AAH #730 - Unboxed Assembly - Tesla, Toyota, BYD, Ford and Counting

Speaker 1: Hey, everybody, Thanks and welcome to Auto Line after hours.

Great that you're joining with us today. We're going to

have a great discussion looking at unboxed assembly, a revolutionary assembly approach. I'm sure a lot of you know a

lot about it. We're going to learn even more because

we've got Matthew vaceraan Perel, the CEO of Carosoft, and Terry Wachowski, the president of Karasoft. But Gary, I know

you've got a history trivia question, or do you for us?

Speaker 2: So it turns out that basically absolutely nothing happened on February thirteenth.

Speaker 1: Any time enough history of the auto industry.

Speaker 2: Nothing just irrelevance, complete irrelevance. But February fourteenth tomorrow Valentine's

Valentine's days.

Speaker 1: So this has not to self get white card.

Speaker 3: There you go.

Speaker 2: So on February fourteenth, two thousand, a vehicle went into production.

Speaker 3: The vehicle had ten.

Speaker 2: Years of life, and in its year it had its greatest sales one hundred and forty four thousand vehicles sold during its lifetime. In order to sort of juice sales,

I mean, it even became a convertible, so you know they're trying to keep it alive. So you've been getting

all the answers for all of these things, and when I give you this final clue, I guarantee you will have the answer to what this vehicle was. The person

who designed this vehicle has been in the news of late.

Speaker 4: Give it away a moment.

Speaker 1: Now, I was gonna guess, did do you guys care to guess? I was going to guess the Volkswagen Beetle.

That's not it? Is it?

Speaker 5: Is it?

Speaker 3: So you're thinking this was j Mays?

Speaker 1: Yeah, right, Ja, mais is not in the news or not that I've seen.

Speaker 4: But it had a ten life. The Beatle in the

longer life.

Speaker 1: Yeah, but the nude Beetle New Beetle had a much shorter life than the original Beetle year two thousand it came out. It was around for ten.

Speaker 4: Did you own one? Uh?

Speaker 1: Oh? Pt crew? Oh Sean Sewan cheating? Yeah?

Speaker 6: Have you?

Speaker 1: So you're talking about Brian Nesbit. Brian Nesbits now the

head of all design at General Motors, replacing mice Mike Simcoe who just retired.

Speaker 2: And what did he design in which was released in two thousand and.

Speaker 1: Six, The Chevrolet HHR, which was a clone kind of sword of of the PT Cruiser never met the success that the PT Cruiser did. Remember when we had Chris

Theodore on here, who would run product development at UH at Ford and at Chrysler. He was the one behind

the PT Cruiser along with LUTs and uh uh, Tom Gale and all those guys, And he said, you know, that wasn't our idea. Our idea was launched a PT Cruiser.

It was a challenger. It to be very different, but

their plan was to modernize it over time, you know, really get some sleep design going. Uh when Cerberus came in,

they just put an ax to the thing and that was it. Or no, it wasn't even Cerberus, who was

a Daimler Chrysler. I think it was the one that

acted it. So anyway, there you go a little bit

of history behind that. So the show song with the show.

So I love having Matthew and Terry here, and I love this topic of unboxed assembly and we'll probably get into some others, but Matthew, I know you can't give away names of companies. Tesla was the one that came

out with this idea, first went public with it a couple of years ago. Gets rid of the moving assembly

line almost completely and assembles cars in modules instead. But

your travels around the world show Tesla is not the only one working on it. What can you tell us?

Speaker 4: Okay, So I don't think first of all, John, I don't think I'm botched. The moves the in diet assembly line,

certain portions of the car, the front module, the rear module, and the side modules built in modules, and then you still come to the assembly line and put it together.

What really happens is that instead of building their body together in the body shop, you're finally putting it together in the main assembly line with floortal screws or other glowing technology and so on and so forth. So it

tremendously takes out around thirty percent of the labor. In

my travels and visits to various OEMs, I have seen I have been in the prototype built shops of a European OEM who's built a vehicle like this and then taking it to the approving grounds.

Speaker 6: I did not go to that.

Speaker 4: I did not get a chance to go to the proving grounds, but I saw the vehicle being built. And

then I know three Asian OEMs. One is in a

very advanced stage and two others whore following following where it claw following in their footsteps. So this is what

I know right now from our customer base.

Speaker 3: So what is it?

Speaker 1: I mean?

