Image: Visual Capitalist
There is a popular belief that word-of-mouth is the best advertisement. While traditional automakers continue to spend billions of dollars on advertising, Tesla is on the right track and instead invests that money in research and development (R&D). Today, Tesla, among other automakers, spends the most on R&D and the least on advertising per vehicle sold, while receiving exceptional word-of-mouth advertising.
Investment in R&D determines the future of the company, which has been proven for decades. Companies that are constantly evolving to provide consumers with the best products are always ahead of those that don't think about it. A great product and satisfied customers are the best advertising.
Visual Capitalist surveyed the 2020 10-K filings of traditional automotive companies to see how much each of them spends on advertising and R&D per vehicle produced. The results were astounding, as Tesla is the only manufacturer in the industry to spend $0 on advertising while nearly $3,000 on R&D per vehicle.
Marketing is usually a significant expense for most car manufacturers, however they are not as willing to spend money on R&D. Tesla is now the only automaker to spend on average a whopping $2,984 per vehicle sold on R&D, almost three times more than other traditional automakers. This amount is also almost equal to what the next three manufacturers spend together.
In second place is Ford, which spends an average of $1,186 on R&D for every car sold. In third place is Toyota, which spends $1,063. The fourth place is taken by GM with $878. Chrysler, which spends $784 on R&D, closes out the top five. At the same time, these companies spend a lot of their funds on advertising.
The average cost of advertising for traditional carmakers is $495 per vehicle. During this time, Tesla spends nothing on advertising, although its cars are so popular that they dominate in press mentions, social media, and are also used in films, TV shows, and other companies' advertisements. For example, several Tesla cars have recently appeared in new Pepsi advertisements.
Balancing R&D and advertising costs is part of the capital allocation, a decision that every business needs to make. R&D can improve and enhance the quality of goods or services compared to competitors. If done correctly, it can lead to greater pricing, which will be reflected in profits. Advertising can spread information about products and promote a business without providing any benefit to improve the product itself.
Per car sold, Tesla invests the most in research and development and the least in advertising— Alex (@alex_avoigt) October 12, 2021
Customers appreciate that pic.twitter.com/ahiIbLQZPS
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