Original Equipment Manufacturer (OEM)

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Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.

An original equipment manufacturer (OEM) is a company that manufactures products or components used by another company in the production of its finished goods.

OEMs typically provide parts and materials for assembly into other products, but they can also design and manufacture complete items to be sold as finished products.

OEMs are found in many industries, from electronics to automotive, and often compete with aftermarket suppliers for market share. (In this article, we will mostly focus on automotive OEMs.)

The key advantage of using an OEM is that it gives buyers access to reliable parts and components which have been designed specifically for the end product.

This helps ensure the highest quality standards are met throughout the manufacturing process.

Additionally, using an OEM simplifies the purchasing process, making it easier to find compatible parts quickly and efficiently.

As a result, customers benefit from better quality, lower cost, and shorter lead times.

In today’s competitive market, OEMs are more important than ever for businesses that want to stay ahead of their competitors.

By working with an experienced OEM, companies can access the latest technologies and production methods, as well as benefit from economies of scale when ordering in larger volumes.

Ultimately, using an OEM is a great way to ensure products are manufactured quickly, efficiently, and reliably. It also gives buyers peace of mind knowing they are getting the best possible components available on the market.


Automotive OEMs – Key Takeaways

  • Automotive OEMs are the original equipment manufacturers of vehicles and parts.
  • They design, develop, manufacture and market the components that make up a car’s engine, body, interior, and suspension system.
  • OEMs can either be independent companies or part of larger corporations such as carmakers.
  • Automotive OEMs must comply with strict industry standards and regulations when it comes to quality control and safety regulations.
  • Automotive OEMs are increasingly involved in technological advancements in the automotive industry such as electric vehicles (EV), advanced driver assistance technologies (ADAS), and connected cars (V2X).
  • As a result, they must stay competitive by developing innovative solutions and products that can meet the needs of automakers.
  • Automotive OEMs must also invest heavily into research and development in order to stay ahead of their competition.
  • Additionally, they often need to focus on developing new partnerships with automotive suppliers as well as other industries such as IT and electronics companies in order to provide innovative solutions for automakers.
  • Automotive OEMs must be able to keep up with the ever-changing trends in the automotive industry by continuously adapting their strategies and processes accordingly.


What is the difference between an OEM and a manufacturer?

An OEM is a company that produces components or parts for another company (or another division within the same company) to assemble into their finished products.

A manufacturer, on the other hand, is a business that produces complete items for sale.

Manufacturers may either produce goods in-house or outsource some of the production process to an OEM.

The main difference is that manufacturers are responsible for the entire product lifecycle, including design, assembly, marketing, and sales.

OEMs primarily focus on producing components and parts which are then used by other companies in their manufacturing processes.

This allows OEMs to specialize in certain niche areas where they can become experts and provide higher quality products than traditional manufacturers.


Examples of Automotive OEMs

Automotive OEMs are a key part of the industry, providing components and parts to car manufacturers who then assemble them into vehicles.

Some examples of automotive OEMs include:

  • Bosch – one of the world’s largest automotive suppliers with over 130 years of experience in supplying components for cars and trucks
  • Delphi Automotive – an American auto parts supplier that specializes in electronics and safety systems
  • Magna International – a Canadian-based company that produces complete vehicle systems such as interiors, exteriors, powertrains, and chassis systems
  • Toyota Boshoku Corporation – a member of the Toyota Group of companies.

How to Become an OEM Manufacturer

Becoming an OEM manufacturer requires some research in order to understand the different production processes and regulations.

Manufacturers should also look at their competitors to get a better idea of product specifications, pricing, expected lead times, and more.

It’s important to develop relationships with suppliers who can provide the required parts and materials on time and at competitive prices.

Additionally, manufacturers should consider investing in automation technologies to help increase productivity and reduce costs.

Finally, companies may need to register for various certifications in order to demonstrate that their products meet industry standards.

Overall, OEM manufacturing is an important part of many industries and provides businesses with access to reliable components and parts at competitive costs.


What Are OEM Products?

OEM products (Original Equipment Manufacturer) are products manufactured or assembled by one company to be sold and used by another.

This practice allows companies to purchase parts, components, and assembly services from a single source instead of negotiating with multiple vendors for the same items.

OEMs can provide cost savings compared to buying individual components from different suppliers.

They also ensure that all parts will be compatible with each other and work as expected when they are put together into a final product.

Additionally, OEMs often have access to the latest technologies and manufacturing processes which can result in higher quality finished goods.

Working with an OEM is an efficient way for businesses to save time and money while ensuring their finished goods meet necessary standards of quality. It also allows businesses to specialize in their own unique areas while the OEM handles the manufacturing process.


