Automotive Sector Braces for Chinese Bargain Hunters as Leading Companies Lose Combined $564bn Market Cap in Q1 2020, Says GlobalData

Deal activity in the automotive space is moribund at the moment amid the COVID-19 crisis. Indeed, as GlobalData’s deals database shows, automatic transaction values in Q1 2020 fell by 82% year-on-year to $13.8bn – even though deal volume increased 15% to 181 in the time period.

 

But, that was Q1. You’d now be hard pressed to find any active buyers in a market where, according to GlobalData forecasts, global light vehicle sales are expected to fall by 19.1% to 72.7m in 2020 with the brunt to be felt in Q2 with sales forecast to decline by over 49%. In such a climate and with every actor in the auto value chain under extreme distress, there will be plenty of opportunities to buy at the bottom of the market.

GlobalData’s analysis indicates that leading automotive companies lost a combined $564bn in their market capitalization in Q1 2020 – equivalent to a 30.6% average drop – as the FTSE 350 Automobiles index dived by 56.8% in the same period.

Calum MacRae, Automotive Analyst at GlobalData, comments: “Just as a rising tide doesn’t float all boats, crashes in the valuation of auto companies shouldn’t reflect equally on all companies. Many companies, brands and assets in the auto sector still hold a high intrinsic value.”

After being the initial epicenter of the virus, China’s economy and auto sector has recovered first. Its market is still troubled – a 15.3% year-on-year decline in light vehicle sales is forecast – but its companies may feel emboldened to initiate an overseas spending spree.

MacRae continued: “Already, China’s Geely owns Volvo Cars, Lotus and Proton and has a major stake in Daimler while on the supplier side of the business the likes of Nexteer (the former GM Saginaw) and the former Key Safety Systems (now Joyson) are Chinese owned.

“Each of these examples were distressed companies acquired by Chinese investors and I have every reason to believe we’ll see another influx of Chinese investment.

“Made in China 2025 is a call to arms for Chinese auto companies to become technology leaders and establish a greater presence overseas. And, while China’s made great technological strides, the world knows that if you can’t make you buy. And it’s a buyer’s market out there right now.”

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