Electric car being charged up

Mergers and acquisitions in the mobility sector

Tuesday, April 5, 2022 - 08:25
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Although 2021 was a difficult year for the automotive sector, electric vehicles bucked the trend. Last year, more than 1.65 million new electric vehicles (EVs) were registered in the UK, despite the new vehicle market being 28.7% below pre-covid levels, and many fleet operators launched new commitments to electrification.

FedEx bought 200 e-Vans and announced that it will replace its pickup and delivery fleet with zero emissions vehicles (ZEVs) by 2040. Meanwhile, Amazon aims to have 10,000 custom electric delivery vans on the road this year, and 100,000 in service by 2030.

Charging pointSurging demand for electric cars, vans and trucks are driving investments that are overhauling the industry landscape, as both original equipment manufacturers (OEMs) and technology companies consolidate a fragmented market into a connected ecosystem that secures their future pipeline. In fact, OEMs expect to invest more than half a trillion dollars on EVs and batteries through 2030.

For example, the commercial transport sector is stepping up efforts off the back of major commitments at COP26 last November. Commercial vehicle OEMs and fleet operators alike are looking for ways to lower their emissions and make transport electrification a sustainable, achievable objective for fleet management. These three merger and acquisition trends may prove the catalyst for change:

Investment in digital services and data analytics companies

Advances in vehicle digital technologies are already generating more information on automotive use than we’ve been able to access before. Metrics on distance travelled, fuel consumption, time between mandatory breaks, and even driving style are increasingly easy to come by. And rising interest in companies providing digital services and data analytics will take this to a new level with implications for a host of stakeholders from OEMs, to fleet operators, and utilities.

Commercial vehicle companies, for example, currently have no turnkey digital solution for intelligently coordinating usage and maintenance regimes – something easily achievable given today’s access to data. Similarly, both fleet operators and investors recognise the value of data and connectivity to unlock new opportunities for building strong customer relationships and increasing aftermarket revenue, such as much derided plans to turn the likes of heated seats into subscription services. Whether or not heated seats are among them, there is little doubt that data-enabled aftermarket services can be big business, and extracting that data requires greater interoperability to develop an intelligent end-to-end lifecycle.

There is already intense competition between OEMs, who want to use their own data to nurture customer relationships, and technology companies, who want drivers to leverage insights through in-car apps. Industry leaders like Tesla are investing in their charging infrastructure and other technology innovations to understand (and leverage) customer data, to stay ahead of the competition.

Utility companies also have an interest in EV analytics. Widespread EV adoption creates both challenge and opportunity for utilities who can anticipate both large peak load requirements and a vast pool of idle batteries for balancing services through vehicle-to-grid (V2G) technology.

Strategic mergers and acquisitions will enable all types of industry stakeholders to integrate and extract deeper intelligence, creating a stronger business (and investment) case for electrification.

Better-defined electrification policies and regulations

To support and accelerate EV adoption, governments and regulatory bodies are introducing stricter legislation for ICEs and incentive schemes for customers going electric. This clearer compliance framework gives greater confidence for investments and new entrants in the sector – accelerating growth and stimulating demand for M&A activity from investors and corporate players keen to gain access to this rapidly growing market.

Car ChargerFor example, the EU’s ‘Fit for 55’ scheme includes a section on transportation, encouraging e-mobility with changes in sustainable finance frameworks, fossil-fuel subsidies, and taxes. Another example is the recently published UK ‘EV Charging Strategy’ that includes significant incentives for charging infrastructure buildout and support for innovation in technology and business models. At the same time, older petrol and diesel-powered vehicles face increasing carbon charges under initiatives such as London’s ULEZ charge and Euro 7 emission standards.

By giving confidence in the market’s direction, legislation creates a clearer commercial business case for EV investments; better defined policies and guidelines will also act as a catalyst for growth and M&A activity. Potential investors can use these frameworks to measure the attractiveness of emerging opportunities in local markets, to strengthen and to develop their portfolio strategy, and to inform their due diligence processes.

Accelerating OEM and battery investment

The automotive industry has been hit hard by component shortages and supply bottlenecks over the past 18-24 months – particularly the availability of microchips. As the market begins to normalise, OEMs, fleet operators and other stakeholders are keen to strengthen the value chain to avoid these issues occurring again.

Similar supply bottlenecks are threatened in battery manufacturing. For example, more than 70 per cent of the world’s cobalt supply is heavily concentrated in one country: the Democratic Republic of Congo, concentrating supply chain risk. More recently, sanctions on Russia have disrupted global nickel supply, with trading suspended more than once on the London Metal Exchange driven by skyrocketing prices. Research into alternative battery chemistries to the ubiquitous lithium-ion continues and could prove important in preventing or mitigating future supply bottlenecks.

Currently, the mobility ecosystem is highly fragmented, with both vertical and horizontal siloes impacting production capabilities. To date, most investments have focused on manufacturing plants to support vehicle production. But in the burgeoning EV market, no batteries means no product – so companies are focused on acquiring more resources to enhance the overall battery supply chain.

Integrating battery production further into the value chain through strategic acquisitions will support supply security and enable OEMs to invest in R&D projects that deliver faster manufacturing methods and more powerful performance. This will ensure battery production can scale in line with aggressive expansion plans from commercial EV OEMs.

2022: a definitive year for EV investment

As the automotive sector finds its feet again, 2022 will likely prove to be a definitive year for transport electrification. And strategic investments will improve the availability, quality, and affordability of commercial electric vehicles – as well as the required charging infrastructure for fleet operations.

M&A transactions are creating connected value chains that use data insight and innovation to increase the accessibility and infrastructure surrounding electric vehicles, in turn enabling fleet operators to understand more about their vehicles and build their customer reputation through sustainable technology.


Authors: Enrique Glotzer, Principal and Meera Kotak, Associate Principal at Charles Rivers Associates

 

 

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