Positive growth and confidence toward automotive research and development (R&D) spending is expected this year despite COVID-19 disruptions, as revealed by IHS Markit’s ‘2021 automotive R&D survey’.  

The survey results indicate that R&D spending is critical for medium- and long-term goals for companies within the industry, particularly to develop their market positioning. However, some companies are still cautious about planning a high-spending year until the market conditions for products have settled to a predictable level.

The key findings of the ‘2021 IHS Markit global automotive R&D survey’ are:

The survey reached a broad range of respondents across the automotive industry, receiving good levels of response from automakers (OEMs), tier-1 suppliers, silicon vendors, and independent technology and software firms. Responses were also captured globally, including those working for North and South American, European, Chinese, Japanese, and Korean organizations. This insight presents the results of the survey and an analysis of the implications.

Research methodology

The ‘2021 Global Automotive R&D Survey’  ran through the entire course of March 2021. Participants were invited to via direct mailings to existing contacts of Supply Chain & Technology – IHS Markit. All respondents were invited to offer their personal opinions to the questions posed.

R&D spending growth trajectory

The survey data shows an overall positive growth of 6.5% in global automotive R&D spending by companies compared to 2020.

However, Europe did not fare well among regional analysis, with a negative trend in R&D spending by companies based on the continent this year. This is offset by a modest growth seen with Chinese companies.

Among stakeholders, OEMs, tier-1 suppliers, and silicon vendors all showed a positive trend toward R&D spending, particularly the latter across short, medium, and long terms.

Contrastingly, (large, medium, and small-sized) technology companies are being cautious with their budget spending. This may be due to a wait-and-see policy for a predictable market scenario in the short to mid-term.

Results also depict a negative scenario for automotive test and special companies that provide support to both OEM and tier-1 product designs, validation, certifications, and other consumable activities, as well as connected car supportive telecom service providers. According to the latter, a reason for this year’s slow R&D uptakes may be due to some uncertainty in regional regulations and business cases related to 5G support for the consumer electronics environment.

During the period of this survey, automotive industries witnessed a disruption within the supply chain of semiconductors. This shortage issue is still ongoing, and an unavoidable concern should be raised on whether the semiconductor shortage issue will influence R&D spending strategies. However, the results illustrate that this issue will not influence automotive companies’ attitude toward this budget in the coming years as this issue is viewed as a short-term problem that will be resolved within a year.

Areas of R&D spending

The results show 45% of companies will spend their R&D budget on software and software-related feature development, followed by 26% in vehicle electrical architecture development; a similar trend as per the 2020 global automotive R&D study by IHS Markit.

However, this year’s study shows some investment scenarios in hardware unlike in 2020, especially from OEMs. This is due to the higher number of battery-operated electric propulsion technology developments and system integration around e-mobility features.

Overall, the results highlight that the focus is shifting in the automotive industry, both from OEM and supplier perspectives: stakeholders are placing software development right at the forefront due to its decisive role in the vehicle of the future.

R&D feature spending

E-mobility has emerged as the main feature of investment according to the 2021 R&D survey results, namely around battery technology and management systems, e-motors, and power electronics. This is a sharp contrast to the 2020 survey results, where e-mobility features were highlighted as one of the main negatively impacted areas. This is no surprise as many OEMs worldwide have now declared for full ranges of electric vehicle (EV) suites in their product portfolios as early as 2025.

Climate change has also become a focal point on a global level in politics, business, and society. Vehicle manufacturers are seeing regulatory challenges that are influencing business and pushing electrification. For example, the European Green Deal (by the European Commission) accelerates decarbonization policies and will result in the adoption of a carbon dioxide (CO2) reduction target increased from 40% to 55% for all European Union fleets by 2030.

For OEMs, the car of the future is fully electric; battery electric vehicles (BEVs) are vital in fighting climate change., As such, e-mobility is a major window of opportunity for R&D investment and will drive growth over the next 20–30 years.

While OEMs will focus more on E-mobility in the short-to-medium term, suppliers will spend more in the area of autonomy and connected cars.

Results also show silicon vendors and technology companies have specific requirements around software investment. Software features such as hypervisors, multi-operating infotainment systems, and standardized middleware interface developments will be focus areas for these companies.

Both suppliers and OEMs will continue to invest in ADAS (Level 1 and Level 2)-specific vehicle safety functions, in order to improve quality and to reduce costs around these features.

Future R&D planning by companies

While the majority of automotive companies are gearing up their R&D budget toward both short- and long-term software development work, this year’s study revealed an interesting pattern; OEMs are defining their R&D strategy toward the development of features/requirements to comply with upcoming regulations (in terms of e-mobility, connectivity, and autonomy). All car companies have an ambitious plan to deliver BEVs that have to comply with all upcoming regulations from Europe, Greater China, North America, and other regions.

Meanwhile, tier-1 suppliers will invest more to improve product quality and reduce recalls (warranty returns).

