Axalta's Refinish Segment Weakness: Navigating Macro Shifts in Mobility and Industrial Demand

The refinish segment of Axalta Coating Systems has long been a cornerstone of its business, but recent performance trends suggest a prolonged period of strain. In Q1 2025, the segment reported a 2% decline in net sales to $511 million, driven by foreign currency headwinds and lower volumes in Europe. While organic sales fell 1%, Axalta's strategic acquisitions, such as CoverFlexx, and its focus on expanding into the economy segment helped it outperform a broader industry decline. However, these gains mask deeper structural challenges: macroeconomic shifts in mobility patterns—aging vehicle fleets, electric vehicle (EV) adoption, urbanization, and remote work—are reshaping industrial demand for refinish coatings, creating both risks and opportunities for Axalta and its peers.

The Aging Fleet: A Double-Edged Sword

The U.S. vehicle fleet is the oldest in decades, with an average age of 12.8 years in 2025. This trend, driven by inflation, high new car prices, and economic uncertainty, has boosted demand for refinish services as consumers extend vehicle lifespans. S&P Global Mobility notes that 289 million light vehicles are in operation, with passenger cars averaging 14.5 years. This aging fleet should theoretically benefit Axalta's refinish segment, as older vehicles require more frequent touch-ups and repairs. However, the company's Q1 performance highlights a critical vulnerability: while demand is growing, pricing power is constrained. Axalta's 21.0% Adjusted EBITDA margin in Q4 2024—a high watermark—has since softened, reflecting margin compression from lower volumes and higher labor costs.

Competitors like PPG Industries and 3M are leveraging this trend more effectively. PPG's investment in waterborne coatings and low-VOC solutions aligns with regulatory shifts in urbanized areas, where environmental compliance is a priority. 3M's focus on high-performance, corrosion-resistant coatings for EVs and hybrid vehicles positions it to capture market share in a segment Axalta is only now addressing. For Axalta, the aging fleet is a tailwind—but only if it can innovate faster to meet evolving customer needs.

EV Adoption: A Strategic Crossroads

The rise of EVs is reshaping the refinish industry in three ways: material complexity, thermal management, and customization. EVs often use lightweight composites and aluminum, which require specialized coatings for adhesion and corrosion resistance. Axalta's Fast Cure Low Energy Technology, designed for low-temperature curing, is a step in the right direction, but its competitors are ahead. PPG Industries, for example, has already integrated battery protection coatings into its EV-focused portfolio, while AkzoNobel's waterborne solutions are gaining traction in European markets.

Axalta's NextJet™ digital paint technology, recognized as a 2025 Automotive News PACE Pilot Innovation to Watch, is a promising differentiator. By eliminating masking and reducing CO₂ emissions by 30%, it addresses both cost and sustainability concerns. However, adoption has been slow. In Q1 2025, Axalta added 900 new body shops, but many of these are traditional repair shops, not EV-focused facilities. This lag in EV-specific infrastructure could widen the gap with competitors like Sherwin-Williams, which is aggressively automating its refinish processes to meet EV demands.

Urbanization and Remote Work: Redefining Demand

Urbanization is amplifying the need for refinish coatings in two ways. First, densely populated areas see higher accident rates and a premium on aesthetic repairs, driving demand for high-performance coatings. Second, urbanization is accelerating the shift to sustainable infrastructure, favoring eco-friendly products. Axalta's waterborne coatings are well-positioned here, but its 2024 Transformation Initiative has yet to fully address regional disparities in adoption. In contrast, AkzoNobel's Cool Chemistry and Interpon D Low-E coatings are being widely adopted in Asian and European cities, where green building codes are stringent.

Remote work, meanwhile, is indirectly affecting demand. As telecommuting reduces daily commuting, vehicle usage declines, potentially slowing the rate of wear and tear. This could dampen long-term refinish demand, though Axalta's focus on DIY home improvement and accessory growth (e.g., automotive accessories) is a partial offset. The challenge lies in balancing these divergent trends while maintaining profitability in a low-margin segment.

Stock Valuation: A Tale of Two Narratives

Axalta's stock valuation reflects the tension between these macro shifts. Analysts have trimmed their price targets, with the 12-month average now at $37.50—a 9.86% drop from earlier estimates. This pessimism is driven by near-term headwinds: a revised industry outlook of low-single-digit declines, rising repair costs (up 10% since 2022), and margin pressures from labor inflation. However, the company's strategic moves—such as its BMW Group partnership and expansion into the economy segment—suggest a path to outperformance.

For investors, the key question is whether Axalta can execute its 2026 A Plan effectively. The plan hinges on three pillars: M&A (e.g., CoverFlexx), price-mix optimization, and geographic diversification. If successful, these could restore growth and justify a higher valuation. Yet, given the pace of EV adoption and the agility of competitors like PPG and 3M, Axalta's margin expansion may be limited.

Conclusion: A Cautious Case for Long-Term Investment

Axalta's refinish segment is at a crossroads. The aging fleet and urbanization trends offer a durable tailwind, but the company must accelerate its EV strategy and address regional execution gaps to outperform peers. Its NextJet™ and Fast Cure technologies are compelling, but adoption must accelerate. For investors, Axalta's stock appears undervalued in a high-growth industry, but the path to margin recovery is uncertain. A cautious long-term position makes sense, with a focus on catalysts like M&A, EV infrastructure expansion, and regulatory tailwinds in sustainability. However, those seeking near-term outperformance may find better opportunities in more agile competitors like PPG or 3M.

In the end, Axalta's ability to transform its refinish segment will determine not just its stock price, but its relevance in a rapidly evolving mobility landscape.