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North American and European Automotive Industry Supplier Base M&A Activity Intensifies

The unprecedented disruption and transformation faced by the Automotive industry is complicated. The industry value- and supply-chains are actively facing pressures from the ascendance of Chinese manufacturers, the European Union (EU)’s efforts to phase out combustion engines, and the United Automobile Workers (UAW) union’s influence after securing new contracts with the Detroit Three automakers in late 2023. Recent deal activity highlights that the current conditions are intensifying and fueling greater potential for mergers and acquisitions (M&A).

A Dynamic Landscape

Original Equipment Manufacturer (OEM) automakers are facing intense pressure amid higher interest rates, weaker economic growth, and the phasing out of electric vehicle (EV) subsidies. This trend is pushing some OEMs to rethink strategies of sunsetting internal combustion engine (ICE) programs, with some backtracking on committed EV production and investments. In some cases, automakers have announced scaled back or delayed EV plans. OEMs are rationalizing business models to ensure profitable management of ICE business with unprofitable EV business.

In a recent example, Stellantis (BIT:STLAM) announced that it will be adjusting investment levels for EV batteries to match vehicle demand, according to Bloomberg1. Stellantis and Mercedes-Benz (XTRA:MBG) also announced in June that both companies would pause construction of a €2 billion (~$2.14 billion in U.S. dollars) joint venture (JV) battery plant in Germany to “review plans” and possibly pivot to manufacturing lower-cost cells as a result of slowing EV demand (Bloomberg2). In June, Paul Jacobson, CFO of General Motors’ (NYSE:GM), announced that the company would adjust its targeted 2024 North American production of new EVs from between 200,000 and 300,000 units to between 200,000 and 250,000 units as a result of EV demand not growing at the initially expected pace, as reported by The Detroit News.3 General Motors also announced expectations of achieving positive margin on EV production by the second half of 2024. During Ford’s (NYSE:F) Q4 2023 earnings call, the Company announced that it would delay a second JV battery plant in Kentucky, reduce the size of a new lithium iron phosphate plant (LFP) in Michigan, and not proceed with a JV battery plant in Turkey.4. In May, Ford shared a company memo with a “call to action” to its supplier base, asking for help to reduce costs on EV production, according to Reuters.5

The slowdown in EV adoption is prompting stakeholders to reassess their strategies as OEMs race to cut manufacturing costs to make EVs more affordable for the mass market. While certain components can seamlessly transition between vehicle propulsion types, others may not be as agnostic, thus requiring substantial investments by suppliers. The uneven demand for EVs has led many suppliers to divert attention to sustaining sales and profitability in their ICE business while managing the momentum of their EV investments. Suppliers are adopting a mindset to anticipate potential liquidity issues, so they can remain dynamic and able to benefit from strategic investments in new technologies.

Automotive Industry Evolution Spurs M&A Activity

Recent deal activity has highlighted that the supplier base is taking action to either future-proof business models or seek the highest enterprise value possible via exit and outright market departure. Certain suppliers have been pronounced in their deleveraging and divestment efforts. One example has been FORVIA’s (ENXTPA:FRVIA) execution of its second €1 billion (~$1.1 billion USD) asset disposal program. FORVIA announced the sale of its wholly owned subsidiary, Hug Engineering to Ogepar in April at an enterprise value of €55 million (~$58.96 million USD). This followed the close of FORVIA’s sale of its 50% stake in BHTC to AUO Corporation (TWSE:2409) in April, representing €205 million (~$219.74 million USD) of cash proceeds, according to FORVIA’s April press release.6 In addition to divestitures, suppliers with squeezed margins, higher inventory levels, working capital constraints, and liquidity issues have created opportunities for M&A transactions.

Through May 2024, M&A activity within the European and North American OEM supplier base increased approximately 49% over the trailing twelve-month period (TTM).

Contributing to the reported increase in transactions was carve out and divestiture activity, of which approximately 46 European-concentrated carve-out targets were acquired, representing a TTM increase of 119% in Europe alone. North American-concentrated carve-out activity increased approximately 67% over the TTM period, representing 15 transactions in the last 12 months.

