Based upon fantastic marketing, the buying public has fallen in love with aspects of automotive. … [+]
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In the 1998 classic “The Truman Show”, the supposed director, Christof (played by Ed Harris) is asked why he thinks the protagonist of the global-hit reality TV show, Truman Burbank, has never discovered the truth of his entirely-fabricated world. Christof’s response is arguably the most poignant statement on the 1990’s and, in fact, could summarize the issues our world is presently experiencing with social media, phony politicians and fake news: “We accept the reality of the world with which we are presented. It’s as simple as that.” This quasi-interview within the movie feels inherently wrong and (spoiler alert) much to the elation of the audience, Truman discovers bits of data, pokes at the boundaries of the fabricated reality and emerges to a supposedly-happier, informed existence.
Automotive is no stranger to an alter-reality. Rather than an omnipotent director, though, the purveyors of untruths are individual, masterful, marketing departments or stock analysts with quick soundbytes. But just like Truman, we should examine the data, question the boundaries of truth, and hopefully prove ignorance is not always bliss. Three relevant misunderstandings in automotive are the value of Tesla
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Tesla market capitalization is a sign that the company’s value is significantly higher than any of … [+]
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The Value of Tesla
After market-close today, Tesla will release its fourth quarter earnings and likely experience another associated jump in the already sky-high stock; $883.09 at the market’s open. Considering Tesla already announced earlier this month that “… we produced and delivered half a million vehicles [in 2020], in line with our most recent guidance,” analysts will assuredly rejoice. Such accolades match ongoing, glowing reports of Telsa from media and analysts, such as Investopedia’s 2019 review stating Tesla is an “established industry player” and a “pioneer [at the forefront] of the electric cars.” All of this combined translates into Telsa’s market capitalization of approximately $827 billion, which is greater than Facebook ($800B), the combination of McDonalds
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There are several pieces of data, though, that should put this market capitalization into perspective:
Revenue Per Second: The ultimate votes are cast by wallets, and the Visual Capitalist provided a fantastic graphic in August of the revenue for all 19 major car brands. Tesla ranked dead last with $780.06 per second. Keeping with the 13 competitors mentioned above, they earned $54,583 during that same second or approximately seventy (70) times as much. In fact, that data would suggest to sell Tesla and buy either Ford, Nissan or Renault since they earn the most versus their market capitalizations.
Quality or Safety: Certainly a possibility to offset the revenue would be the future impacts on cost resulting from historical risks due to quality or safety, i.e. “maybe you make a lot of cabbage now, but you’ll be shelling that out in recalls or warranty repairs.” As it were, though, Tesla ranked 32nd of 32 brands studied during the 2020 JD Power Initial Quality Score (IQS) StudySM with a score (250), which was significantly worse than the next lowest brand of Land Rover (228). Additionally, the National Highway Traffic Safety Administration (NHTSA) just asked Tesla this last week to recall over 158,000 vehicles for touchscreen failures that result in the loss of several safety-related features over time.
Future Revenue: Regardless of current revenue or costs, the customer or user experience might predict delight future earnings; consumers are so delighted that word-of-mouth spreads. Unfortunately for Tesla, most of the major awards for Car or Truck of the Year went to competitors. For instance, the 2021 Motortrend Car of the Year was the Mercedes E-Class, with Telsa not having a car amongst the contenders, let alone the finalists. The 2021 North American Truck of the Year Award went to the Ford F-150, the Car of the Year Award went to the Hyundai Elantra the Utility of the Year went to Ford’s new Mustang Mach-E.
Marketing would lead people to believe that if something is imported from afar, it must be better. … [+]
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The Engineering of Imports
Marketing and analysts cycle between various regions of the world to publicize the engineering prowess of one continent over another. Japanese quality. German engineering. American ingenuity. “Germany’s prowess in engineering is indisputable”, says Engineering Daily in a 2017 article about the influence of their culture. “Engineers borne out of the country are world leaders in their field, renowned for their dedication to precision, function and power.” Or if you listen to a 2019 article from MotorBiscuit, “Japanese cars are generally thought of as the gold standard for affordability, reliability, and value.” And, yes, some of that is force-fed by marketeers who create commercials like Volkswagen’s 2014 Superbowl commercial where German engineers gain their angelic wings followed by the tagline, “That’s the power of German engineering.” Or the heart-string-tugging commercial about a girl and her dreams that barely survive because of Volvo’s superior safety that ends with “Made in Sweden”. Or Even the Minions got into the act with videos flaunting German-engineered tire-burners versus American-made or Japanese-made vehicles.
However, the data suggests no clear pattern about superior quality or safety engineering by region, but rather by each company’s dedication to rigor and continuous improvement:
Quality: Looking again at JD Power’s IQS Study but over an eleven-year span (2010-2020) shows no significant difference between Japanese, German and American quality. Of the fifty-five brands listed as “top five” over those years, 14 were Japanese, 13 were American and 11 were German with the bottom five brands having only a slightly-less of an even distribution (15, 5 and 10 respectively). The more striking trends were either the Korean brands’ domination (15 of the best five brands with 0 of the worst five) and individual’s staying power at the top or bottom of the heap, e.g. Kia was in the top five brands from 2015-2020 and Fiat was in the worst five brands from 2012-2017, which might explain why some analysts are predicting its branding death.
Customer Satisfaction: Net Promoter Score (NPS) is one method of subjectively analyzing a brand’s customer satisfaction from a high score of 100 to a low score of -100. Here again, there isn’t a whopping difference by region with the Germans averaging 29.6, the Americans averaging 28.5 and the Japanese averaging 27.
With more and more communications, vehicles are supposedly safer. And that might be true. Might.
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The Safety of Connected Vehicles
Commercials since the mid-90’s have told of life-saving technology of connected vehicles. OnStar had their Batman and True Stories blitz of TV and radio commercials where safety was marketed as a “must have” feature worthy of a monthly fee. The commercials would typically begin with “OnStar, how may I help you” followed by a frantic woman in an impossible situation. Those stories might tell of a transplant emergency in traffic, a head-on collision with grandchildren onboard, or the accidentally trapped dog. Additionally, reports from the various governmental agencies tell of wonders of vehicle-to-vehicle communication, which has led places like the Traffic Safety Store to report that combining vehicle connection and automation will help pave the way towards “… eliminating all car crashes.”
Despite the truth that some lives have and will certainly be saved by the connected car, the marketing has been overblown by two realities:
Redundancy: Many of the lives saved by built-in telematics would already be saved by Good Samaritan calls to 911 (or 112 in Europe) by other drivers. Over half of all fatalities happen in an urban area, which means there are typically witnesses calling for help. In fact, with an Advisor screening the call from the vehicle, the connected cars are typically the last to speak to the operator at the Public Safety Access Point (PSAP) since the witnesses immediately dial 911.
Contribute, Not Solve: As far back as 2000, the automotive industry conducted funded research on cooperative, wireless communication as a method to mitigate crashes. Based upon some of that research, The United States Department of Transportation (US-DOT) announced in 2014 that the latest research suggested vehicle-to-vehicle communications (V2V) “could address” upwards of 80% of accidents. This was picked up my major outlets like Time Magazine that V2V could “prevent up to 80% of accidents that don’t involve drunk drivers or mechanical failure”, which eventually morphed again with other outlets quoting the hearsay of V2V “… dramatically reducing the number of crashes on our roads.” In reality, these communications will only contribute to onboard safety systems since that information cannot be relied upon and, therein, no one truly knows how many lives it would save on its own.
So the advice is the same as with social media and lying politicians: be like Truman Burbank. Poke at the façade. Look for alternate data. Find the truth.
