The world’s top 20 carmakers* spent £70 billion on research & development (R&D) last year**, up from £66.5 billion the year before, shows research by the accountancy and business advisory firm BDO LLP.
BDO says that major car manufacturers are increasing their R&D expenditure as they accelerate their transition to producing electric and autonomous vehicles.
This move towards greater electric vehicle production comes in response to governmental and regulatory pressure to reduce petrol and diesel car sales. The UK Government is aiming to end petrol and diesel car sales by 2040 as part of its Air Quality Plan, and for at least 50% of new cars to be ultra low emission by 2030.
The transition to producing electric vehicles has been described as an existential challenge to carmakers by some commentators. This has led to some automotive manufacturers which were ‘behind the curve’ on developing electric vehicle technology to invest heavily to catch up.
BDO says that a growing number of manufacturers are now planning to make their entire ranges available with electric power, rather than producing specialist electric models as many do at present. Many manufacturers are also making significant investments in developing battery technology to meet consumer demand for long-range, more user-friendly electric vehicles.
Eyad Hamouieh, Partner at BDO, comments: “The transition to electric vehicles may be the biggest single change the automotive industry has ever faced. The manufacturers that have reacted quickly by investing in electric technology should be in the best position to grow through that transition.
“Governments have made it clear that the end of petrol and diesel vehicles is going to come. For manufacturers that have not yet developed a serious fully-electric offering, the clock is now ticking.”
Tesla R&D spend trebles since 2014/15
Tesla has seen its R&D expenditure grow much faster than any of the world’s top 20 carmakers.
The electric-only carmaker has more than trebled its investment in R&D in the last four years from £366m in 2014/15 to £1.1bn in 2018/19. This, however, is less than 10% of the expenditure of global leader Volkswagen, which spent £12.2bn on R&D last year.
As well as investing in developing its range of vehicles and a proposed ‘million mile battery’, Tesla is also building its third ‘Gigafactory’ in Shanghai. This is likely to have contributed to growth in the company’s R&D expenditure.
Says Eyad Hamouieh: “There is a growing realisation among car manufacturers that when it comes to electric vehicles, they are competing more with each other than with Tesla.”
European and Chinese carmakers accelerating R&D investment fastest
BDO’s research shows that the R&D expenditure of Chinese and European carmakers in the top 20 has grown markedly faster over recent years than those in the United States and Japan (see graph below).
European auto manufacturers spent the most on R&D, recording a total of £33.3bn in 2018/19 - 35% more than the £24.6bn spent in 2014/15.
Although starting from a low base of £1.5bn in 2014/15, Chinese carmakers increased their R&D expenditure by 80% to £2.7bn last year.
Eyad Hamouieh adds: “European carmakers are making moves to capitalise on the demand for electric vehicles in Europe. Some countries, like Norway, have very generous incentives for electric car purchases. Tesla has almost a quarter of the market for new cars in Norway, and manufacturers from Germany are keen to compete with that.”
Top 20 carmakers spent £70bn on R&D last year
* Measured by vehicles produced. Source: OICA
** According to company accounts filed in the year to August 2019
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