Chinese EV startups are spending more on research than Tesla is

BEIJING – Chinese electric car companies listed in the United States spend more on research and development as a percentage of sales than TeslaAccording to CNBC's analysis of the first-quarter earnings reports of four automakers.

It's a strategy for surviving in China, the world's largest and fiercely competitive auto market. New energy vehicles (including pure electric vehicles and hybrid vehicles) have rapidly grown to account for more than 40% of sales.

Gong Paulo, an automotive analyst at UBS, told CNBC that many Chinese automakers' R&D expenditures as a proportion of revenue are already comparable to or even higher than those of their global peers, and this ratio has increased significantly compared with years ago. “In some cases, even in absolute dollars, it's been bypassed.”

Among the four Chinese electric vehicle companies listed in the United States, Nioh Ranked first, nearly 29% of revenue was spent on research and development in the first three months of this year. This is much higher than Tesla's ratio of 5.4% in the first quarter and 4.2% in the second quarter. Elon Musk's company is known for its relatively low ratios.

It's unclear whether higher spending will translate into long-term competitiveness.

Nio has been losing money for years, and deliveries of its higher-priced cars have only picked up in the past few months. In addition to car launches, the company has held events in recent years to promote its battery services and other technologies, including one in late June about vehicle “quality.”

“Everyone is talking about involution now,” Shen Feng, chairman of NIO’s Quality Management Committee, said in Mandarin at the event (translated by CNBC). He was referring to a term popular in China used to describe fierce competition, especially in the electric vehicle industry.

“What companies should compete for is quality,” Shen said, adding, “If you can't do quality well, then you have nothing to say.” He elaborated on Nio's broad plans to improve product quality, mainly through new technologies. and supply chain innovation begins.

Mr. Shen also serves as the executive vice president of Weilai Automobile. He previously served as the president of luxury electric vehicle brand Polestar China and worked in Ford In the United States and China.

NIO opened a second factory in September 2022 in Hefei, a manufacturing center for many automobile companies. The factory has about 2,000 workers and 756 robots, and most of its production is automated.

According to Chinese remarks translated by CNBC, NIO founder and CEO Li Bin told reporters in June: “The key is to realize digitization at every stage of manufacturing.” He said that if digital systems can span multiple levels of supply, By integrating with vendors, companies can easily identify problems.

Asked about global production, Li said Nio would adhere to the same manufacturing standards but did not elaborate on overseas plans.

Hefei is the capital of Anhui Province, located west of Shanghai. The region is known as the Yangtze River Delta, and China claims it is home to numerous factories where new energy vehicle manufacturers can find all the necessary parts Within four hours' drive.

China's Ministry of Industry and Information Technology told CNBC in a statement that it has worked with automakers and suppliers to create hundreds of industry smart manufacturing best practice cases and application benchmarks.

“One of the key competitive advantages of Chinese companies in China is actually an efficient supply chain,” said Yang Jing, head of China's automotive business in Fitch Ratings' Asia-Pacific corporate ratings department.

She noted that this could help Chinese electric vehicle companies respond to customer and market demands faster than traditional automakers.

Another part of the region, Zhejiang province, is home to Hong Kong-listed auto giant auspicious and its U.S.-listed electric vehicle subsidiary Zekel.

Zeekr's first-quarter results showed that the company spent 13% of its sales on research and development. Parent company Geely didn't disclose the figure in its first-quarter report, but it has spent at least 4% of its revenue on research over the past four years, a significant increase from previous years.

Ren Xiangfei, vice president of R&D at Geely Auto, told CNBC late last month that while the company is looking to improve the car's hardware and software, the latter can provide more differentiation.

“From a user's perspective, functions that bring more surprises must be implemented through software,” Ren Zhengfei said in Mandarin (translated by CNBC).

Automotive software includes driver assistance, in-car entertainment and safety features.

Ren Zhengfei pointed out that new energy vehicles can support more functions because they are equipped with larger batteries than traditional fuel vehicles.

“This will introduce a new concept, which is software-defined cars,” he said.

Geely launched its “Aegis Short Blade Battery” last month, which the automaker claims passed tests above industry standards and did not explode.

It is a competitor to BYD's “Blade Battery”, which has arguably made the company a leader in electric vehicles. According to data from the China Passenger Car Association, Geely ranked second in new energy vehicle sales in the first half of the year, and Tesla ranked third.

Ren Zhengfei said the production cost of the new batteries initially deployed in Geely cars increased by about 1,000 yuan (about $137.69) compared with rival cars.

He said it is now even more important to ensure manufacturing consistency because the chemical formulas used to make batteries are relatively mature. “This requires the support of smart factories.”

Geely also unveiled an electric vehicle architecture called SEA, which it says can produce electric vehicles faster. different size vehicles.

“The vehicle platform is probably the most important consideration, and then consistency with their approach,” said Taylor Ogan, Shenzhen-based CEO of Snow Cow Capital.

He said it's important to see a company deliver a product soon after announcing it and have separate teams already working on future product launches. “I think that's a clear distinction,” he said.

UBS's Gong warns that the ratio of research spending to sales, sometimes called R&D intensity, is not a clear measure of technological innovation.

“If they can sell more cars and get better profitability, that basically means they're probably innovating in the right way. Some of them may not be cool features,” Gong said, noting that this could include systems cost reduction. “Not as fancy, but really powerful.”

Xpeng Motors R&D intensity in the first quarter was 20%. ideal carAlthough it is only 11%, the company's sales of extended-range vehicles have far exceeded that of pure electric vehicles.

In absolute U.S. dollars terms, Hong Kong listings BYD Research spending in the first quarter amounted to $1.47 billion, or 8.5% of its revenue. This is more than Tesla's R&D expenditure of $1.15 billion during the same period.

Going forward, EV companies are trying to differentiate on batteries and software – two categories dominated by Ningde era Liu Jing, professor of accounting and finance and director of the Investment Research Center at the Cheung Kong Graduate School of Business, said, “The two companies are Huawei and Huawei.”

Liu said it's unlikely that one company can make a better product than any one supplier, but that means it will ultimately be difficult for automakers to stand out in a market where consumers can easily switch brands.

Huawei claims that at least 10% of its revenue is spent on research and development. CATL's intensity ratio in the first quarter was 5.4%.

—CNBC’s Sonia Heng contributed to this report.