摩根士丹利-汽车零部件：软件定义汽车成新挑战-Auto Parts at Crossroads：SD Vs a New Challenge-20261013

October13,202608:00PMGMT

AutoParts

AutoPartsatCrossroads:SDVsaNewChallenge

Afterelectrification&competitionfromChinesefirms,auto

partsfirms'nextchallengeisSDVs.WedowngradeDensotoUWonriskoffiercercross-industrycompetitionamidashiftin

added-valuetosoftware&chips;upgradeStanleyElectrictoOWonitsplanstocreatevalueinspecialistareas.

ShifttoSDVsathirdheadwind:Japan'sautopartsindustryalreadyfacesstructuralpressurefromelectrificationandChinesecompetition,andweexpecttheshifttosoftware-definedvehicles(SDVs)toaddtoit.J-OEMsarelikelytoaccelerateSDVlaunchesandautonomousvehicledevelopmenttoward2030,whichcouldmove

thesupplychainfromapyramidtoahorizontallyspecializedstructureandE/Earchitecturefromdistributedtodomainand,ultimately,centralized/zonal

frameworks.Thisraisestheriskofloweraddedvaluepervehicleforhardware-focusedTier1suppliers,toughercompetitionfromchipandsoftwarefirms,andmoreinsourcingbyautomakers.Thekeychallengeswillbeaccelerating

collaborationwiththeseotherindustriesandexpandingbeyondautomotiveapplications.

DowngradeDensotoUW:Riskofcontinuedvaluetrap.Denso'svaluationis

approachinghistoriclows,reflectingconcernsoverdelayedvolumegrowthforBEVinverters&intensifyingordercompetitionfromChinesefirms,butwedonotthinkthemarkethasfullypricedinrisksfromtheSDVshift,incl.higherupfront

investmentinareassuchasSoCdevelopmentanduncertaintyoverhowvaluewillbesharedwithchipcompaniesandresponsibilitiessplitwithOEMs,whichare

increasinglydevelopingsoftwarein-house.Weforecast+5.8%OPCAGRthrough

F3/29,belowanestimated+12.3%industryavg.(excl.Denso)and+8.3%forToyota.Welowerourpricetargetfrom¥2,100to¥1,700afterrevisingourtargetP/Efrom12.0xto10.0xF3/28e,inlinewithourindustrybenchmark.Keyvaluationpoints

aheadincl.1)furthercollaborationwithspecialistfirmsinchips/software;2)

recoveryofSDVdevelopmentcostsfromOEMs;3)improvedcompetitivenessin

hardwarefields(hardware,architecture,etc.),4)effortstodeployphysicalAI(AIuseatproductionsites:proof-of-conceptlaunchatZenmyoMinamiplantsetfor

completion2027).

UpgradeStanleyElectrictoOW:Specialist-areaexpansionexpected.Asindustrygridlockdeepens,StanleyElectricisdrawingattentionforitsM&Aanddramatic

costcutting.ItconsolidatedIwasakiElectricandStanleyMobilityElectric(SME;JVwithMitsubishiElectricMobility)assubsidiariesfromF3/27.Weexpectmedium-

termbenefitsfromIwasakiinautonomousdrivingsolutionslinkingvehicleswith

roadinfrastructure,andfromSMEinstrongersoftwaredevelopment.Factoringincostsynergies,weraiseourF3/28-29OPforecasts.WekeepourtargetP/Eat12.0xonF3/28eEPS,andraiseourPTfrom¥3,900to¥4,200.

JapanInsight

MorganStanleyMUFGSecuritiesCo.,Ltd.+

ShinjiKakiuchi

EquityAnalyst

Shinji.Kakiuchi@+8136836-5416

HayatoTakashima

EquityAnalyst

Hayato.Takashima@+8136836-5414

AutoParts

Japan

IndustryView

In-Line

What’sChanged

Denso(6902.T)Rating

FromTo

Equal-weightUnderweight

PriceTarget

¥2,100

¥1,700

StanleyElectric(6923.T)

From

To

Rating

Equal-weight

Overweight

PriceTarget

¥3,900

¥4,200

MorganStanleydoesandseekstodobusinesswith

companiescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanley

Research.InvestorsshouldconsiderMorganStanley

Researchasonlyasinglefactorinmakingtheirinvestmentdecision.

Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.

+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionson

communicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.

2

JapanInsight

Reportsummary

MaintainanIn-Lineviewonautoparts;valuationshistoricallylow,butstructuralrisks:EarningsinJapan'sautopartsindustryfacehighrawmaterialpricesnearterm(rising

marketpricesformaterialssuchasplastics,aluminum,andcopper),butweestimatethesecanbecoveredwithpricepass-throughstoOEMs,progressinloweringprimecosts,andrestructuringamongotherefforts,andseelimitedriskofearningsmissingtargetsinF3/27.However,inadditiontoslowinggrowthinglobalnewvehiclesales,theJapaneseindustryfacesstructuralchallenges,and,despitelowindustryaverageP/Eof13.1xourF3/27

forecastsand11.0xourF3/28forecasts,wedonotruleoutfurthermultiplecompression.

Threestructuralheadwindsthatcouldlowerindustryvalueadded–BEVs,Chinese

competition,SDVs:ConventionalJapaneseautopartsmakersfacestructuralchallengesintheshapeof1)thespreadofBEVssincearound2020,2)stiffercompetitionwithlocal

Chinesepartsmakersfromaround2025,and3)advancesinSDVsheadingtowardaround

2030.WhileweviewthespreadofBEVsandChinesecompetitionassourcesof

headwinds–theformerduetoashifttoaddedvalueinelectrificationtechnologiesfor

batteries,motors,inverters,etc(andlowervalueforICEpartssuchasengines&

transmissions),andthelatterduetoashiftinaddedvaluetolocalChinesecompanies

(anddropinChinesemarketshareofJapanesepartsmakers)–wealsothinkthat

increasingSDVadvancescouldseeaddedvaluemigratefromconventionalautoparts

firmstofieldslikesoftware,semiconductors,anddata.RegardingSDVs,inhousesourcingbyautosOEMscouldalsoyieldhigheraddedvalueinareassuchassoftware&data,andforthisreasontoowethinkitisnecessarytowatchhowaddedvalueisdistributedamongpartsmakers&OEMs.Autoindustry(OEMs)iscoveredbyHirotoSegawa,while

SemiconductorindustryiscoveredbyKazuoYoshikawa.

RiskthatspreadofSDVsasa3rdwaveofindustryrestructuringcoulddisadvantageautoparts:Japan'sautopartsindustryisalreadyfacingstructuralchallengessuchas

thosepresentedbyincreasingelectrificationandcompetitionwithChinesecompanies,andthestockmarketitselfappearstohavefactoredtheseinasrisksforautoparts.SDVs

(software-definedvehicles),meanwhile,haveyettogetgoinginearnest(amongmodelsproducedbyJapaneseOEMs,theRAV4launchedatend-2025drewonSDVdevelopmentinsomeareas).IfJ-OEMsacceleratelaunchesofSDVsfromnowto2030,industrial

manufacturingintheautosindustryislikelytobetransformedfromapyramidframeworktoahorizontallyspecializedstructure,andelectrical/electronic(E/E)architecturefrom

distributedtodomain-based,andultimatelytocentralizedzonalarchitectures,withthemovetoSDVs.Alongwiththis,addedvaluecoulddropintheJapanautopartsindustry,wherehardwarehastraditionallybeenatthecore,whileexpandingrelativelyin

semiconductors,softwareand,moreover,automobileOEMs'inhousemanufacture.

