R&D Tax Credits Can Fuel Auto Industry’s Accelerated R&D Spending

Written by Corporate Tax Incentives. Updated Oct 17, 2019.


When the first “motorized carriages” rolled onto the road, safety and luxury features were not included - the motorized vehicle itself was the luxury...and safety?

But my, how far we’ve come. We’ve gone from no side or rearview mirrors to backup cameras and blind-spot alerts, from no seat belts to three-point harnesses and airbags, no windows to shatterproof glass. We now ride safely with anti-lock and automatic brakes, crash impact zones, padded dashboards, lane departure warnings, etc.

And luxury, oh luxury. We’ve gone from no heat to heated seats and steering wheels; bench seats to auto-adjusting, cushy bucket seats; no radio to streaming music on surround sound speakers; paper maps in the glove box to dashboard GPS, and power everything.

In the Driver’s Seat

And automakers’ fervent research and development (R&D) is what drove us here. Since their first ignition, automobiles have shifted from toys for the rich to necessities for traversing the modern world, and automotive innovators have transformed them from gas-guzzling utilitarian machines to fuel-efficient, posh and capacious extensions of our lives.

In 2017, the automotive industry’s R&D expenditures ranked third in the world and came in first in Europe and Japan, outpacing even pharma and biotech.1 And no doubt, the auto industry plans on keeping its foot on the R&D pedal.

Take Volkswagen for example. The German car maker is throttling its tech development at least 60% in the next five years with a $9 Billion investment in its software and digital operations.2 Another multinational German automaker has plans to erect its second R&D facility in China to support Mercedes-Benz localization.

Learn More: Recent Court Ruling Emphasizes Need for Effective R&D Claims

Robo Car

Advances in technology have charged auto R&D to run in high gear. More and more mechanical functions have taken a back seat to computerization.

Most new cars now ride with up to 100 million lines of computer code. In comparison, Apollo 11 took men to the moon with 145,000 lines of code, and the Android operating system runs on 12 million.3 Modern cars rev with even more lines of code than some military fighter jets.4 Computers control everything from the headlights to the trunk hatch.

In the coming years, the automotive sector will continue down its R&D road to refine and advance technologies related to hybrid and electronic vehicles, fuel economy, impact safety, perception sensors, eco-friendly materials, and of course autonomous vehicles.

Tax Credits in the Tank

With all this R&D spending comes impressive potential to save a load of revenue with federal research and development tax credits.

This incentive pays dollar-for-dollar tax credits when a business’ R&D activities and expenses meet the tax credit requirements. Automakers can leverage this U-turn on revenue to finance further innovation – to expand their product range, development innovative options, improve quality and safety of their vehicles, etc.

Here are few R&D pursuits to showcase an automotive company’s potential:

  • Vehicle performance improvements, such as fuel efficiency and handling
  • New or improved manufacturing processes to increase production efficiency or component quality
  • Aftermarket performance products
  • Alternative fuel systems and components
  • Newer, more efficient emission systems or components
  • Component defects or failure examinations to improve product quality
  • Improvements to automotive components, such to increase durability or safety

From Model T to Tesla

Through the decades auto makers leveraged research and development to harness current technologies and develop new ones to advance the automobile and the driver experience.  With this they have steered the vehicle from a spartan mode of transportation to a comfortable, customizable Mobile Experience.

And with a little extra ‘gas’ from R&D tax credits, they will continue to evolve the automobile, keeping pace with the modern world and consumer.

Automotive industry business interested in ‘getting under the hood’ and learning more about the power of R&D tax credits should consult a tax specialist.


What Can R&D Do For You?  Discover a practical approach to maximizing your federal research and  development tax credit. Download Guide

  1. R&D in the automotive sector, KPMG, 2018
  2. VW in $9 billion software revamp as tech shift expands, SF Gate, 2019
  3. Your car is a giant computer – and it can be hacked, CNN Business, 2014
  4. The Dozens of Computers That Make Modern Cars GO (and Stop), 2010

Topics: R&D Tax Credit

Corporate Tax Incentives

Written by Corporate Tax Incentives

CTI is a tax incentives specialty firm that secures greater tax credits for businesses with our proven project methodology and unparalleled personalized service. For almost 20 years, our elite tax professionals have proactively engaged clients to deliver unmatched value with transparency and efficiency thorough secure in-house software, comprehensive audit-ready deliverables, and 24x7 access to real-time dashboards. We are tax consultancy experts passionate about maximizing credits and incentives for powering the success of your business.