Here’s How Auto Parts Can Become A Revenue Driver For Amazon

Reports suggest that in the recent months, Amazon (NASDAQ:AMZN) has entered into contracts with several large auto part makers in the U.S., as the company looks to sell these products directly to consumers via its e-commerce platform. The do-it-yourself auto parts market is estimated to generate annual revenues of $50 billion and Amazon’s efforts in this direction can ensure that it grabs a significant portion of this market. Amazon’s ability to sell these products at rates lower than the brick and mortar stores and with the same day delivery option can ensure that the company has a competitive edge in this market. Reports suggest that the company has been paying manufacturers 30 percent more for the auto parts, inducing them to directly sell their products to Amazon. These contracts can lead to a significant expansion of Amazon’s auto parts business, driving revenues for the company in the long term.

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Price Advantage Can Drive Growth

Through its partnership with various local auto part manufacturers and a lower margins model, Amazon has been able to offer auto parts at much lower rates compared to other retailers. For instance, the Dorman 902-407 auxiliary water pump sold at Auto zone for $124.99 is available on Amazon for $90.70. Amazon’s strategy to create a huge price advantage on its platform for buyers by selling on thin margins can allow it to capture a large share of the auto parts market.  According to our estimates, Amazon’s market share in the U.S. electronics and general merchandise segment will increase steadily from around 17% in 2017 to nearly 21% by the end of our forecast period.

As the company enters new product categories and establishes itself as a strong player in these segments, its market share can grow at a faster rate leading to an upside in our price estimate.

Amazon is slowly looking to establish itself in the automobiles segment. Last year it launched a new hub for consumers to research and compare cars. It also partnered with Hyundai to let potential customers order test drivers from its website. A new patent granted to the company indicates that it might be looking to enter the autonomous vehicles segment also. However, for now the auto parts segment seems to be its next big venture and Amazon appears to be well poised to capture a significant share in this market in the long term.

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