Tesla’s Spending Per Car Sold vs. Other Automakers
It’s often said that word of mouth is the best form of advertising.
In the case of Tesla and their rapid ascent to the top of the global automobile business, this might be true. After all, the electric vehicle company somehow manages to spend $0 on advertising year after year, despite the fact that marketing is typically a significant expense line item for most other auto manufacturers.
On the flip side, Tesla is spending an average of $2,984 per car sold on research and development (R&D)—often triple the amount of other traditional automakers.
|Automaker||R&D spend per car sold||Ad spend per car sold||R&D per dollar of advertising|
On this per vehicle sold basis, Tesla’s $2,984 in R&D spend per car is far greater than that of other car manufacturers. It’s even higher than the collective amount going to R&D per car from three of the other automakers (Ford, GM, and Chrysler) combined.
When it comes to advertising, the average spend among traditional automakers is $495 per vehicle. And while Tesla technically spends nothing on advertising, the company is a marketing machine that is rated as the world’s fastest growing brand, and Tesla often dominates press mentions and social media chatter.
Capital Allocation: R&D and Advertising
The balance of expenditures between R&D and advertising is part of capital allocation, a decision every business needs to make. Generally speaking, more R&D can improve and advance the quality of either your goods or service, relative to your competitors. If executed correctly, it has the potential to lead to greater pricing power that will reflect in the margins.
In contrast, advertising can spread awareness and promote the business. But it’s a tricky balance that isn’t always easy to get right.
While capital allocation is vital, one factor that differentiates Tesla from the rest, is Elon Musk himself. With over 60 million followers on Twitter, his wild popularity has no doubt aided in Tesla’s brand recognition, where they’ve arguably become synonymous with the electric vehicle revolution.
Automobiles Of Tomorrow
For Americans, 85% still use an automobile as their primary method of transportation to work. As a result, automobiles will likely undergo a serious shake up as the world continues on its path towards a greener future.
With increasing investments made in the electric vehicle space—poised to be worth a trillion dollar market by 2028—how will R&D and advertising budgets of tomorrow look for major automobile companies?
Visualizing the 3 Scopes of Greenhouse Gas Emissions
Here’s a look at the 3 scopes of emissions that comprise a company’s carbon footprint, according to the Greenhouse Gas Protocol. (Sponsored Content)
Visualizing the 3 Scopes of Greenhouse Gas Emissions
Net-zero pledges are becoming a common commitment for nations and corporations striving to meet their climate goals.
However, reaching net-zero requires companies to shrink their carbon footprints, which comprise greenhouse gas (GHG) emissions from various stages in the value chain. As more companies work to decarbonize, it’s important for them to identify and account for these different sources of emissions.
This infographic sponsored by Carbon Streaming Corporation explains the three scopes of GHG emissions and how they make up a company’s carbon footprint.
The 3 Scopes of GHG Emissions
According to the Greenhouse Gas Protocol, there are three groups or ‘scopes’ that categorize the emissions a company creates. The GHG Protocol Corporate Accounting and Reporting Standard, referred to as the GHG Protocol Corporate Standard, provides the most widely accepted standards for reporting and accounting for emissions and is used by businesses, NGOs and governments.
Scope 1 Emissions
These are direct emissions from sources that are owned or controlled by the company. Consequently, they are often the easiest to identify and then reduce or eliminate. Scope 1 emissions include:
- On-site manufacturing or industrial processes
- Computers, data centers, and its owned facilities
- On-site transportation or company vehicles
Scope 2 Emissions
These are indirect emissions from the generation of purchased or acquired energy that the company consumes. Scope 2 emissions physically occur at the site that produces the energy and the emissions depend on both the company’s level of consumption and the means by which the energy was generated (e.g. fossil fuels vs renewable energy). Scope 2 emissions include:
- Purchased electricity, heating, cooling, and steam
Scope 3 Emissions
Scope 3 includes all other indirect emissions that occur throughout a company’s value chain. These occur from sources not owned or controlled by the company and are typically difficult to control and thereby reduce.
Scope 3 emissions often make up the largest portion of a company’s carbon footprint. According to the CDP, a company’s supply chain emissions (included in Scope 3) are on average 5.5 times more than emissions from its direct operations (Scope 1 and 2). These include emissions from:
- Employee commuting or business travel
- Purchased goods and services
- Use of sold products
- Transportation and distribution of products
Companies can reduce their Scope 1 and Scope 2 emissions by improving operational efficiency and using renewable energy sources. However, managing and reducing Scope 3 emissions can be difficult depending on the company’s upstream and downstream activities.
