LKQ will stay busy with ICE vehicles, analyst reports

Chicago-based global dismantling firm LKQ Corp. will have plenty of internal combustion engine (ICE) vehicles coming its way for another decade or more, says a financial firm that also credits LKQ for preparing for the electric vehicle (EV) switchover.

An 11-page report issued by Baltimore-based Stifel Financial compares the United States passenger car “parc” (derived from the French term parc de véhicules to refer to all registered vehicles) is on pace to still consist of 71 percent ICE vehicles in 2041 and 29 percent EVs or other new energy vehicles (NEVs). The end-of-life vehicle (ELV) percentage of EVs will lag that by another 10 or more years.

In Europe and the United Kingdom, where LKQ also operates, EVs are currently gaining more market share and on pace to become a greater percentage of the parc faster. While in 2041 NEVs make up 29 percent of the U.S. fleet, in Europe that figure could be 44 percent and in the U.K. 57 percent.

The challenge in the conversion for LKQ is that about 18 percent of U.S. parts and services sales tie into recycled and remanufactured engines and transmissions—components not present in EVs.

However, LKQ is already investing and researching how to be part of the ELV sector in the EV era, and “in Europe LKQ already supports parts distribution for some EVs,” writes Stifel.

Another trend helping LKQ in the short term is the relatively short life span experienced by some EVs. “An owner of an eight-year-old EV, is typically better off selling and upgrading than changing out the battery,” says Stfiel.

This higher attrition rate of EVs compares with an average life span of 12.1 years for ICE vehicles in the U.S., according to Stifel. “Eventually the EV platform should stabilize, but that may not be for another decade,” adds the financial analyst.

Stifel characterizes the EV repair parts market, whether aftermarket or OEM, as “in its infancy.” Regarding LKQ in the near and medium term and the impact of the ICE-to-EV conversion, “The inventory transition would be so gradual there is minimal risk of a devaluation of parts inventory.”