Automotive Value Chain or How is Your Car Designed, Built, and Sold to You?


OEM vs. VAR (Value-Added Resale)

OEMs and VARs (Value-Added Resellers) are often confused – but there are some key differences between the two.

OEMs produce components or parts which can then be sold, assembled, and marketed by another company.

VARs buy products from an OEM or other supplier and add value to them in order to resell them at a higher price.

This added value could include installing software, customizing hardware, providing customer service, etc.

When considering whether to work with an OEM or VAR, businesses should consider factors such as cost savings, delivery times, and support services provided.


Financial Characteristics of Auto OEMs

Auto OEMS, if they are profitable, typically trade at lower price-to-earnings ratios.

Manufacturing is a capital-intensive business and doesn’t typically provide high margins.

In bad economic environments, they may see a fall in revenue and see their net margin go negative.

They also face unwieldy costs when introducing a new model into the market – i.e., there are high upfront investment costs – and must compete with competitors on price.

Because of this, many OEMs focus on long-term strategies such as cost cutting to increase their margin or expanding their product portfolio.

Overall, it is important for businesses to understand the financial characteristics associated with OEMs before investing in them. Doing so will help ensure that investments are sound and have the potential for growth in the future.

OEMs can be popular among value investors hoping to take advantage of their low P/E ratios, but the business can be fickle, margins are tight, and they are capital-intensive, which often leads to lower cash flow available to shareholders.



Why do they call some car manufacturers “auto OEMs”?

Auto OEMs (Original Equipment Manufacturers) are companies that produce parts or components for vehicles.

These parts and components are then used by other manufacturers to build complete cars, trucks, and other types of vehicles.

By working with an OEM, manufacturers can save time and money while ensuring reliable quality standards.

What is the difference between an OEM and a VAR?

OEMs and VARs (Value Added Resellers) are both involved in the production of parts or components for vehicles.

However, the differences lie in their roles within the supply chain.

OEMs manufacture parts directly to be used by other manufacturers, while VARs add value to existing products and repackage them for resale.

Therefore, an OEM provides the parts while a VAR adds value to existing products and resells them.

What are some common examples of auto OEMs?

Common examples of auto OEMs include Honda Motor Company, Toyota Motor Corporation, Ford Motor Company, and Volkswagen AG.

These companies produce many different types of parts and components for vehicles, such as engines, transmissions, frames, suspension systems, interior trim pieces, and more.

In addition to these large automakers, there are also many smaller auto OEMs that specialize in producing certain types of parts or components.

Is Tesla an OEM?

Yes, Tesla is an OEM.

Tesla manufactures and sells electric vehicles, powertrain components, and energy storage systems.

Tesla has its own production lines where its vehicles are designed, developed, tested, manufactured, and assembled.

It also produces batteries for electric vehicles and stationary energy storage units.

Additionally, Tesla provides automotive service centers in several countries to support its vehicles.

As an OEM, Tesla’s products are sold directly to consumers through their website or through a network of stores and service centers.

Do OEMs provide aftermarket parts?

Some OEMs may offer aftermarket parts and accessories for sale directly to consumers.

These products may include custom wheels, exhaust systems, performance upgrades, body kits, lighting upgrades, and other modifications.

However, many OEMs focus solely on producing components and parts for other manufacturers rather than selling directly to end-users. Therefore they may not offer aftermarket parts or services.

How can OEMs benefit from working with other manufacturers?

By partnering with other manufacturers, OEMs can reduce costs, increase efficiency, and improve quality control.

Partnering with a manufacturer allows an OEM to streamline the production process by outsourcing certain tasks such as assembly or inspection.

They can also take advantage of economies of scale by working with a partner who is already producing similar parts in large quantities.

This allows them to purchase supplies and components at lower prices than if they were buying them on their own.

Finally, partnering with another manufacturer helps ensure that quality standards are met since both companies have a vested interest in producing reliable parts and components.


Conclusion – OEM

Original Equipment Manufacturers (OEMs) are companies that produce parts or components for vehicles.

These parts and components are then used by other manufacturers to build complete cars, trucks, and other types of vehicles.

OEMs play a crucial role in the automotive industry, as they provide quality parts and components at lower costs than if they were bought individually.

The key difference between OEMs and VARs is that while an OEM produces parts directly to be used by other manufacturers, a VAR adds value to existing products and repackages them for resale.

There are many benefits to working with an OEM, including cost savings, streamlining production processes, and improved quality control through partnering with another manufacturer.

By understanding the roles and benefits of OEMs, manufacturers can make informed decisions regarding the best parts and components for their vehicles.

Overall, working with an OEM is a great way to ensure reliable quality standards while saving money and time.