Mass investments in electric and autonomous vehicles have to take a step back after years of record spending. As the automotive industry’s mammoth capital expenditures on EVs and self-driving technologies are receding, this is one segment that is looking to save instead of spend for now. Economic uncertainty, slower-than-anticipated adoption of EVs, and a much costlier development process in the autonomous vehicle, which has yet to start generating enough returns, have all factored in to contribute to the change.
However, cuts by similar players that could weigh heavily in the short term include General Motors (GM) and Ford Motor, which have already chopped billions in fixed costs and cut thousands of jobs. Nissan, Volkswagen, and Stellantis also have even been much bolder, with workforce reduction and closure of whole plants. The spending is trimmed at a time when consumer demand is weakening, commodity costs are rising and world-wide automotive sales have seemed less sustainable and with China’s industry appearing to be growing in size.
Heavy on capital expenditure, the auto industry has witnessed significant outlays for electric vehicles and self-driving technologies with the top 25 global automakers increasing R&D expenditure by an astonishing 33% between 2015 and 2023, notes consultancy AlixPartners. Particularly, GM and Ford have revved up their spending over the last eight years while the global sales slide. Still, most of these investments, especially with self-driving cars, have not indicated any returns so far.
This also again brings to mind “Confessions of a Capital Junkie” presentation by Fiat Chrysler’s former CEO Sergio Marchionne in 2015 in which he critiqued the inability of the industry to optimize capital management better. Marchionne’s ideas, which advocated for collaboration and consolidation to reduce costs, are resurfacing as automakers seek to optimize spending and streamline their operations.
Even newer electric vehicle startups, like Rivian and Lucid, are reassessing their spending strategies as they work to cut losses while raising capital to support production. Cost-cutting and strategic partnerships-the latter in the form of GM’s new partnership with Hyundai-are key drivers of that effort, reflecting how the industry now treats financial discipline as an imperative even amidst ongoing challenges.