Speaker 2: So when these people are working on this, I mean, what is it that they're actually doing? I mean, what

is the challenge to doing something like that?

Speaker 4: It's a very big challenge, right, you don't have a body.

You're trying to build the modules and then you bring the sites together and trying to put this and make sure that the quahicle still holds it together. I think

Terry knows the challenge is much better than I do. Terry,

what are the challenges today?

Speaker 5: The vehicle has been designed from ground up to have the body built in the body shop to put in framing stations and everything is assembled and from there it heads to paint. Cleaned crystals are grown, coatings are placed

on a primer's coat and it's baked, goes to the long, elaborate paint process, then comes down to this infinantly long general assembly.

Speaker 1: You're talking the old.

Speaker 5: The traditional way it's been. It's always been done. But

the body has been designed to be built in these framing stations where all these parts come in and then you know, robots are and the past people came in and.

Speaker 6: Welded them all up. Well, now if.

Speaker 5: This process it's it's very, very different where instead of building the body sending it to paint, these panels can go to paint the hood a whole built up side all the outside can go, which which quite frankly, is one of the biggest advantages of an unboxed process. It's

kind of hard to understand, but you can really load up from an efficiency perspective of paint shot because right now, when you paint a vehicle one at a time, one at a time, as wide as they are, as long as they are, as tall as they are, it sweeps that volume and you get to do you know, basically one at a time. Then now think about the packing density.

Speaker 6: How many more hoods could I get in in that footprint with.

Speaker 5: Unboxed with you can shrink that paint shop up considered.

Speaker 1: You do a bunch of hoods, you do a bunch of doors, you do a bunch of unders.

Speaker 5: And which is a very expensive part of an assembly plant and it typically paces the throughput of a plant.

Painting is a chemical process, so it's hard to speed up the chain. It's got a bake at a certain

temperture for a certain amount of time. Well, in order

to do that, the vehicle of the body has to be designed in a different way. It has to be

designed such that it can be attached in these big modules as opposed to being welded up in all these little subassemblies which continually build up to a whole body in white.

Speaker 6: Now they come into these bigger chunks, it cares out.

Speaker 5: We have an advantage because of our technology where we can do high energy scanning.

Speaker 6: We're able to when Tesla made their.

Speaker 5: Comments about unboxing, we have access to the data of their design because we scan it, so we essentially have the math data of their design. And then our engineers

go to work. How would you change that design such

that it could be a bill like this instead of like this, which means things have to be fastened differently, Bolts have to be used tier as opposed to welds.

Things have to happen post paint as opposed to prepaint.

So our engineers went to work. Matthew wanted it done

like that, and he said, Matthew, it's not going to quite be like that. We'll have at it, but we

were ultimately able to create a design than that are modeling.

Our manufacturing engineering modeling guys could now put together and say, okay, how would we shrink the plant?

Speaker 6: How do we make the plant.

Speaker 5: With these smaller carousels as opposed these infinitely long lines.

And then of course the big thing everybody once knows, so what what's the reduction in costs? What's the reduction

in the square foot of this plant? I need less concrete?

A list, it's less steel, I need less less light.

Speaker 6: Let's heat head count?

Speaker 5: How many more or fewer people would we need if we did it in this fashion? So we've we did

that basically to prove to ourselves and then be able to share with our customers what we thought this really could yield.

Speaker 1: I mean what you essentially you guys came to the conclusion is yes, this can be go ahead.

Speaker 4: Yeah. So when we did what Teddy said, a.

Speaker 5: Lot of people said it couldn't right right, said that won't work. So that was kind of the.

Speaker 1: Premise the history of this industry.

Speaker 4: So we took the Tansla water Y from twenty two twenty two, which has two giga castings and no floor used that as a baseline changing entire design, and in early twenty twenty four we could be proved that it could virtually you could put it together and the results are very good in terms of if you do giga castings, you're reducing your body shop around forty percent. Your pain

shop reduces were around seventy percent seventy. The reason is this,

in a normal vehicle, you're sending around five hundred kilos of five hundred and fifty kilos of weight through the pain shop body and everything together, closures and everything in the In the new process, you're only sending the sides and so on. The gig castings you don't send it through,

and so it's narrower and it's only around two hundred and fifty kilos, so around fifty percent reduction. When that

reduction happens, you're with the pain shop in a green field scenario reduces which means your our wins are low and ovens are much less. You're so overall it's you know,

you have no floor, you have no seedling and so on.

