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Chinese electric car companies are outspending Tesla on research and development relative to sales as they strive to dominate the world’s largest auto market.
Key Points
- Chinese electric car companies are spending more on R&D relative to sales compared to Tesla.
- Nio leads the pack, dedicating nearly 29% of its revenue to research and development.
- The increased R&D spending aims to ensure survival in China’s competitive auto market.
- The effectiveness of higher R&D spending in achieving long-term competitiveness remains uncertain.
- China’s new energy vehicle market, including battery and hybrid cars, now accounts for over 40% of sales.
Chinese electric car companies are making significant investments in research and development (R&D), outpacing Tesla in terms of R&D spending relative to sales. This strategy aims to secure a strong foothold in the world’s largest auto market, China, where competition is fierce and new energy vehicles, including battery and hybrid cars, have rapidly grown to comprise over 40% of total sales.
A CNBC analysis of the first-quarter earnings of four U.S.-listed Chinese electric car companies reveals that these firms are investing more in R&D as a percentage of sales compared to Tesla. Leading the pack is Nio, which allocated nearly 29% of its revenue to R&D in the first three months of the year. In contrast, Tesla’s R&D spending stood at 5.4% in the first quarter and 4.2% in the second quarter, reflecting its relatively low ratio despite its innovative reputation.
Paul Gong, an autos analyst at UBS, noted that many Chinese automakers now spend as much as, or even more than, their global peers on R&D as a percentage of revenue. “In certain cases, even in terms of absolute dollars, it has bypassed,” Gong told CNBC, highlighting the significant increase from previous years.
For Chinese electric car companies, this surge in R&D spending is crucial for survival in China’s cutthroat automotive market. These investments are intended to drive innovation and improve product offerings in an industry where staying ahead of the curve is essential. However, whether this higher spending will translate into long-term competitiveness is still uncertain.
Nio, despite its heavy investment in R&D, has operated at a loss for years. Only recently has the company seen a significant uptick in deliveries for its premium-priced cars. Nio has also been active in promoting its battery services and other technologies, hosting events to highlight its advancements, including a recent one focused on car “quality.”
As Chinese electric car companies continue to outspend Tesla in R&D, the automotive world is watching closely to see if these investments will pay off in the long run. With the new energy vehicle market in China growing at an unprecedented rate, the stakes have never been higher for these automakers to secure their positions as industry leaders.
