Culture of Innovation: Tesla has triple the R&D of traditional automakers [Infographic]
One of the most striking aspects from the Tesla Motors [NASDAQ: TSLA] investor call with CEO Elon Musk discussing SolarCity was not about the merger itself, it was about Tesla's cell technology. During the investor call, Musk said, "we believe quite strongly that SolarCity’s technology on the Silevo front added to Panasonic's cell technology will make it the most efficient and ultimately the cheapest solar cell in the world – just as it is with the battery cell. We have the best cell in the world that is also the cheapest cell." How can Elon Musk claim industry leadership in both solar cells and electric vehicle lithium-ion battery cells? It could have something to do with Tesla's intense focus on research and development.
Above: Tesla Model X (Source: Tesla)
Tesla has a unique culture of Silicon Valley innovation. And much of that innovation stems from it's commitment to research and development. According to Statista*, "Tesla has been investing more and more in research and development over the last few years. In the fiscal year ending December 31, 2015, R&D reached 717.9 million U.S. dollars, setting a clear upward trend. Musk and Co. are clearly playing the long game, with this positive spending almost mirrored by the financial losses made each period."
Above: R&D spending and losses from 2010 to 2015 (Source: Statista*)
This is one way that, "Tesla out-innovates traditional carmakers." Indeed — Tesla's R&D spending is in stark contrast to many of Tesla's competitors. "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: The ever-growing electric vehicle line-up from Tesla (Source: Motor Trend)
To that end, "Back in 2006, Tesla’s founder and CEO described his master plan as simply as this: 'Build sports car. Use that money to build an affordable car. Use that money to build an even more affordable car'. In other words, he promised that Tesla would 'plow all free cash flow back into R&D to drive down the costs and bring the follow on products to market as fast as possible'. And that’s exactly what the company has been doing."
Above: Comparing R&D intensity of Tesla versus other automakers (Source: Statista*)
So how does Tesla's R&D intensity compare with traditional automakers? "The chart [above] illustrates how Tesla’s relentless focus on research and development sets it apart from more traditional carmakers, of which most have yet to bring to market a battery-powered car half as popular as Tesla’s Model S, Model X and the yet to be delivered Model 3. In the past year, Tesla’s R&D intensity, i.e. the ratio of R&D investments to revenues, a commonly used indicator for how innovative a company is, was 17.7 percent. That's roughly three times as high as it was for most traditional carmakers."
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)
And it's not just the fact that Tesla is dominating lithium-ion electric vehicle batteries. To be sure, this will give Musk a massive advantage as electric vehicles continue to grow in popularity. But Tesla's R&D is likely being invested in two other key areas that show great promise for the future of automotive: car sharing and autonomous vehicles. And with news of Tesla's new Level 5 self-driving hardware and the Tesla Network car sharing initiative, it appears that Musk continues to invest in a future that traditional automakers are slow to embrace.