Capitalizing on M&A to Establish a Strong Presence in the Electric Vehicle Ecosystem

August 22, 2023

The transition to EVs has clearly begun and is gathering momentum. Vehicle manufacturers worldwide are increasing the numbers and cadence of new EV introductions, building new factories to produce the batteries they will need, and working with suppliers to make EVs more affordable and easier to use on a daily basis.

As the electric vehicle landscape evolves, EV mergers and acquisitions are an integral part of this process, and automotive retailers would do well to pay attention. The trends in M&A and other economic activity in the world of electric cars will inform what moves dealerships will need to make.

The Importance of M&A in Shaping the Electric Vehicle Ecosystem

The electric vehicle market trends are clear: Numerous automotive OEMs, suppliers, and startups are engaging in M&A transactions of various types. Their objective is to gain an increased share of the overall EV market. A major additional benefit of this M&A activity is the ability to get a larger piece of the EV-related subsidies, grants, tax rebates, and other incentives that have been enacted by US and state governments. These incentives have been designed to generate home-grown EV production, battery plant construction, and materials sourcing, as well as the accelerated buildout of the country’s EV charging infrastructure. According to Deloitte, double-digit growth in the EV market and its associated ecosystem is expected going forward.

Understanding the Electric Vehicles Ecosystem

The EV ecosystem can be visualized as a three-legged stool, in which each of the three main elements must fully meet the needs of customers if the electric vehicle market itself is to stand firm:

The Vehicles: To reach mass acceptance, EVs must be affordable, desirable, and easy to use. Their form factors should be similar to the internal combustion engine (ICE) vehicles that consumers are used to buying. EVs also need to have a comparable or better range when compared to the ICE vehicles they are intended to replace. A robust educational effort, delivered by dealership or direct-sales personnel, will also be required to make new EV buyers comfortable with the operation of their new vehicles.

The Charging Infrastructure: While many homeowners will be able to easily install a home charger on their properties, this will not be an option for most apartment and condo dwellers. Those homeowners who need to venture beyond their vehicles’ ranges will also need charging along the way. Until the country’s charging network is greatly expanded, many potential EV buyers will not be willing to buy their first electric vehicle. The vehicle manufacturers’ realization of this shortcoming can be seen in the recent deals that Ford, GM, Mercedes-Benz, Volvo, and others are making to access Tesla’s superior Supercharger network for the charging services their customers’ EVs will need. 

The Incentives: Tax credits at the federal and state levels can help to influence consumers who may be “on the fence” about buying an EV that qualifies under the terms of the Inflation Reduction Act (IRA). The Treasury Department’s classifications of EV leases as commercial transactions that are entitled to the full tax credit amount will help the sales of non-IRA-qualified electric vehicles. 

Manufacturers and suppliers can also benefit by taking advantage of the various federal, state, and local programs that can help to underwrite EV manufacturing plants, battery factories, and charging infrastructure.

Growth and Potential of the Electric Vehicle Market

The size of the global EV market was $205 billion in 2022 and is projected to expand to 1,716 billion by 2032, a compound annual growth rate (CAGR) of 23.1% during this 10-year period. 

As we move closer to 2030, there will be fewer ICE vehicles and more EVs produced worldwide, enhancing the move to EVs. 

While the US is slower in transitioning to EVs than either Europe or China, we are currently at about 7% of total new car sales being battery electric vehicles, the highest rate achieved so far. Moving the electric vehicle landscape significantly beyond this will take time and a major expansion of the charging infrastructure, particularly in the non-coastal areas of the US. 

Emerging Technologies and Innovations in Electric Vehicle Development

The future of EVs is bright. Electric vehicle market trends are focused on improving the customer experience around this new form of vehicle propulsion. The EV industry is a hotbed of technological development in which OEMs, suppliers, and startups are competing to improve the EV experience, much of it through battery development. New battery chemistries are reducing costs, weight, and the dependence on rare materials that may only be found in conflict regions. Swappable batteries being promoted by manufacturers like Nio can eliminate the time spent waiting for a charge. Solid-state batteries on the horizon promise lighter weight, smaller size, lower cost, and faster recharging. Toyota is promising a battery with a 900-mile range by 2028. 

Other technologies being worked on in conjunction with EVs are driver assistance technologies that will eventually lead to self-driving vehicles, as well as vehicle-to-vehicle (V2V) and vehicle-to-everything (V2X) communication that will network all vehicles on the road for safer operation. There are many opportunities for both suppliers and startups in these areas.

M&A as a Strategic Approach

New opportunities have been created by the rapidly accelerating EV transition, with numerous EV mergers and acquisitions within the industry. Manufacturing businesses can no longer rely on incremental improvement of their products for the rapid growth necessary to stay at the forefront. Value creation at scale takes leadership to drive the creation of new services and new business models. Overlooking this potential can lead to lost opportunities which could be taken advantage of by new competitors that are more innovative. An example of this is Tesla’s price cuts on its EVs, made possible due to its innovative design and resulting lower cost structure. This is causing distress among the legacy manufacturers that are still selling their electric vehicles at a loss, particularly with some supply chain uncertainty remaining.

Leveraging M&A to Gain Market Share and Expand Presence

There are many opportunities to leverage M&A to gain market share and expand presence in the EV ecosystem. There may be a shakeout at the OEM level, as profit-rich ICE sales fade and EVs with uncertain margins ascend to the majority. Also likely is consolidation at the supplier level, as the producers of motors, power electronics, and other basic EV components are rolled up by either the current dominant industry suppliers or OEMs wishing to bring these components (and the profits they generate) in-house. 

Mergers in these areas of the automotive industry can point dealership groups towards acquiring franchises of the major auto brands that are making their own moves in the EV realm. In particular, if a large automaker acquires a supplier of specialized EV components, or the electric vehicle division of one of its rivals, this will likely generate increased demand for that brand’s stores. Furthermore, dealers may look to on-market dealerships that have been doing the best job in EV customer education in order to gain a head start on the category that will dominate the future of cars.

The Dave Cantin Group Can Help You to Develop an Automotive Business For the EV Future

The importance of M&A in developing your business for the electrified future that lies ahead cannot be overstated. The Dave Cantin Group will be your partner in building the business that will move you into the strongest possible EV future. 

DCG is a full-service M&A company in every sense of the term. Our M&A specialists are there for you, from the beginning of the process through the due diligence to the final signatures on the agreement. 

The Acquisitions team at DCG has personally closed billions in transactions to date. We have an impeccable reputation and a long track record of proven results in the automotive, motorcycle (Harley-Davidson), recreational vehicle (RV), powersport, and heavy truck (semis) industries. because we’re committed to service beyond the sale. Our experienced team of experts manage efficient, high-return acquisitions.

Contact DCG to speak directly with an automotive M&A specialist and learn how our expertise can help you get the most out of your next transaction.