Chinese automakers Xiaomi and Xpeng are set to report earnings as authorities urge carmakers to end a price war.

Geely posted results beating analyst forecasts, setting an optimistic tone for the sector.

Bloomberg Intelligence said automakers are now less likely to offer steep discounts and will need to focus on launching new models and investing in technology, driving up research and development (R&D) costs.

China’s auto industry R&D spending has tripled since 2020, with startups like Li Auto, Nio, and Xpeng focusing on autonomous driving to rival Xiaomi, Tesla, and Huawei.

Xiaomi’s Q2 revenue likely rose 30%, driven by its EV business, with quarterly EV sales estimated to have more than tripled, though smartphones and lifestyle products remain its main revenue sources.

Xpeng’s R&D expenses are seen up 42% in the quarter, while efficiency gains have lowered costs per vehicle.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Chinese EV startups are outspending Tesla on R&D relative to revenue

While Tesla spends more in absolute dollars, Chinese EV companies are dedicating much larger portions of their revenue to research and development.

Nio spent nearly 29% of its revenue on R&D in Q1 2024, compared to Tesla’s 5.4% in the same period 1. This difference reflects the competitive pressure Chinese startups face as they try to establish themselves against industry giants.

BYD’s R&D costs jumped 41.6% to 20.2 billion yuan, outpacing its revenue growth 2. This spending pattern shows how Chinese companies are investing heavily in innovation to differentiate themselves in an increasingly crowded market.

The high R&D ratios also reflect these companies’ need to develop capabilities across multiple areas simultaneously, such as autonomous driving and battery technology, while Tesla can leverage its established platform and focus resources more selectively.

2️⃣ Rapid model launches have become the new competitive weapon

Chinese EV makers are launching over 50 new models in 2024 as they scramble to find profitable niches amid the price war 2.

This acceleration in product development represents a shift from the traditional automotive industry’s longer development cycles. Companies like Xpeng are betting that frequent new launches can help them capture market segments before competitors respond.