AAH #697 - Catch Up to China? Here's the Only Way

I'll dontline. After Hours is brought to you by bridge Stone Tires Solutions for

your journey. Gary. What up? How are you? John? Doing?

Pretty good? So your guy did not win the Indianapolis five hundred,

as we discussed last nik, No, that's right, that's right. I

thought Alex Pulo might win it because I think he's on a hot streak.

I think he'll still win the championship. But Joseph Newgarden did himself a world

of good by winning that race nineteenth for Roger Penske. You know, I

was watching that race and I know it was twenty was it twenty twenty?

Is? Yeah, twenty Roger at the Brookyard. So I thought a lot

of cars went out during the race. It seemed extraordinary to me, and

so I looked back the last five years to see how things were. So

ten cars were out of the race, twenty one finished two hundred laps, right, So looking back last year, twelve cars were out, the year before that only six cars were out, and in twenty twenty one only three cars were out of the race. So what do you think is going on?

I mean, is that the drivers are going so much faster that it's it's more difficult for them, or it's up and down. It always varies.

I want to say there were three blown engines. I think Conda lost

three cars that way. I didn't see the whole race, unfortunately. I

was actually racing myself up at Waterford Hills. But there can be accidents that

take out cars as well. It's that's why they race. You never know

what's going to happen. But I know it's going to happen. Now we're

gonna have a great show. Yes, yes we are. That's right,

So tell the audience we've got here. We have Barry Caldwell, who is

transportation and Mobility industry business value consultant. I must have a tremendously long business

card. My cards are at the systems, which is a well you explain

what thes is because I will truncate it and not get its full flavor.

Certainly, certainly, just so to sow systems. I'd like to start off

with kind of our mission statement. Right. We make really cool software,

and the purpose of that software is to allow people in businesses to create three D experienced universes right where they can imagine sustainable kind of innovations that are capable of harmonizing nature, product and life. Okay, let me translate that.

They really have the coolest simulation software that simulates not just the mechanical world, but the real world as well, right, And you can play out all different kinds of scenarios in that software to get to the best design solution, which is why we've got you on the show today because we want to talk about that. And with that, we we have the concept of the virtual

Twin, which we'll get into a little bit later. And we service not

only transportation as we're here today I talk about, but many many other industries life sciences, aerospace, consumer products, industrialized. We don't care about any

of those things. Yeah, and we have our friend Brett Smith back.

Brett. How are you well? GARYO? It's good to see you.

Two things first, John, GARYO, it's so good to be back in this room. You know, for four years I kept nagging you guys,

you gotta get back, you gotta get back. You wanted us in the

studio because we were doing things virtually because of COVID, But we followed your advice. So the second is Pedal Award. Was a fabulous race driver in

that race, right, he did a fabulous job, and the passion at the end of the race, watching him so dejected, so frustrated, New Garden happy. But the reason you race is that frustration. I've got to

come back, I've got to do better the next time. I'm so close.

Yeah, he was so close. He came in second place, which

most drivers in the field would ailed for to finish second. And here he's,

you know, dejected that he only came in second. I like to

say second place is just the first loser. So, Barry, in your

career, you spent some thirty two years at Ford. You you worked at

Rivian. So during these periods of time you were using this type of software

that you've described to us. Tell us what product development is like in the

real world, unlike the theoretical world that the three of us talk about.

Well, product moment is certainly very complex, right, and it's gotten more and more and more complex as time goes on. Look back back in the

day, if you will, we were a static when we could get physical hardware together and put it into a prototype and go drive it around or do it and you know, yeah, success, right, we got the car to go and everything's it's awesome. Right, And as we kind of come

into this world this timeframe, we've moved away from the physical, We've moved more into the virtual. We've moved away from being very hardware focused now to

being hardware and software focused. We've moved away from saying, well, this

is the product, I hope somebody buys it, to really knowing the customer, really knowing the markets, really knowing those offerings, and being very very precise. A while ago, maybe we'd look at one hundred or two thousand

attributes. Right now, if you look at product development, it looks at

thousands, tens of thousands of attributes and just really goes to make sure you optimize every one of those things to your targeted customers. Right. And the

level of sophistication of the product today and what you have to do within that product development is just exponentially higher. You can look at a vehicle, let's

pick on the Riva just as an example, right, an incredible vehicle.

Right, if you've ever been behind the wheel of one of these things can go really really fast and you take it out off road and it's incredibly capable.

How did that get be? How did you do that? Because it

wasn't just the hardware. There's a ton of software associated with that, and

those systems have to interoperate, They have to talk together. Right, Are

you on the road and you want to be more road specific and you're driving, or are you off the road you want to be more off ro capable specific. And that's really transformed the way that we look at product development.

Right. We just have to look at that as a very holistic unification of

everything that we do in the digital software space, the human interface to the vehicle, and then how that vehicle reacts within its environment. Very right now,

as you know, everybody outside of China is deeply concerned about how the Chinese automakers are coming on. Great product, good looking product, well made

product, far less costly than anything coming out of the US, Europe, Japan or South Korea. You've got to have the tools, I believe that

are going to help automakers take costs out. Can you talk a little bit

about that, and what has all the simulation done in terms of reducing product development time, getting the inner rations that nail it in terms of what the customer wants, all those things, and I'd like to get your opinion.

