Automotive: US Deals 2023 midyear outlook

Auto M&A cools — yet showing healthy activity

Global automotive M&A improved in total deal value by $40 billion for the 2023 YTD period compared to the same year-ago period. However, $23 billion of total deal value was comprised of the Vinfast megadeal (Vinfast is a Vietnam-based electric vehicle original equipment manufacturer with plans to roll out vehicles to the U.S late fall 2023). Excluding the megadeal in the first half of 2023, total deal value was $17 billion, suggesting a slowdown of core non-megadeal M&A activity. Despite the increase in total deal value, deal volume declined 25% to about 350 deals for YTD 2023.

The sector’s need for technological and electrification development will likely continue to keep automotive companies’ strategy focused on M&A. However, we expect the YTD 2023 trend to continue in the second half of 2023 given the macroeconomic challenges the industry continues to face with inflation, increased interest rates and capital pressures.

Similar to 2022, dealmakers have demonstrated discipline in their capital distribution in the first half of 2023. Inflation, high interest rates and other macroeconomic factors exerted added pressure on dealmakers to make strategic decisions, given that there was less margin for error. At the same time, however, certain core commodities and logistical costs tempered in 2023 from severe levels in late 2021 through 2022, helping to reduce margin volatility.

We continue to expect a conservative approach in the automotive market in the second half of 2023. Deal volumes will likely remain stable, as the automotive industry generally continues to trend toward pre-pandemic performance levels and as automotive companies continuously prepare for an electric future on numerous fronts, including investing in electric vehicles and CASE (connected automated shared electric) assets, minimizing supply chain disruptions and consolidating their scale through M&A. 

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Automotive deals outlook

Companies face markets being reshaped by technology and disrupted by geopolitical unrest, a global pandemic and economic shocks. As a result, CEOs are turning to transformative acquisitions to reposition and reinvent their businesses for long-term success. Companies are also beginning to crack the code on how to make big, transformative deals successful: leveraging experience, early and sustained investment in integration, and a commitment to creating and implementing new long-term operating models.

Looking ahead into the remainder of 2023, we expect continued opportunities for auto companies to make strategic investments, particularly in CASE technologies.

Learn more about leading practices and transformational mindsets in PwC’s new M&A integration report.

Key deal drivers

Opportunity amid uncertainty

The first half of 2023 signals continued projections of volatility and uncertainty as we look toward 2024. Automotive and mobility companies continue the fight against unstable global supply chains and geopolitical disruption by increasing efforts to acquire businesses nearshore. Stabilized core material and logistical costs in 2023 assisted in margin stability. Additionally, companies focused on regions that are more geopolitically stable are assuming an advantage in the automotive market. We expect continued strategic assessment through analysis of portfolios and value chains in determining whether divestiture may be advantageous and open opportunities to raise capital to deploy to other areas. This may lead to better returns or conform to new auto trends in the market. 

Necessity for business reinvention

Technology will continue to drive the automotive industry at a rapid pace for decades to come. For companies to remain successful in the rapidly transforming automotive (and broader mobility) market, industry leaders and executives should continue to deeply review their company portfolio, including divesting non-core assets to accommodate investments in advanced technology. Capital generated from divestitures can be used to fund investments in growing automotive sectors, including CASE technologies and electric vehicles. Companies that perform these internal analyses and prepare for this dynamic business environment in a timely manner are at an advantage and more likely to acquire quality assets.

As a reflection of this, seven of the top ten largest deals (based on value of transaction) in YTD 2023 were technology related, with the majority related to electric vehicle (EV) technology. Furthermore, six of these seven tech deals involved financial investors, three of which were special purpose acquisition companies (SPACs).

The long-standing “make versus buy” theory will likely continue to shape strategic decisions with M&A being an important part of those decisions. Does business reinvention come through all-in investment in organically developed business models and technology (i.e., make); or, is it driven by dealmaking to bring capacity, human talent and capabilities to navigate the continued turns in the automotive sector (i.e., buy)?

Many companies are hesitant to divest a portion of their business. Some executives have the tendency to use up valuable time and company resources to attempt to fix a strategic business issue instead of moving on through divestiture and reinvesting the capital elsewhere. PwC’s recent divestiture study found that timely execution of divestiture decisions can help increase the chances of value creation.

Resilience and innovation for growth and sustainability

Per PwC’s Electric Vehicle Sales Review Q4-2022, the U.S had the highest annual sales growth in battery electric vehicles (BEV) sales among analyzed markets (growing 88% in 2022 in comparison with 2021). Despite geopolitical tensions and high energy prices, global BEV sales grew 70% year-on-year in 2022. Such growth underscores the need for the automotive sector to demonstrate resilience and sustainable growth in order to meet the demand and expectations surrounding the electrification of mobility. We predict continued M&A and alliances to maintain resiliency and innovation during these macroeconomic and sector-defining challenges.

Inflation’s effect on commodity prices and the continued focus to secure supply of rare earth metals for EV transitioning are difficulties automotive companies will need to navigate in the near term. Battling economic and market headwinds, however, is not new for this sector. Resilient and innovative enterprises emerged from the 2008-2009 global downturn and similarly transformed in the face of the global pandemic. Automotive and mobility companies will need to continue to leverage their accumulated resiliency while folding on new strategies and technologies to grow. For new entrants to the auto sector, innovation and the ability to learn quickly and react from failures will be critical to their journey of securing a relevant role in a large and complicated sector. 

“Even as the automotive sector experienced tempered deal activity in the first half of 2023 (coming off a relatively stable 2022), the surge and rise in BEVs cannot be ignored. Businesses need to make critical decisions on how to innovate and grow their organization to meet demands of the future. Dealmaking will continue to play into those decisions — and the form of new deals will continue to evolve.”

— Paul Elie, US Automotive Deals Leader
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