Ford Motor Company (NYSE:F), a global player in the automobile industry, is aggressively transforming from manufacturing fossil fuel vehicles to battery electric vehicles (BEV).
In Feb 2021, Ford has just announced that it will invest as much as $29 billion through 2025 to turn the company around into a full-fledge EV player.
Ford commanded 14% of market share in North America as of 4Q 2021, making it one of the largest automotive companies in North America aside from General Motors.
Being a major automotive player, Ford also spends considerably on research and development (R&D).
The spending on R&D is considered necessary especially for a company like Ford when it is racing to turn itself around in vehicle electrification and autonomous driving.
In this article, we will explore Ford Motor’s research and development expenses and compare them with that of Tesla over a period of time.
We are using Tesla’s research and development costs as the reference and see how the two companies stack up against each other when it comes to R&D spending.
As we all know, Ford has been in the automobile industry for more than a couple of decades whereas Tesla is still a relatively new player.
As a result, it’s interesting to see how far has Ford gone in terms of R&D spending when compared to a new player in the industry.
Please note that R&D cost, budget, expense, spending, etc are used interchangeably in this article and are meant the same.
So sit tight and explore the following topics to find out more about Ford’s R&D budget relative to that of Tesla.
Ford Motor Research And Development Topics
1. Ford Vs Tesla In R&D Spending
2. Research & Development Growth Rates
3. Research & Development To Revenue Ratio
4. Research & Development To Total Costs And Expenses Ratio
6. References and Credits
The chart above shows Ford Motor and Tesla’s annual research and development costs from fiscal 2013 to 2022.
As seen, Ford’s R&D expenditure has been on the rise year over year since 2013, growing from $6.2 billion in 2013 to as much as $8.2 billion in 2018 before declining to $7.8 billion as of fiscal 2022.
The same goes for Tesla when the company’s R&D expenditure has increased year over year since 2013 and reached a record high of $3.1 billion as of fiscal 2022.
From a comparison perspective, Ford’s research and development expense has been much higher than that of Tesla for the past 10 years.
In fact, Ford’s R&D expense of $7.8 billion reported in fiscal 2022 was nearly 3X higher than Tesla’s R&D expense of $3.1 billion in the same year.
While Ford’s R&D spending has been much higher all the while, the gap between both companies’ R&D spending has actually been narrowing in recent years.
If you have noticed, the gap in terms of R&D spending between the two automakers was much higher back in 2013.
For instance, Ford’s research and development spending of $6.2 billion reported in fiscal 2013 was 27X higher than Tesla’s R&D costs of only $0.23 billion in the same year.
However, the difference has been reduced to only 3X as of fiscal 2022, driven mainly by Tesla’s significant growth in R&D spending.
In general, Tesla’s research and development spending has been fast catching up with that of major automobile players such as Ford and General Motors.
At the same time, Ford’s expense in R&D has only increased by 26% from 2013 to 2022 while that of Tesla has grown by multiple times.
In fact, Ford’s R&D expenditure has actually declined slightly from its high of $8.2 billion reported in 2018 to $7.8 billion in 2022.
On the other hand, Tesla has been jacking up its research and development activities, hoping to get an edge over its much bigger and older competitors.
As a result, it’s not surprising to see that Tesla has been spending heavily on research and development in recent years in an effort to drive massive innovation in the electric vehicle space.
R&D Growth Rates
The chart above represents Ford vs Tesla in research and development expenses year-over-year (YoY) growth rate between 2014 and 2022.
As the chart shows, Ford’s R&D growth had been in the high single-digit between 2014 and 2017.
However, Ford’s growth rate has declined significantly to only 2.5% in 2018 and has even turned negative at -9.8% and -4.1% in 2019 and 2020, respectively.
Ford has only started to report a positive growth rate in research and development spending in fiscal 2021 and 2022, notably at 7% and 3%, respectively, as shown in the chart.
As a result, Ford’s R&D spending YoY growth rates for the past 9 years averaged only 3%.
While the average figure is expected to be in single digits, I did not expect Ford’s R&D expenses growth to come in at only 3% in 2022.
This figure was way too small for Ford and was probably not in line with the automaker’s massive electrification plan.
To this end, I would expect Ford’s R&D costs to increase significantly in 2022 as Ford has pledged to spend up to $29 billion through 2025 for its electrification plan.
Therefore, are we going to see significant growth in Ford Motor’s R&D spending in the future? Probably.