Overall, carve outs and divestitures represented 47% of all automotive OEM supplier M&A transactions across Europe and the United States. Strategics, and private equity backed strategics, made up approximately 68% of reported acquirers in the last 12 months as they sought to optimize and future-proof business models.

Opportunities exist for stakeholders throughout the value chain as the sweeping transformation and new business models arising from the industry’s most important evolution since its inception take place. The speed and momentum of this disruption is largely market dependent, yet the key drivers affecting automotive OEM suppliers across North American and European markets are common. The resulting impacts have created an environment that is ripe for strategic transactions.

Select M&A Transactions
(May 2024 Year-to-Date Transactions)

Select Carve Outs & Divestitures
(May 2024 Year-to-Date Transactions)

Industry News

  • Fisker Group Inc (OTCMKTS: FSRNQ), a California based electric vehicle OEM, filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware on June 17, 2024. The Company is in discussions to liquidate its entire fleet of approximately 4,300 vehicles. In 2023, Fisker reported $273 million of operating revenues and net losses of $940 million. The Company owed over $850 million to two groups of bondholders at the time of filing. Fisker is the latest EV OEM to file bankruptcy in the last two years after Proterra, Lordstown, and Electric Last Mile Solutions. – Reuters
  • Mercedes-Benz employees at two of the German automaker’s facilities in Alabama have voted against joining the United Auto Workers union, dealing a blow to the labor group’s effort to make deeper inroads in Southern states. Workers voted 2,045 to 2,642, or 56% to 44%, against joining the UAW. The UAW vote loss was the Union’s first recent loss after victories with the Detroit 3, Volkswagen (XTRA:VOW3), and Daimler Truck (XTRA:DTG). A week after the Mercedes vote, the UAW filed an objection with the National Labor Relations Board to seek a new vote and accusing the OEM of engaging in an anti-union campaign. – AP News
  • Nissan (TSE:7201) announced it will adopt advanced manufacturing techniques focused on giga casting to slash the cost and weight of its upcoming lineup of EVs. By shifting to giga casting for large aluminum parts, a technique pioneered by Tesla (Nasdaq:TSLA), Honda (TSE:7267) seeks to cut the cost of EV parts by 10% and shed weight by some 20%. – Bloomberg
  • French OEM Renault (ENXTPA:RNO) and Chinese OEM Geely (SEHK:175) announced a highly anticipated joint venture that will develop combustion and hybrid engines, “HORSE Powertrain Limited.” The new company will focus on hybrid and combustion powertrain components and systems. The venture is aimed at developing more efficient gasoline engines and hybrid systems, as rival automakers ramp up investment in low-emission powertrains in response to slowing electric vehicle sales. – Renault Group Media
  • The U.S. government announced more than $100 million in funding and resources to support American auto workers and small auto suppliers. The Department of Energy will set aside $50 million of its Automotive Conversion Grants Program for partnerships with states to help small- and medium-sized suppliers convert from manufacturing internal combustion engine parts to manufacturing parts for the EV supply chain. The Department of Energy is setting aside up to $50 million of its Industrial Assessments Center Implementation Grants Program to help auto suppliers kickstart manufacturing diversification and conversion projects. – Whitehouse.gov
  • China’s light-vehicle exports reached a record-high, 417,000 units in April, representing an increase of 38% year-over-year.  New vehicle sales within China fell 5.8% YOY. – Reuters
  • The Biden Administration has imposed new tariffs on imports from China across a range of strategic industries. The tariffs increase the tax rate on imported Chinese EVs to 102.5% by this year, up from total levels of 27.5%. Tariffs on certain Chinese steel and aluminum products will climb to 25% this year. Computer chip tariffs will double to 50% by 2025. For lithium-ion EV batteries, tariffs will rise from 7.5% to 25% this year. The new tariffs, at least initially, are largely symbolic since they will apply to only about $18 billion in imports. – AP News
  • A judge in Oakland County, Michigan has ruled that a Stellantis supplier must continue shipping parts to the automaker. The supplier is one of three suppliers being sued by Stellantis over cost disputes. The company had argued that its contract with Stellantis was not an enforceable requirements contract, and therefore the automaker did not have a contractual right to the supplier’s parts. – Crain’s Detroit Business
  • CDK Global, a software company providing data and technology services, was subject to two cyberattacks on June 19th that led the company to shut down its systems. CDK provides a full suite of software solutions for parts, service, accounting, finance, insurance, vehicle inventory, and cashier operations that 15,000 automotive dealerships (30,000 including trucks) across North America rely on daily. On June 25th, CDK announced that it does not expect to restore all systems before June 30th. The event has forced dealerships to resort to manual operations and alternative software solutions. The cybercrime group responsible for the event has demanded an extortion fee in the tens of millions of dollars from CDK. – Bloomberg
  • The National Labor Relations Board (NLRB) has accused Tesla of keeping employees at its Buffalo, New York facility from unionizing. On May 7th, NLRB Buffalo Regional Director Linda Leslie filed a complaint in which she said that Tesla “enacted and maintained” a public places policy in 2023 that was designed to “prevent employees from forming, joining, or assisting in unions and preventing employees from participating in other joint actions” following allegations filed by Workers United members. The NLRB claims that the policy has “the effect of interfering, restricting or coercing employees into exercising their employee rights under the National Labor Relations Act, which generally protects workers’ rights to discuss forming or joining unions and collective bargaining for higher pay and better working conditions”. Tesla’s Buffalo factory, originally a manufacturer of solar panels, has been used to assemble EV charging equipment and AI-powered software data labeling. – CNBC

