Automotive | Disruptions –
the Journey Forwards
At the most recent Daimler AG annual shareholders’ meeting, Dieter Zetsche, Head of Daimler Benz (Mercedes Benz), described the future of the automotive industry as one which will be marked by opposites. Examples included; electric drive versus combustion engines, autonomous driving versus driving pleasure, and vehicle ownership versus shared mobility.
Technology and social trends are disrupting the market dynamics of the automotive industry and reshaping the industry as we know it. No one better encompasses this than Tesla, who are at the forefront of electrification and automation. From sales of merely a few hundred cars in 2012, the company has grown dramatically to a market cap today of c. $56 billion.
2017 saw worldwide electric vehicle sales surpass 1 million units for the very first time. Already, Volvo have committed to phasing out fuel-powered cars by 2019, and Ford recently pledged $11 billion towards investment in electric vehicles over the next five years. Most of the big automakers are following suit, and Bloomberg’s Electric Vehicle Outlook 2017 report projects acceleration of global electronic vehicles sales to 52% of new car sales by 2040.
On the technological front, global research firm, IHS Markit, forecasts worldwide sales of connected cars will reach 72.5 million units by 2023, tripling sales of 24 million units seen in 2015. In tandem, they predict that more than 33 million autonomous vehicles will be sold worldwide in 2040, a momentous increase from the 51,000 they anticipate being sold in 2021. To remain competitive today, companies are finding new acquisitions in less obvious channels than they are used to. There is now an overwhelming requirement for OEMs, suppliers and mobility service providers to invest in cutting-edge technology, so not to fall behind the rest of the pack. With the rapid pace in which the industry is evolving, it is proving easier to partner with, or acquire, companies already in possession of this technology, than to develop it in-house.
Traditional market players are now not only competing with themselves to build the best vehicles, but against technology companies who are building computers on wheels. We have witnessed several high-profile technology companies seek to gain exposure to the automotive industry. Google and Uber are prime examples, collectively investing billions of dollars to bolster their place in the autonomous vehicle space.
In H1 2017, PwC reported the total number of auto-tech deals to be 15; five times that of the same period the year before. This included Samsung Electronics’ $8 billion acquisition of Harman Industries, a global leader in connected car technology. Furthermore, among component suppliers, 16.5% of M&A activity in H1 2017 was attributed to a push for more technology-related acquisitions, with total values growing over and above 100%. The trend has continued into 2018 with Chengdu Quianfeng Electonics’ $4.5 billion acquisition of Beijing Electronic Vehicle Co being the largest auto-tech deal thus far.
Data privacy, cyber-security, vehicle safety and product liability risks are all by-products of the technological revolution. With Spanish telecom provider Telefonica maintaining that by 2020, 90% of cars will be online, vehicle safety and security has never been so important. March 2017 saw Intel spend $15.3 billion to acquire Mobileye, an Israeli developer of advanced vision and driver assistance systems. We can expect to see more deals with a focus in this area.
The sharing economy is changing a vast array of sectors, including transportation. Julia Steyn, Vice President for urban mobility at Maven (General Motors’ car sharing scheme, launched in 2016), said last year that 80% of Maven’s customer base are between the ages of 18 and 34. According to research firm Frost & Sullivan, the rise of the millennial generation will see the number of members of car sharing services grow from c. 6 million in 2017 to c. 18 million by 2025. The car sharing business model presents a threat to automotive manufacturers, with reduced ownership a likely outcome. Thus, many automakers are actively looking to get involved. Ford, BMW and Toyota have all invested in this area over the last few years and in Q3 2017, Daimler led a $92 million investment round in Turo, one of the largest peer-to-peer car rental companies in Silicon Valley.
The multi-faceted disruptions to the automotive industry present a choice to current market players; they can choose to continue with traditional operations and not be distracted, or jump in so not to miss out on any opportunity. Safe to say, whatever choice is made, companies from other sectors want a piece too. From an M&A perspective, plenty can be expected…