China Outbound Automotive Transmission

China, the world's largest automotive consumer market, has long been a key growth engine for European carmakers. Meanwhile, Europe, and especially Germany, boasts the most competitive and innovative automotive infrastructure in the world. Such complementary characteristics have paved the way for heightened cross-border M&A activities in recent years. By aggravating the sector’s structural crisis, the COVID-19 pandemic could further encourage automotive players from both China and Europe to turn to M&A for long-term solutions.

In the past 10 years, German car companies have invested USD 6.9bn across 21 M&A transactions in the automotive sector in China. The total deal value exceeds USD 6.4bn of Chinese investments in Germany (50 deals) in the same sector and same period, according to Mergermarket data.

During the first nine months of 2020, and despite the COVID-19 outbreak, German automotive companies made four acquisitions in China for a combined deal value of USD 1.4bn. A notable one was Volkswagen's [ETR: VOW] investment of around EUR 1bn into Guoxuan High-tech [SHE: 002074] at the end of May. The deal highlights how Volkswagen is keen to retain its status as the largest foreign automaker in China even as government virus-busting measures decimate sales. The German automotive giant will become the largest shareholder of China's third largest electric vehicle (EV) battery manufacturer post the transaction.

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