DETROIT — The auto industry has an addiction. It’s a “capital junkie” that’s been on a yearslong binge of unprecedented spending on all-electric and autonomous vehicles. And now, it’s waking up from the bender and entering rehab.

Automakers from Detroit to Japan and Germany are attempting to lower costs and reduce expenses amid economic concerns, billions of Dollars wasted on self-driving vehicles and a prolonged, if not uncertain, return on investment in EVs amid slower-than-expected adoption.

Those issues come in addition to weakening consumer demand, higher commodity costs, and some Wall Street analysts sounding the alarm about global automotive sales and profits peaking, as China’s industry continues to expand.

General Motors and Ford Motor are cutting billions in fixed costs, including laying off thousands of workers, while other automakers such as Nissan Motor, Volkswagen Group and Chrysler parent Stellantis are taking even more drastic measures to reduce headcounts and trim spending.

“Western [automakers] are increasingly focusing on capital efficiency, meaning likely lower spending, more collaboration, and restructured EV portfolios to prioritize profits,” Morgan Stanley analyst Adam Jonas said in a September investor note.

The automotive industry is a global web of companies producing tens of thousands of parts to assemble a new vehicle. It requires significant capital investment every time an automaker launches a new product or updates current models, causing a spending ripple effect throughout the global supply chain.

But in recent years, automakers have put such investments in overdrive with self-driving and electric vehicles. Companies invested tens of billions of Dollars into the technologies, most with little to no short- to midterm returns on their investments.

Research and development costs, as well as capital spending for the top 25 automotive companies, have increased 33% from roughly $200 billion in 2015 to $266 billion in 2023, according to auto consulting firm AlixPartners.

Such costs for GM increased about 62% from 2015 to 2023, to $20.6 billion (excluding sold European operations), despite a 38% drop in global sales during that time. That compares with other increases during that timeframe of 42% for Volkswagen; 37% for Toyota Motor; 27% for Fiat Chrysler’s successor Stellantis; and 18% for Ford.

EV startups Rivian Automotive and Lucid Group have burned through $16 billion and $8.8 billion, respectively, in free cash flow since 2022. Both companies are attempting to ramp up vehicle production and narrow their losses.

It’s not the first time the auto industry has blown through money to then attempt quickly to cut costs. These kinds of periods happen in cyclical industries such as autos, but could the spending have potentially been avoided — or at least alleviated — this time around?

The latest cost-cutting cycle comes nearly a decade after an infamous Wall Street presentation by late-Fiat Chrysler CEO Sergio Marchionne called “Confessions of a Capital Junkie.” The April 2015 report highlighted the industry’s massive capital spending on overlapping or niche products that Marchionne was convinced could be solved through consolidation and shared capital spending.

The report, made by Marchionne amid failed merger attempts with Fiat Chrysler that included GM, has reemerged as automakers cut costs and announce tie-ups between companies such as Volkswagen and Rivian Automotive as well as GM and Hyundai Motor to share costs.

“We believe the concepts within this deck [are] highly insightful and as relevant today as ever,” Jonas said in a November 2023 investor note invoking Marchionne’s junkie manifesto, which he has continued to reference.

Using a measurement called “The Sergio Quotient,” Jonas points out that the average S&P 500 company spends its market cap in capex plus research and development in about 50 years.

GM and Ford spend their market cap in 1.9 and 2.6 years, respectively. Only Volkswagen, at 1.8 years, was lower than GM among traditional automakers. Toyota was the best suited, at 14.4 years.

As of September, Ford and GM ranked 402 and 403 out of 406 nonfinancial companies in the S&P 500 regarding their capital spend compared with their market cap.

Former Ford executive Joe Hinrichs brought up Marchionne’s 2015 manifesto during an automotive conference this summer, condemning the industry for its capital waste.

“The auto industry is famous for destroying capital. That’s a bad thing,” said Hinrichs, now CEO of railroad company CSX. “If you waste billions of Dollars on autonomous vehicles or billions of Dollars on electrification, you should be held accountable. That’s shareholder money.”

Most capital spending by automakers isn’t wasted, but the industry isn’t as efficient as other sectors, with minimal return on invested capital.

The ROIC of traditional, mainstream automakers is roughly seven or less, while tech companies such as Google parent Alphabet are at roughly 22, according to FactSet.

“We’ve seen major CapEx spend with extended ROIs, given the slowdown … and low utilization in manufacturing plants,” said Rebecca Evans, a principal at management consulting firm Roland Berger. “We have been looking extensively at cost.”

In particular, automakers have not seen ROIC on autonomous vehicles and EVs.

