Renewable Energy. Source: Flickr
Chinese EV makers such as Nio (NYSE:NIO), Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) are some of China’s largest automobile companies.
Although they have existed in less than a decade, they have grown tremendously in terms of size and technological capabilities.
Apart from being an automobile company, they have intended to become a technology company.
Nio, Xpeng, and Li Auto’s core competencies stem from the unique technology and the level of autonomous driving that they have developed over the years.
They are still progressing and are determined to develop not only the best hardware but also the best software by pouring a vast amount of resources, including cash, into research and development.
For Nio, Xpeng, and Li Auto, research and development are big within the companies. They have spent big money on research and development even before they are listed on the U.S. stock exchange.
In this article, we will look at the R&D spending of Nio, Xpeng, and Li Auto, and compare the numbers with that of Tesla to see how far the Chinese EV makers have progressed in terms of R&D with respect to Tesla.
Let’s look at the numbers!
Investors interested in Tesla’s R&D versus Ford and GM may find more resources on these pages: Tesla R&D Vs Ford and Tesla R&D Vs GM.
Please use the table of contents to navigate this page.
Table Of Contents
Definitions And Overview
O2. How Far Have Chinese EV Companies Progressed?
R&D Spending Comparison
A1. R&D Spending
A2. R&D Spending YoY Growth Rates
A3. R&D Spending As A Percentage Of Revenue
A4. R&D Spending As A Percentage Of Operating Expenses
Summary And Reference
S1. Summary
S2. References and Credits
S3. Disclosure
Definitions
To help readers understand the content better, the following terms and glossaries have been provided.
Research & Development Expenses For EV Makers: Research and development (R&D) expenses for electric vehicle (EV) companies refer to investments made in developing new products, improving existing products, or innovating new technologies to enhance the performance, efficiency, safety, and affordability of electric vehicles.
R&D includes expenditures on the engineering and design of new electric vehicle models, battery technologies, electric motors, and other related components. It also encompasses spending on testing, prototype development, and integrating advanced features such as autonomous driving capabilities, connectivity, and software updates.
For electric vehicle companies, R&D is a critical component of their operations, as the EV market is rapidly evolving with technological advancements and changing consumer preferences.
High R&D expenses are typical in the industry, reflecting the intense competition and the continuous push for innovation to achieve longer driving ranges, faster charging times, lower costs, and better overall performance.
These investments contribute to the company’s product offerings and competitive positioning and drive the overall growth and development of the EV market.
How Far Have Chinese EV Companies Progressed?
Over the last few years, Chinese EV (Electric Vehicle) makers have made significant progress in several key areas. Here’s a summary of the advancements and major developments:
1. **Technological Innovation**: There has been a noticeable surge in R&D investments among Chinese EV manufacturers, leading to advancements in battery technology, power systems, and drivetrain efficiency. Companies like BYD, NIO, and XPeng have been at the forefront of developing longer-range batteries and more efficient powertrains.
2. **Market Expansion**: Chinese EV makers have not only solidified their presence within China, the largest EV market globally, but they have also started aggressively expanding overseas. NIO, for instance, has begun making inroads into European markets. Similarly, XPeng has launched its electric vehicles in several international markets.
3. **Infrastructure Development**: Recognizing the importance of supporting infrastructure for EV adoption, Chinese companies have heavily invested in charging stations and networks across China. This includes fast-charging stations, which are crucial for long-distance EV travel.
4. **Auto Software and Autonomous Driving**: Software has become a crucial battleground for EV makers, and Chinese companies are rapidly developing their auto software capabilities, including autonomous driving technologies. Companies like Baidu have made significant strides with their Apollo autonomous driving platform, while NIO and XPeng are also working on their autonomous and semi-autonomous driving systems.
5. **Government Support and Policy**: The Chinese government’s supportive policies and incentives for EV manufacturers and buyers have played a pivotal role in the industry’s growth. Subsidies, investment in R&D, and regulations favoring EVs have helped create a conducive environment for growth.
6. **Strategic Partnerships and Collaborations**: Chinese EV makers have entered into strategic partnerships and collaborations to accelerate development and gain a technological edge. These partnerships span various domains, including battery technology, artificial intelligence, and global automotive players.
7. **Financial Performance and Market Valuation**: Many Chinese EV makers have seen their market valuations soar as they report improved sales figures, production capabilities, and global expansion plans. This financial growth reflects investor confidence and the market’s bullish outlook on the EV sector.
