Biz / Auto

Chinese automotive industry embraces change, amid M&As

Huang Yixuan
The Chinese automotive industry is embracing a transition amid a wave of mergers and acquisitions, moving forward with electric cars, autonomous driving and increased connectivity.
Huang Yixuan

The Chinese automotive industry is undergoing a significant transformation as it enters a phase of elimination and consolidation, with a wave of mergers and acquisitions on the horizon, a report showed.

In the first half of 2023, the automobile sector experienced a surge in deal-making, with the total value of mergers and acquisitions surpassing 127.5 billion yuan (US$17.45 billion) across 343 transactions, according to a latest report released by PwC.

While the number of transactions decreased compared to the same period last year, the vehicle manufacturing sector witnessed substantial growth, while the parts and aftermarket sectors faced challenges.

The Chinese government's initiatives to stimulate car consumption, coupled with advancements in electric and connected vehicles, have been key drivers in propelling the industry forward, the report said.

In the first half of 2023, both the central and local authorities introduced numerous policies to boost car consumption, creating a favorable environment for industry growth. This, combined with remarkable achievements in car electrification, intelligence and connectivity, has contributed to the overall expansion of the automotive sector.

It highlighted that the scale of M&As in the complete vehicle manufacturing sector expanded, indicating a growing interest in this segment.

The fundamentals of new energy vehicles remain positive, driven by favorable policies and the accelerating market penetration in lower-tier cities.

The sales figures reflect stability in the overall automobile market, with sales of new NEVs experiencing rapid growth since 2021.

Despite being impacted by factors such as reduced government subsidies and market price fluctuations in the first quarter of 2023, the Chinese automotive market showed signs of recovery as local governments implemented consumption promotion policies and manufacturers engaged in marketing activities.

Jin Jun, the Automotive Industry Leader at PwC China, emphasized that the automotive industry is undergoing a transformation driven by a convergence of factors such as favorable policies, energy transition opportunities, technological upgrades, and shifts in consumer demand. As the industry accelerates integration and explores new opportunities, momentum continues to build.

The report also shed light on specific trends within the industry.

Mega deals saw a decrease in the proportion, signaling a shift towards more realistic valuations and the return of value-driven capital markets.

Early-stage investment rounds garnered more attention from investors, with B rounds and earlier rounds accounting for 48 percent of transactions in the first half of this year.

Strategic investments or acquisitions dominated the market in terms of transaction value, while domestic financial investors played a lesser role compared to previous periods.

Geographically, Guangdong, Shanghai, Jiangsu and Zhejiang emerged as the most active regions, reflecting their industrial advantages, concentration of talent, and pioneering positions in the Pearl River Delta and Yangtze River Delta areas. These regions accounted for over 30 M&A transactions during the first half year.

While the complete vehicle manufacturing experienced growth, the auto parts and aftermarket sectors faced challenges. The number of auto parts transactions decreased significantly compared to the same period last year, with the aftermarket sector yet to regain its investment appeal.

But it was worth noting that the automotive finance services sector saw an increase in M&A activity due to the recent developments in electrification, autonomous driving, and intelligent cabin domains. This indicates significant growth potential in the future, with the possibility of large-scale transactions on the horizon.

Looking ahead, it identified several future hotspots in the Chinese automotive industry.

These include the rapid development of the country's new energy market, driven by the global trend of electrification. The continuous acceleration of technological iterations and competition among various technical routes, such as next-generation solid-state batteries, will shape the industry.

Moreover, China's energy transition and expanding market demands are expected to fuel cross-border transactions, particularly with domestic battery companies expanding overseas.

Chinese automakers are also accelerating their overseas expansion, shifting their focus from traditional markets in Asia, Africa and Latin America to emerging markets in Europe.

Additionally, the automotive detailing, maintenance and testing sectors are anticipated to benefit from a variety of travel scenarios and an expected rebound in market demand in the second half of the year.

Special Reports