ISSUE # 88
Last week I attended the All-In Summit held in Los Angeles, it was a fantastic event and I would highly recommend it if you are interested in technology and markets. The roster of speakers and interviews was top notch and I definitely walked away feeling very optimistic about the competitive position of the United States in the global economy.
I think that the biggest challenge we are facing as a country is the dysfunctional leadership at the top of both political parties that simply cannot work together to advance the best interest of the country. The extreme polarization undermines any potential for agreement and creates an inability to tackle difficult challenges.
Thank God for our entrepreneurial mindset and ability to innovate, without it we would be in serious trouble.
SF TO LA
I decided to drive my Tesla from San Francisco to Los Angels to attend the All-In Summit. I wanted to see how an electric car would perform on a 400 mile trip across the state.
In short, I was pleasantly surprised as the car was smooth and powerful when I needed to pass traffic and the assisted cruise control was next level. There were a couple of times that I came up on slower traffic a little faster than I would have liked, but the car did what it was supposed to and maintained a safe distance and then reaccelerated to cruising speed as soon as the road opened up.
As for range anxiety, I could not escape it, even though the computer mapped out exactly where I would need to pull off to charge, I was still watching the battery level like a hawk. But sure enough, when I pulled off to recharge at Kettleman City the battery was at the forecasted level as per the computer’s expectation. The Tesla ecosystem is pretty incredible and Tesla center was a pleasant place to hang out for 30 minutes while the car was connected to the supercharger to refuel.
On the way down to Los Angeles I was talking to an old friend who also drives a Tesla and has done some long distance travel in Texas. We were comparing notes when the topic of the UAW strike came up, which then spilled over to the outlook for the legacy auto manufacturers in the USA. Below is a recap of my conversation with Sound Bites.
TESLA vs. LEGACY AUTOS
The global auto industry is undergoing a massive transition to EV’s, and most legacy auto makers have mounting pressures from unions, suppliers, customers, dealers, and competitors. A majority do not have strong balance sheets, or the culture of technological innovation required to rapidly adapt and be successful in this new competitive landscape where vehicles have become “computers on wheels”.
Sales of Internal Combustion Engines (ICE) vehicle have peaked, and legacy manufacturers are scrambling to invest in future vehicles and EV producing plants. The challenge they face grows every day as each EV sale replaces an ICE vehicle, and the EV’s they sell are massively unprofitable since they have yet to achieve scale.
Additionally, the next recession will further impact the cash flows of legacy auto manufacturers as vehicle sales typically decline 30-40%, likely devastating for many in the industry that have low single-digit margins.
Per the above, the market currently expects few traditional automakers to survive in the long run as Tesla’s market cap and enterprise value match that of the entire industry. While Tesla currently has little sales relative to its competitors, its revenue growth rate, high margins, software, services, data, compute and revolutionary products are unmatched by peers. For example, Tesla’s top-tier Model S Plaid outpaces its closest competition, offering more affordability, range and speed than an entry-level Porsche Taycan.
The Tesla Model Y and 3 are also priced to dominate sales in their respective categories. Thus, it’s not surprising the Tesla is not only is the top selling EV brand in the US and globally, but its Model Y is the top selling car in the world!
Tesla also has the best charging network in the U.S. with more charging stations than all other competitors combined, 19k vs. 15k, and they work! Unsurprisingly, Tesla’s technology recently emerged as the undisputed champion, as many established automakers announced they will be switching from CCS to Tesla’s NACS standard, allowing their customers to use a portion of Tesla's fast charging network for refueling.
Legacy automakers cannot sell EV’s without a reliable network, to put this need further into perspective, the US Energy Secretary just went on a road trip and could not find enough chargers for her caravan of vehicles which included a Cadillac Lyriq, Ford F-150 Lightning, and a GM Bolt.
Tesla has many advantages relative to its competition beyond its charging network, it would not be surprising if other automakers ultimately license much of Tesla’s technology for their own vehicles to reduce cost of development and to improve their odds of survival.
Autonomous driving is the holy grail in the transportation sector. Tesla’s autonomous full-self-driving software has been hyped and delayed for years. Nevertheless, Musk recently displayed FSD12 for all to see as he live streamed his 45 minute autonomous drive around Palo Alto ( How Elon Musk set Tesla on a new course for self-driving) - From Musk, ” Instead of being based on hundreds of thousands of lines of code, like all previous versions of self-driving software, this new system had taught itself how to drive by processing billions of frames of video of how humans do it, just like the new large language model chatbots train themselves to generate answers by processing billions of words of human text.”
It remains to be seen if any company has the technological prowess to develop a safe, reliable autonomous driving system, but Tesla is the leader with 5 million vehicles on the road, which provides the company with a massive amount of data to develop the foundation of their autonomous driving technology.
Lastly, Sound Bite would recommend the following article by Oatmeal from 2014 (What It’s Like To Own A Model S). At that time, the Model S was only three years old and had shaken up the automotive world as the fastest 4-door sedan in history, boasting a jaw-dropping 0-60 time of 3.2 seconds. The auto industry largely dismissed Tesla as a significant competitor for much of the past decade as they viewed EV’s as niche with limited market appeal due to concerns about range, charging infrastructure and consumer acceptance. Today, it seems likely that many of the legacy auto companies will be unable to pivot fast enough to electrification to survive the disruption brought by Tesla.
PODCAST / VIDEOS:
Elon Musk Interview: Last week I was at the All-In Summit in Los Angeles and one of the best interviews was with Elon Musk, where he joined the conference via his satellite network Starlink for a live interview from his plane traveling at Mach .85. The technology is impressive and will be offered to airlines in the not to distant future. In the interview Musk covered in detail the story behind the use of Starlink in the Ukraine, its a very interesting explanation of why he did not provide service coverage to the Crimea region and an explanation that has largely been ignored by the mainstream media as it does not fit the narrative. Well worth listening too.
2,851 Miles by Bill Gurley: One of the best presentations delivered at the All-In Summit was by Bill Gurley, where he discussed the challenges of “Regulatory Capture” in the United States. Long story short, one of the many reasons that the Silicon Valley has been so successful is due to its distance from Washington DC, 2,851 miles. I recall Jobs making similar comments when he was alive.
CONFERENCES / TRAVEL:
Tel Aviv, Dubai and Abu Dhabi: September 18 - 22 - I am in the Dubai and Abu Dhabi meeting with current and potential LPs through the end of this week, please reach out if you would like to connect to discuss private credit or our macro outlook.
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