You Can't Count On EV Sales, And It's A Big Problem
Automakers old and new are reporting less sales data all the time and that raises huge risks, especially when it comes to electric cars.
When I first started covering the auto industry I was shocked at the poor integrity of the US sales reporting data system, which seemed to be designed to facilitate number-juicing. I hoped that the downfall of 2008/9 might remind the industry that accuracy and accountability is more valuable in the long run than the ability to boost short-term numbers, but in the intervening years sales reporting has actually become less transparent. Now even the new companies who are trying to remake the auto industry in the name of "sustainability" are becoming part of the problem, reducing the detail and regularity of sales reporting alongside the "legacy" players.
In an editorial accompanying its latest plug-in vehicle sales estimate, InsideEVs points out how much harder their work has become due to declining sales data transparency. The Detroit automakers abandoned monthly sales reporting in the last few years, moving toa quarterly release of sales numbers that forces industry-watchers to estimate month-by-month sales. Toyota has stopped breaking out the plug-in Prius Prime from its Prius sales figures, joining Hyundai, Honda and BMW in providing less-granular data on plug-in vehicle sales.
Surprisingly, considering its lack of dealerships and desire to reinvent the auto industry, Tesla has been among the most aggressive in obfuscating sales numbers. The EV sales leader has been inconsistent about sales reporting for a while, generally reporting deliveries only quarterly except when numbers are good enough to put out a monthly update, and refusing to break out sales by market. InsideEVs notes that in the past year, Tesla has also started combining Model S and X numbers together and eliminated reporting of the number of vehicles "in transit," making it the least transparent automaker in the business.
For InsideEVs this decline in sales data transparency is a practical concern, since it directly affects their sales reporting project, but the problem this trend presents goes well beyond that. Not only does the health of the entire industry depend on prompt and accurate sales data, the development of trends like the market transition from internal combustion to plug-in vehicles does too. With a downturn looming, this issue is becoming more important than ever.
The best way to understand why auto sales are becoming less transparent, one has only to look at the recent FCA settlement with the SEC over sales faking [full PDF of the SEC order here]. It shows how easy it is for automakers to boost their sales figures when they deem it strategically important, like just before FCA stock was listed on the NY Stock Exchange, pay dealers to take the extra units with cash expensed to "advertising cost" and then unwind the faked "sales" over time. The FCA example was an extremely crude example of sales manipulation, almost certainly more blatant than more common practices in the industry, but it shows just how little accountability there is in our auto sales data system.
The reason this is such a big problem for the industry as a whole goes well beyond stock price manipulation, which is itself a serious problem that hurts the industry's credibility with markets. Scraping narrow margins out of the capital-intensive car business requires the most accurate understanding of sustainable demand possible in order to match production and fixed costs to it, maximizing production utilization and minimizing inventory. Pushing unsustainable volume makes demand look stronger than it is, which can in turn can create higher inventories, production rates and fixed costs that crush financial performance when the volume boosting inevitably ends. Whatever real or perceived advantage a company gets from juicing sales numbers in the short term, there is always a price to be paid for it in the long term... and if bad assumptions are internalized by management that price can be catastrophic.
This broad industry-wide risk, which has been at the heart of countless massive losses over the years, is especially dangerous in the plug-in space where the market is immature and estimates of the speed and extent of adoption are highly debated. Each month of sales is another data point in the EV adoption curve that will tell automakers when to pull the trigger on massive investments in EVs. If those numbers are overstated the resulting investments could be too big, dooming the EV models in question to unprofitability. If the sales data simply can't be trusted, automakers may simply wait longer to risk the billions of dollars needed to produce new EV models, and only throw the switch after they are utterly convinced that demand is real.
If the history of the auto industry has proven anything, it's that the temptation to juice sales numbers goes up as organic demand starts to decline, which is usually a sign of an incipient downturn. With numerous signs that such a downturn is either in the offing or already taking hold, the risk of sales manipulation is at its highest just as reporting transparency is being dialed back. Given the number of questions around the future trajectory of EV sales in particular right now, as well as the looming plans for massive investments in EVs by a number of major automakers, the timing of this reduction in transparency couldn't be worse.
A certain amount of cyclicality will always be a part of the auto industry, but it wouldn't be that hard to introduce more accountability to the sales reporting system. The US is one of the only markets in the world to divorce "sales" from "registrations," and because registrations are handled by state DMVs we don't have timely or consistent data with which to validate sales claims (which is what sales "data" really is). A national database that provides prompt, detailed and standardized registration data would make it much easier to catch automakers juicing sales numbers, even if they are simply registering the vehicles themselves (as was common practice in Europe during the last sales downturn).
Of course, what is theoretically possible is often quite tricky in practice and coordinating all 50 states into creating such a system would not be easy. A united auto industry could almost certainly make it happen, but then that would require automakers to value the long-term health of the industry over the leeway to pump up numbers from time to time, when a bonus or stock price listing is on the line. If regular, and often devastating, cyclical downturns haven't already convinced them that this is the right move, it's doubtful that the next one will.
For the startup automakers tapping into frustration with the old way of doing things, there's no excuse for exacerbating the worst of the industry's old, bad habits. Instead Tesla is only proving that OEMs themselves, and not the franchised dealers they blame for so many industry problems, are the ones who want leeway to fudge numbers. Moreover, if the market were really in the midst of a wholesale transition from internal combustion to EVs you'd think that Tesla would want market data to be unimpeachable in order to prove it. By adopting the least transparent sales reporting practices in the business, they only invite questions about the data supporting their narrative of an electric car revolution.