More roads may lead to auto consolidation: Rothschild Executive

Mumbai: Cross-border consolidation in the global automotive industry is set to intensify as companies grapple with electrification, changing consumption patterns and the rising need for capital, senior investment bankers at Rothschild & Co said.

Speaking to ET, Vikas Sehgal, partner and global head of automotive and executive vice chairman South-East Asia, and Aalok Shah, head of global advisory, India, at the firm said the industry is at an inflection point where traditional players, investors and governments must recalibrate strategies to ride the transition.

"Joint ventures and partnerships have always been a theme in the automotive industry. But unlike earlier times when they were driven largely by market access, today they are dictated by technology, capital and sustainability," Sehgal said. "We expect an acceleration in alliances as no single company can shoulder the investments required for the EV transition."

The bankers said private equity interest in the sector remains strong, but investors are now looking beyond conventional manufacturing assets to areas such as supply chains, software and services. "Funds are shifting towards plays that offer higher growth and resilience, such as EV components, charging and financing ecosystems," Shah said.

Global PE funds are aggressively setting up platforms of Indian auto components/manufacturing firms.

Early this year, US fund Carlyle acquired a controlling stake in Highway Industries Limited and Roop Automotives Limited, the leading players in manufacturing forged and precision-machined components, steering system assemblies, transmissions and other powertrain applications for electric, hybrid and internal combustion engine (ICE) powered vehicles.

Similarly, Bain Capital recently made investments in Dhoot Transmission Group, a leading manufacturer in two-wheeler and three-wheeler wiring harness, and RSB Transmissions, a global manufacturer of automotive, construction and off highway equipment systems and aggregates.

As capital requirements mount, some multinational automakers are reassessing their presence in cost-sensitive emerging markets. "We will see more exits, but equally, there will be listings and carve-outs by companies looking to unlock value," Sehgal added.

In 2024, Hyundai Motor India came out with a ₹27,870 crore ($3.3 billion) IPO, marking the largest public offering in India's history and overtaking the earlier record of LIC's ₹21,008 crore issue. The offering aimed to unlock value by divesting a significant stake in the company, giving the South Korean parent an opportunity to monetise its Indian arm while opening the door for public investors to participate in the growth of the country's second-largest carmaker.

The bankers highlighted that financing of electric vehicles-both for manufacturers and end-consumers-remains a structural challenge. Banks and financiers, they said, are yet to fully price the risks associated with new technologies, which has slowed adoption in many markets.

According to Shah, governments too are reshaping the industry through subsidies, localisation norms and emission regulations, forcing firms to rethink strategies. "Earlier, markets were driven by consumer demand. Now, they are increasingly policy-led," said Shah.