Most companies undertake some kind of research and development (R&D) activities and spend a certain amount of revenues to develop new products and improve services. The number of funds being 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 certainly spend a larger portion of sales on R&D.
R&D is crucial for the long-term survival of a company. A company will be losing 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.
In this article, we will look at and compare the research and development spending of both Tesla and GM.
Let’s start with the following topics.
Research And Development Spending – Tesla Vs GM
The graph above shows the annual research and development spending for both Tesla and General Motors over the past 10 years from fiscal 2013 to 2022.
As the chart shows, GM spent quite consistently on R&D, averaging around $7.6 billion per year over the past 10 years.
However, GM’s R&D spending grew quite significantly in recent years and reached a record high of $9.8 billion as of 2022.
Similarly, Tesla’s R&D spending also had been on a steady rise during the same period and reached a record high of $3.1 billion in fiscal 2022, up 19% from 2021 and more than double of that in 2020.
While GM’s spending on R&D has been consistent over the years, the amount grew significantly higher in 2022 over 2021, notably at 24% and a massive 58% over 2020.
Despite the tremendous growth of Tesla’s R&D over the years, the amount spent had been far less than that of GM. For instance, GM’s R&D expenses in 2022 were about 3X higher than that of Tesla.
Similarly, GM spent about $7.9 billion on research and development in fiscal 2021, an amount that was also 3X higher than that of Tesla.
While Tesla’s R&D budget had been much lower compared to General Motors, Tesla is on track to close the gap with GM in terms of research and development expenses.
For instance, the gap was far bigger back in 2013 at 36X but the difference was narrowed to only 3X as of 2022.
In addition, Tesla’s R&D spending had grown much faster than GM’s R&D spending in the past 10 years.
In the near future, Tesla may catch up or even surpass GM in R&D expenses.
R&D Expenses Growth Rates – Tesla Vs GM
The chart above shows GM and Tesla’s R&D spending growth rates for the past 9 years from 2014 to 2022.
As seen, Tesla’s R&D spending has been growing at a much faster growth rate than General Motors.
On average, Tesla’s R&D grew 38% between 2013 and 2022.
In 2022, Tesla’s R&D spending grew 19% compared to a whopping 74% in the prior year.
In contrast, General Motors’ research and development growth rates had been far lower than that of Tesla.
As seen, GM only managed to grow its R&D spending at single-digit growth rates in most fiscal years and even had a few negative growth rates.
On average, General Motors’ research and development grew 4.3% between 2013 and 2022.
Despite the lower growth rates, GM significantly increased its R&D budget in recent years.
For example, GM’s R&D spending grew by 27% in 2021 and by 24% in 2022.
GM’s R&D growth rate in 2022 even exceeded that of Tesla.
R&D Costs To Revenue Ratio – Tesla Vs GM
The chart above shows the ratio of R&D expenses with respect to revenue or sales, expressed in percentage, for the previous 10 years from fiscal 2013 to 2022.
The ratio measures the intensity of research and development activities for both Tesla and General Motors.
From the ratio, we can find out the size of the research and development budget with respect to revenue or sales.
Of course, the higher the ratio, the bigger and higher the R&D activity is for the company.
From the graph above, General Motors’ ratio has been quite consistent, rising only slightly in the past 10 years.
As of 2022, GM’s R&D to sales ratio totaled 6.2%, a record high in the past 10 years.
In contrast, Tesla’s ratio has been on a decline on a long-term basis.
While Tesla’s ratio was seen growing in the past, it has been going downhill since 2015.
As of 2022, Tesla’s R&D to revenue ratio totaled only 3.8%, a record low in the last 10 years.
Therefore, General Motors allocated a much bigger R&D budget than Tesla did from the perspective of revenue.
This ratio was nearly double that of Tesla in 2022, illustrating the seriousness of GM in maintaining its competitive advantages and core competency.
R&D To Total Costs And Expenses Ratio – Tesla Vs GM
From the perspective of costs of revenue and operating expenses, General Motors allocated a much higher portion of costs on R&D compared to Tesla, notably at 7.1% while Tesla’s ratio was only 4.5% as of 2022.
A trend worth mentioning is GM’s rising ratio compared to the decreasing ratio for Tesla.
Tesla used to allocate a much bigger R&D budget than General Motors did with respect to total costs and expenses.
Again, GM’s ratio has exceeded that of Tesla since 2019, indicating the determination of the company in winning the EV race.
To recap, GM spent a much bigger R&D budget than Tesla did, notably at more than 300% or 3X higher than Tesla as of 2022.
While GM wins hands down in terms of absolute value in R&D spending, the ratio of R&D to revenue and total costs and expenses are not much far apart.
In terms of the R&D ratio, GM still leads the race by a small margin while Tesla has been lagging further.
However, when we look at the growth rates, Tesla’s R&D growth rate fares much better than that of General Motors.
While Tesla’s R&D growth rates have been leading, GM also has been fast catching up.
For example, GM’s R&D growth rate managed to exceed that of Tesla in 2022 for the first time in the last 10 years.
References and Credits
2. Featured images in this article are used under creative commons license and sourced from the following websites: Steve Rainwater.
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