The EV industry is facing multiple headwinds in 2024 including consumer pullback, but future dealmaking prospects look solid as buyers seek to safeguard future growth, with China leading the way
Dealmaking in the global automotive industry has underwhelmed so far this year, with supply chain issues, higher-for-longer interest rates and financing concerns dampening activity. A total of US$42 billion changed hands during the first three quarters of the year—a 40 percent decline year on year and the lowest Q1-Q3 figure since 2019.
M&A activity by value Q1 2019 – Q3 2024
Target location: Global - Bidder location: Global -Sectors: Automotive
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Effective July 1, 2023, the underlying Mergermarket data supporting the M&A Explorer was consolidated with Dealogic data to produce an even more complete picture of the M&A marketplace. M&A Explorer commentary published before July 1, 2023 may reference data that does not reflect this consolidation.
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While the value of investment is down, deal volume remained stable, posting a more marginal 3 percent decrease year on year—indicating that hesitancy exists largely at the top end of the market.
The global electric vehicle (EV) subsector of the automotive industry witnessed a similar trajectory. Deals worth a total of US$6.8 billion took place during the first three quarters of the year, down from an impressive US$36.8 billion recorded in Q1-Q3 2023. As with the overall automotive trend, deal volume remained in line with previous years. A total of 31 deals changed hands in the first nine months of this year, compared with 40 deals in the same period last year.
Global powerhouses China and the US continue to dominate the market, despite the overall downturn in the sector. China saw the highest level of deal activity in the first half of the year, with cross-border activity, both inbound and outbound, remaining strong.
EV superpowers fuel activity
Though China led the way in dealmaking, a US company attracted the highest-valued deal of the year so far: German automaker Volkswagen’s US$5 billion planned investment in EV maker Rivian. The deal is part of a joint venture in which the companies will share EV architecture and software.
The investment will boost Rivian’s production of new products set to come to market and will leverage supplies, including chips and components, as the EV maker looks to expand into Europe, and eventually Asia. The company recently overhauled its manufacturing process, as it faces tough market conditions, and has fared better than its industry peers as a result.
Another significant deal saw Chinese EV producer IM Motors raise US$1.1 billion to help it expand into overseas markets. The capital raise originated from a group of investors including Bank of China's asset management unit, an investment arm of Agricultural Bank of China, Chinese battery maker CATL, and autonomous driving startup Momenta.
Market challenges
Despite the world-changing potential of the global EV market, consumer adoption has been slow to pick up. Global leaders Tesla and Chinese rival BYD both posted a drop in electric car sales in H1 2024, leading them to cut prices to stimulate consumer demand.
EV startups are struggling amid these challenging conditions. US EV carmaker Fisker filed for bankruptcy in June following its failure to secure additional funding and its efforts to find a strategic partner broke down. Weakened consumer demand, price-cutting among market leaders and supply chain issues are hitting the sector hard, with the UK arm of electric van group Arrival also entering administration in February.
Slow adoption is perhaps the most concerning issue facing EV carmakers this year. Amid rising interest rates and a cost-of-living crisis, affordability is a major barrier to the mass adoption of EVs. Concerns surrounding charger timing and availability are adding to a sense of hesitancy. It seems that some consumers are holding out for greater technological advancement and choice, particularly hybrid options.
US consumers appear to be especially hesitant. According to a recent poll carried out by the Energy Policy Institute at the University of Chicago and The Associated Press-NORC Center for Public Affairs Research, an estimated 46 percent of Americans said they are unlikely to purchase an EV.
Market drivers
However, despite the slowdown in consumer uptake, there are reasons to remain optimistic about the future of dealmaking within the EV sector.
Ongoing technological advances in the push to net zero will ensure that investment in the sector continues despite slower than expected adoption. Critical supply chain components such as new types of battery technologies are set for increased investment, as original equipment manufacturers look to reduce reliance on traditional battery metals such as lithium, nickel, cobalt and magnesium.
Meanwhile, China’s move into European markets ahead of punitive tariffs will likely spur more M&A activity. China has been responsible for the bulk of EV sales in 2024 so far, accounting for more than 60 percent of sales in June alone. In October, the EU voted to adopt definitive tariffs of up to 38.1 percent on China-made battery electric vehicles. According to Mergermarket, the tariff hike will act as a trigger for Chinese EV makers to speed up their localization strategy in Europe.
Turkey, while not part of the EU bloc, has been cited as a gateway for Chinese investment into Europe, with EV giant BYD recently announcing a US$1 billion investment plan to build an EV and hybrid factory in the country.
Outlook
While the industry continues to face headwinds, the ongoing global electrification drive—buoyed by ambitious government regulations, incentives and sales targets—shows no sign of slowing down. The EV market has clocked years of steady growth, with the current state of the market likely a correction rather than a long-term trend.
Policies designed to phase out internal combustion engines will provide further fuel for automakers to jump on the EV bandwagon. Advancements in new technologies such as ultra-fast charging stations and improved battery performance will spur M&A and boost EV sales.
A word of caution though: The US election brings with it plenty of uncertainty for the US EV market. Republican challenger Donald Trump has been heavily critical of President Biden’s EV policies to date, and the outcome of November’s election could prove pivotal for the US market.
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