U.S.-listed Chinese EV startups Nio Inc NIO, XPeng XPEV, and Li Auto LI have been making significant expenses in research and development (R&D), marking up to 29% of their total revenue in the first quarter of 2024.
What Happened: While Nio spent $396.7 million in R&D efforts in the first quarter, XPeng spent $190 million and Li Auto spent $422.3 million. While Li Auto spent the most on R&D among its peers, it accounted for just 12% of its total revenue in the quarter which amounted to $3.6 billion.
For Nio, the R&D expenses accounted for about 29% of its total revenue while for XPeng it accounted for 21% of its total revenue. Both Nio and XPeng, unlike Li Auto, also reported net losses amounting to several hundred million in the quarter.
Comparing With The Big Shots: U.S. EV giant Tesla Inc TSLA spent $1.15 billion in R&D in the first quarter, amounting to just 5.4% of its total revenue in the three months from January to March.
But Tesla was the world’s largest battery electric vehicle seller in the quarter, having delivered 386,810 EVs unlike the startups, none of which delivered over 100,000 EVs in the quarter. While XPeng delivered only 21,821 EVs in the timeframe, Nio delivered 30,053 units, and Li Auto 80,400 EVs.
Tesla’s biggest rival and Chinese EV giant BYD Co Ltd. BYDDY, meanwhile, spent 10.61 billion yuan (nearly $1.5 billion) in research and development, amounting to 8.5% of its overall operating revenue of 124.94 billion yuan ($17.45 billion). BYD, backed by Berkshire Hathaway‘s Warren Buffett, sold 626,263 vehicles in the first quarter, including both battery-electric vehicles and plug-in hybrids.
American EV Startups And R&D Investments: California-based EV startup Rivian Automotive RIVN reported research and development costs of $461 million in the first quarter, or 38% of its revenue in the period.
Yet another California-based EV start-up, Lucid Group LCID, spent $284.6 million on research and development, or more than 1.6 times its revenue of $172.7 million in the period.
Rivian and Lucid, like Nio and XPeng, reported a net loss for the period.
Why It Matters: The increased and disproportionate R&D expenses within EV startups weigh heavily on their losses in addition to competition, intense pricing pressure, and concerns about dwindling EV demand in both the U.S. and China.
“New endeavors are always pricey – especially when building something in the physical world, not just virtual or only software-based,” Brian Moody, an analyst at Cox Automotive, told Benzinga.
Tesla was an “anomaly” as to how it built an American automobile brand from the ground up, Moody said while adding that legacy automakers are likely to be the successful car builders of the future given that they already developed and invested in R&D for manufacturing and software, in addition to having mechanisms for customer research and building a workforce.
“That being said, there could always be one or two more anomalies out there,” Moody said, expressing optimism for EV startups well.
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