Auto industry entering 'profit desert,' finds AlixPartners research

Heavy spending on electric and autonomous technology, as well as stagnation in China and the US, will force leaner times on the global auto industry.

The report from global consultancy AlixPartners found that announced industry spending on electrification will amount to $225 billion between 2019 and 2023. Spending on autonomous vehicles is projected to grow to $85 billion through 2025, on top of the $225 billion for electric vehicle technology.

The average powertrain cost for battery electric vehicles (BEVs) is currently 2.5 times the cost of conventional powertrains ($16,000 vs $6,500), though AlixPartner’s research projects that costs will come down over time as tech improvements and economies of scale kick in.

Consumers are, however, still concerned about the cost of electric vehicles. Forty-one percent cited cost as a top-three concern, up from 29% in last year’s survey. An AlixPartners report from last year also found that consumers are not prepared to shell out for autonomous tech; they were only willing to pay $2,300, whereas the feature currently costs approximately $22,900 extra.

The consulting firm’s latest report, however, found that Americans are fairly open to BEVs, with 14% saying their next vehicle will likely be a BEV, and 20% saying so for 2025, and 33% for 2030.

Nonetheless, BEV sales per model-line are projected to be only 15% of historical levels as late as 2022, with only 14,000 vehicles sold per model compared to 90,000 units for combustion engine vehicles. 

Centrally, the research projects a stagnating global auto industry, with market growth of only 1.6% to 2026. This year, sales in China are expected to fall to 24.8 million units, down significantly from 2018’s 27 million units sold. The US market is predicted to enter a cyclical downturn, with unit sales falling to 16.9 million in 2019, down from 17.3 million 2018. 2021 will see US sales fall further to 15.1 million.

The market stagnation comes at a time when earnings before interest and tax (EBIT) margins for large auto manufacturers have fallen from 5.7% in 2017 to 4.6% in 2018, placing additional pressure on the industry.

"This industry is about to enter what could be a multi-year profit desert, as spending on new mobility ramps up massively just as key markets around the world stagnate or fall," Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners, said. “Whether players emerge on the other side of this desert, and what kind of shape they’re in, will be determined by the action they take in the next few months to proactively transform their investment approaches and operations."

The report also found that the European diesel-engine vehicle market would continue to plummet, with a projected decrease to 10% of market share by 2030.