Tesla’s revenue continues to increase and subsequently so does their research and development. In 2017 Tesla’s R&D spending reached $1.378 billion which is actually not that large in comparison to other auto companies. General Motors spent $7.3 billion, Volkswagen spent €13.135 billion and Mercedes and BMW spent over €6 million.
While Tesla’s R&D spending may seem a lot smaller than that of other auto companies, their R&D devotion is quite impressive when comparing it to their percentage of revenue. Tesla is also a much newer and up and coming company compared to the other well established auto companies previously mentioned.
In 2017 Tesla spent nearly 12% of its total revenue on R&D where as other auto companies remained in the single digits. While this figure is impressive from an R&D perspective is has also brought the company into some trouble, as the total R&D spend of $4,276 billion between 2008-2017 has contributed to a significant operating loss of $4.186 billion.
It has been suggested that Tesla reduce their innovative spending by 25%, which will allow a significant boost to their operating income, which will benefit the company’s profitability. Although, Tesla takes great pride in being a lead innovator and it is therefore unlikely that they will pull back on their R&D spending any time soon.
Ultimately Tesla does have plenty of room to cut costs and become profitable if things become critical, therefore the future of the company is still proving to be reasonably positive. The question will simply lay in the company’s priorities and whether this is to become profitable or remain a lead innovator.
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