For example, controlling the emissions from the extraction of raw materials used in a company’s end-product or from the usage of such product by a customer is not entirely in the company’s hands. But this is where carbon offsets can help.
Offsetting Emissions with Carbon Offsets
One carbon offset, also referred to as a carbon credit, represents one metric ton of GHG emissions that has been avoided, reduced or removed from the atmosphere. By purchasing carbon credits, companies can offset the emissions that are difficult to reduce or eliminate, such as Scope 3 emissions.
In fact, the voluntary carbon markets will surpass $1 billion in annual transaction value for the first time in 2021. As decarbonization plans pick up pace, carbon credits will play an important role in helping companies achieve their climate goals.
Carbon Streaming Corporation is focused on acquiring, managing and growing a high-quality and diversified portfolio of investments in carbon credits.
The Decline of U.S. Car Production
U.S. car production has been in a long-term downward trend since the 1970s. We examine some of the factors driving this trend.
U.S. Car Production Falls to a New Low
Germany may have been the birthplace of the automobile, but it was America that developed the methods for mass production.
Created in 1913, Henry Ford’s assembly line greatly reduced the time it took to build a car. This also made cars more affordable, and America’s automotive industry quickly became the largest in the world. As we can see in the chart above, this dominance wouldn’t last forever.
From a high of nearly 10 million cars per month in the 1970s, the U.S. produced just 1.4 million in June 2021. Here are some reasons for why the country produces a fraction of the cars it used to.
America’s Big Three (Ford, GM, and Chrysler*) have been unable to defend their market share from overseas competitors. The following table shows how Honda and Toyota were able to break into the U.S. market over a span of just five decades.
Total Market Share
*Chrysler is now a part of Stellantis N.V., a multinational corporation.
The 1970s presented an incredible opportunity for Honda and Toyota, which at the time were known for producing smaller, more fuel-efficient cars.
First was the Clean Air Act of 1970, which imposed limits on the amount of emissions a car could produce. Then came the 1973 oil crisis, which caused a massive spike in gasoline prices.
As consumers switched to smaller cars, American brands struggled to compete. For example, the flawed design of the Ford Pinto (Ford’s first subcompact car) was exposed in 1972 after one exploded in a rear-end collision. The ensuing lawsuit, Grimshaw v. Ford Motor Company, undoubtedly left a stain on the automaker’s reputation.
Production Moves to Mexico
2018 was a controversial year for GM as it came under fire by the Trump administration for closing four of its U.S. plants. That same year, GM became Mexico’s biggest automaker.
The decision to outsource is well-founded from a business standpoint. Mexico offers cheaper labor, lower taxes, and close proximity for logistics. Altogether, these benefits add up to roughly $1,200 in savings per car.
It’s important to note that GM isn’t alone in this decision. BMW, Ford, and many others have also invested in Mexico to produce cars destined for the United States.
Shifts in the Market
There are other, less obvious factors to consider too.
Modern cars are much more reliable, meaning Americans don’t need to purchase a new one as often. 2020 marks four consecutive years of increase for the average vehicle age in the U.S., which now sits at 12 years old.
“In the mid-’90s, 100,000 miles was about all you would get out of a vehicle. Now, at a 100,000 miles a vehicle is just getting broken in.”
– Todd Campau, Associate Director, IHS Markit
Rising car prices could also be playing a part. The average price of a new car was $41,000 as of July 2021, up from around $35,700 in May 2018.
Can U.S. Car Production Make a Comeback?
Recent events are a grim reminder of the direction U.S. car production is heading.
As part of its plant closures, GM shuttered its Lordstown facility in 2019. This broke a 2008 agreement in which GM pledged to keep 3,700 employees at the location through 2028. The company had received over $60 million in tax credits as part of this deal, and $28 million was ordered to be paid back.
COVID-19 has presented further issues, such as the ongoing chip shortage which has impacted the production of more than 1 million U.S.-made vehicles.
Not all hope is lost, however.
Tesla now employs over 70,000 Americans across its production facilities in California, Nevada, New York, and soon, Texas. The company is joined by Lucid Motors and Rivian, two entrants into the EV industry that have both opened U.S. plants in 2021.
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