Can the legacy non Chinese companies compete with these Chinese startups and even the Chinese legacies. Big question, big, huge question. But maybe just to get

perspective on this, certainly, what we offer as a solution has really developed to be very holistic across the entire space. It's not just the digital representation

of a vehicle, it's the simulation. As you stated, right, how

do these parts in isolation? How do these parts together? How do these

parts with software all react? We can do all that digitally simulated, and

we can democratize that information so that every discipline, every role that needs to be a part of that, whether they're deep into design or analysis or dynamics, or there may be on the periphery of how are we going to source these things? Right, everybody gets a view of that data and can collaborate

in that data and communicate. You can think about it as a social platform

in many respects because we have conversations and program management and all kinds of notifications and all kinds of cool things. I can pull it up on my phone

and look at designs. Really enables that kind of expedited design with quality,

with speed, with continuity and learning from all of that data, right, all that data is there, we can do it. So we kind of

really provide that. So when you look at a company, a startup company

as for instance, and they use our application, yeah, they get a huge jump start because we also have solutions. We also help them. There

are some best practices and how you go about developing a vehicle, simility a vehicle, releasing a vehicle, manufacturing a vehicle. So we get a lot

of that relative to the traditional OEMs versus the Chinese startups. Certainly the capabilities

are here. Our software development knowledge in the States is incredible. Our legacy

of hardware and what the driving experiences and all that, Yeah, that's all there. It's interesting because a lot of these companies that you're you can have

come from that kind of more software perspective, right, And that's something that you could maybe say the legacy company States came from more of a hardware perspective, but they're quickly catching up. And if you look at some of the

vehicles that are being released in the state state, they're incredibly competitive against that cost different story, you know, I don't want to go into the details of that, but that's a that's a factor. But I think from a

technological standpoint, absolutely, so if we think about like the most famous startup which would in the US anyway, would would certainly be Tesla, and you know the whole Silicon Valley phenomenon of of vehicle development, and you know you mentioned your experience at Rivian, is is there a greater willingness for startup companies for a Rivian, for a Tesla, or a Lucid for for whatever,

to embrace the tools versus having a mindset of ge We did it this way for the last forty years and will do it this way for the next forty years. So it's a good it's very good observation some of the startup companies,

some of these somebody first, they have no legacy, right, they don't have any legacy. But what they do have is that innovative spirit,

that drive to do something different, right, and they come from that foundation, and they come from a modern mindset of you know, the car is not just a car. The car is a part of your life. It's

it's an integral thing of what you do. And we have to be thinking

from a startup standpoint, we just can't make another legacy car that's not going to get anybody very interested in it. Right, We've got to think differently.

We've got to think more about what is this, how will it fit in our lifestyle? What will we innovate to be different? Right? So

just I'll just use simple examples. Right, Tesla, what about the air

registers? Where are they? Do you get on? Grab them anywhere?

Do you? No? You don't, right, even know where they are?

You don't. Right, You go to the screen, you press some

buttons, and it directs the air, it gives you the heat. You

don't know really where it's coming from. It's somewhere in here. Right,

that's a different thinking Mega castings. Right, why do I have hundreds of

parts to do an underbody? Can I do it in one part? Can

I do it in four parts? It's that kind of thinking that these companies

really bring the spirit forward and bring the innovations to drive product excellence and you know things that customers will look at it and go, wow, that's really cool. Right, It's not just another car like I've seen before. It's

different and it even drives different, even feels different, and interacts different.

These are what I think is transformational with the startup type companies and certainly the oms have gotten it right, they understand that's the differentiators that they now do.

The new part of Also, if I could build on what Gary's talking about for a moment and step back, one of the big opportunities for digital is to get rid of the prototype, to get rid of the hardware.

That hard ten years ago, fifteen years ago, five years ago is now how is that prototyping building a piece to check on it evolved given the digital Oh, it's involved dramatically. I can reference back. You know, many

many years, we would manage entire fleets of prototypes, I mean hundreds of prototypes, right, because you want okay, well you in that configuration, we need one in this configuration. We need one in that configuration. Right.

We've got to go all these and it was challenging and it was expensive and it was slow. Right, you have to make these parts. You

got to assemblies, vehicles. Transfer yourself to today where you do that digitally,

right, You do those things and you get really smart because you've got that intelligence. You've got those digital things to say, you know what,

we only need to make that one, that one, and that one.

We just need three of them. That's all we need to go into physical

form to solve regulatory compliance any testing that we want to do because we've done all the rest digitally and we've confirmed digitally and we have confidence in it.

So world class globally. How many prototypes for your vehicle program depending on scale,

certainly sub sub fifty and some of those maybe ago oh hundreds. Yeah,

so it is the sub fifty for a Ford or for a Rivian or for both. I would won't want to speak for Ford or Rivian necessarily,

but certainly, yeah, you would look at all. All companies do that.

As you can understand, prototypes are really expensive and the money is one thing that that's okay. Right time time is the killer. Right, I've

got to fabricate parts. Some of those parts may be very complex in how

they're fabricated. Take time. I've got to get all those parts in one

place. I've got to assemblos into that. I've got to validate it.

Right time is the is the killer there. Right, It just takes so

much time to put some of those together and then run You got to run it. Now that you've done it, you've got to run it. You

do that digitally, you can run it overnight literally in many places. So

I think everyone is to that point of we need to reduce prototypes. We

need to do more of this in the digital space. We need to ring

out every optimization that we possibly can before we go to a physical part, to a physical vehicle. So do you think we'll get to zero prototypes?

If you asked me, I personally think it's possible. I've, you know,

from personal experience, many times where we just said, yeah, okay, well we've got to make a physical right. We feel really really confident

in what we've done simulation data wise, but certainly just to just to feel really good about it. Yeah, let's go and make some physical vehicles.

And plus, you know you want to drive it. I mean, you've

worked on it for that long. You want to have a vehicle that you

can go out and say, let's figure out how to break it. John,

our good friend Dave Cole thirty years ago and Silicon Graphics was just getting in listen they were creating this digitalization, talked about the first vehicle off the line proto types and our response was, Dave, you drive that one.

