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Nio, Xpeng, Li Auto And Tesla’s R&D Spending Comparison

Renewable Energy. Source: Flickr

EV makers such as Nio (NYSE:NIO), Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) are China’s new breed of automobile companies.

They have existed for less than 5 years but they have only 1 goal in mind and that is to become the best automobile company.

Aside from being just an automobile maker, they also intend to become a technology company.

Their core competencies arise 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 most intelligent software by pouring a vast amount of resources, including cash, into research and development.

For Nio, Xpeng and Li Auto, research and development is a big part of the company.

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 Nio, Xpeng and Li Auto’s R&D spending and compare the numbers with that of Tesla to see how far the Chinese EV makers have gone with respect to the world’s biggest EV maker.

Let’s take the dive!

Research And Development Spending

Tesla, Nio, Xpeng and Li Auto's R&D spending

Tesla, Nio, Xpeng and Li Auto’s R&D spending

* R&D expense is a measurement determined in accordance with GAAP and is obtained from the respective financial reports.
* All figures are in USD and the translation of Chinese companies’ currency into USD is done by the respective company.
* All companies’s fiscal year begins on Jan 1 and ends on Dec 31.

Let’s first look at the R&D spending numbers of Tesla, Nio, Xpeng and Li Auto which are shown in the chart above.

Based on the chart, Tesla’s R&D spending seems to be so far ahead of that of Nio, Xpeng and Li Auto on an absolute value basis.

At an R&D spending of $1.5 billion USD in fiscal 2020, Tesla’s figure is 4X higher than that of Nio, more than 5X higher than that of Xpeng and nearly 9X bigger than Li Auto’s R&D budget.

That said, Nio, Xpeng and Li Auto’s R&D spending amounted to only $381 million USD, $265 million USD and $169 million USD, respectively, in fiscal 2020.

Of all EV companies in the comparison, Li Auto had spent the least on research and development while Tesla had spent the most on R&D in fiscal 2020.

Looking at only the R&D absolute values alone does not tell us much about the intensity of the R&D activities as most of the EV companies discussed differ significantly by size.

For example, Tesla is a $700 billion giant and has gone public for more than a decade after its IPO in 2010.

In contrast, Nio, Xpeng and Li Auto are much smaller players in the EV space and most of them have only gone public in less than 3 years.

Additionally, their combined market cap totaled only $130 billion which is less than one-fifth of Tesla’s market cap.

That said, we have to look at the R&D expenses from the perspective of sales and total operating expenses.

In this aspect, the intensity of R&D activities can be measured with respect to 2 metrics, namely sales and total operating costs or expenses.

Therefore, in the next discussions, we are going to find out which EV company has the most intense R&D activities.

Research And Development Spending To Revenue Ratio

Tesla, Nio, Xpeng and Li Auto's R&D spending to revenue ratio

Tesla, Nio, Xpeng and Li Auto’s R&D spending to revenue ratio

* R&D expense to revenue ratio is calculated by the author and is based on the ratio of annual R&D costs with respect to annual revenue.
* Ratio is capped at 100% so that the diagram does not go out of proportion.
* All companies’s fiscal year begins on Jan 1 and ends on Dec 31.

As mentioned, the R&D spending to revenue ratio is one of the two metrics that measure the intensity of R&D activities with respect to sales.

Therefore, the higher the ratio, the more intense the R&D activities are for the company.

The other metric that also measures the R&D intensity is the R&D expenses to total operating costs and expenses ratio which we will look at later.

All told, according to the chart, Tesla seems to be the EV company having the smallest ratio at only 7% in fiscal 2018 and the ratio has declined to only 5% in fiscal 2020.

In contrast, Xpeng’s R&D intensity ranks the highest at a ratio of nearly 30% in fiscal 2020 but the ratio has declined significantly since fiscal 2018 when sales increases over the years.

While Xpeng’s R&D spending to revenue ratio was significantly higher in prior fiscal years, the ratio may not be realistic as the company has yet to generate significant sales back then.

Therefore, a more realistic ratio for Xpeng is shown in fiscal 2020 at about 30%.