JapanInsight

Exhibit1:StructuralchallengesfacingJapan’straditionalautopartsindustry:Astheshifttowardsoftware-definedvehicles(SDVs)accelerates,value-addedisexpectedtoshifttowardssemiconductors,software,data,andotherareas

Value-AddedShift

StructuralHeadwindsinAutoPartsIndustry

202020252030

Batteries,Motors&Inverters

•Batteries:CATL,LGES、OEMin-house

•Motors:DENSO,Tier1s

•Inverters:DENSO,Tier1s,powersemis

LocalChineseSuppliers

•Momenta,Desay

•HorizonRobotics,Hesai

•HASCOVision,Xingyu,Yanfeng

Headwind1:PowertrainElectrification(from~2020)

→PressureonICE-focusedengine/transmissionsuppliers

•Rebalanceportfolios:shrinkICE,buildEVcapabilities

•Nearterm:robustdemandforEVswithenginessuchasHEV/PHEV/EREV

•Midterm:BEVsexpandatvaryingregionalspeeds

Headwind2:IntensifyingChinaCompetition(from~2025)→PressureonexistingJapanesepartssuppliers

•Chinarestructuring:jobcuts,plantconsolidation,impairments

•JapaneseOEMsincreasinglysourcelocallyinChina

•Midterm:Chinesecompetitionmayintensifyglobally

Headwind3:SDVShift(to2030)

•PressureontraditionalTier1s

•E/E:distributed→centralized/zonal

•ADvalueshiftstosoftware&chips

•OEM/Tier1/SoCrolesremainfluid

Software,Chips(SoC)&Data(Cloud)

•OEMin-house

•NVIDIA,Qualcomm,Renesas

•Huawei(Tier−1)

•TIERIV,autonomous-drivingspecialists

Source:MorganStanleyResearch

ConsiderablestructuralriskforDensointhedomain:Densoisacompanythatcouldbeimpactedgreatlybysuchstructuralchanges.SinceDensomanufacturessemiconductorsinhouseanditsactivitiesalsoincludesoftwaredevelopment,thespreadofSDVscould

presentopportunitiestoincreaseaddedvalue.However,thereismoreuncertaintyon

earningsgrowthpotentialherethanhasbeenthecasewithhardware.Denso'sR&Dcostsarerising;itplans¥705.0bnforF3/27versus¥619.4bninF3/25(spendingalreadyroseto¥690.1bninF3/26),andtheR&Dexpenseratioissettoreach9%.Thehardwareearningsmodelisasimpleone,wherebyR&Dcostsarereflectedindeliveryunitpricespersingleproductandcostsarerecoveredfromcustomersassalesvolumesrise.Bycontrast,withsoftware(includingSoC:SystemonChip),anareawhereDensoisassumingmorefuturedevelopmentcosts,itishardtopredictfactorssuchasthetimingoflaunchesofSDV

modelsusingthetechnology.SincesomeOEMsandsemiconductorcompaniesarealsoengagedinsoftwaredevelopment,itishardtobetooupbeatonhowaddedvaluewillbeapportioned,too.

MorganStanleyMUFG3

4

Exhibit2:EvolvingroleswiththeshifttoSDVs:IncontrasttotraditionalOEM->Tier1->Tier2structure,whichhasclearlydefined

TraditionalStructure:ClearRoles

roles,theshifttoSDVsislikelytoblurtheboundariesbetweenOEMs,Tier1suppliers,andsemiconductor/softwareplayers,potentiallyleadingtogreatercompetitionforvaluecaptureacrosslayersofthevaluechain

SDVStructure:BlurringBoundaries

OEM

•Vehicledevelopment&integratedcontrol

•Salesstrategy&branding

Competingforcontrolof

vehicleOS,SoCs,OTAandcoresoftware

Tier1

•Individualsystems(engine,brakes,etc.)

→ECUs&actuators

Tier2

•MCUsforECUs

•Actuatorcomponents

Source:MorganStanleyResearch

OEM

•VehicleOS,UX,data&OTA

Tier2Hardware

Tier1

•HPCs&zonalECUs

•Hardware

Semiconductors&Software

•SoCs:chips+software+design•OS

DowngradingDensofromEWtoUW:Denso'sperformancevs.TOPIXonacalendaryearbasiswas+18%in2020,+41%in2021,-28%in2022,+4%in2023,-12%in2024and-20%in2025,andin2026YTDithasbeen-29.Wesummarizetheimpactsofstructural

changesfortheautopartsindustryonthecompanybelow.WedowngradetoUW,aswebelievethe3rdheadwind,iefuturepressuresfromtheongoingshifttowardSDVs,isnotyetfullypricedin.

