Tuesday, January 3, 2023

How to lie with statistics -- fun with denominators

If you want to tell a story about an outlier, particularly if it's very small, you can have a great deal of fun playing with relative and absolute metrics, usually by reporting one when the other would be more appropriate. Research and development is one of those areas where we want to see a big overall number and don't care much about the spend per unit. Apple spent a great deal of money and effort developing the iPhone then turned around and sold a ton of them. This is generally the story of any technological breakthrough marketed to the general public. Big initial investment that gets sliced very thin when you go into mass production.

With that in mind...

Tesla Leads the Way on R&D Spending

March 25, 2022
LONDON—Automakers spend millions of dollars on advertising, marketing and public relations. [We really should revisit the PR part of that claim, but that's a topic for another post. -- MP] But, not Tesla. Instead, the company pours money into research and development efforts.
In fact, Tesla spends more on R&D than any other automaker. According to data compiled by StockApps.com, the company spends $2,984 on R&D per car produced. That’s three times the industry average of roughly $1,000 per car and higher than the collective R&D budgets of Ford, GM and Stellantis per car.

By comparison, Ford Motor Co. spent an average of  $468 on advertising in 2020 vs. $1,186 on R&D. Toyota Motor Corp. spent $454 vs. $1,063 and General Motors spent $394 vs. $878.

 While we're on the subject...

Commenting on the report, StockApp’s Edith Reads had this to say.” Tesla spends more than any other carmaker on R&D in order to maintain its lead in EV technology. And if you ask them about it, they’ll tell you this is the key to keeping their customers happy—which is what keeps them in business.”
We could find other examples, but let's wrap it up with this graph from 2021.

You could easily conclude from this that, compared to its competitors, Tesla is spending big bucks to develop all the cool futuristic technology that Elon Musk keeps promising. The trouble with that interpretation is that Tesla sells far fewer cars than any of these other companies.

In absolute terms, which is what we're interested in, how does Tesla rank? Here were the top five Automotive R&D budgets in 2021:

Volkswagen (VLKAF), $16.5 billion

Daimler (DDAIF), $10.21 billion

Toyota (TM), $9.87 billion

Ford (F), $7.1 billion

General Motors (GM), $6.2 billion

In 2021, Tesla (which is claiming to be leading the industry in research on autonomy, batteries, lithium mining, solar cells, HVAC, AI, robotics and, yes, flying cars) spent $2.6 billion dollars. Less than half of what GM spent. Less that than one sixth what VW spent.

Less is the operative word here.

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