The same applies to Nio in which the company had an R&D spending to revenue ratio of over 50% in prior fiscal years.

As of fiscal 2020, Nio’s R&D ratio with respect to revenue clocked in at 15%, only half of what Xpeng reported in the same year but was still 3X bigger than that of Tesla.

For Li Auto, its R&D spending with respect to sales ratio was the lowest among all Chinese EV makers at only 12% in fiscal 2020 but was still significantly higher than that of Tesla.

In short, Tesla’s R&D intensity has been the lowest compared to Chinese EV makers between fiscal 2018 and 2020 and will most likely remain so in the future when Tesla is becoming a more mature company.

However, on an absolute value basis, Tesla still reigns supreme in terms of spending on research and development.

R&D Spending To Total Operating Costs And Expenses Ratio

Tesla, Nio, Xpeng and Li Auto's R&D spending to operating expenses ratio

Tesla, Nio, Xpeng and Li Auto’s R&D spending to operating expenses ratio

* R&D spending to operating costs and expenses ratio is calculated by the author and is based on the ratio of annual R&D costs with respect to annual total operating costs and expenses.
* All companies’s fiscal year begins on Jan 1 and ends on Dec 31.

As mentioned, the R&D spending to operating costs and expenses ratio is another metric that measures the intensity of R&D activities but it is from the perspective of total operating costs and expenses instead of from sales.

As shown in the chart above, Tesla is again the smallest EV player when it comes to R&D intensity with respect to total operating costs and expenses.

Between fiscal 2018 and 2020, Tesla’s R&D spending made up about 32% of the total operating costs and expenses.

This ratio is the lowest compared to Nio, Xpeng and Li Auto’s R&D spending to total operating costs and expenses ratios.

In fiscal 2020, Nio’s R&D spending came to about 38% of the company’s total operating costs and expenses while Xpeng’s R&D spending made up about 37% in the same fiscal year.

Of all EV companies, Li Auto’s R&D spending made up the highest of total operating costs and expenses at nearly 50% in fiscal 2020.

This ratio is significant as it shows that nearly half of Li Auto’s total operating costs and expenses went into research and development activities.

Therefore, Li Auto seems to be the EV company having the most serious R&D intensity with respect to operating costs and expenses while Tesla is at the bottom.

While Tesla has spent the least on research and development from the perspective of operating expenses, it is still the highest on an absolute value basis at $1.5 billion USD.

On the other hand, small and new EV players like Nio, Xpeng and Li Auto may not have an R&D budget that is as large as Tesla, but their R&D intensity definitely rivals and even exceeds that of Tesla.

Conclusion

In summary, while Tesla has a large R&D budget, its Chinese rivals such as Nio, Xpeng and Li Auto may not necessarily have the same R&D budget as that of Tesla.

However, Nio, Xpeng and Li Auto have been on a spending spree on research and development since fiscal 2018 even when some of them had yet to generate any sales back then.

As a result, the ratio of R&D expenses to revenue ratio went over the roof and had exceeded 100% for some of the Chinese EV companies such as Xpeng and Li Auto.

While the ratio of R&D costs to sales have considerably dialed down in fiscal 2020 for Nio, Xpeng and Li Auto, they were still significantly higher than that of Tesla, suggesting that research and development were still a big part of the company in driving innovation and creating new products.

With respect to total operating costs and expenses, most Chinese EV makers such as Nio, Xpeng and Li Auto have a considerably higher ratio than that of Tesla.

For example, Xpeng’s R&D costs made up over 60% of the company’s total operating expenses in fiscal 2018 and 2019 and as much as 37% in fiscal 2020.

Similarly, Li Auto spent nearly half of its operating expenses on research and development in fiscal 2020, and the ratio was even higher in the prior year.

Unlike the conventional automobile companies, the new breed of Chinese EV makers is considering themselves not just an automobile company but also a technology company in which their primary goal is to develop the world’s best electric vehicles that come equipped with the most advanced software.

For this reason, Chinese EV makers such as Nio, Xpeng and Li Auto will do what is necessary to reach their goals, including spending big on research and development.

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.

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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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