We will take. Yeah, there's a lot of learning in those prototypes,

but you're getting that knowledge earlier and better now, certainly yes, and maybe to separate a little bit prototypes in the development space, right, those are things that you're doing to confirm that your design is really good, right, And a lot of that we can do digitally, early runs, prototypes quote unquote early builds. In the physical space, you're really kind of making sure

that all of these massive dynamics that come together to get a vehicle off the assembly line is repeatable with quality. Right. So those are those are very

important and those are things that all the automotives look at very critically. How

did that vehicle come off the line? Did it meet our digital did it

meet what we thought it was? Doesn't have the quality as a fit and

finished there? Right? Can we can we just say off a line ship

right? Or do we have to say off a line, Oh got to

go over here and fix that and the other thing. And that's really what

we're kind of embracing now is like kind of the next frontier is how do you get that confidence in your manufacturing repeatability that those vehicles will be good so you can have first vehicle offline sailable So to sew makes systems, you can design it, you can engineer it. You can manufacture it, you can

test it, you can design the factory, you can put the people in there working on and on and on. Okay, Detroit is desperate to get

people to come who have software and technical skills. Is the auto industry sufficiently

staffed to be able to take advantage of all of this technology that companies like your I mean, because there are other companies that offer this, so it's not just you guys, but I mean, so there seems to me to be, you know, a huge need of technical smarts to be able to execute. I have to answer that kind of conditionally, right, And the

reason I say conditionally is certainly that expertise is needed. Right. That is

something you'll see when we go from traditional ice engine petrol engines to drive units, a whole different discipline. Right. It's electronic based stuff, it's not

combustion based stuff. So there's some technical challenges there software certainly some technical challenges.

But think about it a little bit this way, and maybe for all the wrong reasons. With COVID, we don't have to have to be physically

in the same place. We have a digital model, we have a virtual

twin. If the expertise is somewhere else on the earth. Let's maybe go

to where the expertise is. We can certainly assemble the vehicle digitally, we

can get all that stuff, we can share that thing time. Okay,

time's not the same mediawhere So that's a little bit of a challenge. But

I think we don't have to push everybody to Detroit, as much as we love them to come here. We can certainly go to the West Coast and

get great expertise in that. We can go to other parts of the world

get that. So I don't think it's as much of an issue. Certainly

identifying the right people and facilitating so that they can work effectively in teams.

Yeah, that's a little bit of a challenge, but I don't see it so much as a challenge anymore. Where does the industry stand now in terms

of product development? Traditionally, throughout most of my career, it was usually

described as a four year process, and it depends when you measure right, but from clay Freeze to job one was usually four years. Where does that

stand now? There's lots of lots of opinions, lots of perspectives, lots

of that, but certainly it's not four years. That's for sure a lot

less. It's a lot less, I would say, just my thumbing it.

You know, you're kind of in the two year time frame now, twenty four months is certainly a pretty good So this technology has taken about two years out of the process, yeah, which is amazing when you again, you know just that prototype thing is for instance, right, that was you know that could be a three or six month or eight month sort of dance.

Right, it's just okay, well parts are coming, let's get going.

Right, that was a big deal. That was on the critical path.

Right. You kind of look at that critical path of development now and

some of those big tasks of simulation. Oh, I used to take us

six weeks to run a simulation run six hours, Right, it's not compute power doubles every three months, give or take. Right. It's really compressed

those things down, and we've gotten a lot smarter in how we go about doing our products. It's not always start from ground zero and work up.

You're starting from a lot of known knowledge, a lot of capabilities, a lot of known how we're going to execute this particular system, how we're going to do this platform. You look at many of the companies today, they'll

have platforms. Right, you want to do a platform, Okay, we're

going to do a pickup off of that, We're going to do an suv off of that, We're going to do a sedan offer that. We're going

to do a coupe off of that. Yeah, we've got to play it

with some parameters on those things, but it's fundamentally there. Right, So

I'm not building a new platform for every vehicle. So if you've got a

platform and all you're going to do is change the top hat, how short a period of time could you do that very quick? Like? You know,

I'm not the expert on this, but I would say, you know, if you're if you're taking twelve months, you're probably getting pretty slow at it. Because you can define these things along with all their attributes parametrically when

I use that word, right, they're variable. We can play with them

and they have bounds. Right, you can only go so bag and so

why. But you can do that. You can get your first vehicle off

of it and say okay, now let's have a derivative vehicle off of that.

Yeah, okay, we can get it fundamentally done in twelve months.

Maybe we got to spend some more times to know the market. But engineering

wise, yeah, so, meaning you have the data, the data exists when so soone, when you say platform, I sometimes think of like a physical structure. But what you're saying is is that you've got this digital model

that exists and someone just needs to select that and then play with it in terms of what they need to get in terms of the size. Just interesting

thing on that, maybe just ask you, guys, how how much data do you think we're making out there? How quickly do you think we're making

data? Like? How fast? Is Like if I said, how long

does it take us to get twice as much data as we have today?

How long would you think it would take to do that? Yeah? Very

quickly, is my guess. That's as lot as precise as I can.

The amount, the amount of data that that we're generating and we're codifying and we're collecting it. Just again, it's like compute power. It exponentiates it

just it doubles very frequently. So two questions one twelve month turnaround. How

does the supply base react to that? Because there's making the hard making the

equipment, making those things, then producing the parts, so it seems like twelve months is a really quick turnaround for any supplier, Right, So I want to separate a little bit. There's the designs and then there's the realization.

Right So when you say, hey, let's go design a derivative off of a vehicle, Okay, that's that's design work. That's a relatively small

group of people doing that work. Then we get to the next phase,

you saying, Okay, now we got to incorporate how are we going to source this thing? How were we going to do it? Then we've got

to bring in our supply basis. Sometimes they're in early, sometimes they're they're

an integal part of the design work. Sometimes it's you know what, we're

going to go out and bid this. We're going to go figure out how

to do this. Certainly they're fast. They use the same technologies a lot

of the OEMs US, so they're typically pretty fast. But that will add

time obviously, you know that could add another twelve months for sure, to get through all of the commercial agreements, the sourcing agreements, but ideal agreements.

