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Despite the broad tech bull market, times have not been easy in the electric vehicle space. From biggies like Tesla (NASDAQ and BYD (OTC ) to new startups like Canoo (NASDAQ and Sono Group (OTC ), the industry seems to have lost momentum on both the financial and stock sides.
But while the route has affected the sector as a whole, smaller companies are hardest hit, with multiple stocks trading near or at 52-week lows.
As most of these companies rely on loans to fuel growth and innovation, persistently high interest rates have driven up debt levels on their balance sheets, increasing the risk of bankruptcy. At the same time, falling consumer demand continues to put pressure on future growth projections – a true double whammy.
“We could see tons of bankruptcies within the industry,” warns Joseph McCabe, president and CEO of AutoForecast Solutions.
Against this backdrop, many analysts are beginning to wonder whether larger EVs and other traditional players will look to accelerate their EV plans through acquisitions.
Such is the case of Sandeep Rao, Senior Researcher at Leverage Shares. “Given the current circumstances, consolidation within the electric vehicle industry is totally logical,” he says.
Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, also believes that the scenario could favor mergers and acquisitions, but prefers to adopt a more cautious stance: “Consolidation is very possible, but we do not believe it is a fact,” he reflects. .
New electric car companies on the horizon
Last week, it was reported that Nissan (OTC ) is in advanced talks to invest more than $400 million in the smallest pure-play EV player, Fisker (NYSE ). This move could offer a much-needed financial boost to the struggling startup while expanding supply and production of Japan-based electric vehicle products in the US.
More recently, Deepwater Asset Management's Gene Munster stated that Apple (NASDAQ acquiring Rivian (NASDAQ could be an interesting proposition for the iPhone maker following its electric vehicle plans.
Interviewed exclusively by Investing.com, Sandeep Rao of Leverage Shares sees Lucid (NASDAQ:) as a potential target for a full acquisition. “Given that Lucid is already majority owned by the Saudi government, it will be a reasonable move for the latter to sell its stake to a larger automaker in exchange for shares, cash or both,” he explains.
Also consulted by Investing.com, Larry Tentarelli agrees that Lucid can become a potential target, and adds that Rivian also presents similar conditions: “In the US, Lucid and Rivian seem to be the most vulnerable, due to their low flow of box”.
Outside the United States, China appears to be a potential market for consolidation, albeit at a slower pace. “China is plagued by a huge number of electric vehicle manufacturers with varying levels of investment by provincial and state governments and often with little to show in terms of strong market share trends. Consolidation there will be a more subtle exercise,” adds Sandeep Rao.
In fact, another key factor to take into account in this equation is China. According to AutoForecast Solutions' McCabe, Chinese companies “will begin to rapidly enter the U.S. and will need to acquire brands that sound domestic to American audiences.”
Electric Vehicle Industry Forecast to 2024
But while talk of EV mergers is becoming more frequent in the media, for now it remains just speculation. In fact, many other analysts believe that companies will find it difficult to make these bets amid the current macroeconomic environment.
“The future we saw in 2021, when financial costs were zero and everyone took risks, is not the future we see now for the next ten years. Money will cost money, which means EV companies will have a harder time making bets,” reflects Ross Gerber, president and CEO of Gerber Kawasaki Wealth and Investment Management.
He adds that “risk in the stock market environment will not necessarily be passed on to companies, especially in the electric vehicle space, as balance sheets remain strained.”
In fact, as Dealogic data shows, M&A is still lagging overall despite the overall rebound in equity and debt capital markets in 2023. According to the research agency, the total value of M&A globally decreased by 25% year-on-year in 2023 and 23% in North America. The technology sector being the most affected.
Furthermore, a sharp slowdown in consumer demand promises to keep industry margins tight, at least in the medium term. “Next year, we should achieve a flattening of the growth curve in the electric vehicle industry,” McCabe says.
“In the United States, China and now Europe, the EV price war is further eroding margins, making it very difficult for these companies to make money despite generous incentives. It's not just Tesla, I mean, everyone is losing,” says Gordon Johnson, CEO of GLJ Research.
This backdrop reduces the possibility of a takeover, as the big players also find themselves with less cash to spare. “The electric vehicle industry is currently weak and for a leader like toyota (NYSE , Stellantis (NYSE ), Ford (NYSE or General Motors Company (NYSE ) to take over one of the struggling electric vehicle companies could put undue pressure on their balance sheets,” adds Larry Tentarelli.
Bottom line
Given current EV market conditions, consolidation seems more likely in the medium term than now. “Unfortunately, the good smaller brands will probably be absorbed by the big manufacturers that can scale and find other ways to get business synergies,” says Ross Gerber.
However, with the Federal Reserve's pivot on the horizon, conditions could change quickly, especially if rates fall faster than expected. “If conditions improved, the acquirer would not be so indifferent, but could offer a higher price through cheaper debt issues,” concludes Sandeep Rao.
Top 5 EV stocks by Market Cap
Do you want to keep an eye on potential mergers and acquisitions in the electric vehicle space?
Here are the top and bottom five electric vehicle stocks by market cap:
Top 5:
- Tesla – 575.62B
- WORLD – 74.86B
- Li Auto (NASDAQ:) – 39.79 billion
- VinFast Auto (NASDAQ:) – 12.57 billion
- Nio (NYSE:) – 12.00 billion
last 5:
- Next eGO (NASDAQ:). – 11.40M
- AYRO Inc (NASDAQ:) – 8.23 million
- Faraday Future Intelligent Electric Inc (NASDAQ:). – 7.47 million
- Arcimoto (NASDAQ:) – 4.73 million
- Sono Group – 935.54K
