The global car industry is spending more on research and development than ever before as manufacturers try to stay ahead of a rapidly shifting market and fierce competition from the technology industry.
Investment in new technologies to make cars more efficient, more interactive, run on new fuels and even begin to drive themselves is growing faster than sales and revenue, amid a period of technological disruption not seen in the industry since the birth of the internal combustion engine.
Research and development spending by the car industry has grown at an annual rate of 8 per cent over the past four years, almost three times the rate of increase seen between 2001 and 2012, according to research by the Boston Consulting Group.
The news comes on the eve of the Detroit motor show, the industry’s first product showcase of the year, and traditionally the stage where the world’s biggest carmakers show off their most advanced new models.
The R&D push will be visible in launches of new vehicles such as Ford’s next-generation F-150 pick-up truck, boasting an ultra-lightweight aluminium body, more efficient engine, and radars, cameras and partial-autonomy technology that the carmaker says make the truck its most advanced product on the market.
“Whether it’s advanced materials, microprocessors or other advanced technologies, this is an incredibly sophisticated product,” said Pete Reyes, chief engineer on the new F-150, which took five years to develop and weighs up to 320kg less than its predecessor. “This is truly groundbreaking.”
Today’s vehicles boast in-car entertainment and connectivity controlled by more than 100m lines of software code – more than a fighter jet – and are powered by smaller and more efficient engines, supplemented by electric batteries or hydrogen.
Caught between ever-tougher emission legislation, customer demands for better-connected vehicles and unprecedented competition from technology providers such as Google and IBM, auto industry leaders are attempting to rebrand themselves as innovators rather than manufacturers.
“Innovation in the automotive industry is retaking centre stage,” said Xavier Mosquet, BCG senior partner. “Consumers want to buy cars from companies that bring new technologies to market . . . [This] will be a major factor in individual automakers’ success in the coming years.”
Volkswagen, General Motors and Toyota, the industry’s three biggest R&D spenders, increased their combined spending 13 per cent between 2007 and 2012 to $27.4bn. Their combined annual revenue rose 8 per cent over the same period.
Volkswagen, which owns the VW, Audi and Skoda brands, invests more in R&D than any other company worldwide, outpacing technology groups such as Samsung and Microsoft.
That spending is paying dividends. Global patent filings for low-emission engine technology by carmakers have doubled over the past five years, sparking fears of litigation battles .
Since 2009, GM, the biggest US carmaker by sales, has created a $100m venture capital fund, GM Ventures, to make early-stage investments in technology developers. It recently added a research centre in the Israeli tech hub of Tel Aviv. It also has an office in Palo Alto, California, that it refers to as its “eyes and ears” in Silicon Valley.
Google has rolled out versions of its self-driving car, while IBM recently signed a deal with component manufacturer Continental to develop new technologies.
At the International Consumer Electronics Show in Las Vegas last week, nine carmakers participated, and automotive companies took up 25 per cent more space than at the 2013 event.