You did it right, you'd have your supply base as part of the design process and do it all in twelve months. You know, it's an

interesting topic, right because when you think about maybe let's get into battery technology as of for instance, and it harkens back to the back they am, I going to do my own battery technology. I'm going to buy my battery

technology. Right, it's a I understand what that thing that's all new to

most OEMs, right, all this battery chemistry stuff. But bodies they known

bodies, They've been doing that for a century. Yeah, a body shop,

a body development. Certainly, you know your suppliers. You know who

you're gonna pull things through the same thing worth you know, HVAX transmission or transmissions, but drive units, interior components. Yeah, you've got your supply

chain, You've got your folks that you're intimate with. Some you're really intimate

with. They're maybe even serving in the role as an engineer for you.

Others. You know, you're going to go down the list of things and

you're going to pick that one and maybe tweak it a little bit for your application. Moreover, if you're doing uh, you know what most of the

industry calls digital twins, but you guys call virtual twins and explain that difference.

But again, couldn't I mean the supplier can be right there part of the process seeing everything that's going on. Absolutely, they are in many cases.

Right, Let's see the easiest way to explain this a digital twin maybe confining it is a digital digital representation of a physical thing. Right, I've

gone from drawing this thing on paper to codifying it in a computer and I can look at it on the screen and say, yeah, it looks a lot like a car. This is good, this is a great thing,

and this is what we did in the eighties and nineties. Maybe virtual twin,

Well, virtual kind of means everything, right, It's not just the geometrical representation. It's all that metadata, all that analysis, all that smarts

that you identify with that thing. How is that body going to react,

What are the simulations that are done, Who are we sourcing it from, what is it going to be made out of? How do we address recycling?

It brings in all that additional information so that we can understand virtually the entire product from its inception to its end of life. So you mentioned suppliers

can get the software tools that you guys provide. Do you help make supply

chains more robust in any way? Is it possible. Absolutely, Yeah,

what you'll see and it's it ever evolves, right, These are ever evolving things. Sometimes you're really oh Yeams really likes the suppliers. Sometimes they don't

like their suppliers. You know, it kind of depends on the business situation.

But certainly the tools that we offer, our tools that are supply based here one, tier two, tier three. Even a mom and pop shop

can have our tools. We have a wide plethora of applications, and we

provide a social context in which all of these activities can interrelate and work together.

Right, We have data intelligence tools to say, hey, I want to get a fog lamp. What are all the fog lamps that are out

there? Yeah, We've got an application to find every bloody fog lamp they

have and put it in the context of your vehicle and let you know what it is, so you can you can pick and choose your suppliers. It

can be a portal to let suppliers communicate to you what is new in their world. What have we got being developed that you might be of interest in

your application? Very collaborative tools, very easy to understand, very standardized in

terms of how they share data. In this mad data, so it really

helps in expediting your development process. It's not a wait and see, it's

immediate. The data is there, you get it, you put it in

context of the vehicle, you understand all the parameters associated with it, and you can really make some intelligent decisions around the design, the costs, the sourcing, the availability, all these kind of things. Very interesting. So

you deal with all the automakers in the world, I imagine, or a lot of them, I should say. I would say we deal with quite

a few of them. And the supply base is on board too, absolutely,

So many of the tier ones tier twos will use our tools. And

again remember they service a lot of companies, so they may have more than our tools, fair enough, but our tool is really good because our tool can consume a lot of different data from a lot of different sources and codify we call a unified data model, bring all that data into a very easy environment so that many people can look at it from many different perspectives. Just

as a simple example, you're developing a new system, a new part, right the engineer is intimate with it, and he or she is doing the design work, doing the analysis work, and do all that and that's important for their job. But they may be working with a buyer who's going to

be the one that's going to help them source that. Right. The buyer

has a role in a discipline where they work on their kinds of things, but they need to know about your design. Right in our environment, it's

very easy, right, they get identified, they can tag that design, they can see it on their screen in a very simple interface. They don't

need to know all the details of it, but they need to see the part. They need to know what it looks like. They need to know

what it's made out of or what it wants to be made out of.

They need to know how it's going to be assembled. These things can all

be presented in a very simple and easy way for them to communicate within their role, and then they can pitch into to say, hey, you know what, I've got another supplier out there who's got a very similar design to what you're doing. So the data intelligence told me this, maybe you should

consider this take a look at it. Right. And that's a very powerful

thing, right, because it democratizes that information and makes it really accessible for a lot of different roles, a lot of different disciplines to work with it.

So if you look at US Asia in Europe, is one region further ahead in its implementation of these types of digital tools or is it fairly even across the good question? Wow, that's a great question. A further ahead,

that's I don't I don't think anybody's really further ahead. I think some

folks are more aggressive necessarily than others, But in terms of the expertise and knowledge and capability of leveraging these tools, it's a little bit of a leap frog that goes on. Some have adopted them more wholeheartedly, have adopted part

of them. Some haven't adopted them at all necessarily because they have certain ways

that they want to do things that don't necessarily leverage these kind of capabilities.

But I would say kind of maybe in a more generic sense, you can certainly look at some of these young companies that really jump into this stuff right because they have to. They can't build their own system from thirty years ago.

If they can't do that, they need to start with a very capable solution, and they're typically very open to this and very open to learning and taking advantage of everything that has to offer. So to that point, real

quick, can you tell by looking at a project what type of company did it? A startup or traditional? I can certainly, I can certainly see

the difference in how it's executed, what it it's showing. Then you have

to contextualize that, right. Startups are very aggressive. They need to get

a product out there that's going to mean something to you as a customer.

