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.
In addition to being just a car company, 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 best 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 so far with respect to one of the world’s biggest EV companies.
Let’s take the dive!
Tesla, Nio, Xpeng, And Li Auto’s R&D Comparison
1. R&D Spending
2. R&D Spending Growth Rates
3. R&D Spending To Revenue Ratio
4. R&D Spending As A Percentage Of Operating Costs And Expenses
5. Conclusion
6. References and Credits
7. Disclosure
Research And Development Spending
Tesla, Nio, Xpeng and Li Auto’s R&D spending
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 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 $3.1 billion USD in fiscal 2022, Tesla’s figure is 2X higher than that of Nio, 4X higher than that of Xpeng and 5X bigger than Li Auto’s R&D budget.
That said, Nio, Xpeng, and Li Auto’s R&D spending amounted to only $1,571 million USD, $756 million USD, and $983 million USD, respectively, in fiscal 2022.
Of all EV companies in the comparison, Xpeng spent the least on research and development while Tesla spent the most on R&D in fiscal 2022.
On the other hand, Nio Inc.’s R&D spending was the highest among the Chinese EV companies.
While Chinese EV companies spent considerably less on research and development compared to Tesla, they have been fast catching up.
For example, Nio’s R&D expense in 2022 was more than double the number in 2021 and the same goes for Li Auto whose R&D spending was close to $1 billion USD as of 2022, also nearly doubled the number in 2021.
The most significant R&D growth comes probably from Li Auto.
For instance, Li Auto’s R&D spending in 2022 grew by nearly 500% since 2020 while that of Nio Inc rose 300% during the same period.
For perspective, Tesla’s R&D grew only 106% since 2020, a far smaller number compared to that of the Chinese EV companies.
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 differ significantly by size.
For example, Tesla is nearly a $1 trillion 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 5 years.
Additionally, their combined market cap totaled less than $100 billion which is only one-tenth of Tesla’s market cap as of 2023.
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 as well as robust R&D activities.
Let’s move on!
Research And Development Spending Year-On-Year Growth Rates
Tesla, Nio, Xpeng and Li Auto’s R&D spending growth rates
Before looking at the ratio, let’s briefly go over the R&D year-over-year growth rates for Tesla and Chinese automakers.
As seen in the chart above, most Chinese automakers cut back significantly on R&D expenses in 2020 as reflected in the negative growth rates.
However, they increased their R&D expenses considerably in 2021 and 2022, and the numbers were far ahead of that of Tesla in both years.
Even Xpeng, the Chinese automaker whose growth rate was among the lowest, was able to exceed that of Tesla in 2022.
Among the Chinese EV companies, Li Auto has the best R&D growth rates, averaging around 100% since 2020.
Nio’s R&D spending growth rate was not that far off from Li Auto, and it averaged roughly 60% in the last 3 years while Xpeng managed to register an average R&D growth rate of 50%, also above the 35% average R&D growth rate clocked by Tesla since 2020.
Therefore, Chinese automakers such as Nio, Xpeng, and Li Auto have significantly boosted their R&D spending during the post-pandemic periods.
Research And Development Spending To Revenue Ratio
Tesla, Nio, Xpeng and Li Auto’s R&D spending to revenue ratio
As mentioned, the R&D spending-to-revenue ratio is one of the two metrics that measure how rigorous the R&D activity is 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 3.8% as of fiscal 2022.
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 increased 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%.
As of fiscal 2022, Xpeng’s R&D budget with respect to revenue totaled only 19%, still significantly higher compared to peers despite having been on a decline.
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 2022, Nio’s R&D ratio with respect to revenue clocked at 22%, the highest figure among all EV companies in the chart.
For Li Auto, its R&D spending with respect to sales ratio was the lowest among all Chinese EV makers at only 15% in fiscal 2022 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 2022 and will most likely remain so in the future as 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 As A Percentage Of Total Operating Costs And Expenses
Tesla, Nio, Xpeng and Li Auto’s R&D spending to operating expenses ratio
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 at the bottom of the chart 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 figure has gone up to 37% in fiscal 2021 and rose further to 43% as of 2022, the highest in the last 3 years.
While Tesla spent nearly 43% of its total operating expenses on R&D, this ratio was still the lowest compared to Nio, Xpeng, and Li Auto’s ratios.
In fiscal 2022, Nio’s R&D spending came to about 52% of the company’s total operating costs and expenses while Xpeng’s R&D spending made up about 44% 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 55% in fiscal 2022.
Far from over, Li Auto’s ratio also has been at the top of the chart since 2020, illustrating the seriousness of the company in allocating funds to research and development.
This ratio is significant as it shows that more than half of Li Auto’s total operating costs and expenses went into research and development activities compared to only 43% for Tesla.
The same goes for Nio Inc. whose ratio topped 52% as of 2022, indicating that more than half of the total operating costs and expenses were allocated to research and development activities.
While Xpeng’s ratio came in at only 44% as of 2022, it was on par with that of Tesla and the ratio has remained at this level since 2020 despite having far less spending on R&D compared to other automakers.
Therefore, Xpeng has been able to keep its R&D budget intact at above 40% of its operating expenses all these years although its ratio to revenue has been on a decline which we saw previously.
All in all, Tesla was still at the top of the chart from the perspective of the absolute value of R&D spending despite the lower ratio compared to other EV makers.
On the other hand, small and new EV players like Nio, Xpeng, and Li Auto may not have an R&D figure that is as large as Tesla, but their R&D budget definitely rivals and even exceeds that of Tesla.
Conclusion
In summary, while Tesla has a large R&D figure, its Chinese rivals such as Nio, Xpeng, and Li Auto may not necessarily have the same R&D figure as 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 exceeded 100% for some of the Chinese EV companies such as Xpeng and Li Auto.
While the ratio of R&D costs to sales has considerably dialed down in fiscal 2021 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 44% in fiscal 2022.
Similarly, Nio Inc. and Li Auto spent more than half of their operating expenses on research and development in fiscal 2022, 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.
Disclosure
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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