Automotive deals insights: 2021 outlook

Executive summary

Automotive M&A in 2020 encountered both great lows and great highs. The COVID-19 pandemic dampened deal activity in Q2 to a degree not seen since the Great Recession. Activity, however, swiftly rebounded in Q3 with a steep recovery many didn’t expect. The bounceback was largely led by the emergence of new capital in the form of special purpose acquisition companies (“SPAC”) investing in CASE technologies. As a result, deal value and volume declined 32% and 18%, respectively, in 2020 compared to 2019. Excluding megadeals, deal value over the two periods lifted by 16%, with 2019 benefitting from the announced FCA/PSA merger worth $22B. The third quarter proved vital to the recovery with $23B of deal value reported. Q4 activity, however, has regressed in line with Q2, as fears of another COVID wave take hold.

Playback of this video is not currently available


Challenges and opportunities for deals in 2021

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021. Explore national deals trends

Automotive deals outlook

The automotive sector faces a challenging year ahead as COVID-19 will likely continue to produce headwinds for dealmakers to navigate. While we expect a recovery of deal value and volumes from 2020, volatility will likely nevertheless take hold in 2021, even as we emerge from the pandemic. Investments in CASE technologies may continue to drive M&A activity; however, distressed M&A and a fresh wave of supplier consolidation could also likely play a role in the rebound. Alliances and joint ventures, a trend in 2019 -- yet one which slowed in 2020 --  could offer continued purpose for CASE investments and new uses to support those companies still challenged by the effects of the pandemic.

“Investments in CASE technologies drove Automotive M&A in 2020, primarily through SPAC mergers contributing to a resurgence of deals in Q3-20. The start of 2021 will certainly have COVID and economic headwinds, but M&A through SPAC mergers is a trend we anticipate continuing to see drive deal activity in 2021 and beyond.”

Paul Elie, US Automotive Deals Leader

Key deal drivers

Future of capital

Start-ups in CASE technologies not only ushered in innovation and change not seen in the past century, but also prospects of future potential capital, as revealed by the healthy number of SPAC deals in 2020. Seven of this year’s top 10 deals were SPAC acquisitions of EV and autonomous technologies. This trend could very well persist in 2021, as development-stage companies look for quick access to capital to fund development and rapidly scale operations. There is also potential for capital to flow to new regions of the world, which historically may not have been identified as regions of automotive technology prowess. These include the Middle East (as Israel establishes itself as a new tech hotspot) and Asia (as government support accelerates the adoption of EVs).

Changing political landscape

The transition to a Joe Biden administration in January 2021 is expected to bring about numerous changes from the prior administration, including a renewed focus on environmental regulations to combat climate change. We expect to see continued -- if not accelerated -- investments in EV technologies driven by regulatory standards. A push for the electrification of transport will likely spur those companies which have yet to bet on the future of EVs to now ramp up efforts to compete with those who have. However, the incoming administration will also need to play its part to support EV demand. This can be done through providing stimulus to maintain consumer purchasing power or by providing incentives to bring EVs closer to cost-parity with internal combustion engines.

New ways of being

Throughout 2020, the pandemic has shifted the way we live, work, and move through our world. The COVID-19 crisis has also prompted automotive companies to rethink the ways in which they can serve  customers. We have seen a shift in consumer preference from public transportation to private vehicles — including a pull-back in ride-sharing due to social-distancing measures. Further, as more consumers  shop from home, there has also been investments made to accommodate this trend — including online sales platforms by dealers, contactless payment solutions and last mile delivery vessels — to further facilitate sales and support our new ways of living.

Opportunities in innovation

Pandemic-triggered shifts in consumer preferences have accelerated investment in EVs and autonomous vehicles this year, and this trend is expected to persist. However, investment and innovation in our nation’s infrastructure -- whether that be charging stations or  telecommunications to support autonomous capabilities -- will need to track along at the same pace for adoption of EVs (and autonomous vehicles) to scale. Further, investments in manufacturing innovation using AI, robotics, additive printing or other means will see an uptick as social distancing and new norms of working reconfigure the factory floor.

Shifting industry paths

The recovery of the automotive sector has been mixed, with suppliers focused on tech and recreational-use vehicles performing better than others. The road ahead appears to offer little reprieve as fears lingers over whether winter will bring a new round of lockdowns. If that were to happen -- and if there is no new fiscal stimulus — the auto industry could revisit a new wave of supply chain disruption, depressed sales, and all but flat-lined consumer confidence. As suppliers in the lower tiers of the automotive supply chain still grapple with liquidity pressures wrought by the pandemic, a new wave disruption could increase distressed M&A activity to start 2021. Consolidation of the supply base will likely continue as a result — and may even accelerate, given the need for suppliers to form alliances to support tech investments.

Contact us

Paul Elie

Industrial Products Deals Leader, PwC US

Ray Telang

Automotive Leader, PwC US

Follow us

Required fields are marked with an asterisk(*)

By submitting your email address, you acknowledge that you have read the Privacy Statement and that you consent to our processing data in accordance with the Privacy Statement (including international transfers). If you change your mind at any time about wishing to receive the information from us, you can send us an email message using the Contact Us page.