Culture of Innovation: Tesla Has Triple the R&D of Traditional Automakers - Updated
Tesla has always been about innovation. For example, their much-talked-about partnership with Panasonic, which allows them to manufacture new batteries. Tesla would later announce a historic partnership with the acquisition of SolarCity, a manufacturer of solar panels and roof tiles. During an investor call in 2016, after the merger, CEO Elon Musk was eager to bring SolarCity’s technology and Panasonic’s cell technology together to make the world’s most efficient --and cheapest-- solar cell in the world. And at the time, it was Tesla/Panasonic’s then-new 2170 battery cell. In 2020, Tesla innovated again by introducing the “brilliant” 4680 battery cell, once again cheaper and more energy-efficient than before.
Above: Tesla Model X (Source: Tesla)
How has Tesla been able to innovate so much in such a short amount of time? Tesla’s unique culture of innovation starts with its commitment to research and development. Tesla continues to invest more and more money into its research and development branch. In 2020, Tesla’s R&D expenses were $1.491B, an 11.02% increase in spending from the previous year. Over the last decade, Tesla’s research and development investment has skyrocketed.
So it’s clear that, through spending, Tesla is in stark contrast to many of their competitors. In 2016, Manufacturing.Net wrote an article titled ‘How Tesla Out-Innovates Traditional Carmakers’.
"Many traditional carmakers are huge companies with $100+ billion in sales and loads of cash to spend. And yet, a relatively small company from Palo Alto has them beat in what most people consider the future of the automotive industry: electric cars... [Tesla] has established itself as arguably the most successful manufacturer of electric cars over the past few years."
Above: R&D spending and losses from 2010 to 2015 (Source: Statista*)
In 2006, Tesla’s master plan was simple: 'Build sports car. Use that money to build an affordable car. Use that money to build an even more affordable car'. Tesla’s founder promised the company would “plow all free cash flow back into R&D to drive down the costs” and bring products to market as fast as possible. And fifteen years later, that’s still held true. Tesla’s research is continually driving down the price of its products, like the previously-mentioned 4680 battery cell. And as they cut costs with new innovations, they can continue putting more of that money into research.
Above: The ever-growing electric vehicle line-up from Tesla (Source: Motor Trend)
How does this compare to Tesla’s competitors? In 2020, the impact of the pandemic caused automakers to cut short-term R&D spending. According to this Automotive R&D Survey, the automakers surveyed reported an average reduction of 13% in their 2020 development budget, and 8% reduction in their 2021 development budget. Similar results were given for reduced advanced research budgets from automakers in 2020 and 2021. This puts them in stark contrast to Tesla’s ever-expanding research and development budget.
Above: Comparing R&D intensity of Tesla versus other automakers (Source: Statista*)
Tesla Model 3’s streamlined development is projected to already put it years ahead of its competitors. In the article, Nikkei Business Publications, suggests that the technology in the Tesla Model 3 is at least six years ahead of traditional carmakers like Toyota and Volkswagen. Tesla’s self-driving technology, plus not having to rely on supply networks like other manufacturers, gives the company much greater potential. As Tesla keeps looking towards the future with its large investments, other automakers are struggling to catch up.
Above: Tesla's R&D is pushing the company forward with state-of-the-art electric vehicle battery tech and plans for self-driving and car-sharing (Image: Motor Trend)