automotive

On May 8, 2019, Akio Toyoda, President of Toyota Motor Corporation (TMC), announced that TMC would seek strategic alliances to obtain technology for electric vehicles, “develop[ing] together with those who share the same aspirations.”[i]

Toyoda’s promise reflects a recent trend for automotive original equipment manufacturers (OEM).  Increasingly, OEMs are eschewing traditional mergers in favor of joint ventures and co-development alliances with other industry players to obtain necessary technology and infrastructure to support the development of electric vehicles.

For example, in July of 2019, Volkswagen AG and Argo AI agreed to establish a $2.6 billion venture to create electric vehicles for the European market by 2023.[ii]  Similarly, in July of 2019, Toyota established a $600 million venture with a Chinese ride-sharing service to develop battery operated vehicles for the Chinese market.[iii]

Not surprisingly, the trend toward strategic alliances for electric vehicle development has contributed to a near-term decline in traditional merger and acquisition activity for OEMs.  According to the Q1 2019 edition of Deloitte’s Automotive M&A review, total M&A deal value in the first quarter of 2019 for the global automotive sector was $12.4 billion, down from $29.4 billion for the previous quarter.[iv]  Deloitte reported that the majority of OEM acquisitive activity in the quarter related to strategic arrangements to access technology.

If strategic alliances remain in vogue, OEMs seeking to acquire technologies and capabilities through such alliances should bear the following principles in mind: (1) clear delineation of management roles between partners of such alliances is critical, (2) global protection for contributed and co-developed intellectual property is paramount, and (3) exclusivity, termination and exit provisions in alliance documents must be tailored to permit flexibility and optionality.

One thing is clear, strategic alliances are the near future for the development of electric vehicles.

[i] Toyoda, Akio. “Financial Results Press Conference” Toyota Motor Corporation. 18 May 2019 https://global.toyota/en/newsroom/corporate/27803157.html

[ii] Colias, Mike; Germano, Sara. “VW Ups Its Investment in Ford’s Self-Driving Car Unit.” Wall Street Journal, 12 July 2019, https://www.wsj.com/articles/volkswagen-to-invest-in-fords-self-driving-car-unit-11562890815?mod=searchresults&page=2&pos=8.

[iii] Aquino, Alyssa. “Toyota Racing Ahead With $600M Hail-Service Co. Venture” Law 360, 25 July 2019, https://www.law360.com/articles/1181952/print?section=energy.

[iv] Deloitte Financial Advisory. “Automotive M&A Review Q1 2019.” Deloitte LLP, March 2019. https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/manufacturing/deloitte-uk-automotive-ma-review-q1-2019.pdf.