OEM and Supplier News

  • Toyota (TSE:7203) is considering investing over $500 million to expand its plant in San Antonio, Texas. The facility produces the Tundra pickup truck and Sequoia SUV. – Reuters
  • Ford has begun cutting orders from battery suppliers to stem growing electric-vehicle losses. The move is part of a retrenchment of Ford’s EV strategy, which includes reducing spending by $12 billion on battery-powered models, delaying new EVs, cutting prices, and postponing and shrinking planned battery plants. Ford has forecast EV losses of up to $5.5 billion this year and CEO Jim Farley recently said its EV unit, Model e, “is the main drag on the whole company right now.” As EV prices have plunged and demand has slackened, Ford’s losses per EV exceeded $100,000 in the Q1 2024, more than double the deficit from last year. – Bloomberg
  • Hyundai (KOSE:A005380) has agreed to invest nearly $1 billion into Motional, giving the OEM a majority stake while providing the self-driving startup with the necessary capital to keep operating. The Korean automaker invested $475 million directly into Motional as part of a broader deal that includes buying out joint venture partner Aptiv (NYSE:APTV). As part of the deal, Hyundai will spend another $448 million to buy 11% of Aptiv’s common equity interest in Motional. – TechCrunch
  • Magna (TSX:MG) plans to invest nearly $40 million across three sites in suburban Detroit, aided in part by incentives from the Michigan Economic Development Corp. – Michigan Business News
  • China EV makers rush cars to Mexico and Brazil amid tariff concerns as the U.S. hikes import taxes to 100%. The Shanghai Containerized Freight Index, which reflects the average freight prices for container transport, shows the cost for the China to South America route that includes ports in Mexico and Brazil, has climbed 55.8% in the three months between late January to late April. Between April 26 and May 10, the freight index from China to South America increased a further 14.6%. The increase has been driven by EV demand. – Nikkei Asia
  • Fisker’s (OTCPK:FSRN.Q) unit in Austria has filed for reorganization and court protection from creditors following the troubled electric vehicle maker’s decision to cease production at contract assembler Magna Steyr in Graz, Austria. Magna Steyr announced that it will lay off 500 employees at the Graz plant as production of key models is halted or comes to an end this year, including the Fisker Ocean electric crossover, BMW 5 Series and Jaguar E-Pace and I-Pace. – Automotive News
  • Magna International, the parent company of Steyr, announced that it expects a $400 million revenue loss from Fisker’s production halt. The company, which was under contract to build Fisker’s Ocean electric crossover, is assuming no further production and a resulting $400 million revenue hit for the year. – Automotive News Europe

