M&A in Automotive and Mobility: Hedging Bets until a Clear Future Emerges

The automotive industry is in a state of uncertainty and mounting cost pressures, and the answer for many companies will be to pursue partnerships and alliances instead of traditional M&A. Factors influencing the automotive M&A outlook include:

• Rising cost pressure for original equipment manufacturers and suppliers with underutilized capacities
• High uncertainty with volatile electric vehicle (EV) ramp-up across geographies
• Dual burden of investing in an EV future while maintaining internal combustion engine business limits available funding
• Required access to new capabilities and scale to achieve leadership positions with sustainable profitability
• Opportunity for partnerships and joint ventures with lower investment requirements

Low volumes and shifts in former growth markets such as China have hurt Western players. The ramp-up in electric vehicle (EV) batteries has been volatile, yet hybrid EVs continue to be a viable option, including another internal combustion engine powertrain upgrade. Overall, there’s much indecision around original equipment manufacturer strategies regarding software development, electrical/electronic architecture, and vertical integration with the high-voltage battery value chain.

Amid these and other challenges, companies largely have held off on M&A in 2024, with value down around 80% and volume dropping about 60% during the first three quarters of 2024. But activity is likely to pick up as companies acknowledge that they can’t go it alone much longer.

Because traditional M&A deals seem daunting during times of high uncertainty, more companies will look for joint ventures (JVs) or alliance arrangements that allow the flexibility to be competitive among different future scenarios. Such arrangements also require a lower investment than traditional M&A. GM established a $625 million JV with Lithium Americas to ensure access to critical minerals, and CATL and Hyundai signed a strategic partnership agreement to power future Hyundai EV models with CATL batteries. The best companies will model different future scenarios and actively consider them in their current decision making while, in parallel, taking the no-regret moves to help strengthen the business today. Partnerships can help companies more speedily explore multiple technological paths. And once the tech path is clear, the right partnerships can be converted to full acquisitions while other, nonpromising paths can be discontinued—by scaling back JVs, for example. In both cases, successful companies are the ones that proactively shape their future.