On the flip side, Tesla’s R&D growth rates have only been negative once in the last 9 years which was in 2019 at -8.2%.
In subsequent years, Tesla’s R&D expenditure rose as much as 11.2% in fiscal 2020 compared to the prior year and a massive 74% in fiscal 2021.
As of 2022, Tesla’s R&D growth rate totaled 19%, also a much higher figure than that of Ford Motor.
On average, Tesla’s research and development spending growth rates totaled around 38% for the last 9 years, which was significantly higher than that of Ford Motor.
In short, Ford Motor’s R&D spending growth rates have been much lower than that of Tesla between 2013 and 2022.
R&D To Revenue Ratio
Looking at just the absolute value of the research and development costs does not tell us much about the budget or intensity of the R&D activities of the respective companies.
As such, we have to analyze the R&D expenses with respect to revenue in order to gauge the seriousness of the companies in allocating the much-needed R&D budget.
With this said, I have created the chart above to illustrate Ford Motor and Tesla’s R&D expenditure with respect to their annual revenues for the past 9 years.
Let’s first look at Ford’s ratio of R&D budget with respect to the company revenue.
As shown in the above chart, Ford’s ratio has increased steadily from fiscal 2013 to 2021, albeit at a slow rate.
Accordingly, Ford’s ratio has increased from 4.2% in 2013 to as high as 5.6% in 2021.
However, this ratio declined to only 4.9% as of 2022.
On average, Ford spent roughly 5% of its sales on research and development in the last 10 years.
This figure is quite reasonable considering that the automotive industry has been a slow-growth industry and the technology hasn’t changed much for over a decade.
On the other side of the coin, we are seeing a much higher ratio for Tesla.
Between 2013 and 2017, Tesla’s R&D budget with respect to revenue had been above 10% and even reached up to 18% in 2015.
However, the ratio had declined since 2015 and reached the lowest level at only 3.8% as of fiscal 2022.
While Tesla’s ratio of R&D budget to revenue has declined over the years, the average for the last 10 years was much higher than that of Ford.
In fact, Tesla’s spending on research and development with respect to revenue averaged around 10% since fiscal 2013.
The result shows that Tesla has spent as much as twice the budget of Ford on research and development with respect to revenue between fiscal 2013 and 2022.
R&D To Total Costs And Expenses Ratio
The chart above illustrates the percentage of R&D to total costs and expenses.
In other words, the figure shows the portion of total costs and expenses that were allocated for the R&D budget.
As seen, Tesla used to spend a higher portion of its total costs and expenses on research and development, notable at more than 10%.
This ratio has been on a decline over the years and reached a record low of 4.5% as of 2022.
On the other hand, Ford’s ratio has been mostly flat but was seen ticking up in recent years.
For example, Ford spent on average 5.7% of its total costs and expenses on research and development since 2020.
As of 2022, Ford’s ratio came in at 5.4%, down nearly 1ppt from the prior year but still slightly above that of Tesla.
In short, both Ford Motor and Tesla are spending a nearly equal portion of costs and expenses on research and development.
To recap, we have seen that Ford’s research and development spending has been much higher than that of Tesla between fiscal 2013 and 2022.
In fiscal 2013, Ford’s R&D expense was 25X higher than Tesla’s R&D expense but the ratio has narrowed down to only a 3X difference as of 2022, indicating that Tesla has been racing to close the gap with its competitors in terms of R&D spending.
While Ford’s R&D figure has been much higher on an absolute figure, its ratio of R&D to revenue and total costs and expenses has been nearly in line with that of Tesla, illustrating the intensity of R&D activities for both companies.
From the perspective of growth rate, Tesla has a much higher R&D growth rate while Ford Motor’s R&D growth rates have been lagging considerably.
As of 2022, Tesla’s R&D spending grew 19% while that of Ford grew only 3%.
Therefore, Ford’s R&D growth in 2022 was not significantly in line with the company’s pledge of a $29 billion electrification plan.
References and Credits
1. All financial figures in this article were obtained and referenced from Ford Motor and Tesla’s quarterly and annual filings which are available in Ford SEC Filings and Tesla Sec Filings.
2. Featured images in this article are used under Creative Commons License and sourced from the following websites: Ford Asia Pacific and jjkbach.
The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
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I would be very curious to know about how much of the $7.4B Ford spent in 2019 was on Battery Electric Vehicle Technology.
Good point! As far as I know, Ford didn’t disclose the breakdown in the financial statements. But i will try to find this out.