Automotive: US Deals 2024 outlook

Auto M&A temporarily slows in an uncertain market 

 Automotive M&A in 2023 continued a slowdown from the highly active deals market of 2021 with reduced deal volumes and values. Deal volumes in 2023 dropped by approximately 30% over 2022 with average 2023 deal value decreasing by about 22%. Auto dealmakers are appearing cautious in their approach in the face of inflation, supply chain pressures, interest rate levels and the continued complexity of geopolitical matters. Market conditions continue to be top-of-mind, particularly within the automotive industry as recent UAW strikes have introduced increasing volatility and uncertainty surrounding labor supply.

The sector experienced a reduction in the number of megadeals (those greater than $5 billion), with the average value down from $10.7 billion in 2022 to $6.9 billion in 2023 (excluding the impact of the VinFast special purpose acquisition company (SPAC) deal) as the magnitude of leveraged financing necessary for these deals continues to appear difficult to secure.

Looking forward to 2024 — and as the automotive industry pushes toward an electric future — industry players will likely continue to seek opportunities through investments in electric vehicles and connected, autonomous, shared and electric vehicles (CASE) assets as well as consolidate scale through M&A. With stronger headwinds to obtain financing (i.e., cost of financing outweighing deal economics), companies may more strongly consider a path of divesting non-core parts of their portfolio to achieve liquidity needed to fund investment opportunities. The strategic focus is shifting to core, cash-generating operations as companies look to the future.

Suppliers within the sector facing liquidity concerns may also create additional opportunities for dealmakers through M&A, alliances or capital investments to manage a liquidity crunch while realizing benefits from strategic investments in new technologies. 

As macroeconomic conditions persist, M&A strategy will likely augment organizations in reimagining business models and delivering value to stakeholders.

Explore national deals trends

Note: The primary M&A data source used in the year-end outlook is S&P Capital IQ. This is a change from our past outlook reports.​

Key deal drivers

Higher cost of capital slows auto M&A

Elevated financing costs contributed to lower deal volume in the automotive space throughout 2023. Higher interest rates resulted in a restrictive M&A market with fewer favorable financing opportunities to structure leveraged deals. Additionally, higher consumer financing adversely impacted automotive M&A activity, as the rising cost of financing tempered customer demand, adversely impacted financial results and decreased M&A appetite. 

Dealmakers assessing portfolios to identify opportunity amid uncertainty

Market challenges continue to be on the collective radar of industry leaders — particularly within the automotive industry with recent UAW strikes increasing volatility and uncertainty around labor supply. This atmosphere of uncertainty exists at all links of the supply chain, as potential liquidity issues threaten the sourcing ability of both smaller automotive suppliers up to original equipment manufacturers (OEMs.) However, this uncertainty also presents M&A opportunities as automakers seek to secure their supply chains through acquisitions and capital infusions to companies seeking liquidity solutions. We expect industry players to continue to assess their portfolios and value chains to identify strategic opportunities, including potential divestiture prospects, which can be used to raise deployable capital for investments in emerging markets and technologies. 

Necessity for business innovation

Companies within the automotive and mobility markets continue to invest in new technology, emphasizing a shift away from internal combustion engines (ICE) and toward a future of electric vehicles (EVs). Sector leaders continue to review their company portfolios (including divestures to create liquidity for investments in advanced technology), seeking investment opportunities to stay relevant in a changing landscape. In the EV and electrification markets, muted demand is coming to a head with pricing concerns and undetermined customer expectations of — and demand for — vehicle types (i.e., full electronification, hybrid and ICE). Investment in electronification and battery-powered vehicles, however, remains critical for companies to remain competitive. As a reflection of this, three of the largest deals (based on value of transaction) in 2023 related to electronic vehicle or mobility application technologies.

The long-standing “make versus buy” choice will likely continue to challenge industry leaders in the coming years. In the face of continued rapid technological evolution within the sector, decisions-makers will continue to weigh the pros and cons of investing in internally developed ideas and technologies versus purchasing these ideas and technologies from the external market to remain relevant. Alliances and joint ventures will continue to present opportunities for dealmakers, as these remain viable vehicles to share costs and critical human capital resources.

Sustainable technologies key to resilience and growth

Per PwC’s Electric Vehicle Sales Review Q3-2023, the US had the highest quarter-over-quarter sales growth (compared to the second quarter of 2022) in battery electric vehicles (BEV) sales among analyzed markets (growing 62%) with the top five European markets (France, Germany, Italy, Spain and the UK) and continued to show strong quarter-over-quarter sales growth (at 49%). Global BEV sales grew 26% quarter-over-quarter; however, this growth figure would likely have been substantially greater if not for the overall weakening economic conditions in China. These figures reflect the continued need for companies within the automotive sector to be innovative and invest in sustainable technologies, despite market uncertainty and a volatile geopolitical climate, in order to keep pace with consumer demands and the general technological heading of the industry.

“Ongoing economic and market hurdles will continue to push creativity in how auto and auto technology deals are sourced, financed and executed — creating exciting opportunities for dealmakers who seek to bring long-term value into their businesses.”

— Darrell Kennedy, US Automotive Deals Partner
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