So all this reduces paint tremendously the over and then you have to add back in around assuming around twenty five million per gig casting press and you have sixties aroune hundred and fifty million. You have to add that

back in because you take it out of the body shop.

But you have to compensate for this. And in an

assembly line you reduce is the number of stations significantly overall.

If you normalize a billion dollar plant in the United States, a new plant, we go to around six hundred million.

Work content reduces from twenty four hours to fifteen hours, and we have the and then the energy consumption is reduced by fifty percent. We put a team Terry and

his all engineering team. Then we had Roger caldra or

the head of Stellantis Manufacturing engineering. He had a whole team,

a plant manager, an aluminum extrusion, aluminum plant manager, around eight to ten many fashioning experts. Where we simulated the

whole thing, so we have concrete data to prove this. Now,

this is the way we did it. Tesla launched their

patent last year and Tesla gives three scenarios. We are

in scenario three and there was around an eighty five to ninety percent match between what we are modeled and what Tesla put in the pattern. In my visits to

these OEMs that I talked about. One of the Asian

OEMs is doing it with the gea casting, but one of the European OEMs did not go to the giga casting route. They're using wellments they're using there. I wouldn't say,

I don't want to say exactly what the technology is.

It is not giga casting, but they are unboxing the vehicle with some changes in the existing body, and there they were able to make it work.

Speaker 1: Were they doing that because they want to use existing facilities or they just thought that this was better anyway?

Speaker 4: So for so the learning curve here with these two OEMs who I went in very deep, and the other two OEMs they're a little behind. These two were the

prototype built stage. So one was the vehicle was running

on the truck. That is one Asian am the European

OEM they were building the vehicle and so on. After that,

I've not gone back. I'll be going back to Europe

next week, Ovica next month. I can ask them if

I can see it and so on. But they were

the premise they're saying is hey, can I really build a vehicle which is unboxed? How does it drive? How

does the NVH what are the benefits when I put it together? In this one particular OEM case, their average

workforce age was in the mid fifties. When it's unboxed

and you're working in modules, there's less jumping in and out of the car and less it's more ergonomic to build a module than to have it on the car.

So they were experimenting with these things and so on.

So you're seeing people are trying to learn that are sounds.

Some of these OEMs are learning and they're obviously Tadla as the leader here, and so there's very very concrete reasons, well, concrete savings by going this approach.

Speaker 2: So from the manufacturing engineering point of view, it seems to me that there would be differences, but not radical differences compared to the design of the structure of the vehicle would entail more change than actually the manufacturing steps.

Speaker 6: Is that true?

Speaker 5: The product process have to go hand in glove. You

can't just be one. They've got to be done together.

In fact, some of the biggest challenges we had as we started to morph the design so that we could build it like this, we had to prove to ourselves to math modeling it will occur.

Speaker 6: It's got so much structure.

Speaker 5: What happens to bending frequency, what happens to torsion, and what happens to envh and this is how you can put it together. Now, Oh, accept it took a deterioration

from crash ability crash worthiness. Okay, now we'll change the

design again so that with this new process we can still perform as well. So it's iterative, and that was

a good thing about Our teams are small, they're agile, they're working together side by side the way you'd like it to happen. And then we're able to come up

with a model that we said, well, this meets your requirements and you can build it like this.

Speaker 4: And for this where we struggle the most. To Terry's point,

and the design was not in front of the crash.

To a side impact crash, you have the at twenty five kilometers per hour, in some cases forty five kilometers per hour, and that is where when you're unboxed it and you're bringing the body and attaching it to the front and rear module, that is where our failure was.

It took us around i would say, itary six to seven months to fix that issue. Figure it out, figure

it out, and so we found a solution and so on.

So when we consulted with these OEMs whom we were working with, they were struggling in those areas and that's why they asked us for our data and to to help understand how we solved it, because we use the digital data and came it at a different angle. They

were using their own data and their own vehicle.

Speaker 5: It's fair to say that in a better electric vehicle, the sidepole crashes the more challenging.

Speaker 6: Now it used to be frontal.

Speaker 5: Frontal crash within the ice vehicle is tough because we only have so much crush space up to the engine.

The engine doesn't crushwork with iron, It just sort of moves, and then whatever's left behind, you know, we dissipate this kinetic energy and doing work forming metal, making noise light, and then what's left we take up in the bags and the belts. With a batter electric vehicle, you've got

a lot of space and you got you can crush a lot, so it's you can you can engineer the crash.

