion.

  Strengths

  Higher xEV content per vehicle; plastic-content growth.

  Risks

  Execution in Chinese and Korean OEM expansion.

• NHK Spring (5991)

  Preferred supplier with HDD-suspension and industrial-component growth.

  Strengths

  HDD suspension volume growth and improving seat/spring profitability.

  Risks

  HDD-suspension selling-price improvement is a further upside condition.

• GS Yuasa (6674)

  Preferred battery supplier exposed to ESS and AI-data-center UPS growth.

  Strengths

  Infrastructure-battery growth and expanding industrial batteries and power supplies.

  Weaknesses

  Investment burden through F3/28.

  Risks

  Investment recovery is expected around 2028-29.

• TIER IV (593A)

  Preferred autonomous-driving software company.

  Strengths

  Potential benefit from wider Level 4 deployment and open-ecosystem model.

  Weaknesses

  Operating losses persist during scaling.

  Comparison

  Overseas peers are described as more closed and vertically integrated.

  Risks

  Recurring profitability depends on reaching roughly 800 vehicles in operation.

• Toyo Tire (5105)

  Preferred tire maker due to North American WLTR demand.

  Strengths

  Strong North American wide large-diameter tire presence.

  Comparison

  Differentiates through WLTR while peers focus on restructuring, brands, or specialty tires.

  Risks

  Raw-material costs and replacement-demand weakness.

Key data

• Auto parts industry viewIn-LineEarnings expected to improve in 2H F3/27 as raw-material costs are passed through.
• Tires industry viewIn-LineRaw-material cost pressure expected to increase from 2H F12/26.
• Global tire marketApproximately $200bnPSR/LTR $115bn, TBR $60bn, specialty tires $25bn.
• Global tire market CAGR+3%Morgan Stanley estimate for 2025-30.
• NHK suspension demand1.6bn units in CY25 to 2.2bn in CY28Driven by higher suspension count per HDD unit.
• GS Yuasa industrial batteries and power supplies sales¥155.4bn in F3/26 to ¥230bn in F3/29Supported by renewable ESS and AI-data-center UPS demand.
• Toyo Tire target price and implied upside¥5,000; 40%Compared with ¥3,584 share price as of September 9, 2026.

Impact & implications

The report argues that broad sector recovery alone is insufficient to differentiate winners. Companies with rising xEV or safety content, exposure to AI-data-center power infrastructure, autonomous-driving software, non-Japanese OEM expansion, or specialty tire demand are positioned more favorably than suppliers exposed mainly to mature vehicle programs, Chinese competition, or weak replacement-tire demand.

Risks

• Intensifying competition from Chinese auto-parts companies may pressure incumbent suppliers.
• The shift of automotive value added toward software and semiconductors creates structural challenges for traditional suppliers.
• Tire raw-material cost pressure is expected to intensify from 2H F12/26.
• Replacement-tire demand may remain weak after price increases as consumers trade down to lower-priced products.
• Musashi’s HSC opportunity faces competition from new entrants and alternatives such as EDLC.

What to watch

• Progress in auto-parts suppliers passing higher raw-material costs through price increases in 2H F3/27.
• Demand and price trends for replacement tires after industry price increases.
• Growth in xEV and ADAS content per vehicle and suppliers’ penetration with Chinese and Korean OEMs.
• NHK Spring HDD-suspension shipment volumes and selling prices.
• GS Yuasa ESS and AI-data-center UPS orders and investment recovery timing.
• Musashi’s pre-doping equipment procurement and HSC capacity ramp.
• TIER IV’s vehicle deployment progress toward recurring profitability.