R&D spending picks up again at automobile companies in 2017-18

That fall in 2016-17 and the somewhat moderate rise (4.7 per cent) in FY18, came after steep rises in earlier years, as the industry tried to meet tighter rules

Automobile companies’ spending on research and development (R&D) grew 6.28 per cent in 2017-18.

While this is better than the -0.34 per cent seen in FY17, it is still a far cry from the double-digit growth in the three previous years. 

This moderation is despite record sales, and changing regulations which require more research and development spends. New advanced emission, fuel efficiency and safety rules are to take effect over the next three to four years which will require companies to develop the technology to meet these norms. Automobile sales in India are up 14 per cent to 2,49,72,788 in 2017-18, the highest in six years. The analysis is based on figures gleaned from the financials of Tata Motors, Mahindra and Mahindra,  SML Isuzu, Ashok Leyland, Hero Motocorp, Bajaj Auto, Maruti Suzuki India, TVS Motor Company and Eicher Motors

Tata Motors (excluding its UK subsidiary, Jaguar Land Rover Automotive) leads in this spending. The maker of the Tiago and Hexa models spent almost Rs 24 bn in FY18, up 14 per cent over a year and its highest in at least five years. This was part of the company’s effort to turn around in passenger vehicles and strengthen its position in the commercial vehicle segment.

Mahindra and Mahindra, the second largest in this order, has been spending in excess of Rs 10 bn a year. However, its R&D expense dropped to Rs 19.9 bn in FY18, from Rs 20.8 bn a year before. The maker of the Scorpio and XUV 5OO has a busy product pipeline ahead, as it seeks to protect its share in its core SUV segment and shore up investment in electric vehicle technology. An e-mail sent to Mahindra remained unanswered till the time of this report.

Hero MotoCorp also saw its R&D expense fall, to Rs 4.9 bn in FY18 from a little over Rs 7 bn in FY17, lower than any of the previous three years. A company spokesperson said this was because of an unusually high level of investment in FY16 and FY17 in setting up a Centre of Innovation and Technology (CIT) in Jaipur. “With the CIT now fully operational, our R&D spend in FY18 (came down),” he said. Hero now boasts of a state-of-the-art R&D facility and a global team of engineers that is working on developing a new range of products for customers around the globe, he added.

 

"However, analysts expect R&D expenses to rise further in the ongoing year. Expenditure on testing and validation of new technologies is seeing a spike, according to them. Also, implementation of BS-VI emission norms is coming closer which will require additional expenditure."

V G Ramakrishnan, partner at consultancy Avanteum Advisors, says a rapidly changing landscape in the auto industry, driven by new technologies and solutions, will require companies to step up capital expenditure. They are, therefore, becoming more prudent on this. The complexity of future technologies also means the very nature of R&D is set for an overhaul. Companies might want to co-create, collaborate or outsource, instead of doing it all themselves in-house. Those expenses could be accounted elsewhere and not under R&D. “R&D for the future might be very different from that of the past,” he said.