Most companies undertake some research and development (R&D) activities and spend a certain amount of revenues to develop new products and improve services. The amount of funds poured into R&D will depend on the company’s business models.
For example, research-based companies such as those involved in drugs and software development will undoubtedly spend more sales on R&D.
R&D is crucial for the long-term survival of a company. A company will lose over time if it loses its competitive advantages, and this could be due to the research and development activities that may not have worked out for the company.
As a result, it’s worthwhile to dig into the research and development spending, especially for companies like Tesla (NASDAQ: TSLA) and General Motors (NYSE: GM), whose competitive advantages will largely depend on the success of creating the next breakthrough in the all-electric race.
This article will compare the research and development spending of both Tesla and GM.
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Research And Development Spending
Over the past decade, GM has consistently spent around US$7.6 billion annually on research and development.
In recent years, GM has significantly increased its R&D spending, with figures reaching a record high of US$9.8 billion in 2022.
In the same period, Tesla’s R&D spending also has significantly risen, totaling over US$3.1 billion in fiscal 2022, up 19% from 2021 and more than double that in 2020.
A noteworthy trend is that Tesla’s R&D expense has been far smaller than GM’s. For instance, GM’s R&D expense in 2022 was 3X higher than Tesla’s.
Similarly, GM’s R&D expense of US$7.9 billion in fiscal 2021 was 3X higher than Tesla’s.
Although Tesla’s R&D budget is much lower, it is on track to close the gap with General Motors.
The gap was much bigger in 2013, notably at 36X, but the difference had narrowed to only 3X as of 2022.
The narrowing gap suggests that Tesla is increasing its research and development spending faster than GM.
If Tesla continues its current pace of R&D, it may surpass GM soon.
R&D YoY Growth Rates
Tesla’s R&D spending growth rate has averaged over 34% since 2020, while GM’s figure reached 14%.
Therefore, Tesla’s R&D spending has grown much faster than GM’s.
In fiscal 2022, Tesla’s R&D expense grew 18.9% compared to GM’s growth rate of 24.1%.
R&D To Revenue Ratio
Tesla’s ratio of R&D to revenue has significantly declined over the years.
As of 2022, Tesla’s ratio of R&D to revenue totaled only 3.8%, the lowest level ever measured.
On the other hand, GM’s ratio of R&D to revenue totaled 6.2% in fiscal 2022, slightly above Tesla’s result.
In addition, GM’s ratio of R&D to revenue has steadily risen, suggesting an expanding R&D budget with respect to revenue.
Therefore, General Motors allocates a much bigger R&D budget than Tesla from a revenue perspective.
GM’s rising R&D budget may have been due to its recent entry into the electric vehicle space.
By raising its R&D budget, GM can maintain its competitive advantages and core competency.
R&D To Total Costs And Expenses Ratio
From the perspective of total costs and expenses, General Motors allocated a much higher portion of spending on R&D compared to Tesla, notably at 7.1%, while Tesla’s ratio was only 4.5% in fiscal 2022.
A trend worth mentioning is GM’s rising ratio compared to Tesla’s decreasing ratio.
Tesla used to allocate a much bigger R&D budget than General Motors did with respect to total costs and expenses.
However, Tesla’s R&D budget has declined over the years, reaching only 4.5% with respect to total costs and expenses in fiscal 2022.
Again, GM has a much bigger R&D budget than Tesla from the total costs and expenses perspective.
General Motors’ rising R&D budget may have been due to its recent entry into the EV space, driven primarily by its ambitious plan to electrify its fleets fully.
To recap, GM has a much bigger R&D budget than Tesla, with figures at 3X higher than Tesla in fiscal 2022.
From the revenue perspective, GM allocates a much higher R&D budget than Tesla.
Similarly, GM allocates a much higher R&D budget than Tesla with respect to total costs and expenses.
However, when we look at the growth rates, Tesla’s R&D growth rates did much better than that of General Motors.
Tesla’s R&D growth rate has averaged 34% since 2020, while GM’s figure averages only 14% for the same period.
References and Credits
1. All financial figures presented in this article were obtained and referenced from annual and quarterly reports, investor presentations, SEC filings, earnings reports, press releases, etc., which are available in the following links:
2. Featured images in this article are used under a Creative Commons license and sourced from the following websites: Steve Rainwater.
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