While automotive M&A is a global story, many of the sector's most significant restructuring and strategic deals are being driven by European manufacturers responding to profound industry change.

Automotive M&A climbed to 44% year-on-year in 2025 to reach US$101.96 billion, the best annual total for dealmaking in the sector since the 2021 market peak, according to White & Case and Mergermarket. Momentum has carried into 2026, with H1 2026 deal value of US$29.49 billion tracking in line with the US$30.75 billion of deal value secure in the first half of 2025.

Rising automotive M&A activity has been driven by necessity as opposed to ambition, as car companies respond to production overcapacity and climbing capital expenditure demands to finance the electric vehicle (EV) transition. Automotive groups are using dealmaking to consolidate operations, address oversupply, acquire digital and software capability, and form partnerships to spread investment risk, according to BCG.

Responding to overcapacity

Global plant underutilization is one of the biggest challenges facing automakers. In Europe and the US average plant utilization sits at around 60%, well below the target benchmark of 80%, according to BCG. In Asia utilization is even lower, at around 52%.

Persistent overcapacity is leading to a series of divestments and consolidation plays, as carmakers focus on their most profitable business lines, sell non-core assets to optimize balance sheets, or join forces to build economies of scale.

Luxury German carmaker Porsche, for example, sold its 45% stake in Bugatti Rimac, a joint venture with electric car business Rimac, to a consortium led by US investor HOF Capital.

Under pressure as result of US tariffs and a slowdown in sales, Porsche chose to divest its EV interests with Bugatti-Rimac to focus on its core hybrid and internal combustion engine vehicles.

VW is another European car manufacturer that is turning to M&A to streamline its portfolio as it undergoes a major restructuring in an effort to address overcapacity. In June VW announced the sale of its shipping engine business Everllence to Bain Capital and further divestitures could follow, with VW signaling openness to bringing in outside investment into its PowerCo battery unit and autonomous driving division ADMT, according to FT reports.

As European players move to sharpen the focus of their portfolios, international automotive companies have been eager buyers of non-core assets to support their plans to expand into the European market. India’s Tata Motors, for example, acquired the non-defense business of van and truck company Iveco from the Agnelli family, who also own stakes in Stellantis and Ferrari, but are seeking to diversify their automotive-heavy portfolio. For Tata, which also owns UK carmaker Jaguar Land Rover (JLR), the deal elevates its truck and van capability to a global scale, enabling it to compete directly with the likes of Daimler and Scania.

Carmakers are also leveraging M&A to repurpose excess plant capacity. VW, for example, has agreed a deal to pass a majority stake in its Osnabrück plant to Aurelius Capital and switch production at the facility from vehicles to components for Israel’s Iron Dome air defense system. Other manufacturers are also exploring tie-ups in the adjacent defense sector, with JLR revamping its Defender military vehicle and bidding for NATO and British Army contracts.

Upskilling capabilities

Automotive dealmaking, however, has not been exclusively led by defensive restructuring and balance sheet optimization rationales.

Companies are also turning to M&A to move up the technology curve and gain early-stage exposure to high growth businesses transforming the landscape.

Harman, a supplier of connected car systems to global manufacturers, for example, has acquired a driver-assistance business from ZF Group for €1.5 billion, while Honda and Nissan, who unsuccessfully attempted a merger in 2025, have formed a partnership to jointly develop vehicle electronic control units that can be controlled and updated using software.

Automakers are also investing in earlier stage companies developing transformative industry technology. Mercedes-Benz, Nissan and Stellantis, for example, were among the backers of US$1.2 billon Series D funding round that valued UK-based autonomous driving start-up Wayve at US$8.6 billion.

Car companies are facing a cycle of radical change and having to simultaneously right size production capacity, deal with tariff disruption to end markets and supply chains, and manage the transition from internal combustion engine cars to electric vehicles. M&A is serving as a valuable to strategic tool for meeting these challenges.