Morgan Stanley sees the potential for more auto industry M&A amid the slowing down of global vehicle production, margin compression and heavy capital expenditure burdens.
The investor website seekingalpha.com quoted Morgan Stanley analyst Adam Jonas as saying in a note: “Deep into the cycle, global production has turned ex-growth, margins and multiples are compressing, and the auto industry has to find ways to invest in the transition from Auto 1.0 to Auto 2.0.
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“These factors combined are leading to many alliances between global auto manufacturers, to share development costs in EVs and AVs, and we expect that the global auto suppliers, who have enjoyed superior margins & multiples, will be under pressure in the short-term and inevitably share in the transition.
“For the powertrain suppliers, multiple compression could drive consolidation, as suppliers look to offset investment cost pressures, although, in North America, leverage is a potential obstacle. We don’t believe the [FCA-Renault merger] story is over at this stage,” wrote Jonas.
According to seekingalpha.com, Fiat Chrysler Automobiles was seen striking out for a partner, either with Renault or another player. The interaction of Ford, Volkswagen and Argo AI was also being watched closely.
Morgan Stanley reportedly expects more cooperation agreements like those set up with BMW-Daimler, BMW-Jaguar Land Rover and Toyota-Subaru.
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