We're in this from the front much pretty well, but now it's the side pole because before with an ice the side pole.

Speaker 6: Would you want to make sure you didn't do damage.

Speaker 5: To the driver passenger, But now you have to make sure don't touch my battery.

Speaker 6: So we hit this side pole.

Speaker 5: You.

Speaker 6: So, now if you look at the rocker sections there, they're.

Speaker 5: Quite complex and costly because we just can't afford to take that load into the into the battery and what does come through, we got to make sure we're transferring it across the vehicle as a unit to you know, help pick up the other rocker. So being that the

case generally, now all of a sudden, we've changed the methodology of how these things are all attached, where the wells are, where the struck integrity of this vehicle is.

It took some iterations to go through and say, now, in the new process, how do we do it?

Speaker 1: So I heard of one car company was taking vehicles and literally chopping them into two pieces and then practicing assembling them. And what I had heard was the challenge

they found is trying to join this all together after paint.

And they say they figured this out, but they said that was a huge challenge.

Speaker 5: Well, you're using adhesives in ways you never did before.

You're making mechanical attachments where you haven't before, and then methods across the painted joints. And probably one of the

bigger challenges is the industry is quite fixated on fit and finish well you can force these panels into submission with these big framing stations where all of a sudden you're relying on the fact that from a GD and HE perspective, these parts are coming together well, and they'll come up and you'll love the result. And that's that's

where a lot of the interests pull their hair out because it's a it's a tough, tougher thing to get the final fit and finished in the same.

Speaker 6: Ballpark is what you enjoyed previously.

Speaker 1: Those two millimeter gaps in pristine pain.

Speaker 3: Right.

Speaker 4: So the way we when we did the analysis and we had got data SA data manufacturing process, data, bay station and so on, and we put it together, we use the Taesla model WI as the baseline.

Speaker 6: UH.

Speaker 4: The Asian o EM that that we work with and the European o EM, I can tell you they were very even the one used gigacastings and one used the existing body. The way they came at it was very

very different approach. So everybody's going after saying, how can

we get the savings of capital investment? How can we

get the manufacturing savings because once you build modular build and you've heard of Tesla talking about the Optimus robot, and there's a lot of robots. Robot prices in China

have fallen tremendously. If you go on the internet, you

can see Don't Phone using robots, Zeker using robots, gay Lee, and so on. So the venture plan is, Okay, how

can we introduce robots in to reduce the custom manufacturing.

So the approaches are very, very different, and it's kind of personally when our team works on these products, I personally make it a point to visit these OEMs because it's a huge learning experience to spend a day or two with them and just to see a different point of view.

Speaker 2: Is there a willingness that you as you travel around the world to try new processes to manufacture vehicles or is there still the we've been doing it this way for a long time, let's just let's improve that.

Speaker 4: So I would say my guess I presented this unboxed at various forums into various oms. I would say around

sixty to seventy percent of the people still say, oh, it's too difficult, it cannot be done. I was really

surprised at these at the Asian and European OEM, because they are not known for innovation. But when I visited

them and they called us in, I was amazed at how far ahead they were in terms of the they're figuring it out themselves. It is especially the way the

Asian OEM came out and the way the European OEM came at at totally different angles, but fundamentally the belief that there's a better way out there, and then I'm willing to experiment and so on. The automotive industry severely

suffers from an nia syndrome, not invented here syndrome. And

it was very very the Chinese, it's a given, you know, they try anything. They're very open and they're willing to

learn anything. But these were legacy OEMs and very very

very surprising to see that they were so open and so on. In fact, the president of the OEM and

the president of both these OEMs have spent significant time in China.

Speaker 1: Interesting, so I'm sure you guys signed a nondisclosure agreement and things like that. But I'll put some names to

these things because yeah, I know you can't. I'm not

asking you to verify or anything, but for the audience's benefit, Toyota has shown pictures of its BEV factory that's what they call, where they're trying to do a leap frog approach to developing evs. So we know that Tesla, I

mean Toyota is in their Tesla of course kick this whole thing off. I have personally heard through other sources

byd is looking at this. I know that there is

a domestic US manufacturer that is not Tesla that's also getting into this. It's fascinating to hear that there's a

European one too, So it's interesting this is there's a global effort, maybe not with every car company, but Terry, when do you think that we might see unboxed assembly actually in operation and what could it do to lower the price of a car?

Speaker 6: I think you will see it. I think it.

