Mergers and Acquisitions

1. Use M&A to manage tariff exposure: Acquire suppliers in tariff-favored regions or with USMCA-compliant operations to reduce duty burden and secure critical components at predictable costs.
2. Target distressed suppliers strategically: Smaller Tier 2 and Tier 3 players struggling with tariff and inflation shocks are acquisition opportunities for companies seeking vertical integration and supply chain control.
3. Balance portfolio pruning with technology investment: Divest underperforming assets to fund acquisitions in software-defined vehicle capabilities, semiconductors, and AI platforms that will define competitive position.

Dealmakers in the automotive industry appear to be shifting their priorities toward portfolio optimization and selective technology bets. Divestiture of underperforming assets (38%) has emerged as a significant driver, up from 18% last year, a 20-percentage-point increase. This reflects margin pressure from tariffs, inflation, and uneven EV demand, pushing companies to sell weaker assets to fund investments in areas that will determine long-term competitive position.

The shift toward hybrids (29%) has dropped 18 percentage points from 47% last year, as the powertrain transition that dominated 2025 dealmaking gives way to supply chain and restructuring priorities in 2026. This substantial drop suggests either that the hybrid transition has matured or that companies have already made their strategic moves in this space, with M&A activity now focusing on other priorities.

Technology acquisitions for software-defined vehicle capabilities (24%) indicate steady interest in acquiring software talent, cloud capabilities, and AI assets, though this is not driving dealmaking at the same intensity as supply chain restructuring.

Cybersecurity needs (20%) have declined 7 percentage points from 27% last year, suggesting companies are addressing data security through partnerships and internal development rather than acquisitions. Semiconductor and critical materials shortages (19%) register lower than expected, given their prominence in other sections, possibly because these bottlenecks are being addressed through long-term contracts and joint ventures rather than outright acquisitions.

Dealmakers in the automotive industry appear to be shifting their priorities toward portfolio optimization and selective technology bets. Divestiture of underperforming assets (38%) has emerged as a significant driver, up from 18% last year, a 20-percentage-point increase. This reflects margin pressure from tariffs, inflation, and uneven EV demand, pushing companies to sell weaker assets to fund investments in areas that will determine long-term competitive position.

The shift toward hybrids (29%) has dropped 18 percentage points from 47% last year, as the powertrain transition that dominated 2025 dealmaking gives way to supply chain and restructuring priorities in 2026. This substantial drop suggests either that the hybrid transition has matured or that companies have already made their strategic moves in this space, with M&A activity now focusing on other priorities.

Technology acquisitions for software-defined vehicle capabilities (24%) indicate steady interest in acquiring software talent, cloud capabilities, and AI assets, though this is not driving dealmaking at the same intensity as supply chain restructuring.

Cybersecurity needs (20%) have declined 7 percentage points from 27% last year, suggesting companies are addressing data security through partnerships and internal development rather than acquisitions. Semiconductor and critical materials shortages (19%) register lower than expected, given their prominence in other sections, possibly because these bottlenecks are being addressed through long-term contracts and joint ventures rather than outright acquisitions.