Electric vehicle (EV) and autonomous vehicle (AV) technologies have made remarkable strides in recent years, promising safer, more efficient, and more convenient transportation options. But their emergence has disrupted the traditional automotive industry. Traditional automotive companies, as well as new entrants, are increasingly turning to strategic alliances and acquisitions to gain a competitive edge. A number of forces are behind this trend, which are shaping automotive professionals’ strategic motivations that drive increased M&A activity.
Increased Activity in the Electric Vehicle Space
According to a forecast by Deloitte, global electric vehicle sales will hit 31.1 million by 2030, up from just 2.5 million in 2020. To support this rapid growth, Deloitte estimates that investments of up to $19.5 billion will need to be made to support new EV infrastructure and to build a public charging network.
This significant increase in demand is contributing to increased M&A activity as companies seek to form and leverage strategic alliances or joint ventures to invest in infrastructure and research and development. By pooling their resources and leveraging their collective knowledge, firms can accelerate technology development, shorten time to market, and gain a competitive advantage.
Autonomous Technology as a Driver of M&A Activity
The rise of autonomous technology is a factor in automotive M&A activity in several ways. The first, and most obvious, is that there is a general consensus that autonomous driving is the future. According to research firm McKinsey, by 2035, autonomous driving could create a staggering $300 billion to $400 billion in annual revenue. As firms compete for a share of this market, M&A transactions serve as viable strategic growth strategies.
Yet it is also true that pessimism is driving recent activity. Firms are being forced to confront some hard truths. As tech publication The Verge concludes, “The first is that autonomous vehicles are going to take a lot longer to reach mass scale than previously thought. The second is that it’s going to be a lot more expensive, too. And the third hard truth: going it alone is no longer a viable option.” These realizations contributed to some larger M&A transactions such as Lyft selling its self-driving car division to a subsidiary of Toyota for $550 million and Amazon’s acquisition of robotaxi player Zoox, Inc. for $1.2 billion.
Convergence of Technology and Traditional Automotive Companies
The emergence of electric and autonomous vehicles has attracted non-traditional players, including tech companies and startups, to the automotive industry. Traditional automotive companies seek to acquire these new entrants for several reasons. First, the new entrants often have innovative technologies and expertise that automotive companies can leverage and incorporate into their vehicles. For example, Toyota’s acquisition of Lyft’s AV technology.
Second, traditional automotive companies gain access to new markets, allowing them to develop technology offerings of their own. Third, M&A enables vertical integration. The integration of EV and AV technologies requires coordination between many components and systems. For instance, software, sensors, batteries, and connectivity. Through M&A, companies can vertically integrate their operations by acquiring firms that specialize in different aspects of the value chain.
Competitive Advantage
Mergers and acquisitions can provide EV and AV companies with many potential benefits and help them gain a significant competitive advantage. These include:
- Economies of scale. M&A results in potential cost savings by eliminating duplicate functions, streamlining operations, and consolidating time-consuming manual tasks. This can increase profitability and allow companies to invest more in R&D or even offer customers reduced prices.
- Increased market share. Automotive mergers and acquisitions help firms to gain a stronger position within these new industry segments. This gives them access to a new customer base, improved brand recognition, and greater bargaining power with both suppliers and customers.
- Talent acquisition. Both the EV and AV markets are new and evolving rapidly. Competition for skilled employees with access to specialized knowledge is fierce. M&A allows companies to retain top talent and leverage their expertise to enhance their competitive position.
- Diversification and enhanced technological capabilities. Companies can diversify their offerings which can help mitigate risks associated with changing technology, consumer preferences, or market fluctuations. Moreover, by integrating new technologies, companies can improve their operational efficiency and improve products and services.
Investment in the Future
As mentioned above, experts forecast that over 31 million electric vehicles will be sold worldwide by 2030. The same predictions conclude that by 2035, autonomous driving will generate upwards of $400 billion per year in revenue. Thus, electric vehicles and autonomous vehicles will undoubtedly be key drivers of growth within the industry for many years to come.
For companies, particularly traditional automotive manufacturers, it is crucial to invest in these technologies now to stay ahead of the curve. Given the costs associated with offering these technologies at scale, M&A will continue to serve as an efficient and effective strategic growth strategy.
DCG Enables M&A Execution and Integration
Mergers and acquisitions offer many potential advantages for firms looking to gain a competitive edge in the emerging EV and AV markets. However, successful execution and integration are critical to realizing these benefits. This involves cultural integration, effective leadership, and strategic planning to ensure a smooth transition and maximize the competitive advantages gained from an M&A transaction.
The Dave Cantin Group (DCG) has facilitated hundreds of successful automotive mergers and acquisitions with billions of dollars in transactions closed. Our industry-leading Acquisitions division features one of the most talented and experienced teams in the industry, helping parties on both sides of the table to realize the full value of their respective transactions.
Contact the Acquisitions division of 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.