Speaker 5: You have to go through the all the growing pains so that you can do it, and you can do it as efficiently as you do.

Speaker 6: In today's current body shop.

Speaker 5: The bigger question comes in, is it is it best to do this in a green field, or is it possible to do it in a brownfield to where you can convert it because you've.

Speaker 6: Got these monuments that you've.

Speaker 5: Had a lot of sunk capital here and it's quite difficult.

The uh, you know, it's it gets back to a lot of the the trauma in the auto industry right now, which is, yeah, there are technical gaps, and there's things to learn, such as this too much. Bigger gap is

quite typically the cultural gap that just simply says, this is how it is, how we've always done this is how we're going to coldn't do it, because you know, I in my career earlier, I spent a couple of years at Pineke's Assembly, and there I was the paint shop area manager and the body shop area manager for a bit, and we had to make two hundred and twenty four trucks a day, three shifts, and come in early in the morning you'd see what the third shift had done, and so you knew did you make your two and twenty four now?

Speaker 6: And I mean everything hung on that.

Speaker 5: And I remember one time seeing it and we'd missed production by four units.

Speaker 6: And it just so.

Speaker 5: Happened to be that the plant manager at the time happened to be looking over my shoulder at the same report out and his question I will always remember, he said, how come you lost four trucks yesterday? And I must

have been feeling good because I said, you asked the question wrong, which he was a little taken back.

Speaker 6: I said, what.

Speaker 5: I said, you asked the question wrong. He said, well,

how should I ask? You should have asked me how

in the world did you make one two hundred and twenty?

Because it was a rough day, you know, and it's always a rough day. There's always things that are happening,

and this robot crashes, and you know, it's it's just extremely hard. And you've refined this process over decades of

trial and error, and you've got it kaisoned to the point where I can make this. Well, all of a

sudden you say, okay, I want you go blow that up and try.

Speaker 6: Something totally brand new. It's like, well, somebody better.

Speaker 5: Have your back because there's there's growing pains that are that are going to have to be.

Speaker 6: Endured. So it's got to be the right product.

Speaker 5: It's got to be at the right place, it has to be within the right culture.

Speaker 6: Of the company.

Speaker 5: At the right time, and then once they break through and start doing this, it will become it's a new standard because it would significantly reduce a cost that the customer doesn't know, doesn't care, isn't willing to pay for it, doesn't want to pay for. I don't care how long

your pain shop is. I don't care many people you

have under your plant. I don't care how many uniforms

you buy. It doesn't mean anything to me. How much

do you want me for this? You pay me for

this car. And so from an engineering perspective and a

careself we focus a lot on the material costs of the vehicle, the design efficiency in material costs. This manufacturing

cost is huge and so cost out of the vehicles, cost out of the vehicle. It can go to the

bottom line, the financial performance of your company or your competitive pricing. It's just another it's and quite frankly, it's

a pretty target rich environment for getting more improvements.

Speaker 4: So you don't get everything for free. Just to qualify.

And for the record, you will save nine hours of manufacturing time. If it's a green field, you reduce the

blant investment, reduce energy consumption by fifty percent. But if

you go this is what we have models, And if you go to a gig casting approach and you unbox it, you're looking at around one hundred and twenty five to one hundred and fifty dollars of increase in material cost because you're going to be well assumed an element of elementum giga casting, you have a fixation, extra parts that go in and so on, so you don't get something for nothing. So if you're paying an average of for

nine hours of labor, you're paying say I'm just going to use sixty dollars an hour, so sixty seventy dollars, you're looking at around six hundred dollars, So you save six hundred what you say, you lose one hundred and fifty and your plant investment means your risk is lower.

What is very very interesting is when I talk to the presidents of these two companies where we are very working closely with, they were doing it for different reasons.

One was they they had they wanted to go with the modular concept and experiment, you know, oem on the country was I'm not sure whether this is going to be mainstream or not, and if it gets mainstream, I want to be ready I was amazed that this president was so open. It is you know, legacy OEMs. You

don't found ly, very rarely do you find leaders. Lot

of leaders know what's happening, but they are not open to spend the money and try it and build a prototype and test it on the track and fail it.

And they were. They had three prototypes that we were

building and each of them could be costing one or two or one or two million dollars and all the testing.

The president is allocated around say fifteen million or twenty million today in this says you go ask them for innovation.

