Who really leads among automakers in R&D spending investments? Several companies would like to lay claim to this title, and they happen to be the global sales leaders.

Logic dictates that a car manufacturer must spend big on R&D to produce vehicles that customers will want to buy in the future. If R&D investments are an indicator, Volkswagen, Toyota and General Motors lead the pack, with their sales figures as leading global automakers supporting that premise. Indeed, a conservative estimate is that major automakers spend an average of 5% of total sales on R&D.

Advertisement

Volkswagen Group, headquartered in Wolfsburg, Germany, recently claimed to be the biggest R&D technology investor among global automakers. However, Toyota could make a similar boast based on the fact that it is a pioneer in electric vehicles, hybrid vehicles and fuel-cell technology development.

VW in pole position?

“No other automobile manufacturer invests more in R&D than the Volkswagen Group,” says Dr Heinz-Jacob Neußer, a member of the VW board of management responsible for development. VW is scheduled to invest €85.6bn in new models, innovative technologies and its global auto presence over the next five years, the company said in statement last November.

Globally, VW has spent $13.5bn on R&D expenses over the past 10 years, topping all companies in a study by Strategy+, a division of PricewaterhouseCoopers, which listed the 20 publicly traded global companies that spent the most on R&D in this time. Of all the companies in the study, VW topped the list in spending between 20121 and 2014. The German automaker overtook Toyota, which led in R&D spending in 2008 and 2009.

Among the automakers in the study, Toyota finished second in 2014 with a $9.1bn R&D spend, followed by GM with $7.2bn and Daimler with $7bn (see chart). 

research and development big spenders

The car of the future

What is motivating VW could be its goal of replacing Toyota as the leading car manufacturer by volume of sales globally, while keeping an eye on GM in its rearview mirror. But Mr Neusser puts a different spin on the company's commitment to tech initiatives. “We want to make [the vehicle] more intuitive and easier to operate, by transferring the attributes from the consumer electronic world into the cars of tomorrow,” he says.

On this subject, Dr Martin Winterkorn, chairman of the board of management at Volkswagen, says: “We will continue to invest in the future to become the leading automotive group in both ecological and economic terms – with the best and most sustainable products. Development costs will remain high in the future as a result of high innovation pressure and increasing demands on the automotive industry from carbon dioxide legislation. As a group, we have the expertise and financial strength to continue to extend our technology leadership and to reach our goals for 2018.”

Mr Winterkorn adds: "The two inventions of the [past couple of centuries], the car and the computer, are gradually converging. We need to design future mobility to be even more intelligent and networked." 

VW officials decline to say which of their vehicles is the most impressive when it comes to hi-tech features. However, its new 'connected' Golf model is showcasing the company's connectivity technology. Dr Volkmar Tanneberger, VW’s electrical/electronics development leader, has said in a press conference: “This car will represent the most effectively networked vehicle in the world.”

The best of the rest

Elsewhere on the R&D front, the world’s leading auto sales leader, Toyota, said in November that it plans a Y20bn ($165m) increase to Y980bn in its forecast R&D spending for 2015. That reflects a 7.6% increase in R&D spending over the next year, according to Toyota officials. “Using Toyota's foreign exchange assumption of 104 yen to the US dollar, that equates to $1,075,693 per hour in R&D spending,” says Richard Bourgoise, a Toyota spokesperson in the US.

In Toyota's six-month sales report last November, executive vice-president Nobuyori Kodaira said: “We are revising our [global] operating income forecast upward by Y200bn to Y2500bn. This reflects the progress in our profit improvement activities through marketing and cost-reduction efforts, the change in our foreign-exchange rates assumption [and] a decrease in vehicle sales and an increase in fixed costs, particularly R&D expenses.” 

By comparison, Detroit-based GM, the leading US car manufacturer, reported its R&D expenses were $7.2bn in 2013, $7.4bn in 2012 and $8.1bn in 2011.

“Costs for research, manufacturing engineering, product engineering, design and development activities relate primarily to developing new products or services or improving existing products or services including activities related to vehicle emissions control, improved fuel economy and the safety of drivers and passengers,” a GM financial report said.

Measuring spend

Research from Strategy+ appears to be one of the key markers that automakers and other groups judge their R&D credentials. The Strategy+ data is based on company interviews, reports and public sources, according to its executives.

Evan Hirsh, the vice-president of Strategy+, says: “Spending on R&D in automotive is growing partly because vehicles are becoming more like computers. [Manufacturers] are offering a portfolio of powertrains from gas-powered to electric vehicles and are working to squeeze more power out of engines. 

“Government regulation also is driving innovation and R&D spending in areas such as safety and fuel efficiency… [However], absolute spending can be misleading. It’s not just about money spent but how effectively the company is spending it. We’re seeing more partnerships across companies, and joint ventures and partnerships with companies more in the technology space.”

A 2014 Center for Automotive Research (CAR) report concluded that the auto industry spends nearly $100bn globally on R&D, with $18bn a year coming from the US alone, an average of $1200 for each vehicle manufactured. Additionally, the auto industry provides 16% of total worldwide R&D funding.

Michigan cluster

Debra Menck, CAR's campaign manager, says much automotive research is centered in south-east Michigan due to an automotive “cluster and synergy effect”. An R&D cluster has also grown in the midwest Great Lakes region, particularly around Michigan, she adds.

“Most auto production companies are [in this cluster]; overseas-owned supplier companies too. Most auto producers want to have R&D located around their product. There’s also a high density of engineering talent from automotive, suppliers and colleges [in this cluster],” she says.

Michigan is home to more than 330 automotive R&D companies and hosts R&D facilities for nine of the world’s 10 largest automakers, the highest in the US, according to CAR. And 46 of the 50 top global automotive suppliers have research facilities located in Michigan. 

Within the area, a trend that looks set to develop even further is automakers and suppliers collaborating and sharing development costs with other companies. “Those companies that have scale and wherewithal will be the companies who succeed,” says Mr Hirsh at Strategy+. “Some companies are partnering with others so they don’t have to take all the risk."

In a move that was well received, Toyota announced in January that it would share its hydrogen fuel-cell patents free to promote hydrogen-powered technology in the industry. The future is wide open – and complicated – for automotive technology practitioners.