1stindustryheadwind:BEVadvances,startingfromabout2020–neutralforDenso.ThisisbecausewhilegrowingadoptionofBEVsreducesdemandforDenso’sICE

components,suchasinjectors,fuel-injectionsystemsandsparkplugs,itincreasesdemandforitselectrificationcomponents,includinginverters/PCUs(powercontrolunits),BMS

(batterymanagementsystems),andmotors.TheslowdowninBEVadoptionhastemperedexpectationsforgrowthinthecompany’sinverterbusiness,butwedonotbelievethis

needstobeviewedasanegativeforthefirmgoingforwardasBEVvolumesareexpectedtoincreaseoverthemediumterm.

2ndindustryheadwind:StiffercompetitionfromChinesecompanies,startingfrom

about2025–negativefortheJapaneseautopartsindustryingeneral,including

Denso.ForDenso,competitorsincludeChina’sMomentainADASalgorithmsandDesayinADASdomaincontrollers.TechnologiesfromthesecompaniesareusedinthebZ3X,

whichGACToyotabegansellinginChinain2025.ThebZ7,launchedin2026,incorporatesHuaweitechnologiesinareassuchasthein-vehicleoperatingsystemandcockpit.

CompetitionwithlocalChinesesuppliersposesariskformanyJapaneseautoparts

manufacturers.AlthoughthiscompetitioniscurrentlyconcentratedwithinChina,thereisariskthatitcouldeventuallyintensifybetweenJapaneseandChinesesuppliersinotherregions(eg,SoutheastAsiaandEurope).

MorganStanleyMUFG5

3rdindustryheadwind:SDVadvances,toward2030–negativefortraditionalTier1suppliers,andparticularlyforDenso.Themainthemeofthisreportistheadvance

towardSDVs,whichwethinkhasthepotentialtobringbusinessopportunitiesforDenso(givenitstechnologycoverageoffieldssuchassoftwareandsemiconductors),butalsopotentialforerosionofDenso'svalueadded(asaTier1supplier)byspecialistbusinessesandpotentialcompetitorsinareassuchassoftwareandsemiconductors.Moreover,automakers’effortstostrengtheninhousesoftwaredevelopmentcouldundermineDenso’sdevelopmentleadershipasaTier1supplier.Asaddedvalueintheautosindustryshiftsfromhardwaretosoftware,thereisariskofDenso’searningsbaseasaTier1supplier

beingweakened.

Exhibit3:RolesacrossSDVlayers:PotentialoverlapbetweenTier1suppliersandOEMsinsoftware/OSandvehiclesystemarchitecture,andbetweenTier1suppliersandsemiconductorcompaniesinSoCs.

OEM

Tier1

Semiconductors&Software

TraditionalRole

VehicleDevelopment&Integration

VehicleSystems

Chips&Coding

CustomerInterface

✓✓✓

✓→✓✓

-

RoleinSDVs

VehicleArchitecture

✓✓✓

✓✓

✓→✓✓

Software/OS

✓✓→✓✓✓

✓✓→✓✓✓

✓→✓✓

SystemArchitecture

✓✓→✓✓✓

✓✓✓

✓→✓✓

HPC

✓

✓✓✓

✓✓

SoCArchitecture

✓→✓✓

✓✓→✓✓✓

✓✓✓

SoC

✓

✓✓→✓✓✓

✓✓✓

ASIC

✓

✓✓✓

✓✓✓

Actuators/Sensors

✓

✓✓✓

✓

Inverters/ThermalManagement

✓✓

✓✓✓

✓

Source:MorganStanleyResearch

PotentialcatalystsandareastowatchforDenso:Whiledowngradingourratingon

DensotoUW,wehighlightthefollowingareastowatchinregardtothecompany.1)

