Photo credit: www.cnbc.com
Nio, the Chinese electric vehicle manufacturer, has expanded its operations with the establishment of a second factory located in Hefei, employing around 2,000 human workers alongside 756 robots that enhance production efficiency.
Recent analysis by CNBC highlights that Chinese electric car manufacturers listed in the U.S. are investing significantly more in research and development (R&D) relative to their sales figures when compared to Tesla. This trend emerges as these companies strive to maintain their foothold in the fiercely competitive automotive market of China, the largest in the world, where new energy vehicles encompass both battery and hybrid cars that have seen sales exceed 40% overall.
Industry professionals, such as Paul Gong, an autos analyst at UBS, stated that many Chinese automakers are matching or surpassing their global counterparts in R&D spending as a percentage of revenue — a marked increase from previous years. “In certain cases, even in terms of absolute dollars, it has bypassed,” Gong noted.
Among the four Chinese electric vehicle companies analyzed, Nio reportedly allocated nearly 29% of its first-quarter revenue towards R&D, which starkly contrasts with Tesla’s lower ratios of 5.4% and 4.2% in the respective first and second quarters. Despite this heightened investment, the ability of Nio’s spending to translate into sustainable long-term competitiveness remains uncertain.
Historically, Nio has faced challenges, operating at a loss for several consecutive years, although its delivery numbers for premium-priced models have recently begun to show improvement. The company has not only focused on rolling out new vehicles but has also conducted events aimed at promoting battery services and technological advancements, including a recent event centered on vehicle quality.
At this quality-focused event, Feng Shen, Nio’s chairman of the quality management committee, emphasized the importance of quality over mere competition, a sentiment reflecting the term “involution,” which describes the intense rivalry within the electric vehicle sector in China. Shen outlined Nio’s comprehensive plans for enhancements in product quality, which hinge heavily on technological and supply chain innovations.
With significant experience at Polestar and Ford, Shen’s leadership at Nio is expected to foster improvements focused on the integration of new technologies. The Hefei factory’s digitalized operations are a critical element of Nio’s strategy, according to founder and CEO William Li, who believes that effective digital integration allows the firm to swiftly address production issues.
Supply chain proximity
Hefei, a major manufacturing center located in Anhui province to the west of Shanghai, is part of the Yangtze River Delta. This region is recognized for its dense network of factories, allowing new energy vehicle manufacturers to source components within a mere four-hour drive.
The Chinese government, through the Ministry of Industry and Information Technology, has played a role in fostering smart manufacturing practices, collaborating with automotive manufacturers to devise best-practice models and benchmarks.
According to Jing Yang from Fitch Ratings, the efficiency of China’s supply chain presents a substantial advantage to domestic electric vehicle manufacturers, enabling them to respond flexibly to market demands compared to traditional car makers.
In another part of the country, Geely, a significant player in the electric vehicle market, also demonstrates a dedicated approach to R&D, with its subsidiary Zeekr reporting a 13% allocation from its sales to research development in the first quarter. This aligns with parent company Geely’s continued commitment to investing no less than 4% of revenue in research over the past four years.
Geely’s vice president of automotive R&D, Ren Xiangfei, highlighted the company’s focus on both hardware and software advancements in vehicles, with software playing a critical role in differentiation. The push towards “software-defined cars” reflects the evolving landscape, as vehicles transition towards more digital capabilities thanks to larger battery systems.
Furthermore, Geely recently introduced its “Aegis Short Blade Battery,” which it claims meets industry safety standards, positioning it as a competitor to BYD’s “blade battery.” As per sales data from the China Passenger Car Association, Geely claimed the second position in new energy vehicle sales during the first half of the year, surpassing Tesla.
Ren indicated that while their new battery does raise production costs by approximately 1,000 yuan (about $138), ensuring consistency in battery manufacturing is now paramount, necessitating advanced factory capabilities.
Geely also unveiled an innovative vehicle architecture called SEA, designed to streamline the production of various vehicle types, further demonstrating their commitment to evolving production techniques.
Tech companies vs. automakers
Despite the impressive figures related to R&D spending, UBS’s Gong cautioned that the ratio of R&D intensity does not alone determine a company’s technological prowess. He explained that improved profitability and sales figures indicate successful innovation strategies, which might not always manifest in cutting-edge features.
For instance, Xpeng recorded an R&D intensity rate of 20% in the first quarter, while Li Auto reported 11%. However, the latter has seen strong sales with its range-extender vehicles outperforming pure battery electric models.
Looking at the broader landscape, BYD invested around $1.47 billion in research during the same quarter, representing 8.5% of its revenue, exceeding Tesla’s R&D budget of $1.15 billion.
As these electric car manufacturers navigate their futures, differentiation in battery technology and software innovation remains crucial, especially as these sectors are dominated by leading suppliers like CATL and Huawei. Jing Liu, a professor of accounting and finance, noted that it would be challenging for automakers to surpass the innovations provided by such suppliers, which poses a risk of commoditization within the market, limiting brand loyalty among consumers.
Both Huawei and CATL have reported significant investments in R&D, with the former dedicating over 10% of its revenue, while CATL reported a 5.4% ratio during the first quarter.
Source
www.cnbc.com