Automobile Companies and R&D: Top 5 Spenders

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The automobile industry is experiencing its biggest disruption since it was formed, thanks to innovations like autonomous driving, electrification, connectivity, and carbon neutrality. It has triggered a new arms race among automobile manufacturers who are adapting to avoid obsolescence while competing with their peers.

Here’s a look at the top R&D spenders among automobile manufacturers and their recent plans and commitments to stay ahead of the curve. Almost all players have witnessed a decline in sales and R&D during 2020 amid the coronavirus pandemic.

Volkswagen (VLKAF), $16.5 billion

The line “we combine science and fiction” defines R&D at Volkswagen. The company reported revenue of $216.77 billion (€182.11 billion) during fiscal year 2020 (January – December); its allocation towards R&D stood at $16.5 billion (€13.86 billion)—equivalent to around 7.6% of revenue. The company is working to strengthen its innovative power and has witnessed an increasing share of these patents for advanced technologies such as driver assistance systems, automation, and connectivity as well as alternative drive systems.

The world’s best-known automobile brands—Audi, SEAT, ŠKODA, Bentley, Lamborghini, Bugatti, Porsche, Ducati, Scania, and MAN—are a part of the Volkswagen Group. Volkswagen is working towards its new vision of "shaping mobility − for generations to come,” which is in sync with its TOGETHER 2025+ strategy. The group is focused towards making their drives cleaner, quieter, intelligent, and safer by embracing electric drive, digital networking, and autonomous driving. The Volkswagen Group seeks to become a CO2-neutral company by 2050.  

Daimler (DDAIF), $10.21 billion

In 1886, the company’s founders Gottlieb Daimler and Carl Benz made history by inventing the automobile. Today, Daimler is a leading global supplier of premium and luxury cars and one of the world’s largest manufacturers of commercial vehicles. The company’s revenue stood at €154.3 billion during fiscal year 2020 (January - December) while its R&D spending was reported at €8.61 billion, an equivalent to $10.21 billion. Both its revenue and R&D spending witnessed a reduction of 11% compared to the previous fiscal year.

Daimler’s work ranges from EV battery research to hybrid powertrain calibration, from telematics to autonomous driving software. Mercedes-Benz is working to make its fleet of new cars CO₂-neutral by 2039. In the medium-term, it is targeting have electric drive systems (fully electric vehicles and plug-in hybrids) in more than half the cars it sells by 2030. On the other hand, Daimler trucks is the pioneer of truck automation. It introduced the Mercedes-Benz future truck 2025 back in 2014. In 2019, Daimler established the Autonomous Technology Group to put highly automated trucks onto the roads within a decade. Daimler trucks will be listed as a separate company by December 2021.

Toyota (TM), $9.87 billion

Toyota, a Japanese multinational, is among the largest automobile companies in the world. The company reported a net revenue of ¥27.2145 trillion ($256.7 billion) on a consolidated basis, a decrease of 8.8% as compared to the previous fiscal. Toyota’s R&D expenditures were approximately ¥1,090.4 billion ($9.87 billion) during fiscal 2021 (April 2020-March 2021) as compared to ¥1,110.3 billion in fiscal 2020.

According to Toyota, “The intellectual property that R&D generates is a vital management resource that Toyota utilizes and protects to maximize its corporate value.” The company was granted 2,079 patents in 2020 and owns 22,157 patents, which is the 11th highest number of patents in terms of current cumulative patent holdings. Toyota established the Toyota Research Institute (TRI) in January 2016 to accelerate R&D of artificial intelligence (AI) technology.

Over the years, TRI has committed to areas of AI, robotics, autonomous mobility, and cloud. In January it was announced that it selected 13 additional academic institutions to participate in the next five-year phase of its collaborative research program. These universities join MIT, Stanford, and the University of Michigan, which have worked with TRI over the last five years to expand the body of research into artificial intelligence with the goal of amplifying the human experience. In April, Woven Planet Holdings, a subsidiary of Toyota, agreed to acquire Level 5, the self-driving division of Lyft, one of the largest ride-hailing companies in the world. 

Ford (F), $7.1 billion

“This is our biggest opportunity for growth and value creation since Henry Ford started to scale the Model T, and we’re grabbing it with both hands,” said CEO Jim Farley. Ford spent $7.1 billion on expenses related to R&D during fiscal 2020, a decline from $7.4 billion spent in fiscal 2019. The company’s R&D expenses are around 5.58% of its reported sales of $127.14 billion during the fiscal 2020. To date, the company has secured more than 2,500 U.S. patents in electrification technologies, with another 4,300 patents pending.

In May, Ford announced that it expects 40% of its global vehicle volume to be all-electric by 2030. The company planned increasing total spending on electrification, including battery development, to more than $30 billion by 2025. In April 2021, Ford announced a new global battery center of excellence—called Ford Ion Park—to accelerate R&D of battery and battery cell technology, including future battery manufacturing.

In June, Ford acquiring Electriphi, a California-based provider of charging management and fleet monitoring software for EVs. Electriphi will be integrated into Ford Pro, a new global business within Ford dedicated to commercial customer productivity, developing advanced charging and energy management experiences. Ford Pro estimates that the “depot charging industry will grow to over 600,000 full-size trucks and vans by 2030. This acquisition supports Pro’s target to capture over $1 billion of revenue from charging by 2030.”

General Motors (GM), $6.2 billion

“For the past 100 years, GM’s R&D team has played a decisive role in how our company acts with resilience, takes risks and leverages resources to drive meaningful change—even outside of our industry.” During fiscal 2020 (January – December), the company’s R&D expenses were $6.2 billion, which was 5.06% of its revenue of $122.48 billion. The company’s R&D expenses were lower than $6.8 billion spending in previous fiscal.

In November 2020, GM’s Chairperson and CEO Mary Barra revealed that the company will offer 30 all-electric models globally by mid-decade while 40% of its U.S. entries will be battery electric vehicles by the end of 2025. In addition, the company increased its financial commitment to EVs and AVs to $27 billion through 2025 (up from earlier $20 billion). In early 2021, GM formed a new business, BrightDrop—an ecosystem of electric first-to-last-mile products, software, and services to empower delivery and logistics companies to move goods more efficiently. GM estimates that by 2025, “the combined market opportunity for parcel, food delivery, and reverse logistics in the U.S. will be over $850 billion.” BrightDrop is developing integrated solutions to tap on this opportunity.

In March, Cruise, GM's autonomous vehicle subsidiary acquired Voyage, a self-driving car start-up to deliver a safer, cleaner, and more accessible transportation alternative. GM has recently announced a $71 million investment to establish a new campus in Pasadena for GM’s Advanced Design Center operations. “The facility will make room for expanded advanced technology teams that will help accelerate GM’s goal of zero crashes, zero emissions and zero congestion,” according to a press release.

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared based on annual reports and 10-K filings. Any exclusions or errors in it are totally unintentional.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Prableen Bajpai

Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.

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