Acceleratedcollaborationandcoordinationwithothercompaniesandindustriesinareassuchassemiconductorsandsoftware.DensoannouncedinApril2026thatithad

withdrawnitsproposalearlierintheyeartoacquireastakeinRohmafterfailingtoobtainthesupportofRohm'sboardofdirectorsandspecialcommittee.Wewillcontinueto

monitoractionsaimedatenhancingcorporatevaluethroughstrongercollaborationwithcompaniesbothwithinandoutsidetheindustry.2)ProgressinSoC(system-on-chip)

developmentforAD/ADAS.Densoplanstodevelopanautomotive-optimizedSoCfor

launchinF3/31.ItisworkingwithTaiwan’sMediaTektodevelopSoCforADASandcockpitapplications.Althoughdeploymentinproductionvehiclesisstillsomewayoff,progressindevelopmentbearswatching.3)RecoupingupfrontSDV-relatedinvestmentfromOEMs.JapaneseautomakersareexpectedtostepuptherolloutofSDVstoward2030.Akey

pointtowatchwillbetheextenttowhichcustomersrecognizethevalueofDenso’ssoftwareandsemiconductorofferings.

6

Wherewemightbewrong:Onepossibilitythatcouldshowourguardedviewabout

structuralchangesintheautopartsindustrytobemistakenisifthespreadofSDVsandinstallationofautonomousdrivingfeaturesweredelayed,andJapaneseautopartsmakersmaintainedandbuiltontheirstrengthsinhardware(inphysicalfieldssuchasactuators).AnothermightbeifDensoandotherconventionalTier1makerssteppedupnotonlyin-houseproductionactivitybutalsocollaborationwithoutsidecompanies,speedingup

developmentofsemiconductorsandsoftwareandbroadeningbusinessbeyondJ-OEMs.AfurtherpossibilitywhereDensoisconcernedmightbegreaterstockmarketrecognitionofitsuseofphysicalAI.Currently,physicalAIseemsmorelikelytobeputtopracticaluseatproductionsitesthanintheSDVandautonomousdrivingfields,andwethinkDensocouldenhanceitscompetitivenessifitmanagedtoconvertthepracticaldataithasaccumulatedovermanyyears,includingskillsofexpertengineers,in-houserobotdevelopment,and

productionequipmentexpertise,intoAImodels.

Exhibit4:ImpactoftheshifttoSDVsonautopartssuppliers:Denso–Focusonthevalue-addedshifttowardin-housesemiconductorsandsoftware

ImpactofSDVAdvancement

Upside

Downside

Denso

HigheradoptionofintegratedECUs,zoneECUs,HPCs

ShiftinvalueaddedtowardOEMs,semis(SoCs),etc.

Aisin

Increasedvalueaddedinintegratedvehiclecontrol

ReduceduseofindividualcontrolECUs

T.Boshoku

Valueaddedinvehiclecabin(lighting,soundcontrol)

ShiftinvalueaddedtowardsoftwareandECUs

T.Gosei

Nochangeinairbags

Declineinvalueaddedacrosshardware

TokaiRika

Shifttodigitalkeys

ReduceduseofindividualcontrolECUs

Koito

GreaterintegrationwithADAS

ReduceduseofindividualcontrolECUs

TSTech

Valueaddedinvehiclecabin(lighting,soundcontrol)

ShiftinvalueaddedtowardsoftwareandECUs

Musashi

Nochangeintransmissioncomponents

Declineinvalueaddedacrosshardware

FCC

Nochangeintransmissioncomponents

Declineinvalueaddedacrosshardware

Stanley

CoordinationwithADASandinfrastructure

ReduceduseofindividualcontrolECUs

Unipres

Nochangeinvehiclebodycomponents

Declineinvalueaddedacrosshardware

EXEDY

Nochangeintransmissioncomponents

Declineinvalueaddedacrosshardware

Nifco

Nochangeinresinproducts

Declineinvalueaddedacrosshardware

NHKSpring

Increaseddemandformetalsubstrates

Declineinvalueaddedacrosshardware

GSYuasa

Higher-capacitystoragebatteries

Declineinvalueaddedacrosshardware

Source:MorganStanleyResearch

MorganStanleyMUFG7

Exhibit5:Relativestockperformancevs.TOPIX(Jan2005=100)

