DETROIT -- Automakers are caught in a paradox, says Mark Wakefield, co-leader of the global automotive and industrial practice at AlixPartners. They need to invest in the "profit deserts" of autonomy and electrification while grappling with the declining health of the industry.
Automakers will invest more than $300 billion in those fields over the next four to six years, according to the consulting firm's projections. That comes at the same time as an expected dip in sales, a continued rise in break-even points and further erosion in profitability.
"You have to be able to invest through this valley to get to the other side, and be capable of weathering a cycle," Wakefield said Tuesday at an Automotive Press Association event in Detroit. "We talk about investments and returns through a cycle with OEMs, and they need to map that through a cycle. The industry hasn't done a great job of that."
Wakefield says investments in automated-driving technology are on pace to reach $85 billion through 2025, while $225 billion will be pumped into electrification over the next four years.
At least in the near term, those investments will not help boost bottom lines. Electric vehicle sales, he says, will remain low, averaging just 14,000 units sold per EV model through 2022. That's a far cry from what automakers expect from sales of light vehicles with internal combustion engines.
"It's rare that anyone ever is betting on this low volume," Wakefield said. "So even as you see this increase in battery-electric penetration, basically that line doesn't move. There's this pile-up of investment going into EVs and the actual returns not being there for this first and second generation. It's a real challenge."
Returns are already diminishing on capital employed. AlixPartners says levels of return have "dropped to near-Great Recession levels," falling to 1.5 percent in the Americas and tumbling into negative territory in China.
At the same time automakers endure a long-term wait for returns on investments, they'll find headwinds at the crux of their business. Sales, the firm says, will shrink to 15.1 million units in the United States in 2021 before beginning a modest rebound, returning to today's levels in 2025. Meanwhile, the break-even point will continue a rise from 10 million units in 2010 to 15 million units this year, the firm says.
In China, automakers will deal with a glut of capacity while watching sales fall to 24.8 million units this year, AlixPartners estimates.
