{"id":3550,"date":"2019-07-12T05:14:38","date_gmt":"2019-07-12T05:14:38","guid":{"rendered":"http:\/\/euromenaenergy.com\/?p=3550"},"modified":"2019-07-12T05:14:38","modified_gmt":"2019-07-12T05:14:38","slug":"emissions-rules-and-electric-shift-to-spur-car-engines-ma","status":"publish","type":"post","link":"https:\/\/emimer.com\/?p=3550","title":{"rendered":"Emissions rules and electric shift to spur car engines M&A"},"content":{"rendered":"

Mergers and acquisitions have been stuck in a rut since Volkswagen (VOWG_p.DE<\/span>) was caught cheating pollution tests in 2015, triggering a global tightening of emissions regulations that depressed the value of petrol and diesel technologies. But the market is beginning to separate companies capable of meeting new emissions standards from those struggling to do so, which could close the gap in price expectations between buyers and sellers over the next 12-24 months, industry experts say. The auto industry has all but stopped developing next-generation combustion engines as limited resources are directed towards building electric and self-driving cars. However, electric vehicles are still a niche product, accounting for only 1.26 million – or 1.5 percent – of the 86 million cars sold worldwide last year, and analysts forecast it will be the middle of the next decade before a tipping point comes when electric cars overtake combustion-engined variants. That means there will still be demand for emissions-compliant combustion engines and so manufacturers and suppliers able to offer that are likely to see valuations recover, said Reinhard Kuehn, co-head of European Automotive at Deutsche Bank. \u201cAt the same time, suppliers that struggle with this will remain a hard sell,\u201d Kuehn said. Meanwhile, as production capacity of petrol and diesel engines is cut back, the impetus for mergers among suppliers should increase, bankers believe. Germany\u2019s Volkswagen, one of the largest manufacturers of petrol and diesel engines, has said it will develop its final generation of combustion engines by 2026, while U.S. rival Ford (F.N<\/span>) last month said it would close two engine factories in Europe. \u201cThe profit pool of companies with combustion engine-related technology \u2013 once the envy of the industry \u2013 is shrinking with the rise of electric vehicles and the digitization of the industry,\u201d Goldman Sachs managing director Axel Hoefer said. \u201cYou would expect someone to come in and consolidate to benefit from economies of scale.\u201d Volkswagen is now warning its suppliers to prepare industry-wide solutions for winding down combustion-engine manufacturing as it ramps up mass production of electric vehicles. The company is retooling 16 factories to build electric vehicles and plans to start producing 33 different electric cars under the Skoda, Audi, VW and Seat brands by mid-2023, transforming the industry\u2019s supply chain. \u201cIt makes no sense to have factories running at only 40% capacity,\u201d Stefan Sommer, Volkswagen\u2019s procurement head, told Reuters.\u00a0\u201cThe auto industry is obliged to develop structures to consolidate combustion engine assets, to decide where to bundle certain activities.\u201d \u201cIf we end up with uncontrolled insolvencies, it will be a problem for the industry,\u201d he said.<\/p>\n

MISMATCH<\/h3>\n

There are more than 120 plants making combustion engine components in Europe, according to consulting firm AlixPartners. German auto industry association VDA says 436,000 jobs are tied to building petrol and diesel engines in Germany alone. Demand for compliant combustion engine assets has already triggered consolidation among carmakers themselves – PSA Group\u2019s (PEUP.PA<\/span>) takeover of General Motors\u2019 (GM.N<\/span>) Opel business in 2017 was driven by that issue. \u201cWith emissions regulation getting more stringent, particularly in Europe, some manufacturers are getting left behind in terms of their ability to develop compliant engines,\u201d Franciscus van Meel, BMW\u2019s (BMWG.DE<\/span>) head of vehicle development, told Reuters. Until recently, deals have still proved difficult to do because of lingering disagreements over valuations. U.S. group Dana (DA<\/a>N.N<\/a><\/span>) late in 2018 launched the sale of its European head gasket business, a key component for combustion engines, people close to the matter said. With the help of Bank of America it invited suitors to bid, but pulled the auction several weeks later due to muted interest. The sale of Germany\u2019s closely-held Ifa Group, a maker of shafts mainly used in combustion engine-powered cars, was announced a year ago, but never got over the finishing line. Among the few suitors was China\u2019s Wanxiang, but differences on pricing proved insurmountable, people close to the talks said. \u201cThe main problem is that buyers\u2019 and sellers\u2019 price expectations don\u2019t match,\u201d KPMG partner Juergen Schlangenotto said. \u201cA seller typically says: I have a robust order book and good margins so I want a valuation of 6 times EBITDA (annual core earnings), while a buyer says there\u2019s no long-term growth so I am paying 4 times.\u201d A fresh test of interest in combustion engine assets will be the sale of engine parts and gear box parts maker Tekfor. Private equity owner KKR is in talks with a Chinese buyer, according to people close to the matter. James Kamsickas, CEO of U.S. drivetrain supplier Dana, believes internal combustion engine (ICE) demand could persist for many years. \u201cPeople are overbaking a little bit on how much the internal combustion engine is just going to go away,\u201d he told Reuters. \u201cIf anything, I\u2019m a very strong advocate that it\u2019s going to be a world of hybridization for the next 15 years. Last time I checked, that still requires an ICE.\u201d<\/p>\n

\n
\n

Editing by Georgina Prodhan and Mark Potter<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Mergers and acquisitions have been stuck in a rut since Volkswagen (VOWG_p.DE) was caught cheating pollution tests in 2015, triggering a global tightening of emissions regulations that depressed the value of petrol…<\/p>\n","protected":false},"author":1,"featured_media":3558,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[46,48,57,68,76,77,82,87,90,96,99,107,109,111,113,137,139,146,148,160,174,183,184,201,202,209,222,230,232,233,244,246,249,256,262,263,267,277,279,288],"class_list":["post-3550","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-clean-energy","tag-aramco","tag-athens","tag-baroudi","tag-carbon","tag-climate","tag-climate-change","tag-co2","tag-decarbonising","tag-democracy","tag-doha","tag-eastmed","tag-embargo","tag-emissions","tag-energy","tag-energy-peace","tag-gas","tag-gazprom","tag-greece","tag-greenenergy","tag-international-maritime-disputes","tag-lebanon","tag-maritime-boundaries-east-mediterranean","tag-maritime-disputes","tag-offshore","tag-oil","tag-opec","tag-pollution","tag-poverty-alleviation","tag-putin","tag-qatar","tag-rosneft","tag-roudi","tag-russia","tag-saudi","tag-solar","tag-solar-power","tag-straddling-hydrocarbons-reserves","tag-total","tag-trump","tag-usa"],"_links":{"self":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/3550","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3550"}],"version-history":[{"count":0,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/3550\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/media\/3558"}],"wp:attachment":[{"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3550"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3550"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3550"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}