There's no budget anywhere. But it is very I would say,

thinking far ahead. I want to be ready because if somebody,

if Tesla comes in and is going to do it on all their two million vehicles and they reduced the cost on the five hundred, I need to be ready on my vehicles. So I really appreciate these two gentlemen

for going there.

Speaker 2: Is the unboxed approach predicated on evs versus ice vehicles.

Speaker 4: At this point in time, what we have seen at all evs okay. So I think and Terry can get

into the physics where it will be a lot more challenging to do on boxed on icebacle right there, it.

Speaker 5: Would the enablers were both the battery and these giga castings that changed the fundamental structure of the vehicle. And

so as we can start to use these and build upon that, those are the building blocks, the legos of which to build us. So it was there's a that's

a great question, and questions have been asked. Do you

have to have giga castings? Can you do it with

a typical build as we have today?

Speaker 2: So so going for the culture, I mean, is it is it the case that the people who are not Tesla or not BYD that are building evs are basically saying, oh, we have this, we have this playbook of how you build.

Speaker 3: A vehicle, and this is how you do it.

Speaker 2: But instead of putting in an engineer and transmission, we're putting in a battery in a motor and that's the process.

So the whole unboxed thing is like being done mainly by people who didn't have that history of the assembly line.

Speaker 4: So so let's answer your earlier question just add to that and then come to the second question. So we

have not we don't have concrete data, we have not done the engineering or the analysis or the manufacturing to prove that it can be done on ice. I don't think.

I'm not saying it cannot be done. We have not

done the same. We are not in OEM in an

engineering company. So when Tesla, we when Tesla came out

in twenty twenty with the gig and twenty twenty two where they came out to two gay castings, we worked on this even before Tesla made the announcement, because there was a paper in twenty twelve, twenty thirteen by a German ou EM which was working with another German company about the unboxed concept that CTO is a customer hours today.

So he already when he said that, he in a conversation over dinner he said, we discussed this and so on.

That's when we started working and lo and behold. Then

Tesla had the earning skull in twenty twenty three, I believe when they showed it and so on, and so we had started working on it before. So can it

be done in an ice vehicle? We don't know, but

I'll just tell you the fundamental promise you. So you

have a body that if it's unboxed with no battery in it. The torsional stiffness by itself, that is what

gives you the rigidity to drive and hold and handling and everything. It's pretty if we got a battery, the

stiff we Once you put the battery in, which is a rigid element, torsional stiffness improves tremendously. We don't know

what it is in nice because there's no big ridgid element to hold the body together non boxed. So whether

it can or cannot be done, it's up to an am to discuss to figure out. But if that can

be done, the impact is huge. I'll tell you why.

There are around eighty million ice no sorry back, there's around seventy five million ice vehicles being built in the world today. Okay, take out fifteen million evs ninety million,

fifteen million evs, seventy five million ice vehicles, and let's say in so nine hours a vehicle, you're saving five hours awacre. And on that seventy five million vehicles, Let's

say those five hours equate to say, two hundred dollars on average in India will be ten dollars an hour.

In the US, it's seventy dollars and I'm just going to use say two or forty dollars an hour or two hundred dollars an hour, So seventy five million at times two hundred and seven to fifty seven point five times two hundred, you're looking at fifteen billion dollars of savings for the automotive industry. If would you like every

car in the world to be two hundred dollars cheap?

Absolutely yes. So if it worked, if it can be

made to work on ice, I'm sure if one OEM does it, everybody's going to do it, because that's that's how your benchmark, and you can learn or you can say copy. So that's coming back to your question. Your

second question is on the ice versus ev I would say it if it. My feeling is that if one

of these OEMs get it mainstream, okay, I think, then it becomes a new benchmark. Who's going to build the

cat first?

Speaker 1: That's exactly what happens one hundred and twenty years ago plus when Ford, you know, uh finessed the moving assembly line proved that it work, and it was just a matter of a few years before everybody in the world started doing it the same way. So I'm sure you're right, Matthew.

But look, this has been a fascinating discussion. I'm sure

our audience especially appreciated it. And I want to thank

you guys for your time here today. Pure really well,

and we'll have you back too, because I know we'll want to keep track of where this is all going.

But thanks again. We're going to get into the second

part of the show, and I want to thank you guys for having been here. True thing. Yeah, thanks so

interesting discussion, Gary, and interesting week in the news here today or this week. So where do you want to talk? Well, look,

let's let's start with I think what was the big news that broke this morning. There's been a bill introduced

in Congress in the Senate to vaporize all the EV subsidies and to add a one thousand dollars tax for road repair that would be added to every EV. And

what do you think is going to happen?

