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Automotive deals insights: 2021 midyear outlook

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What's driving deals in 2021

PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for the rest of 2021.

SPACs fueling automotive and new-energy vehicle M&A in 2021

During the first half of 2021, the automotive market continued on its 2020 path of new-energy vehicle (NEV) M&A primarily fueled by special purpose acquisition company (SPAC) transactions. Of the top 10 global M&A deals announced, eight were in the US, comprising four SPAC deals ranging from electric vehicle (EV) manufacturers (design and testing phase) to EV charging solutions. However, with focus and attention on NEV technologies, macroeconomic headwinds have plagued the industry in 2021 with increasing commodity costs (copper, steel, resins, etc.) and a perfect storm of semiconductor supply-chain interruptions causing shortages in chips which could cost the overall global industry more than $100 billion.

Global M&A continues to recover in the first half of 2021 with a total deal value of $51.1 billion an increase of about 190% over the first half of 2020. While the onset of the pandemic significantly impacted deal value and volume in the first half of 2020, deal volume in the first half of 2021 fell by 15% to 316 deals with an average disclosed deal size of approximately $263 million.

Of the $51.1 billion of deal value, vehicle manufacturers comprised the largest segment with $26.7 billion (or 52%) of total global M&A deal value, primarily due to SPAC deals in NEV. According to Statista, despite 2020 being a sluggish year for the global automobile industry, electric car sales continued to grow. According to the International Energy Agency’s “Global EV Outlook,” electric passenger car sales climbed by approximately 3 million units to a total global stock of 10.2 million despite the total automobile industry contracting by 16%. We expect these trends to drive further M&A activity in the EV space from manufacturers (including last-mile commercial vehicles) to battery producers and other players in the EV ecosystem.

Automotive deals outlook

The challenges in 2020 due to COVID-19 across the automotive sector caused softness in M&A during the second and third quarters as original equipment manufacturers (OEMs), suppliers and retailers reacted and adapted their businesses to the pandemic (e.g., temporary shutdowns, cost cutting, investigating government programs, etc.). However, M&A quickly picked up in the fourth quarter of 2020 through the first half of 2021. We expect deal activity in the second half of 2021 to continue to expand as we emerge from the pandemic and experience greater access to emerging sources of capital (notably SPACs), investment in NEV and innovation and technology across all automotive sub-sectors. M&A is expected to be both a catalyst and opportunity for organizations to right-size operations to meet new market demands of a post-pandemic world.

Key deal drivers

The nature of capital

SPAC deals continue to surge in the first half of 2021. Four of the top seven deals were SPAC-backed acquisitions of development stage EV manufacturers and EV battery technologies  including $11.8 billion for Lucid Motors (EV OEM based in Newark, CA); $3.2 billion for Faraday Future, Inc. (EV start-up OEM in Los Angeles, CA); and $2.6 billion for EVgo Fast Charging (EV battery charging company in Los Angeles, CA). Companies are increasingly looking to invest or co-invest in startups that are developing new technologies for batteries and autonomous driving and we expect this to continue into the second half of 2021 and 2022 as they strive for market adoption of solutions and to make strategic moves to position their technology for success. 

Commitment to purpose and talent

Throughout 2020 and 2021, the pandemic has altered the way we live, work and move through our world. It also caused automotive companies to rethink how they can serve their customers. We have seen a shift in consumer preference from public transportation to private vehicles due to social-distancing measures — including a downtrend in ride-sharing. This shift has powered a new wave of car buyers starting in the second half of 2020. Further, as e-commerce persists strongly despite US retail markets opening up for in-person shopping — we have seen investments by dealers in online sales platforms, as well as investment in contactless payment solutions and last-mile delivery vehicles to further facilitate sales and support our new ways of living.

Innovation and transformation

With the shifts in consumer preferences driven by the pandemic, investment in EV and autonomous vehicles will likely become more important than ever in the coming years. Additionally, investment in technology that advances the use of the vehicle to support social-distancing measures, such as drive-in entertainment, is also expected to expand. As autonomous and tech-savvy vehicles become the norm, increased investment in the corresponding infrastructure to support these measures will likely drive growth in other sectors such as telecommunications. 

Geopolitical and regulatory shifts

Developing a roadmap leading to climate-neutral mobility and corporate responsibility will continue to be central to C-Suite discussions, strategy development and corporate governance. Recently, Volkswagen expanded upon its strategy for decarbonizing the company and its products and intends to be net-carbon neutral by 2050 (at the latest). In addition to climate-neutral mobility, Ford established a formal supplier conduct code for environmental, human rights, material sourcing and ethical business practices. While environmental, social and governance (ESG) initiatives may not directly fuel M&A – it will most likely have an indirect impact on automotive M&A as industry leaders become more vocal on the practices and values they expect of themselves and future partners to operate by and uphold.

Unpaved roadways: supply chain volatility

Recent commodity and microchip shortages will likely affect the sector in ways yet to be seen. The global semiconductor shortage has impacted automotive production, causing suppliers to scramble to meet high demand despite all-time low inventory levels. It's also a warning signal to manufacturers that they may be vulnerable to other supply-chain disruptions that could sideline plans or derail economic recovery. The second half of 2021 will be pivotal in the automotive sector as organizations may seek M&A opportunities to avert supply-chain constraints by enhancing access to inventory either through untapped geographies or penetrating new supply-chain networks.

“The first half of 2021 was without doubt a unique period in our nation’s history as we make strides to break free from the pandemic. The pursuit for sector innovation and advancement has heightened the wave of SPAC activity. This along with a perfect storm of supply chain constraints will continue to spur partnerships, acquisitions and alliances across the sector as new investment opportunities are fueled.”

— Paul Elie, US automotive deals leader

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Paul Elie

Industrial Manufacturing Deals Leader, PwC US

Michelle Ritchie

Industrial Products Deals Leader, PwC US

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