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Illustration: Aïda Amer/Axios

The coronavirus pandemic has left global automakers and suppliers burdened with debt and in a much weaker position to navigate a historic transformation toward electric, self-driving cars.

Why it matters: The industry was already entering what AlixPartners called a multiyear "profit desert" because of the massive upfront investments they are making in future technologies. Now carmakers will likely be forced to delay or cut spending on many of those innovations as they crawl out of a giant COVID-19 hole.

Details: In just a matter of weeks, automakers and suppliers took on an astonishing $72 billion in new debt to survive the economic jolt from the pandemic, per AlixPartners.

  • Factory production stopped for two months, but automakers still had to pay suppliers for parts already in the pipeline.
  • Meanwhile, revenues plummeted as consumers hunkered down under government stay-at-home orders.
  • The resulting cash squeeze pushed most companies' credit ratings lower, with Ford, Fiat Chrysler and Renault sliding into junk bond territory.
  • S&P now has a negative outlook on almost every major auto company.

Recovery will be slow. Global sales will fall 22% this year and won't likely return to 2017's peak of 94 million vehicles until after 2025, according to AlixPartners' annual global forecast.

  • The hit from COVID-19 "is as if a market the size of all of Europe had vanished for the year,” Stefano Aversa, chairman of the firm's Europe, Middle East and Africa practice, told journalists.
  • China is already bouncing back, and the U.S. is showing some resilience, but the European market will see the slowest recovery, per AlixPartners.
  • While North American factories have resumed operation, production is still about half the usual rate, according to Barclays, and dealers are running short of vehicles in many parts of the U.S.

The good news is that demand is bouncing back, especially for trucks and SUVs.

What to watch: With financial pressures mounting, carmakers will have to slash costs to lower their break-even point and make tough calls on which programs to keep funding.

  • "You still have to invest in the future," Mark Wakefield, global co-leader of AlixPartners’ automotive and industrial practice, told the Detroit News. But, "the cash available for that is just less."
  • So far, companies seem to be protecting their electric vehicle projects — likely because government regulations require them to do so.
  • Still, AlixPartners expects EV spending between now and 2024 to be cut or delayed from $234 billion to about $200 billion.
  • Autonomous vehicles will likely bear the biggest cuts. Prior to COVID-19, the industry was expected to spend about $79 billion on AVs between 2020 and 2025. Now, about $25 billion of that will be delayed or cut, they predict

Go deeper: Coronavirus shatters electric vehicles' crystal ball

Go deeper

Sep 4, 2020 - Economy & Business

GM and Honda look to develop more vehicles together

GM and Honda collaborated on the design of the Cruise Origin, a robotaxi prototype in San Francisco. Photo: Cruise

In a sign of the times, GM and Honda said this week they're looking to develop more vehicles together, sharing platforms and propulsion systems across their product lineups in North America.

Why it matters: Automakers have already been forming strategic alliances to collaborate on expensive technologies like connected, self-driving electric cars. But the pandemic has taken a heavy toll on the industry, heightening the need for cost savings on core products, too.

Tech scrambles to derail inauguration threats

Illustration: Sarah Grillo/Axios

Tech companies are sharing more information with law enforcement in a frantic effort to prevent violence around the inauguration, after the government was caught flat-footed by the Capitol siege.

Between the lines: Tech knows it will be held accountable for any further violence that turns out to have been planned online if it doesn't act to stop it.

Dave Lawler, author of World
2 hours ago - World

Uganda's election: Museveni declared winner, Wine claims fraud

Wine rejected the official results of the election. Photo: Sumy Sadruni/AFP via Getty

Yoweri Museveni was declared the winner of a sixth presidential term on Saturday, with official results giving him 59% to 35% for Bobi Wine, the singer-turned-opposition leader.

Why it matters: This announcement was predictable, as the election was neither free nor fair and Museveni had no intention of surrendering power after 35 years. But Wine — who posed a strong challenged to Museveni, particularly in urban areas, and was beaten and arrested during the campaign — has said he will present evidence of fraud. The big question is whether he will mobilize mass resistance in the streets.