Overall, Chinese EV makers’ progress over the last few years has been impressive, driven by innovation, supportive policies, and aggressive market expansion strategies. This has not only positioned China as a global leader in the EV industry but also set the stage for a more sustainable, electric-powered future in transportation.
Research And Development Spending
Tesla, Nio, Xpeng and Li Auto’s R&D spending
(click image to expand)
Let’s first look at the R&D spending numbers for Tesla, Nio, Xpeng, and Li Auto which are shown in the chart above.
Based on the chart, Tesla’s R&D spending has been far higher than those of Nio, Xpeng, and Li Auto on an absolute value basis.
At an R&D spending of US$4.0 billion in fiscal year 2023, Tesla’s figure was more than 2X higher than the closest competitors – Nio Inc. – whose R&D spending came in at US$1.9 billion during the same fiscal year.
On the other hand, Xpeng and Li Auto’s R&D spending amounted to US$743 million and US$1.5 billion, respectively, in fiscal year 2023 – also a much lower figure than Tesla.
Of all EV companies under comparison, Xpeng has spent the least on research and development over the last 5 years, while Tesla has spent the most on R&D since 2019.
On the other hand, Nio Inc.’s R&D spending has been among the highest among all of the Chinese EV companies under comparison – totaling nearly US$2 billion in fiscal year 2023.
Research And Development Spending Year-On-Year Growth Rates
Tesla, Nio, Xpeng and Li Auto’s R&D spending growth rates
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As seen in the chart above, most Chinese EV automakers significantly reduced R&D expenses in 2020, as reflected in the negative growth rates.
However, they have significantly increased R&D expenses since 2021, and have been much higher than Tesla’s R&D expenses in most fiscal years.
For example, Li Auto has increased its R&D spending the most between fiscal year 2021 and 2023, with the YoY growth rates averaging 120%.
On the other hand, Tesla’s R&D growth between fiscal year 2021 and 2023 has averaged just 40.5%, while Nio Inc.’s figure has come in at 81.5% over the last 3 years.
The R&D growth rate for Xpeng has averaged 55.4% between 2021 and 2023, also a much higher figure than Tesla’s.
Therefore, Chinese EV automakers such as Nio, Xpeng, and Li Auto have significantly boosted their R&D spending in post-pandemic periods.
Research And Development As A Percentage Of Revenue
Tesla, Nio, Xpeng and Li Auto’s R&D spending to revenue ratio
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As a percentage of revenue, most Chinese EV companies such as Nio, Xpeng, and Li Auto have much higher R&D ratios than Tesla, as shown in the chart above.
For example, Tesla’s R&D ratio has averaged just 4.2% over the last 3 years, while Nio Inc has averaged 19.6%.
Similarly, Xpeng and Li Auto’s R&D ratios have averaged 18.7% and 11.9%, respectively, between 2021 and 2023, which is much higher than Tesla’s number.
R&D Spending As A Percentage Of Operating Expenses
Tesla, Nio, Xpeng and Li Auto’s R&D spending to operating expenses ratio
(click image to expand)
With respect to operating expenses, Chinese EV makers also have much higher R&D ratios.
As shown in the chart above, Tesla’s R&D ratio came in at just 45% in fiscal year 2023, compared to 52.2% and 52.7% for Nio Inc and Li Auto, respectively, while Xpeng’s figure hovered around 44.6%, roughly at the same level as Tesla.
Therefore, with respect to operating expenses, Tesla’s R&D budget is actually much smaller than its Chinese rivals. Although the company allocates a much larger R&D spending, its budget with respect to operating expenses is smaller compared to Chinese EV makers.
Conclusion
In summary, while Tesla has a much larger R&D expenses, its Chinese rivals such as Nio, Xpeng, and Li Auto has higher R&D budget with respect to revenue and operating expenses.
References and Credits
1. Financial figures for all companies discussed above were obtained and referenced from their respective financial statements which can be obtained from the following links:
a) Tesla Investor Relations
b) NIO Investor Relations
c) Xpeng Investor Relations
d) Li Auto Investor Relations
2. Featured images in this article are used under creative commons license and sourced from the following websites: Wyoming Foot Creek and Boost for renewable energy.
Disclosure
References and examples such as tables, charts, and diagrams are constantly reviewed and cross-checked to avoid errors.
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