Right, Maybe they're not so cost focused, right, because if you can't get something out there that people are going to want, well, then you're you know, well, right, we're a traditional and maybe a little more cost conscious in what they do, and they'll make those decisions. So maybe

their interior trim is in this fancy on the vehicle, right, or maybe the back part of the interior trim is not so fancy, where the startup would say, well, we need to make whole thing fancy because we want people to embrace this product and really love it. Then we'll work on the

cost issue. Real good, Barry, we're at a half hour mark.

I want to thank you for coming on the show. Very interesting. You

know, we've seen some of this technology in action. It's it's amazing,

it's it's the way forward for the industry. Yes, all right, Well,

thank you. It's been a pleasure being here. And just so everybody

knows, we're going to take a quick commercial break here. We're going to

swap out Barry. We've got two Lee coming on the set from Sino Auto

Insights. We're going to be talking a lot about what he saw in China.

We'll be back in just a moment. Keeping your heart racing in and

out of the gym, that's what really matters. Bridge, don't pretend to

sport as tires with a fifty thousand mile limited warranty. All right, we're

back. We're still switching microphones here. But too great to have you back

on the show. He's not on yet. Okay, too great to have

you back on the show, he said again. To make sure that the

MIC's on. John, thanks for having me. Gary can see you again.

It's you. Yeah, so you were in China recently. You just

got back fairly recently, right, and tell us about what you saw, because you know, everybody here in Detroit's got their hair on fire. You

know, all these very inexpense I'm not gonna call them cheap, I'm gonna say very inexpensive Chinese cars and Detroit and this is true in Europe and Japan and South averyone's trying to figure out how do we compete with this. So

I spent about three and a half weeks in China, got back about a week and a half ago, almost two weeks ago, and was there for the Auto show, but did a lot of visits and tested out a lot of technology and comparing contrast from Shanghai. The legacy showed up. Volkswagen had

a big booth right next to their Chinese partner, x Punk, and GM launched a few vehicles. Cadillac launched the Optic, so it's going to be

available first in China, I believe, and then in the rest of the world. Chevy also launched a couple PHVs that I think are going to get

them into the game. Ford was largely absent, Tesla was absent as well.

Stilantis they were looking and more recently had some announcements with partnerships with their partner Leap Motor, and so I think, you know, we talked about this off camera, there's going to be Chinese IP in European branded vehicles that sell in Europe, probably within the next twenty four to thirty months. So

explain that a little bit, you know. So you say IP intellectual property,

I mean, isn't it going to be more than that? I mean,

isn't it going to be like physical product that will be part of the product that Stilantis offers. Let's say sure, So I'm looking at IP or

intellectual property in the broadest sense, like Barry had kind of been talking about software. And with Lead Motor in particular, there's extended range electric vehicle technology

that they use. So it's it's not hybrid because the gas engine repowers or

regenerates power to the battery as opposed to driving the wheels. But Lead Motor

specializes in vehicles that are less than twenty thousand US dollars, and so Stilantis had created a joint venture sales and marketing joint venture in order to import Lead More vehicles Lead More to branded vehicles into Europe. Now that goes up against

the June tenth date where the European Union is supposed to announce whether or not there's going to be an increase in the tariff from Chinese imported What do you think is going to happen? Are they going to raise the tariff or no?

Yeah, I do, I do think but it's not going to be anywhere near the one hundred percent. No, it's going to be thirty to

thirty percent. I think I think thirty is going to cape because if you

look at if there's going to be retaliation, and who has the most exposure to China on the European side, it is the German automakers. And so

you did have Tavaris or Carlos Tavaris, the global CEO of Stilantis, about fifteen months ago, talking we need protection, we need protection, and he has this transaction now he's like, we want free markets, and I want free markets because I think an important distinction between this yelling and vonder Land over capacity cheap Chinese vehicle kind of debate is that all automakers are using China as a manufacturing hub now and are going to export out. GM currently does it,

Nissance talked about it Stillantis obviously is going to do a Volkswagen group and even Mercedes is also talking about free markets as well. And so this should

kind of validate China as a quality and reliability like their products are high quality, high reliability. I'm driving a Chinese built Bulckan Vision right now, and

so that that is, so, so it's not just Chinese branded vehicles that are going to be exported. Tesla was the number one exporter for evs out

of China last year, and so that that needs a broader a topic of conversations in the future, so we can kind of create some nuance. Right

in the United States, of course with their one hundred percent tariff means that, yeah, not many cars are going to be export I think last year there was only two percent any not from China, but Chinese cars could come from Thailand or Mexico or Korea or Korea, right exactly. So yeah,

I want to get your sense of the price war going on there. What

was the vibe that you were getting, because based on what I've read, there's only three Chinese car companies or three companies in China making a profit on electric cars byd Tesla and Liauto. So a bit of context about ninety of

all cars or priced below thirty thousand US dollars the ones, So ninety percent of our cars sold in twenty twenty three were priced below thirty thousand dollars.

So that part of the market is where the bulk of the brands are selling, Okay, and so just get some clarity here. So when we hear

that number, and given that the average transaction price here is like forty eight right, okay, is is thirty thousand dollars If you translate that into what we're used to, I mean, is that inexpensive vehicle for the Chinese market or is that with the Chinese market absorbs in a world thirty thousand is pretty expensive for the average Chinese consumer, especially in the lower tier cities and so

the but using the eighty twenty rule, that's that's probably where it pops out at, generally speaking. And then if you look at bid at least on

the NYV side, the new energy vehicle side, if we include hybrids, you know, there're three million units of an eight million unit market last year, okay, And a small percentage of that was exported, But for the most part that three million units was sold domestically, about sixty to forty split between battery electric and plug in hybrids. But we just saw this week that

they launched a new hybrid technology that's going into small sedans that, to your point, John, are going to be priced around thirteen thousand US dollars.

