The automotive sector ranked 9th among respondents as an industry expected to see the most M&A activity this year (11%), down from 13% last year and reflecting a gradual pullback in relative deal interest, even as overall dealmaking sentiment cooled across the board. Dealmaking among automotive companies seems less about volume and more about repositioning, as OEMs and suppliers continue to work through a period of structural overcapacity, particularly in areas where electric vehicle adoption has not kept pace with the investment poured into it.

Divestitures are becoming a central component, with automotive companies increasingly opting to spin off non-core businesses to free up capital and fund investments in electrification, software-defined vehicles, and autonomy. For sellers, that often means finding buyers who see more value in a carved-out asset than in one within a larger corporate portfolio, frequently private equity or specialty operators. The structures governing investment activity are also shifting, with buyers and strategic investors favoring targeted capital deployment over full ownership, particularly in capabilities like software architecture, driver-assistance technology, autonomy, and electrification. This approach lets both OEMs and technology providers move quickly on emerging capabilities without betting the farm on a single technology path.

Geopolitical tensions remain a persistent complication, with 26% of respondents citing tariffs as one of the top three obstacles to deal activity. One respondent captured the resulting pressure directly, pointing to “continued strain on input, labor, and transportation costs,” and “tariff uncertainty and shifting consumer preferences”, as a combination that makes it difficult to forecast sustainable margins or agree on valuations.

In the near-term, buyers are choosing optionality over commitment to a single powertrain, targeting assets that can flex across internal combustion, hybrid, electric, and autonomous pathways, while working to right-size manufacturing footprints and supplier relationships to match a demand picture that is still very much in motion.