Electric Vehicle & Zero Emission Technology News

  • Honda will invest $65 billion on its electrification strategy this decade as it expects demand for battery-powered vehicles will rebound. The spending, which will run through fiscal 2031, will cover areas including software, research and development, and establishing supply chains in key markets like the U.S., Canada and Japan. Honda has maintained its goal of battery and fuel cell EVs accounting for 100% of sales by 2040. – Bloomberg
  • VW Group’s strategy to go all-in on full-electric vehicles is no more. The core VW brand, which pitched its ID family of battery-electric cars as central to its future, has admitted it will need more plug-in hybrids as BEV sales decelerate. This marks just the latest adjustment VW has made to its electrification strategy after the company had problems with several model releases and fell behind in China, where local brands now dominate. – Automotive News Europe
  • In California, the EV leader in the U.S. and the industry bellwether, hybrid registrations rose 53% in Q1 2024 while BEVs grew just 2.8%, according to the California New Car Dealers Association. – Automotive News
  • China-based battery maker, Green New Energy Materials, will build its first U.S. plant in North Carolina for $140 million. The manufacturing facility is expected to create 545 jobs. – Manufacturing Dive
  • Chinese automaker Great Wall Motor (SEHK:2333) said it will close its European headquarters in Munich, Germany, citing tough market conditions for EVs and the threat of European tariffs on Chinese imports. The OEM will continue to sell into European markets including Germany and the U.K., overseeing its operations from China. – Automotive News Europe
  • Stocks for certain EV startups are trading at up to 90% below their record highs, due to factors that include reduced consumer demand and the impact of ongoing EV price wars. – Bloomberg Law

Regulatory News

  • The Federal Trade Commission’s (FTC) Office of Technology has issued a warning to automakers that sell connected cars. Companies that offer such products “do not have the free license to monetize people’s information beyond purposes needed to provide their requested product or service, and firms shouldn’t let business model incentives outweigh the need for meaningful privacy safeguards,” the FTC wrote. – FTC.gov
  • California lawmakers reintroduced a pair of bills to regulate autonomous heavy trucks and override a potential veto by Democratic Gov. Gavin Newsom. The proposed House Bill (AB 2286) would require, until 2030, a trained human operator behind the wheel of self-driving trucks that weigh more than 10,000 pounds. The proposed Senate legislation (SB 915) would require local jurisdictions to approve certain regulations for testing and operating autonomous heavy trucks. – Transport Topics News
  • The U.S. Department of Transportation finalized a new Federal Motor Vehicle Safety Standard requiring all vehicle manufacturers to include automatic emergency braking in their light-duty vehicles basically all passenger vehicles, including SUVs and pickup trucks) by 2029. The new rule aims to prevent hundreds of deaths and tens of thousands of injuries every year. The Department of Transportation is also in the process of finalizing a similar rule for heavy-duty vehicles weighing over 10,000 pounds. The Verge
  • The U.S. Treasury Department finalized critical minerals and battery components sourcing requirements for EVs to qualify for a tax credit of up to $7,500 under provisions in the Inflation Reduction Act. The rule extends eligibility requirements to 2027 for certain difficult-to-trace battery materials such as graphite. In addition, the final regulations adopt the Traced Qualifying Value Test that will require automakers to more precisely determine where certain EV battery minerals are extracted, processed or recycled. – Federal Register
  • The National Highway Traffic Safety Administration (NHTSA) will investigate two autonomous driving companies following new reports of robo-taxi incidents that include erratic driving and vehicle crashes. The NHTSA announced later in the month that it had learned of nine additional incidents involving Alphabet’s (Nasdaq:GOOGL) Waymo. The agency said several incidents under investigation “involved collisions with clearly visible objects that a competent driver would be expected to avoid.” Reuters; TechCrunch
  • BMW (XTRA:BMWYY), Jaguar Land Rover and Volkswagen sourced parts from a company on a ban list over alleged links to Chinese forced labor according to a U.S. Senate report. The supplier was banned under the Uyghur Forced Labor Prevention Act (UFLPA) passed by Congress in 2021 and the report claims that three automakers continued to import products with the banned parts until at least April 2024. The Wall Street Journal

