{{item.videoDuration}}
{{item.title}}
{{item.text}}
{{item.videoDuration}}
{{item.text}}
Speed, scale and AI drive strategic consolidation amid margin pressures
Global automotive manufacturers are experiencing margin compression due to stagnant production volumes and evolving powertrain expectations. Cost pressures are moving downstream, with inflation, higher financing costs, and tariff volatility impacting suppliers, especially those reliant on imports. Persistent trade uncertainty and elevated input costs have limited investment, prompting suppliers to pursue targeted mergers and acquisitions for vertical integration and operational efficiency. Divestitures of non-core assets are increasingly used to strengthen liquidity, streamline operations, and maintain balance sheet flexibility in a challenging cost environment.
Other deal trends include:
- Powertrain strategy and electrification reset. Legacy internal combustion and hybrid vehicle sales are offsetting a decline in the U.S. electric vehicle market, driven by expiring federal incentives (ending October 2025) and inadequate and unattended infrastructure. Original equipment manufacturers (OEMs) and leading suppliers will maintain strategic decisions regarding flexible powertrain portfolios—including hybrid electric vehicles, plug-in hybrid electric vehicles, battery electric vehicles, and traditional internal combustion engines—while reconsidering an exclusive focus on pure-play EV assets.
- Rising costs and trade volatility push auto suppliers toward supply chain integration. Suppliers dependent on imported materials face ongoing tariff and geopolitical risks, while inflation in labor, energy, and raw materials continues to disrupt margins, cash flow, and operations. Although easing financing costs has provided some relief, liquidity remains constrained, limiting reinvestment in capacity and electrification. Recent auto sector deals reflect a trend toward vertical integration, consolidation to enhance cost efficiency and supply chain resilience, without overextending debt.
- Suppliers shed non-core assets to fuel liquidity. Auto suppliers continue to explore and are accelerating divestitures of non-core assets to reinforce liquidity, simplify operations, and maintain financial flexibility. Elevated interest rates, rising input costs, and subdued production volumes have increased the importance of cash preservation and portfolio discipline. Companies are focusing on businesses aligned with margin enhancement, lightweighting, and software-enabled mobility, while exiting lower-growth or non-core segments. Strategic divestitures are being used to unlock value, reduce debt, and return capital to shareholders, supporting operational resilience and technology transitions.
Key themes for automotive M&A in 2026
As 2026 approaches, automotive dealmakers will navigate a rapidly evolving landscape. Government intervention is intensifying, compelling OEMs and suppliers to accelerate strategic actions. IPO activity is expected to return to niche auto-tech sectors as companies seek to capitalize on favorable valuations. AI-driven operational, financial, and valuation tools will become essential, with advanced analytics underpinning deal rationale and premium justification (for both buyers and sellers as they navigate complex, likely cross-border, transactions).
While total auto M&A value and volume is projected to remain stable or increase over the near term, supplier margins face continued compression from rising costs and subdued end-market demand, driving consolidation. Carve-outs, divestitures, and strategic exits—especially of non-core assets—will be prominent, streamlining scalable platforms.
Regulatory and geopolitical factors remain significant, with moderating antitrust enforcement but persistent tariff uncertainty, particularly for cross-border supply chains. Large strategic acquisitions will continue, focusing on core systems and advanced vehicle technologies. The middle market is poised for renewed activity, led by private equity targeting under-invested suppliers and non-core carve-outs.
Autos and mobility players will prioritize divesting non-core assets and investing in digital ecosystems, while direct EV M&A may stay subdued if demand remains weak. Easing interest rates should support strategic investment, but ongoing cost pressures, tariff risks, and technology investments will constrain margins.
The industry faces a dynamic environment, with government intervention accelerating the need for rapid action by both OEMs and suppliers. In 2026, speed, scale, and technology will define automotive M&A to combat nagging margin pressures, with valuations increasingly driven by AI insights and supplier consolidation becoming imperative.
“As we enter 2026, the automotive industry faces a pivotal moment. Speed, scale, and technology are now the cornerstones of successful M&A, with AI-driven tools bringing in value creation insights faster than ever before. With persistent margin pressures, supplier consolidation is not just a trend—it’s a strategic imperative for building resilient, future-ready platforms.”
Darrell Kennedy,US Automotive Deals Co-LeaderThe bottom line: What automotive dealmakers should watch in 2026
In the past six months, the automotive industry has faced declining margins due to stagnant production, inflation, and shifting demand between electric and hybrid vehicles. Suppliers have responded by pursuing vertical integration, divesting non-core assets, and prioritizing liquidity to manage cost pressures. Over the next six months, dealmakers will navigate increased government intervention, technological change, and greater reliance on AI-driven sector insights (engineering matters, customer experience, valuation tools, etc.). Overall deal value could rise as consolidation and strategic repositioning continue. Success will depend on speed, scale, and a focused approach to electrification and digital mobility platforms.
{{filterContent.facetedTitle}}
{{contentList.loadingText}}
{{contentList.loadingText}}
Follow us