Some OEM and tier-1 supplier respondents argued that automotive companies may well boost spending on improving internal combustion engine (ICE) technologies to mitigate negative public perceptions, improve efficiencies, and cope with new and upcoming regulations.

Furthermore, some participants highlighted a cautious approach to R&D spending moving forward and potential challenges around new market patterns that will emerge in the near future due to changing consumer purchasing patterns. This includes increased remote working that negatively impacts the necessity of vehicle ownership.

Recovery regions

There is an overwhelming agreement that R&D growth and recovery will be led by Greater China and companies from that region. Although results show a negative R&D spending growth from Europe this year, participants show more confidence in medium-term recovery and growth than that of North American respondents.

 

Operational and capital spending planning

Results illustrate that 36% of companies intend to spend their R&D budget toward hiring software laborers, while 21% of companies will spend their budget on hiring test and integration laborers. This is unsurprising as most of the companies are ramping up their efforts to develop new software features and integrating software in the wider ecosystem, as shown in previous section’s survey results.

OEMs will invest a greater number of financial resources to hire project-specific resources (40%), while tier-1 suppliers will spend more of their budget to hire software laborers (40%).

Conclusion

Based on the survey data at hand and further market analysis, IHS Markit forecasts that the global R&D spend profile by automotive companies will show a positive trend in 2021 with a healthy growth from 2022.

Greater China and Chinese automotive companies will lead the R&D investment, both in the short and medium term, while e-mobility and autonomy will be a key focus for short- and mid-term R&D.

All stakeholders will also shore up their operational and capital investment in the area of software resources, which will act as a benchmark of medium-term product differentiations and growth strategies.

Dr. Tawhid Khan, Research Director, IHS Markit
Email address: tawhid.khan@ihsmarkit.com

Contacts

Copyright © 2024 S&P Global Inc. All rights reserved.

These materials, including any software, data, processing technology, index data, ratings, credit-related analysis, research, model, software or other application or output described herein, or any part thereof (collectively the “Property”) constitute the proprietary and confidential information of S&P Global Inc its affiliates (each and together “S&P Global”) and/or its third party provider licensors. S&P Global on behalf of itself and its third-party licensors reserves all rights in and to the Property. These materials have been prepared solely for information purposes based upon information generally available to the public and from sources believed to be reliable.
Any copying, reproduction, reverse-engineering, modification, distribution, transmission or disclosure of the Property, in any form or by any means, is strictly prohibited without the prior written consent of S&P Global. The Property shall not be used for any unauthorized or unlawful purposes. S&P Global’s opinions, statements, estimates, projections, quotes and credit-related and other analyses are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security, and there is no obligation on S&P Global to update the foregoing or any other element of the Property. S&P Global may provide index data. Direct investment in an index is not possible. Exposure to an asset class represented by an index is available through investable instruments based on that index. The Property and its composition and content are subject to change without notice.

THE PROPERTY IS PROVIDED ON AN “AS IS” BASIS. NEITHER S&P GLOBAL NOR ANY THIRD PARTY PROVIDERS (TOGETHER, “S&P GLOBAL PARTIES”) MAKE ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE PROPERTY’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE PROPERTY WILL OPERATE IN ANY SOFTWARE OR HARDWARE CONFIGURATION, NOR ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ITS ACCURACY, AVAILABILITY, COMPLETENESS OR TIMELINESS, OR TO THE RESULTS TO BE OBTAINED FROM THE USE OF THE PROPERTY. S&P GLOBAL PARTIES SHALL NOT IN ANY WAY BE LIABLE TO ANY RECIPIENT FOR ANY INACCURACIES, ERRORS OR OMISSIONS REGARDLESS OF THE CAUSE. Without limiting the foregoing, S&P Global Parties shall have no liability whatsoever to any recipient, whether in contract, in tort (including negligence), under warranty, under statute or otherwise, in respect of any loss or damage suffered by any recipient as a result of or in connection with the Property, or any course of action determined, by it or any third party, whether or not based on or relating to the Property. In no event shall S&P Global be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including without limitation lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Property even if advised of the possibility of such damages. The Property should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions.

The S&P Global logo is a registered trademark of S&P Global, and the trademarks of S&P Global used within this document or materials are protected by international laws. Any other names may be trademarks of their respective owners.

The inclusion of a link to an external website by S&P Global should not be understood to be an endorsement of that website or the website's owners (or their products/services). S&P Global is not responsible for either the content or output of external websites. S&P Global keeps certain activities of its divisions separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain divisions of S&P Global may have information that is not available to other S&P Global divisions. S&P Global has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P Global may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P Global reserves the right to disseminate its opinions and analyses. S&P Global Ratings’ public ratings and analyses are made available on its sites, www.spglobal.com/ratings (free of charge) and www.capitaliq.com (subscription), and may be distributed through other means, including via S&P Global publications and third party redistributors.