Now again a little bit, a little bit more context, they're about five times the size of the United States. So anytime we talk about economies of

scale, we're talking if we buy one, they buy five, right or four and a half? Okay, so over capacity aside, they're always likely

going to be cheaper than everybody else in the neighborhood that wants to build something that they're already building. But how sustainable is it if only three of these

automakers are making a profit on electric cars? It's not. And so the

dance between four we're in legacy and Chinese local domestic player is probably going to increase significantly depending on what happens in January twenty twenty five in the United States, because you mean new president or maybe new president. Yes, because assuming

that Biden stays, the policies will likely remain in place. But Trump is

a little bit more unpredictable. And the companies that I spoke with while I

was in China, their biggest headache or anxiety is created by the uncertainty.

Right. You know, if we know it's one hundred percent, now,

we can create a strategy either around it or we can bypass it and focus on other markets. But the fact that the EU we don't know yet.

I think that creates a bit of anxiety, and it doesn't it doesn't allow them to finalize strategies. But to your point, John, there are still

dozens of brands, a lot of them are being rolled out by so s or state owned enterprises, and so a lot of those companies and brands will never see here anyways, but there should be let's say that by twenty five twenty six, a much smaller crop of brands that might have some viability in Europe, and they're going to have a ton of viability in Latin America, South America, Southeast Asia, where price points per you know, per capita incomes are much lower, and price points need to be a lot lower.

So a lot of those cars they probably wouldn't be road legal in the United States anyways. There's so much focus on the evs coming out of China.

Is there another concern of the ICs coming out of China for those other markets that should be actually the most immediate concern, and not for the United States.

But because eighty percent of all the vehicles are higher than eighty percent of all the vehicles that were shipped or exported from China, where ICEV hicles.

Now, a lot of that was taken by Russia, Latin America because there's ten, twelve, fourteen brands now shipping to Mexico as an entry point.

If I'm a company that makes a lot of vehicles for those markets, I think that's a huge risk going forward, isn't it im If I'm a non Chinese company that serves those markets and has for decades, all of a sudden you have a new compenditor coming in that could drastically change that very simplistic model.

But here here's the statistic for you, Volks Banking Group. In general,

motors in China lost about four million units of capacity or sales total over the last years for seven years. So some of that over capacity is foreign

automakers, right, So but I'm talking about Chinese companies serving those other markets outside the developing market. Well, when you're on selling in Mexico, that

suddenly you've got competition from these Chinese, Southeast Asia, where you've got South America, Africa, it's the whole world where it's all these companies that for decades have made good money and volume. They're right and they're gonna lose it.

Well, And but this is also the conundrum for for China, right because we're almost at a fifty percent take rate on evs and so there it's actually getting very unattractive to build ices except for look at the news that came out this week which blew my mind. It was BYD and g Lely both

came out with new generation IC engines with forty six thermal efficiency, the best in the world, better than Toyota, Honda, Hyundai, which had been claiming high thermal efficient. Remember when we were told that the Chinese would never

catch up in IC engines, that's right, and that's why they had to leap fraud. Well, guess what they're they're doing IC as well. In

the misnomer, I think it's okay for a lot of the West to think that Toyota has the best hybrid technology, but they don't. It's byd you

know, because because in for the folks in the West that still think bid builds these crappy vehicles, Toyota outsources to bid on vehicles in the China market.

And so if Toyota trusts them to build cars with the Toyota brand on it, I think that should kind of put to bed any thoughts about bid building substandard vehicles or not up to world class. Well, I can tell

you nobody that I know of in the automotive industry, including here in Detroit, thinks that BYD is some cheap Chinese little company. They were, they

were, but they were, but not anymore. You know, I'm putting

together my industry report card. BYD just broke into the top ten of automakers

globally on a volume basis and pushed Mercedes Benz off the list. So that

just shows you, and I mean from an operating standpoint, operating profit standpoint, they were even Stephen with Ford. Ford had a bad year last year,

so I'll cut them some slack. But by he's a real player,

and people, I can assure you, people in the industry, especially in this town, are hyper aware of that. In BYD and a couple of

other brands, notable brands and large companies are actually moving to the premium segment because BYD launched two new brands, and so we should also start looking at the premium side because abb or Audiebamer Benz has dominated that traditionally in China for forty years now, there's still that they're still selling a decent number of ices in the China market. But you know, Lotus is out now, the

Zeker is out now, Pole Star Volvo, and so that that's going to really push into the premium side. And we saw that last year Porsche globally

grew by three percent. But they but that's despite losing fifteen percent twenty five.

I was stunned when I saw that. I mean, I mean,

that's a premium brand. You know, you're not buying it just for the

mechanical capabilities. It's because it's a bloody Porsha, right, And so what

that showed me is the Chinese are coming on so strong right now, at least in the Chinese market. That heritage of your brand. Maybe they're the

consumer though, especially the young consumer doesn't care yep. In China. There's

no sacred cows when it comes to these brands, for sure. So let

me ask you, Okay, how is it that these Chinese brands have been able to become so successful in a rather short order? Is it basically industrial

policy from the Chinese government that is providing them with sufficient support and other incentives that allows them to develop these products. So back to John's point, there's

only three companies they're profitable, so I don't know if I would call them successful yet. But we also need to look at Tesla and how long it

took them to be profitable, because they are the prime example of a startup in the automotive space, an EV startup in particular, that needed subsidies from the United States, from China in order to get to this profitability level.