DensoAisinBridgestoneToyota

200

150

100

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Jan-23

Jan-25

50

Source:FactSet,MorganStanleyResearch

Exhibit7:Denso/Toyota:P/Etrend

30.0

25.0

20.0

15.0

10.0

5.0

-

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Jan-23

Jan-25

Jan-27

DensoToyotaDenso/Toyota

2.0

1.5

1.0

0.5

-

Source:Companydata,FactSet,MorganStanleyResearch

Note:April26onwardareMorganStanleyResearchestimates

Exhibit9:OPtrend:WeexpectDenso'searningsimprovementtoremaingradual

1,200.01,000.0DensoAutoParts(excl.Denso)

800.0

600.0

400.0200.0

3/17

3/18

3/19

3/20

3/21

3/22

3/23

3/24

3/25

3/26

3/27e

3/28e

3/29e

0.0

Source:Companydata,MorganStanleyResearch,e=MorganStanleyResearchestimates

Exhibit6:P/Etrend

30.0

25.0

20.0

15.0

10.0

5.0

-

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Jan-23

Jan-25

Jan-27

DensoAisinBridgestoneToyota

Source:Companydata,FactSet,MorganStanleyResearch

Note:April26onwardareMorganStanleyResearchestimates

Exhibit8:Denso/Aisin:P/Etrend

30.0

25.0

20.0

15.0

10.0

5.0

-

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Jan-23

Jan-25

Jan-27

DensoAisinDenso/Aisin

2.0

1.5

1.0

0.5

-

Source:Companydata,FactSet,MorganStanleyResearch

Note:April26onwardareMorganStanleyResearchestimates

Exhibit10:OPtrend:Denso'sweightingintheautopartsindustrytotalissettodecline

2,000.0

1,500.0

1,000.0

500.0

0.0

3/17

3/18

3/19

3/20

3/21

3/22

3/23

3/24

3/25

3/26

3/27e

3/28e

3/29e

Denso

AutoParts(excl.Denso)Densovs.AutoParts

120%

100%

80%

60%

40%

20%

0%

Source:Companydata,MorganStanleyResearch,e=MorganStanleyResearchestimates

8

UpgradeStanleyElectric(6923)fromEWtoOW:Stanley'ssharepriceperformancevs.TOPIXonacalendaryearbasiswasflatin2020,-22%in2021,-7%in2022,-16%in2023,-17%in2024and-3%in2025,andin2026YTDithasbeen-5.Wesummarizethe

impactsofstructuralchangesfortheautopartsindustryonthecompanybelow.We

believeconcernsoverearningsdeteriorationinChina,includingHonda’sproductioncutsforfour-wheelvehiclesandintensifyingcompetitionwithChineseautomotivelighting

suppliers,havenowbeenlargelypricedin.WeupgradetoOW,asweseescopeforare-ratingifStanley'smedium-terminitiativestoenhancecorporatevaluebegintobearfruit.

1stindustryheadwind:BEVadvances,startingfromabout2020–neutralforStanleyElectric.Demandforheadlamps(supportedbyneedsforimprovednighttimevisibility,

lowerpowerconsumption,lighterweight,higherbrightness)seemsunlikelytochange

materiallyregardlessofwhethervehicleshaveICEorBEVpowertrains.BEVshave

particularlystrongrequirementsforlighterweight,andopportunitiestoincreaseaddedvaluethroughproductstailoredtoBEV-specificdesigns,suchaslongfrontandrearlampsandambientinteriorlighting.

