Internal Combustion Engines Continue to Remain An Attractive Automotive Aftermarket Category

In its recent automotive aftermarket industry analysis report, the Automotive Aftermarket investment banking team at BGL shares its annual recap of Aftermarket Week in Las Vegas. In addition, the automotive aftermarket M&A environment and strategies impacting current and future deal activity are discussed and optimism and interest in the sector remains high.  

Internal Combustion Engines: Automotive Aftermarket Industry Trends

While much of the auto supply market is looking toward an electric future for new vehicle builds, the aftermarket is focused on the vehicle fleet, which today is largely combustion engine dominated. Despite large investments by Original Equipment Manufacturers (OEMs) and government subsidies, the prevalence of electric vehicle (EV) sales has remained small relative to overall vehicle sales. In addition, consumer openness to buy an EV has decreased over the past three years from a high of 86% to 67% today, according to S&P Global Research. Both Ford and GM have “pumped the brakes” on their EV programs with GM producing 32,000 EVs during Q3 2023 and Ford putting a pause on a $3.5 billion investment in a large battery plant joint venture with CATL. It is not clear whether these actions were initiated due to the realities of the investment dollars required, geopolitical concerns, or the slowdown in demand for EVs as the first movers have moved, and the industry is still looking to entice the broader masses. Technology efficiency including improved battery technology and lower product costs will eventually move the market as will the ballooning of available options from about 20 today to over 150 by 2030. 

All that said, the composition of the overall car parc will change very slowly. In addition, the timeline of the electric transition has been a moving target with deadlines being laid out by various governments and subsequently revised when achieving the target becomes unattainable. Today, the car parc consists of more than 274 million combustion engine vehicles, and by 2045 there will still be over 146 million combustion engine vehicles in operation.

Implications For Automotive Aftermarket Investors and Acquirers

Businesses that sell into the internal combustion engine on the aftermarket (be it replacement or enthusiast) remain sought after and valuable targets. The data shows that the horizon for such products stretch multiple decades creating little to no “exit risk” and numerous years of consistent cash flows. Multiples for transactions in this sub-segment are in line with other aftermarket replacement part multiples.

Looking for more automotive aftermarket industry analysis from the BGL automotive aftermarket investment banking team? You can download the full 16-page report here for more insights on the recent AAPEX/SEMA shows, the impact of sustainability and the future opportunities in the electric vehicle market.

Our automotive & aftermarket investment banking team has a deep understanding of the strategic, financial, and operational factors impacting middle market companies and has a long track record of success in representing companies in automotive aftermarket M&A advisory. We welcome the opportunity to learn how we can assist you in navigating today’s dynamic M&A environment and to help you maximize your strategic objectives.