And they're a twenty one year old company, so for the most part, they for most of their existence, they haven't been profitable, Okay, at least not until the three and the Y we're launched specifically. And so if

we look at Lucid, we look at Rivian. They have these halo vehicles

that no one can afforder, mostly no one can afford, and so maybe we give them an opportunity to get to a level where they're building a three or a Y equivalent of their bread in order to judge them, now, do they have enough runway on a capital from a capital standpoint, Rivian, Lucid probably, but everybody else I don't know. And in China the same

thing. Right, the s the wheels are a little bit different because they're

they're a bit of a hybrid. But I think they're also looking to IPO

in Hong Kong or Shanza or Zekeer Ipo two weeks ago in the United States on the NICY right, So so I mean they and they were oversubscribed on their IPO, so they did pretty well for themselves. Well, what I'm

wondering about is is that, you know, if we look at the IRA in the United States, I mean people are saying, okay, that's industrial policy that we are, you know, subsidizing auto companies to build electric vehicles so we will not lose that technology, okay, and some same way, you shouldn't do that, which goes to the tariff situation. I mean,

should should we have one hundred percent tariffs on Chinese cars? And you know,

it just seems to me that there has to be something that is allowing at least these three companies in China to do what they're doing that you know, they're not magicians, right, I mean, they're just like engineers in Detroit, or engineers in Stuttgart or engineers in Toyota City. I mean,

they're all pretty much the same. And I'm just wondering what has allowed this

to happen. But I can interject one thing for scale. I mean we're

talking about the three highest sellers of evs by far. I mean you go

BYD Tesla, Leauto, and Leouto is all E revs, right, it's not even pure bads. And then there's still a list of companies, but

their sales are significantly lower. So they make a lot of them and they're

not good. I mean, you were just talking about the thermal efficiency of

these of these ice engines, right, Okay, so let's say they made engines that had like virtually no thermal efficiency. I don't care how many you

make, You're still not going to be successful, right right, So what is behind the ability to become so successful? I was in Beijing in twenty

eighteen before the pandemic, so it's been a while, but at the Beijing show cars were terrible. They are not now they're fabulous in many ways.

Now, how did in that short period of time, how did they go from not every one of them, obviously, but many of them go from building stuff that isn't fabulous to stuff that iss I know, by the way, doing it with a whole lot of it on the inside for the for the driver. So I think is Brett or very very h so I was

sold fourteen months from clean sheet to job one now in China, new products.

And so you know, Brett talked about very or Barry talked about being able to utilize these tools. I don't. I'm not concerned about the United

States to being able to utilize the SOL system tools in order to increase the speed of development. To me, it's a culture issue, right, Can

the foreign legacies change the culture in order to move faster? Right? Because

we have the tools, we have the capabilities. If we assume that,

can the mind that has been used to for thirty forty years get to the point where you know what? It was a four year process? But can

can I get my mind around I don't trust this virtual validation of this part or this system. I still need to see it physically. Right, that's

a culture thing. And can the US three leadership change the culture so quickly

to the point you can do it fast but really bad? How do you

do it fast and good? And you make a great point, Brett,

because the one misnomer is that if we do it faster, we'll we'll have quality issues, right, because those things shouldn't be mutually exclusive. We can't

do it faster and build the quality levels that we need to because it's happening in China, at least from what I've seen. Because one of the things

that I did was drive an x Punk. It was their Haylo vehicle,

five seat probably b D class SUV G nine performance. Drove it from Beijing

Tashenjhan, fifteen hundred miles, so it'd be like New York to Miami over three days. No squeaks, no rattles, no issues. I had a

back massage or so. We were sitting there four hours at a time.

We stopped twice when the battery got to around twenty five percent, no issues with range anxiety. There was always a charger there and then multi branded normally

and there's a swapping station, the Neo swapping station, and so experience was terrific. And we were also using level two plus ad ass or intelligent driving,

which is called x MNGP for x Punk. And this is all happening

while Elon flies over to beij to try to get FSD launched, and so as we're driving, and if we're being very accurate, the current currently only GUA, which is the g le By De joint venture, has vision only, so FSD is vision only and GUS is the only system. Every other

system from Neo, from x Punk, from Leauto, from and by dou also has a light our usage system. And so this is this is the

thing. One of the issues that the current legacy have are is that it's

traditional automotive engineers eighty percent of the company and then twenty percent software developers or at least data analytics skies and things like that. Now talking to Gua,

talking to some other companies, they're eighty percent, they're flopped eighty percent software engineers and digital natives, and then twenty percent traditional automat And normally a lot of those traditional automakers are on the management side, not on the and you know, just in Silicon Valley there are tons of product managers, okay, because and products are virtual too, so it's not just a physical product.

And then in traditional automotive there's still vehicle line executives, right, and so just kind of again, I want to push back to the culture thing, but it's a fierce, fierce, fierce war, and you're starting to see companies, these startups not able to pay their bills. Now that's happened in

the United States and OEMs are famous for pushing out payment terms. So that's

not a unique situation to China because a couple of media reports about having problems paying their bills. The legacies did that for a long time too, so

and still do in some cases. So we're getting down towards the end of

the show. But you and your newsletter have written about the need for the

legacy auto makers to what's the word I'm looking for, not revamp themselves, but they have to change completely. Okay, So I'm gonna make you in

charge of a legacy OEM right now. What do you do? Wow?

So restructure, I think is the word that you've used. They need to

restructure to be able to compete with the Chinese. Yeah, so I would

immediately bring in software native software experienced folks to actually be decision makers, so it's not just traditional automotive people across the board on management teams. I would

then give them edicts that they need to cut everything in half from a timing standpoint, you know, because this is Verry's going to love this, by the way, because he's got the tools to cut it all at half.

But this is the crazy thing, right in my opinion, and Brett, you know you're following mobility because our company helps mobility companies, not just ev companies. And so this is the largest disruption globally that's ever happened in the

transportation space, right, not just the automotive spates, the transportation space.

