In the “China Automotive Industry Outbound Investment Report 2016”, Deloitte looks into past three years’ automotive industry outbound investment cases and analyzes the key drivers behind those investments. Then, summarizes the primary challenges that Chinese buyers may encounter and provides the recommendations for China automotive companies who are considering the overseas investments.
Chinese companies are speeding up their pace to go abroad. Acquiring high quality resources and absorbing advanced operation insights and management methodology have become a major pathway for Chinese automotive companies to grow bigger and stronger. Under the environment of slowed-down economy, weak consumer demand for new cars, and lack of organic growth momentum, outbound M&A will be the main driver for Chinese companies’ inorganic growth. The followings are the main takeaways from the report:
– The speed of overseas green field investment by China automotive companies has been slowdown, while outbound M&A activities continue to heat up, with M&A deal amount reached a record high in 2015. Outbound M&A is expected to be the primary form for Chinese enterprises FDI. Auto suppliers are the main buyers of overseas targets as they want to leverage the acquisitions to advance to high level value chain, accounting for 80% of the total M&A deals during 2013-2015. Private enterprises are more active than previous years, accounting for half of the total M&A deals.
– Chinese companies tend to acquire the middle size foreign enterprises that are highly specialized and have a large share in a specific market segment. In terms of the purpose, acquiring scarce and high quality resources is the primary motivation for outbound M&A, and yet still short of forward looking, breakthrough technology investments. In the long term, China auto suppliers are becoming more rational, emphasizing more on long term and stable return on investments as well as the synergy after the post-merger integration.
– In terms of the regions, Europe and America are the preferred destinations of Chinese automotive manufacturers. Germany, as a global automotive manufacturing power, has become the primary M&A target country for China automotive companies, and the U.S. is the M&A hub for forward-looking technologies.
– Latin America, ASEAN, Eastern Europe are the regions with high density of Chinses OEM brands manufacturing factories. Due to the import tariff, non-tariff barriers, and the drastic currency fluctuation of host countries, Chinese automakers decide to relocate the investment to build the factories in order to lower the export costs.
Source: Deloitte – GAI