EV revolution in China electrifies investors

China’s electric vehicle (EV) boom is turbo-charging investors, as consolidation among carmakers ramps up and fresh funding fuels the engines of cash-hungry start-ups developing new technologies for smart cars.

M&A dealmaking in the country’s auto sector accelerated to USD 85.25bn across 167 deals in 2021, up 44.6% year-on-year (YoY) in terms of value, the second-highest figure on Dealogic record (since 1995).

China accounted for 74.4% of total APAC auto deal value, and 67.6% of the sector deal count – surging 68.8% and 58.4%, respectively, from 2020.

Power player: China Inc dominates auto M&A across APAC

Three of the top five Asian deals in the auto sector in 2021 featured Chinese targets, and they are all involved in the EV industry.

The largest move in APAC was a HKD 26bn (USD 3.3bn) share issue in January by China Evergrande New Energy Vehicle Group [HKG:0708] to finance technology R&D. Other major developments include:

• Baoneng Motor Group, a new energy vehicle subsidiary of Baoneng Group, which announced a strategic agreement in June with Guangzhou Development Zone Financial Holding worth CNY 12bn (USD 1.87bn).
• China Aviation Lithium Technology, a developer and producer of lithium-ion power batteries and battery management systems, received CNY 12bn of equity financing in September from China Merchants Bank.

The prominence of EV-related M&A deals is hardly surprising given that in 2021, EV sales in China raced up 154% YoY, outpacing global growth.

The Chinese government favors more consolidation in the area to nurture fewer, but stronger companies, able to compete with the likes of Tesla [NASDAQ:TSLA]. Xiao Yaqing, minister for industry and information technology, said last September that “market forces” should guide the restructuring of the sector.

Driving change: Battery makers lead deal funding

Automotive start-ups raised USD 9.1bn in funding in 2021, the highest amount on Dealogic record and 2.75x the figure raised in 2020.

Power battery makers led the way, with the largest transaction being the aforementioned China Aviation Lithium Technology deal, followed by SVOLT, which engineered two funding rounds – worth USD 1.6bn and USD 942m – in July and December.

Earlier in February, SVOLT also raised USD 542.3m in a Series A round co-led by Bank of China Group Investment and CMG-SDIC Capital.

Under starter’s orders: auto M&A frenzy likely to boost other sectors

The dealmaking pipeline is expected to remain robust this year in light of growing tech competition between China and the US, which has spilled over into the auto sector.

Seven out of the top 10 Asian automotive deals during the first two months of 2022 took place in China. During the same period, 23 automotive deals worth USD 4.16bn were signed in the world’s second-largest economy.

Luxshare Limited, a controlling shareholder of Apple supplier Luxshare Precision Industry [SHE:002475], inked a framework agreement to acquire stakes in three targets linked to Chinese automaker Chery for a total of CNY 10.054bn (USD 1.58bn).

Other significant deals include a CNY 5bn (USD 783.8m) fundraising by Chongqing Changan New Energy Automobile Technology, as well as a USD 400m funding round by Baidu-backed Jidu Auto.

Feverish M&A activity in the car industry is expected to expand into the mining and semiconductor sectors amid a push to secure raw materials via acquisitions and the funding of auto chipmakers.

Chinese dealmakers are likely to speed up their pursuit of supply-chain targets such as Canada-listed Neo Lithium [TSX:NLC], which was taken over in January by China’s Zijin Mining Group [SSE:601899] for USD 918.7m, as well as fundraising and SPAC deals focusing on high-tech chip developers such as Horizon Robotics.