The carmakers need to tell you about their EV plans

How is it that auto companies spend so much money and there is such vague disclosure on where it’s going? Or how their ambitious projects are progressing? Investors should be pushing accounting standards boards and companies to give them more.
With the onset of electric cars and autonomous vehicles, companies are increasing their focus on technology and technical know-how over the traditional nuts and bolts of putting vehicles together. But it’s hard to see this in their financial statements.
These firms splash out on research and development budgets — they are some of the biggest spenders in the corporate world. But there are few details about how this money is being allocated as it finds a home in intangible assets, or other undetermined line items. Several other associated costs like information technology and employee training get buried.
Part of the problem is, investors aren’t asking for more — and they could be a potent force. Instead, they turn elsewhere for alternative information. For instance, they crowd up the US Patent Office website to see what companies have been up to over the last 18 months. What’s registered for any number of technologies, the scope of inventions and how far firms have progressed, gives a sense that real work is being done. Such details around technological attributes will “alleviate investors’ information uncertainty surrounding R&D activities,” a December draft study on patent disclosures by New York University’s Deepak Hegde finds.
In the US and elsewhere, companies sometimes provide numbers they don’t necessarily have to disclose but that may give investors something more to work with, like adjusted earnings before interest and taxes, or free cash flow. Sifting through management discussion and analysis can also give some clues.
None of it is really scientific — it’s mostly an art.
In the past, companies operating in industries where technology is changing swiftly and there is obvious value-creation through intangibles have been pressured to disclose more. In “The End of Accounting and the Path Forward for Investors and Managers,” Baruch Lev, a professor at New York University, and co-author Feng Gu trace this. A review of pharmaceutical giant Pfizer Inc’s annual 10-K filings showed that in the 1990s the firm said a lot less about its product pipeline than it did by the end of the decade. But what motivated this, the authors write, was demand from investors and analysts for more relevant information by asking more detailed questions on earnings calls. This wasn’t an effort to diminish the firm’s “credit for enhanced transparency.” Now, extensive disclosure is the norm in the pharma and biotech sectors.

—Bloomberg