Speaker 2: Okay, so specifically, so Senator John Barrosso, who is a Republican from Wyoming, he proposed repealing the seventy five dollar federal tax credits on new evs and killing the four thousand dollars on used evs. And you know, there had

always been this little loophole that you leased the vehicle and you're getting the money, and that would go away as well, and ending the subsidies for the EV charging. Okay,

So that's that's basically everything that was put in place in the IRA would be gone. And they're saying that

if the bill passes, this takes effect in thirty days from the point of passage.

Speaker 3: Okay.

Speaker 2: So then this comes back to the question of, okay, what does this do in terms of uptake of evs.

Speaker 3: Now.

Speaker 2: JD Power came out just earlier this week basically saying that they think in twenty twenty five it will be static in terms of the uptake of evs. It'll be

like a nine point one percent, ain't going anywhere else, same as.

Speaker 1: Last year, same as last So about one point three million EV sold in the US, right.

Speaker 3: One point two but okay, all right, But yeah.

Speaker 2: So the question becomes, you know, the whole affordability thing.

So then to throw some more numbers out there. So

according to Kelly Blue Book, the average transaction price for a vehicle that was non EV in January was forty eight six hundred and forty one bucks.

Speaker 1: The average atp for AEV.

Speaker 3: Was fifty five, six hundred and fourteen bucks.

Speaker 1: So basically in seven thousand bucks.

Speaker 3: Yeah, and that's not cheap for many people.

Speaker 1: No, no, no, look, I mean to me, this is really damaging to the automotive industry because every single lot of maker has poured tens of billions of dollars into making EV's. Suppliers have signed up to make components for evs.

They're not hitting the volume that they had expected even with the subsidies. Now, if you yank the subsidies, there's

going to be a lot of investments that are going to have to get written off.

Speaker 2: Well, I mean, and if you think about it, that in December of twenty three, when the German government summarily dismissed, just like out of the blue, basically that we can no longer afford to subsidize purchase of evs, it just the market just went yep, right, okay, So now we see German vehicle manufacturers in some trouble. Now is that

related to as you say, they made a lot of investments, they lost a lot of money because no one were buying those evs, and now they're in a fixed where they're saying, you know your Volkswagon and you're saying, geez, you know, I've.

Speaker 4: Got to cut.

Speaker 1: Shifts because we can't afford to keep running them. Yeah,

it's one of the contributing factors to all the problems that all the European automakers are running into. Remember too,

they bet very heavily on the Chinese market. They're getting

their clocks cleaned there. I think, you know, China accounted

for half of Volkswagen's profits, so boom, there go half the profits coming out of China. You've got these ed

investments in Europe that are not paying off. You've got

energy costs that have gone sky high because of the war with Ukraine and between Russia and Ukraine energy getting cut off. Blah blah blah blah blah. So this is

a mass. It's a big mess.

Speaker 3: Let see.

Speaker 2: What I wonder about is is that, Okay, given the amount of money that General Motors has put into EV's, given the amount of money that Ford has put into EV's, given the amount of money Stilantis has put into EV's, and I just throw them in there. I mean, they're

not an American company anymore, but but they have good plants in this country.

Speaker 1: How are they going to make out If that collapses, It's not gonna be good. Let's put it that way.

It will not be good. What this does is it

puts even more pressure onto finding new ways to take the cost out of making an electric vehicle. The battery

is the big one. But we just heard this great

discussion on unboxed assembly. You know, there's an opportunity to

take a tremendous amount of cost out. Sounds like it's

better if it's a green field plant than trying to retrofit an existing plant. But even so, the pressure is

going to be on now because if you believe, as I believe, we're going electric. I don't care. It might

take longer than we thought, but we're all going electric.

And if you're of a GM and a Ford or anybody else, and you've made such a big investment, you're in so deep you can't back out. You got to

keep plowing forward.

Speaker 2: See but see, I wonder about that. Okay, So you know,

we've talked on the show many times about the skunk works that Ford is doing.

Speaker 1: What does Ford?

Speaker 2: What is it that they say that it's going to be coming out of the skunk works? It will be

a small, cost efficient vehicle. Small, right, I thought we

want small cars.

Speaker 1: Well, you know, that doesn't mean it's going to be a small car. What it does mean is it's definitely

not going to be a full sized pickup, but the small So I think.

