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The value of everything
19 Mar 2025
Insight
Headwinds continue to be a challenging force for the global automotive sector. 2024 saw patchy consumer demand generally and a fall-off in EV demand in particular. This created a headache for the industry which was hoping to continue to use strong sales of internal combustion engine (ICE) vehicles to fund the transition to electrification and for a steep demand curve in EVs to underpin that new investment.
While this has led to many legacy original equipment manufacturers (OEMs) slowing their pace of EV investment (and diverting some of it to new hybrid technology), it has not reduced the economic pressures on them to cut costs and excess capacity, leading to plants being left idle and job losses throughout 2024. Meanwhile, geopolitical tensions continue with tariff wars and supply chain security concerns weighing heavy on the minds of strategic decision makers, making long-term M&A and investment decisions difficult.
There is no doubt that automotive businesses must adapt to these transformative forces to stay relevant, despite the challenging conditions, with the industry reporting the highest disruption in the 2025 AlixPartners Disruption Index. This quandary is however fuelling transactional activity, with collaborations and partnerships continuing to be more favoured than traditional M&A.
Activity
2024 saw VW and Rivian launch their (up to) $5.8 billion joint venture with a stated aim of reducing EV development costs and speeding up the scaling of new technologies. This partnership is reflective of the growing pressure on Western OEMs to reduce costs and bring attractive and affordable EV models to market faster amidst growing competition from new PRC EV OEMs (whose comparative technology and affordability is luring consumers away from traditional brands).
Of course, there was also big news in December 2024 with talks of a potential merger between Nissan and Honda. While those talks have since been aborted, such developments, including the possibility of Foxconn or KKR buying into Nissan, are a clear indication that, in the hunt for cost savings and scale in this time of transition, some consolidation is not off the cards.
Meanwhile, whilst there were fewer large deals in the retail space compared to 2023, consolidation continued in 2024, including US Group 1 Automotive acquiring Inchcape's UK retail business for £346 million.
For 2025, while there is optimism that new vehicle sales will recover and that the availability of new EV models will kickstart a second rapid growth phase for EV adoption, we do not expect a major reduction in the challenges facing the industry.
Continuing the trend of OEMs investing in their broader supply chain, following an initial investment in 2023, GM closed a $625 million joint venture with Lithium Americas to take a 38% stake in the Thacker Pass lithium mine, and Stellantis and CATL announced a joint venture for a new $4.3 billion EV battery gigafactory in Spain. Such investments in the sector's electrification were welcomed following the announcements of various delayed and cancelled gigafactory projects during 2024 (including Northvolt's filing for bankruptcy).
With consumer EV charging anxiety a continued hurdle which the industry needs to address, the year also saw activity in EV charging infrastructure with VW's Elli partnering with European solar platform, Otovo, for solar home charging; Mercedes and Starbucks announcing a strategic collaboration to expand Starbucks' EV charging network in the US and, combining the electrification and digital revolutions, Toyota's growth fund, Woven Capital, led the $28 million investment into WeaveGrid, a software company aimed at accelerating EV adoption through grid optimisation.
In 2023 we witnessed a raft of automotive investments and M&A from the Middle East and, whilst that continued in part, the early days of the EV revolution in India drove significant M&A there in 2024. JSW and SAIC's MG Motors India (in which JSW holds 35%) announced their intention to form an EV-focused joint venture in India. Exicom (India's largest EV charger manufacturer) acquired the business of global DC fast charger manufacturer, Tritium Group, out of insolvency and the mobility-focused R&D company, Hinduja Tech, acquired European engineering services provider, Tecosim Group.
China's auto sector also witnessed several significant transactions in 2024. VW intensified its localisation efforts by partnering with local Chinese tech and EV companies including Xpeng Motors, Horizon Robotics and Gotion High-tech. In December, Hyundai Motor and BAIC Motor agreed to invest $1.1 billion in their joint venture that produces and sells Hyundai cars in China.
2024 also saw activity in the form of divestments and restructurings. Examples of such portfolio rationalisation were seen amongst the sector's tier 1 suppliers, with both Continental and Swedish bearings manufacturer, SKF, announcing plans to spin-off their automotive businesses.
Outlook for 2025
In terms of what is in store for 2025, while there is optimism that new vehicle sales will recover and that the availability of new EV models will kickstart a second rapid growth phase for EV adoption, we do not expect a major reduction in the challenges facing the industry.
A pickup in EV demand will likely widen the gap between those OEMs that have attractive, affordable product on market and those that don’t. Legacy ICE OEMs without strong product are going to need to look long and hard at consolidation, both as a way of funding and delivering new metal but also as a defensive play in light of declining ICE volumes. This need for consolidation is even greater in the automotive parts space where declining volumes and the complete redundancy of many components will only hit harder and harder.
Geopolitical headwinds have already increased with the threatened imposition of new tariffs by the Trump administration, and uncertainty about the Biden-era Inflation Reduction Act funding programme and incentives is not going to help stimulate investment and M&A in the US. However, investment in (more localised) supply chain security is likely to be an increased focus for OEMs and may well drive an uptick in transactional activity.
2025 may also see increased M&A activity as OEMs adapt and react to the imposition of tariffs globally. PRC OEMs may look to Western OEMs to acquire (outright or through JVs) in-country manufacturing facilities, and some may offer their new EV technologies through partnerships to bolster their funding, as the increasingly competitive EV market erodes profits.
Key contacts
Chapters
- Global M&A Outlook 2025 – Sector and broader perspectives
- AI and M&A – What you need to know
- Automotive – Challenges remain
- Competition, regulation and trade – Regulatory focus on ‘killer acquisitions’
- Consumer – Still cautious
- Cybersecurity – Deal resurgence
- Energy – What you need to know from around the world
- Infrastructure— How to bridge the gap?
- Mining – The energy transition and demand for critical minerals continue to drive activity
- Pharma – Will 2025 be the year?
- Real Estate — Encouraging signs
- Tax – Change ahead?
- Tech Innovation – To buy or to collaborate?
- TMT and digital infrastructure — AI drives activity
- Venture and growth capital — Brightening horizons
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The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2025
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