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Dodgy data: what not to trust

The era of big data has given way to the era of dubious data.  

Whether it’s wobbly US and UK job figures, wrong assumptions on energy prices by the ECB — which led to errors in inflation forecasts — or revised corporate reports, unreliability is rearing its head. 

That gives pause to governments, policymakers and investors. “It seems we can be certain only about the data’s uncertainty, making the credibility of the national statistics a subject for debate in and of itself,” fulminated Lord George Bridges of Headley.

“For how are the Treasury and the Bank to make critical decisions based on dodgy statistics?”

Or, he might have added, investors. Many have long sought proxies such as electricity consumption or the intensity of night-time lights for unreliable official GDP data in China. Or sought out ship location data for clues on crude exports for Russian economic output.

But these are trickier to find at the corporate level, where information can also be lacking. The Financial Reporting Council, reviewing 263 mainly FTSE350 companies as part of its latest annual review, found 25 requiring restatements of their accounts. The most common bugbears were impairment, judgments and estimates. 

The regulator reckons heightened economic uncertainties, which have to be factored into corporate reporting, may take some of the blame.

Bar chart of Number of companies showing FRC's annual review of corporate reporting

Others point to the burden of information required — indeed, this is why the government last year backtracked on plans to boost reporting requirements to cover, among other things, a resilience statement and distributable profit figures. 

Yet companies are producing far more datapoints than has previously been the case, tracking progress on sustainability, ESG and diversity to name just three. Unsurprisingly these come in for some of the biggest scepticism. A study commissioned by global satellite operator Inmarsat found that 76 per cent of business leaders had doubts about their peers’ ESG reporting. An even bigger proportion felt their competitors were focusing on perception above tangible sustainability practices. 

(Naturally, far fewer harbour any such doubts about their own record; four-fifths see themselves doing a better job than their competitors.)

Poor data undermines trust and skews forecasting — as several central banks, including the Bank of England, discovered when it came to inflation. 

In the corporate world forecasts are, ideally, made to be trumped. Guidance allows companies to manage analyst and investor expectations. Being conservative bakes in room for a little slippage or, better yet, generates a positive surprise when numbers come in above it. 

Take Next, a retailer with a naturally cautious bent. Its shares jumped 5 per cent on the day it reported bigger than expected pre-tax profits. This week General Electric, General Motors and Kimberly-Clark all topped analysts’ expectations and were rewarded with immediate share price pops.

Indeed, based on those kicking off the reporting season, some three-quarters of S&P 500 companies have delivered positive surprises, according to FactSet.

A research paper released this year illustrates the bias. The author found managers were almost nine times as likely to indicate a guidance range for which their internal expectation is above, rather than below, the midpoint of the range. 

Even black swan events left many unfazed. Just as Covid left economic forecasters in disarray, so business chiefs took pause: during the initial three months, in spring 2020, one-third of managers either sat pat on their existing guidance or kept silent.

Investor trust will continue to be tested.

Underpowered EV sales —an opportunity?

After a crash, the pain can be delayed but then hits with a vengeance. That is the danger European carmakers face.

Sales of battery electric vehicles (BEV) in Europe dropped 11.3 per cent year-on-year in March, the second fall in four months, according to figures this month. The timing of Easter played a part. But globally, sales growth has also slowed. Tesla is cutting 10 per cent of its global workforce. Mercedes-Benz has pushed back its electrification target.

For Europe’s laggard carmakers, if not the planet, slowing EV growth isn’t all bad news. They took a lackadaisical approach to electrification compared with Chinese rivals. European carmakers’ shares have held up well in the year to date. Meanwhile, EV specialist Tesla is down 40 per cent.

Sales of higher-margin combustion engine vehicles help with cash flows while the legacy European companies invest in electric models. The question is how long the breathing space will last.

The industry is divided over what recent data tells us. One school of thought is that EV sales growth in Europe has, thus far, been from wealthy early adopters and corporate buyers. As soon as the market needed to rely on the mass market, sales would inevitably slacken. Countries such as Germany dropping subsidy schemes hasn’t helped. But as sticker prices decrease, more drivers should still convert.

The other side in this debate argues that EV forecasts were always overly optimistic, given persistent concerns over price, range and charger availability.

The truth is probably somewhere in between. Jefferies has trimmed its forecast for European BEV penetration this year by 1.6 percentage points to 21 per cent. But don’t write the market off, says the bank’s Philippe Houchois. 

From 2025, European carmakers must comply with new standards for average fleet CO₂ emissions. Some are offering discounts on BEVs to avoid fines next year. These should convert to deliveries in the second half of 2024. Volkswagen reported a 154 per cent year-on-year increase in its BEV order book in Europe in the first quarter. 

As long as governments maintain 2035 targets to ban new combustion engine vehicle sales, a tipping point should still come. 

The bigger worry remains whether European carmakers can compete with Chinese rivals when it does. Chinese carmakers’ product costs are €3,500-€5,000 per unit cheaper than European counterparts, says Fabian Brandt of Oliver Wyman, a management consulting firm. Without trade restrictions — which hurt European marques that still rely on China sales — it is difficult to see how that gap can close.

Europe’s carmakers should use this market slowdown to play catch up.

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