Auto M&A outlook promising despite EV challenges
Expect waves of deal announcements now through the end of the year as bumps in activity move through the M&A pipeline, writes Mark Williams
The outlook for automotive and transportation mergers and acquisitions (M&A) remains mixed for the second half of 2024, as the industry continues to face opportunities and challenges. In the first half of the year, automotive M&A activity was slowed by high interest rates, political uncertainty, and lower consumer demand, especially for electric vehicles (EVs). While their share of total new-vehicle sales in the US rose about 3% year-over-year in the first quarter, EV sales fell 15% compared to Q4 2023. As a result, many EV makers announced plans to scale back or delay production.
EV start-ups have also struggled financially, underestimating the amount of capital needed to sustain operations and unexpected expenses, leaving them short of cash. Earlier this summer, one EV maker even filed for bankruptcy, after several others had already succumbed to the same fate.
Investors, especially private equity firms, have large amounts of unallocated capital and want to deploy it
Additionally, there are environmental and social risks around mining lithium, the key component of lithium-ion batteries, which are used to power most EVs today. Lithium mining requires large quantities of water which can create ground destabilisation, biodiversity loss, increased salinity of rivers, and related pollution. Some mines also use child labour, lack safety measures to protect workers, and negatively impact the surrounding environment. These concerns can make EV M&A deals riskier and harder to complete.
Still, investors, especially private equity firms, have large amounts of unallocated capital and want to deploy it. Strategic and financial buyers are also looking for ways to expand in the transportation sector and are expected to use strategies such as M&A to gain or increase a foothold. This may help explain why M&A deals in the broader industrials sector, of which automotive and transportation are part, have climbed on Datasite, which annually facilitates nearly 15,000 deals.
In the first half of this year, industrial sell-side deals on Datasite were up 14%, with industrials being the second most active sector behind consumer sell side deals. Since this activity represents deals at their inception rather than publicly announced, it provides a good indication of what’s to come in the next six to nine months. In other words, expect waves of deal announcements now through the end of the year as bumps in activity, especially in January, April, and May, move through the M&A pipeline.
So, while EV M&A may be off, there are some clear signs of activity in the industry’s subsectors. The continued economic recovery, and technological advancements, may drive more M&A in the latter half of the year and into 2025.
Dealmakers and stakeholders in the automotive sector should remain vigilant, adaptable and focused on due diligence processes, leveraging opportunities as they arise while navigating the complex landscape of economic challenges. This way, they can position themselves to capitalise on opportunities, while simultaneously driving long-term growth and innovation throughout their organisations and industry.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Mark Williams is Datasite Americas Chief Revenue Officer
The AutomotiveWorld.com Comment column is open to automotive industry decision makers and influencers. If you would like to contribute a Comment article, please contact [email protected]