GM continues to invest in its embattled autonomous vehicle unit Cruise despite already spending more than $10 billion on it since acquiring the company in 2016.

Ford also has wasted billions of Dollars on warranty and recall costs as well as strategy shifts. It recently canceled production of a three-row electric SUV after significant development cost the automaker roughly $1.9 billion in expenses and cash expenditures. That included $400 million for the write-down of certain product-specific manufacturing assets.

“Have we got to cut costs with every car we’re making? Absolutely,” Lucid CEO Peter Rawlinson told CNBC in October, citing the company’s cost-cutting task force. “We’re working assiduously on that.”

Volkswagen is in the midst of a massive cost-cutting program that uncharacteristically involves layoffs and potential plans to shutter plants in its home country of Germany.

VW Chairman and CEO Oliver Blume said in an interview published earlier this month that such actions are needed to remedy years of ongoing problems at the German carmaker, which reportedly expects to spend 900 million euros ($975.06 million) to execute the turnaround.

“The weak market demand in Europe and significantly lower earnings from China reveal decades of structural problems at VW,” Blume told German paper Bild am Sonntag, according to Reuters.

The rise of Chinese automakers has been eating away at the profits of traditional automakers such as VW, GM and others that were once dominant players in China – the world’s largest car market that has quickly moved from being a consumer of vehicles to exporter.

Nissan, Honda and BMW, among others, also blamed declines in China for missing earnings expectations or restructuring needs. GM, which has raked in billions from China, is restructuring operations there, including attempting to renegotiate with its major Chinese partner, SAIC.

While losing ground in China, GM has been among the most aggressive in spending on EVs and self-driving vehicles. But, to its credit, remains highly profitable and had roughly $27 billion of free cash flow at the end of the third quarter. It remains one of the standouts in balancing investment and cost-cutting efforts, while remaining profitable.

GM CFO Paul Jacobson on Wednesday reconfirmed plans for the automaker to level capex to around $11 billion going forward.

“What we’ve established over the last couple of years, I think, is a pretty disciplined track record of capital expenditures,” Jacobson said during a Barclays conference. “You want to be in an organization that has more ideas than it can fund. Our job is to allocate that and prioritize it.”

Lucid’s largest shareholder, Saudi Arabia’s Public Investment Fund, has invested billions of Dollars into the company, while Rivian has teamed up with Volkswagen for an up to $5.8 billion software deal, which is expected to close by the end of this year.

GM and Hyundai this summer entered into an agreement to explore “future collaboration across key strategic areas” in an effort to reduce capital spending and increase efficiencies. The companies have not announced any actions since then.

Marchionne argued such partnerships were effective but not enough going forward. He said companies could save billions of Dollars annually in capital by sharing costs involving commoditized parts such as transmissions, standardized safety equipment and advanced driver assistance systems.

“It’s fundamentally immoral to allow for that waste to continue unchecked,” Marchionne said in the three-hour conference call with global industry analysts in 2015. “Something needs to give. It cannot continue like this.”

Some things have changed, but there have not been large systemic shifts. Major automotive industry mergers and joint ventures don’t always result in long-term successes. Many fall apart before producing significant results.

Both VW and Rivian have experienced such failures with Ford in recent years. Rivian and the Detroit automaker canceled plans to codevelop EVs two years after Ford took a 12% stake in the startup in 2019. Around that time, VW also announced a $2.6 billion deal with Ford for autonomous vehicles that didn’t pan out.

Stellantis — formed through the merger of Fiat Chrysler and French automaker PSA Groupe in January 2021 — has proven that not all mergers enacted to produce scale guarantee a profitable company. After a record profit last year, the company has struggled in 2024.

While Stellantis CEO Carlos Tavares has touted achieving roughly $9 billion in cost reductions following the merger, the automaker has mismanaged the U.S. market — its prime cash generator — with a lack of investment in new or updated products, historically high prices and extreme cost-cutting measures.

When asked by Bernstein analyst Daniel Roeska about Stellantis not performing to “capital junkie” standards despite the massive merger, Tavares said the company achieved the scale needed to be more efficient but it’s still working on a product blitz and correcting mistakes in North America.

Tavares said Stellantis remains more profitable than Fiat Chrysler and PSA were on their own. He also cited impacts of “regulatory chaos,” a reference to U.S. and Europe standards for EVs and emissions.

“Stellantis is the concrete expression of the scale that you need to have to use the resources of your shareholders in a meaningful way. So, that’s what we did. FCA was too small,” Tavares said when discussing first-half results in July. “PSA was too small. Stellantis has the right scale. That’s an answer that I’m sure Sergio would recognize.”