2ndindustryheadwind:CompetitionfromChinesecompanies,startingfromabout

2025–negativeforJapanautopartsingeneral,includingStanleyElectric.StanleyhasbeenadverselyaffectedbythesharpdeclineinChinesefour-wheelersalesatHonda,oneofitskeycustomers.AlthoughrestructuringoffixedcostsanditsbroadercostbasehasenableditsChinaoperationstomaintainrelativelyhighprofitmarginscomparedwith

otherJapaneseautopartsmanufacturers,theimpactoflowerproductionvolumesis

significant.IntensifyingcompetitionwithlocalChineselampsuppliers,includingHASCOVisionandXingyu,isanotherchallenge.UnderitsNinthMedium-TermManagementPlan(F3/27-30),announcedinMay2026,thecompanyisworkingtoreformitsearnings

structure,focusingonstandardizationofproductstructuresandcomponents,aswellasreviewingandstandardizingspecifications.IthassecuredordersfromChineseauto

makerswithmassproduction,startingupfortwoinF3/26andforthreeinF3/27.

3rdindustryheadwind:SDVsadvance,toward2030–slightlypositiveforStanley

Electric,givenopportunitiestoacquireaddedvalueviaM&A.Themainthemeofthis

reportistheadvancetowardSDVs,whichhaspotentialtobringbusinessopportunitiesforStanleyElectrictoo(givenitstechnologycoverageoffieldssuchassoftwareand

semiconductors).StanleyElectricestablishedajointventurewithMitsubishiElectric

Mobility(StanleyMobilityElectric)inApril2026,andexpectstocombineitsproprietaryopticaltechnologieswithMitsubishiElectricMobility’scontroltechnologiestosupportthecentralizedzonalplatformsthatarelikelytobecomemainstreaminSDVs.

ItisalsoexpandingitssocialinfrastructurebusinessthroughcollaborationwithIwasakiElectric,whichalsobecameaconsolidatedsubsidiaryinApril2026.Connectingin-vehiclesystemswithinfrastructureseemslikelytoplayapartinstrengtheningtheinfrastructurerequiredforautonomousdriving.StanleyElectricsuppliesautomotive-sidedevices

requiredforADASandautonomousdriving,includingcommunicationlamps(external

displaylampsthatcommunicateavehicle’sintentionsandstatus—starting,stopping,

changinglanes,turningrightorleft—topedestriansandothervehicles)andinfraredLEDlightsourcesforDMS(drivermonitoringsystems,whichdetectdriverdrowsinessand

distractionandissuewarnings).IwasakiElectric,meanwhile,suppliesinfrastructure-sideproductssuchasstreetlights.Ifdataonvehicletrafficandpedestrianscollectedby

sensorsinstalledinstreetlightscanbetransmittedtovehicles,autonomousdrivingcould

MorganStanleyMUFG9

befacilitatedbyenablingvehiclestounderstandtrafficconditionsalongtheirdirectionoftravelandbeyondupcomingrightorleftturns.

Exhibit11:Relativestockperformancevs.TOPIX(Jan2015=100)

StanleyEle.KoitoMfg.

200

150

100

50

-

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Jan-23

Jan-25

Source:FactSet,MorganStanleyResearch

Exhibit13:OPtrend

StanleyKoitoMfg

100.0

80.0

60.0

40.0

20.0

0.0

120.0

3/17

3/18

3/19

3/20

3/21

3/22

3/23

3/24

3/25

3/26

3/27e

3/28e

3/29e

Source:Companydata,MorganStanleyResearch,e=MorganStanleyResearchestimates

Exhibit12:P/E

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Jan-23

Jan-25

Jan-27

Jan-29

30.0

25.0

20.0

15.0

10.0

5.0

StanleyKoitoMfgStanley/Koito

0.0

Source:Companydata,FactSet,MorganStanleyResearch

Note:April26onwardareMorganStanleyResearchestimates

2.0

1.5

1.0

0.5

0.0

Exhibit14:OPMtrend

StanleyKoito

12.5%

10.0%

7.5%

5.0%

15.0%

2.5%

3/17

3/18

3/19

3/20