And so at these legacies, at these old old economy rust belt companies, if people aren't really feeling uneasy, you're not doing enough. I mean,

at the end of the day, people should be getting fired people. You

know, the whole department should be closed, right, because if we believe that, okay, the Tesla retail stuff doesn't work completely there, maybe there should be a hybrid. The traditional automotives, in my opinion, have never

touched the customer directly. It's always been the dealers. And so if these

sales and marketing folks only talk to dealers, then how are we going to know how to interact with the customer? Right, So there's whole departments that

don't have the experience we need them to have. And so so I would

do everything all at once, basically probably get fired. But these are the

things I'm not looking quarter to quarter. I'm looking at making these drastic changes,

whether it's right sizing, whether it's making software more of a priority, whether it's making user experience and focusing directly on the customer as opposed to I think traditionally in the automotive space we focus on the product and it should be user focused. Now, let me ask you both this next time you talk

to a CEO of a OEM. Where do the software costs? Is it

part of the bomb? Is it part of the Do they address it as

a bill of material costs? Or is it some indirect costs because that'll tell

you right then and there how serious they are. Or if there's a decision

maker high enough that's a software needs to be addressed as part of the bill of material. So so let me ask you this. So you mentioned earlier

that when when you were at the Shanghai show that General Motors was there and the big show. Okay, sorry, And how did the Chinese people react

to the vehicles that were on offer from Cadillac and on offer from Chevrolet?

And how do you think if at the next Detroit show there are products from from by D or others, how the US customer would react to those vehicles.

So, so I think the media takes it to extremes. I think

most of us would consider ourselves pretty hard working, and in order to gain my dollar, I'd want the best product period, right, the best vehicle that I could afford. Okay, if that's currently coming from China, especially

if it's built domestically, why wouldn't I want that? Because and this is

where I'm torn, and I'm sure you both feel a little bit. The

three of us, the four of us feel a little bit of the same way because my dad's twenty seven and a half years at GM, my sister retired from GM, her husband retired from GM. But if they're not able

to keep up, and I have to pay a US premium for something that I know not to be globally competitive, I'm not going to feel very good about that either, Right, And one hundred percent tariff almost guarantees that some of the product that we're going to see in the next five years is not going to be globally competitive. And so that's how I square that circle I'm

straddling. It's going to be fascinating. I mean, clearly, the legacies

have got to change. I'm interested in Carlos Tavers's solution, which has run

to the Chinese and just get it from them. I don't think that helps

delants short term. Yes, but it's you know, he's against tariffs.

He changed his mind because now he's got a Chinese partner. Elon changed his

mind. Chris, he's trying to get the Chinese to say yes to FSD

in China. So of course he's going to say tariffs are bad and from

the US. But to me is, uh, you better learn to your

company, better, learn to compete, and outsourcing stuff to the Chinese to do is not the solution. John twenty thirty forty years ago. Now,

mit wrote The Machine to Change the World, and it was a handbook on how to do this new thing lean manufacturing, the turret of production system.

Literally for a generation or two of engineers books it told them how to redo the process. What is that handbook right now? Now? In this one?

That's a great I look around, I think where is that? Who's

written that out there? And who? Because there are so many different takes

on this and there are so many different variables that I just don't see the handbook. No, that's an excellent point because the machine that turned that changed

the world was really all about the Toyota production system. It was all the

manufacturing solution, whereas now what we're talking about, it's design, it's engineering, it's manufacturing, it's sales, it's purchasing, it's finance, it's as everything's gotten manufacturing, including lean design included. But yes, it was the

process. I might say zero to one Peter Thiel's run because it's startup manual.

And to Barry's point, like these starts don't have the legacy to unlearn and unburden themselves with that's the constraint that the legacies do have, and the Europeans took the practical route. We're going to partner US three after January twenty

twenty five. Maybe it's not as politically radioactive, but GM already sells sub

ten thousand US dollar vehicles in China, you know, with their Ruling brand and the Baojuan brand. So does it make sense for them to rebadge them

as Chevy's as these are you need? Because you know, we talked about

this offline. These these OEMs are really in survival mode at least because if

I'm Bluma, who's wearing two hats, the Porsche Ceo and the Volkswagen group if I have, if he has a decision, and I'm kind of making this extreme, but if he can only save one brand, Porsche or Volkswagen brand in China, who does he save? Because Arnault, who's the the

the CFO Globe CFO. He's like value over value, okay, but they're

not getting that value anymore, especially because Portia drives a lot of their sales and their profits and Volkswagen brand offered them flexibility because of the volume, and they're losing both now in China. So is this because the Chinese people are

saying China for China that you know, as Europeans for many years would buy European cars because they were built in Europe and therefore they knew they were better.

Are Chinese people now saying, you know what, We're gonna buy domestic brands because we know they are every bit as good as, if not better than, brands that are coming from Europe. Well, I'm taking your China

for China a little bit differently, I don't. I think there's a large

portion of Chinese consumers that just want the coolest thing. It used to be

Tesla three years ago. If they would come out with a model two to

three years ago it would have so they would have had a double capacity at Shanghai Giga to over two million units. And so so I do believe that

if GM was to come out with a cool car, there'd be a good And again a small portion in China is most vehicles or most countries' entire markets.

And so yeah, there is a portion, especially when there's nationalism involved in the politics involved with the US and China. There's also there's always gonna

be that type of but that happens here now and so but at the end of the day, it's still a Chinese consumer who makes them a lot less than the average American that it still needs to and they're driving farther because there's traffic jams and these big cities and stuff like that. Because just like Texas,

I was told there's five different states. You know, these tier one

cities are a lot different than the lower tier cities in China. And so

once you get that level of penetration, then you then when you start to get into a little bit more of okay, the traditional competitiveness of brands and products and stuff like that. But there's still a huge opportunity in China for

the foreign automakers to kind of if they can bottom out and then get products that people want. I think there's still an opportunity for them that'll be fascinating

to watch. We're gonna have to wrap it up. Two. Great having

you on the show as always. It's been really great insight, Brett.

Love having you back in the studios with us. Thanks so much. Yeah,

and Gary, you and I will keep on doing it. We'll do

next week. Thanks for having tuned in, folks, I'll online after hours.

It's brought to you by bridge Stone Tires Solutions for your Journey

Volkswagen Up Volkswagen

Dodge Charger

About this episode

Original notes