Electric vehicles are built with fewer parts than regular cars, and they often come from other companies. Automakers don’t necessarily build the car either, often buying off-the-shelf software and developing it. So what added value does the company that ends up branding the product really add? What are Li Auto Inc., Rivian Automotive Inc., Nio Inc., XPeng Inc. and their peers spending billions of dollars on, even though most of them are posting net losses?
Research and development spending continues to rise, and yet there are relatively few vehicles to show for it. For the Chinese Nio, this expenditure increased by 143% in the second quarter compared to a year ago. The increases, he noted, came from personnel costs and “additional design and development” for new technologies. During this period, it went from $6,250 in R&D expenditure per vehicle sold to $12,964. Meanwhile, net losses worsened to $404.5 million from around $91 million.
Fellow electric vehicle maker XPeng, listed in New York and headquartered in China, increased R&D by 47% for hiring and compensating employees. Li Auto, in a June prospectus, said it was raising more money in the United States for next-generation vehicle technologies, smart cabins and autonomous driving, as well as for the development of future car models. . Its latest quarterly results showed a 134% increase in spending, while it delivered just 28,687 cars in the three months to June. That’s over $8,000 of R&D per car.
For Rivian, which is even further away from getting to full-scale manufacturing soon, expenses are so high and production is so low that the economy per car makes little sense.
There is limited information on development stages or features that cost so much, nor on why so many R&D specialists are hired. Unlike, for example, pharmaceutical companies who publish detailed presentations about their drug pipelines, development phases and clinical trials, electric vehicle manufacturers (and even incumbents) speak lyrically about their soon-to-be mass-produced vehicles. with only thousands of cars to show, and no signs that what they’re doing is much better. What is a good or competitive electric vehicle at this stage? Whether it takes you 200 kilometers (124 miles) or a little more, it doesn’t change the fact that many of these models still cost close to the median annual US household income of around $67,000.
Investors like to justify this capital-straining behavior by noting that “all startups burn money and lose money.” Sure, but these are companies in their early years. These companies have exploited public debt and equity markets, subsidies and incentives – they are well beyond the ability to rely on this logic. Their future depends on the economy of the unit and the cost of growing them.
Compare that to EV makers like Warren Buffett’s Tesla Inc. and BYD Co.’s Berkshire Hathaway Inc. who have aggressively ramped up production in their markets over the past few years, put their weight behind the right batteries, and scaled up dramatically. their volumes. For every dollar or yuan of capital they spend, there are products to show off – better cars and batteries. Elon Musk’s firm has reduced the waiting times for its various models in China.
The problem is not just the expenses. People want to buy electric vehicles, but wait times in the US and Europe can be 15 months or more. They don’t want – and can’t – wait for manufacturers to figure out how to run their businesses well or how to invest in production efficiently. Instead of splashing out on marketing spend or fringe foreign technology, they should really cement the purchase price of the cars rather than telling eager buyers they had to raise them. At this stage, the prospects for profitability remain distant for these manufacturers.
Current levels of research and development spending against units produced by electric vehicle manufacturers show that these companies were not really ready to be public companies, especially those that rushed to market through special purpose acquisition companies, or SPACs. They may just not be sure that their spending will produce results or that they will be able to manufacture commercially viable cars at scale. Either way, investors and consumers shouldn’t finance their futuristic vehicles when there aren’t enough EVs to begin with.
As fears of an impending recession loom, profitability is more important than ever to investors. The likes of Tesla and BYD have a way forward. For the others, it is not clear.
More from Bloomberg Opinion:
• Rivian looks for ways to avoid losing billions: Chris Bryant
• Does anyone actually make electric vehicles? : Anjani Trivedi
• What automakers need to tell you about their electric vehicles: Anjani Trivedi
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.
More stories like this are available at bloomberg.com/opinion