Yes and no, and they had hopes they could preserve it. That's why the civil war happened. They saw that the tides had turned and they had started losing. It wasn't that Lincoln was for sure going to end slavery through any means available if he became president. Rather it was that the South leveraged every ounce of its political power in opposition to Lincoln becoming president, he wasn't even on the ballot in many Southern states, and they lost. Partly it was carry over from getting themselves whipped up into a frenzy in opposition to Lincoln's candidacy, partly it was a rational realization that their power in the union was fading and the recognition that the only way slavery would be preserved was if the South was separated from the Union.

You can track the progress of the battles in the fight for slavery and in fact there were as many practical victories for it as there were setbacks against it through the 19th century. On the one hand there was growing popular sentiment in some parts of the US and around the world against slavery. But on the other hand slavery was growing ever more profitable and ever expanding. From the turn of the 19th century through the half century following slavery expanded from around the American coasts deep into the Mississippi valley and throughout the deep South as it is familiar today, a land that was scarcely inhabited at all in 1800, and much of it not even part of the US at the time. The speed of the geographical spread of slavery and of the economic boom due to cotton cultivation were both remarkable, and driving forces not just of the Southern economy but of the US and world economy and industry as well.

Many in the South had recognized that slavery was under attack from many forces and political power needed to be exercised extensively to preserve the institution. But at the same time the South had considerable financial wealth and also substantial political power. So there was a perception that such power and wealth would be sufficient to preserve slavery. And indeed there had been a long list of battles fought and won in the political war over slavery. The Missouri Compromise. The Fugitive Slave Act. The Dredd Scott decision. Even the Kansas-Nebraska act.

But then, of course, came the election of Lincoln, and that showed that the power of the South had run out.

I think your assumption here is that slavery was an economic dead end - that it could not survive in the South because it was too inefficient compared to industrial agriculture.

The latter may be true, but the former is debatable. Allen Guelzo argues in Fateful Lightning (2012) that by the Civil War's outbreak, Southern slaveholders were already beginning to train slaves as industrial laborers. The first attempts at industrial slavery were considered quite successful, and if this trend had continued, black slaves could have transitioned from the ever-less-profitable cotton fields into a living hell of textile mills, foundries, and other industrial production centers. A permanent, disposable underclass of slave machinists could plausibly have preserved slavery's social and economic value for the slaveowners.

That said, Guelzo is careful to point out the flaws in this arrangement. For one thing, industrial labor required more skilled laborers than cotton agriculture. Industrial slaves would have required more education, and individual slaves could have made themselves invaluable for their nigh-irreplaceable practical expertise, much like foundry foremen in the early labor movement. A well-trained, educated slave workforce with the pride and solidarity of industrial workers could have become a major threat to their nominal masters.

For another thing, industrial slavery violated the social contract between the major slaveholders and poor whites. The Southern aristocrats suppressed class tensions by enflaming racial tensions. One of their signature arguments for why poor whites shouldn't resent slave-wealth was that black slaves (as sub-humans) were only performing work that was too nasty for good white folks. Slaves weren't taking work from poor whites - they were saving poor whites from menial drudgery. The good jobs were reserved for whites, and would never be filled with slaves. However, until the 1860s, the "good jobs" always included industrial labor, which commanded excellent wages from the perspective of a poor white farmer. Slave-based industry threatened the underpinnings of the Southern class system by replacing free white labor with black slave labor, and giving no compensation to the whites for the lost opportunities.

These problems with Southern industrial slavery are significant, but may not have been enough to prevent its rise. The post-war North demonstrated that industrial firms, apart from the occasional setback, generally had little trouble corralling an industrial labor force. Moreover, that labor force was free and possessed of legal rights and representation; Southern industrial slaves would have faced far worse mistreatment than Northern free laborers. As for the class issue, the Southern slaveholders had navigated that problem fairly deftly in the past, and they would have required a substantial body of white overseers, managers, foremen, and others to control the black laborers. It is entirely possible that they could have pacified angry whites with a combination of racial rhetoric and economic concessions. And if that worked, the South could have ridden its existing labor force into a slavery-fueled Second Industrial Revolution.