Board and Executive News

  • Jim Morrison retired from Stellantis. Jim Morrison headed Jeep in North America from 2019 through 2023, when he was put in charge of the new Jeep Performance Parts division. This is the latest in a series of recent departures for prominent executives at the automaker. In the May, Tim Kuniskis retired as CEO of Dodge and Ram, Jason Stoicevich quit after two months as U.S. retail sales chief, and Richard Schwarzwald resigned as chief customer experience officer last week. Additionally, in January Stellantis North America COO Mark Stewart left to become CEO of Goodyear Tire (Nasdaq:GT). Transport Topics
  • GM promoted two former-Apple (Nasdaq:AAPL) executives to lead its software team. GM’s software and services business will be led by Baris Cetinok, who will manage products, programs and design, while Dave Richardson will oversee engineering. – Detroit Free Press
  • Ex-Lucid Motors (Nasdaq:LCID) executive, Sherry House, was named CFO-elect, VP FP&A at Ford; to succeed John Lawler, who was promoted to Vice Chair. – Reuters
  • Bentley (Nasdaq:BSY) named Porsche (XTRA:DRPRY) engineer Frank-Steffen Walliser as new CEO to lead EV shift. Walliser has spent his career at Porsche since joining the automaker in 1995. Walliser will take on the role July 1, succeeding Adrian Hallmark, who left Bentley in March after six years in the post to become Aston Martin (LSE:AML) CEO. – Automotive News Europe
  • ZF Group appointed Peter Holdmann, the head of the German supplier’s chassis solutions business and corporate quality division, to also lead its business in the Americas effective July 1st.  Holdmann, a 24-year veteran of the company who became a member of its Board of Management in May, will take over as ZF’s regional head from Martin Fischer, who said in March that he would leave the company when his contract expires to pursue other opportunities. – Automotive News
  • Automotive safety technology supplier Veoneer appointed longtime FORVIA executive Nik Endrud as its CEO, less than two months after being acquired by private equity firm American Industrial Partners. – Automotive News

This page was updated June 28, 2024. To discuss this information in more depth, or to connect with one of our automotive industry specialists for more detailed analysis of current trends and issues, please contact us.

Report contributors include Managing Director Sheldon Stone and Associate Erik Morandi.

Endnotes

  1. Bloomberg, “Stellantis May Drop Some Suppliers to Cut EV Costs, CEO Says,” https://www.bloomberg.com/news/articles/2024-06-04/stellantis-may-quit-some-suppliers-to-cut-ev-costs-ceo-says, accessed June 20, 2024.
  2. Bloomberg, “Mercedes and Stellantis Press Pause on EV Battery Factories,” https://www.bloomberg.com/news/articles/2024-06-04/mercedes-stellantis-pause-battery-plans-to-weigh-low-cost-cells, accessed June 20, 2024.
  3. The Detroit News, “GM lowers EV production goal in North America,” https://www.detroitnews.com/story/business/autos/general-motors/2024/06/11/gm-lowers-2024-ev-production-goal-in-north-america/74057968007/, accessed June 20, 2024.
  4. Ford Motor Company, “Ford Motor Company Fourth Quarter 2023 Earnings: February 6, 2024,” https://shareholder.ford.com/Investors/events/event-details/2024/Ford-Motor-Company-Fourth-Quarter-2023-Earnings/default.aspx, accessed June 20, 2024.
  5. Reuters, “Ford Asks Suppliers to Cut Costs in Push to Turn EV Business Profitable, Memo Says,” https://www.reuters.com/business/autos-transportation/ford-asks-suppliers-cut-costs-push-turn-ev-business-profitable-memo-says-2024-05-16/, accessed June 2024.
  6. FORVIA, “FORVIA Makes Further Progress in the Execution of its Second €1bn Asset Disposal Program with an Agreement to Sell Hug Engineering,” https://www.forvia.com/en/press/forvia-makes-further-progress-execution-its-second-eu1bn-asset-disposal-program-agreement, accessed June 20, 2024.
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