Ads Or R&D: How Does Tesla Compare To The Auto Giants?

Auto manufacturers operate in a capital-intensive industry, and it calls for exercising prudence laced with caution while making spending decisions.

To Spend Or Not To Spend: Expenditures of legacy automakers show they spend a disproportionate share of their operating costs on advertising to push their products, while EV pioneer Tesla Inc TSLA has preferred to adopt a "zero-ad dollar" policy, Statista reported, citing data compiled by Visual Capitalist.

The highest ad spend was by Chrysler, owned by Stellantis NV (NYSE: STLA), which allocated $664 per vehicle it sold in 2020. Next is the Ford Motor Company F with $468 it spent per vehicle it sold in 2020. Japanese automaker Toyota Motor Corp TM and General Motor Company GM spent $454 and $394, respectively, for each of the cars they sold.

Source: Statista

How can Tesla push cars despite no promotion? The EV maker's tech-focused customer base has formed a passionate community around the brand, Loup Fund's Gene Munster said in a note. Teslas, therefore, sell themselves, the analyst added.

Munster did caution that the trend may change over time. As competition intensifies, Tesla may have to resort to advertising if it has to prevent dilution in its market share, he said.

As opposed to about 2.5% of the total revenue, which GM and Ford spend on advertising, Tesla may eventually earmark 1% of its revenues for ads, the analyst said.

Related Link: The 3 Top Features Tesla Model Y Owners Want In Their EVs

Tesla Chooses Innovation Over Promotion: Tesla's frugality stops with advertising. The company spends a considerable amount of money on research and development (R&D). Tesla set aside $2,984 per vehicle for R&D in 2020. This is more than two times the $1,186 spent by Ford. R&D spending for Toyota and GM stood at $1,063 and $878, respectively, for each vehicle sold. Chrysler allocated $784 per vehicle.

With legacy automakers plunging headlong into EVs, the dynamics are likely to shift in the coming years. The tech-heavy nature of EVs cannot be emphasized enough. Autonomous driving, aka ADAS, in-car infotainment, batteries, powertrain and charging infrastructure all involve cutting-edge technology.

It is the technology that could be the key differentiator as competition abounds in the EV industry.

Related Link: Could Giga Berlin Opening Jump-Start Tesla's Market Share in Europe?

Photo: Courtesy Tesla Inc