The world’s top 20 car manufacturers spent £71.7 billion on research and development (R&D) in 2019-20 as the rollout of electric vehicle (EV) ranges gathers pace, according to new research by accountancy and business advisory firm BDO LLP.

BDO’s research also shows that the top 20 automotive manufacturers have collectively invested £341 billion in R&D over the past five years as they race to develop EVs and meet carbon targets.

The amount spent on R&D in the past year is the second-highest on record - lower only to the previous year’s £71.9 billion total. BDO says R&D investment in this area is likely to now level off because for most car manufacturers the research work for this generation of EVs is now largely complete and they are focused on bringing fully-electric ranges to market.

Off-the-shelf components for EVs have also become more readily available which has resulted in manufacturers increasingly purchasing technology from suppliers rather than investing in developing them in-house. Specialist battery developers are in many cases now leading the way on developing new battery technology.

Further R&D in internal combustion vehicles will also likely have been reduced by some manufacturers as they look to belt-tighten after the impact of the pandemic on sales. Approaching deadlines in many markets for all new cars to be electric have weakened the economic case for further research on internal combustion — the UK has pledged to ban the sale of new petrol and diesel cars by 2030.

Richard Austin, national head of manufacturing at BDO, said: “These figures suggest that many vehicle manufacturers have scaled the R&D mountain they had to climb in order to develop a full range of EVs. Multiple manufacturers now offer a growing range of vehicles designed from the ground up as fully electric. Very soon every manufacturer will.”

Tesla increased its R&D spend once again last year, investing £1.1 billion, a 10% increase on the previous year. This means that Tesla has now more than doubled its R&D expenditure in the last five years. However, its current spend is less than 10% of the largest-spending carmaker, which invested £12.4 billion in R&D last year.

Own battery production capability
One of Tesla’s key R&D goals at present is to develop its own battery production capability to reduce reliance on third-party suppliers. The company has faced production bottlenecks over the last three years as its battery suppliers have struggled to keep pace with its scale-up. Tesla also plans to launch a mass-market car priced around $25,000 in the coming years.

Mr Austin continued: “Tesla’s battery supply challenges have been well documented and being able to produce its own batteries at scale in-house is a key strategic goal. That is a big part of why we have seen Tesla’s R&D spend continue its upwards trajectory.”

The USA and Japan saw modest overall increases in R&D spending of £31 million (from £12.6 billion to £12.62 billion) and £115 million (from £20.23 billion to £20.37 billion) respectively. Europe and China saw falls in automotive R&D outlay by manufacturers.

The USA still has some way to go on EV sales. One major US automotive manufacturer sold just 50,000 EVs last year, 0.8% of its total sales. However, the same company is in the process of expanding its EV offer, with plans to offer only EVs by 2035.

Meanwhile, R&D spending by Chinese automotive manufacturers is dwarfed by the amount spent on broader EV industry support by the Chinese government which has invested over $60 billion in the wider sector, including in battery manufacture and supply chain support — approximately 60% of global EV battery manufacturing currently takes place in China.

Within Europe, French and Italian carmakers continued to increase their R&D spending. However, this was offset by cuts from German manufacturers, which took an early lead on integrating battery technology. Germany’s three biggest automotive manufactuers have all developed electric-first vehicle ranges and have now made significant progress in bringing them to market.

Mr Austin concluded: “The fall in R&D spend in Germany is a reflection of German automotive manufacturers investing heavily and early in response to the changing marketplace. Manufacturers in some other countries are still investing to catch up.”