Speaker 2: So if you if you look at the Chevy Bolt, which was you know, immensely popular.

Speaker 3: I mean, it's just like that thing, you.

Speaker 2: Know, you twenty eight grand and you know, the sales went way up because people were like, oh that's that's really but it was a small.

Speaker 1: Car, correct, it was small, right?

Speaker 2: And you know, I just wonder, you know, whether the mindset is going to change in places like Dearborn and downtown Detroit that maybe it's okay to have small cars.

Speaker 3: I mean because they've basically gotten rid of them, right, correct, yes they have. And so now we know that they

make their money off of things that are.

Speaker 2: Large pick up trucks and big SUVs. Right, But is

it not going to be a case possibly? I mean,

given this change in funding for evs, isn't it possible that they just may say, you know what, we got to do that too, and small is okay, Small is good.

Speaker 3: Small as where it's going to be at.

Speaker 2: It ain't going to be the mid sized car for these people, which they've abandoned anyway.

Speaker 1: No, no, no, So they've learned a lot, right, you know, the market responded to what they put in the market, and what the market is said is full size electric pickups and not going to make it. Full size electric

SUVs not going there either, because the batteries are so big, it's so expensive. And so what the automakers are doing,

I think is they still believe we're going electric. So

we'll do smaller vehicles with smaller batteries, make them more affordable, and we'll go with pehebs and e revs and maybe even hybrids for the bigger stuff, because that way we can still give the range, we can still reduce our CO two footprint, and yet we don't have to charge an iron and a leg for those vehicles.

Speaker 2: Well, okay, so you mentioned meeting the CO two footprint. Okay,

do you think the CO two footprint is going to become a metric at all?

Speaker 1: Not in the US, not during the Trump administration.

Speaker 2: So so if I'm if I'm an automaker, I don't care about that, because I'm worried about I'm worried about like making payroll.

Speaker 1: Correct, But if you're an automaker, any I guess the automaker is a global automaker, and so you're still facing the pressures in China, the pressures in Europe and some other parts of the world, but mainly those two markets.

And you want to have products that are at least the underlying engineering that can be used in all those different markets.

Speaker 4: Well, okay, but.

Speaker 2: As has been pointed out many times, what is what is General Motors global footprint?

Speaker 5: Hey?

Speaker 3: What it used to be?

Speaker 1: No?

Speaker 3: Right right? So where are they making their money?

Speaker 1: North America?

Speaker 3: Right here?

Speaker 1: Right?

Speaker 3: Okay.

Speaker 2: So you're the guy who's who's crunching the numbers, and you're basically saying, okay, you know, the CO two doesn't matter anymore. I don't care about that footprint. I care

about making money to pay the bills.

Speaker 1: Right right. But your your product life cycle is going

to extend beyond the Trump administration. So we could you

know four years JD.

Speaker 3: Vance is a young man, he's.

Speaker 1: Got his advance might be the next one. It's entirely

it's also entirely possible that a Democrat gets elected four years from now and says guess what, boys, we're going back to the way it was.

Speaker 3: It would be the whip sawing again.

Speaker 1: And it's the whip sawing again. And that's why a

multi powertrain approach makes a whole lot more sense as you go into all this uncertainty and to build plants that can build like Honda's doing down in Ohio. Whatever

powertrain you want, they can build it on.

Speaker 2: The line or what Honda is basically doing in the South correct which and and but what's very interesting if you think about the Hauntai plant is they when they announced this and it's got a funny like mega plant or something, right, they've got a name for it. But

when they when they announced it, it was gonna be this will be our EV plant. And now it's there, you know,

electrification plant.

Speaker 3: Right.

Speaker 1: Like I said, you make your plans and you go out into the market and the market responds, and you've got to be nimble and agile and deal with the punches to get thrown at you. So yeah, you know,

three four years ago, all EV made all the sense in the world. Today it doesn't.

Speaker 2: Okay, So you've been covering this industry for two or three years, So nimble and agile. Tell me how many

people that you know in this industry that are nimble and agile.

Speaker 3: Okay, we've mentioned Honda, We've mentioned Hyundai.

Speaker 4: Hmm, seems to be leaving.

Speaker 3: A lot out.

Speaker 1: Listen. I give BMW a lot of credit. I think

their EEDE strategy has been extremely good. And a few

years ago I was thinking, I don't think these guys get it, because they were talking about platforms that could accommodate multiple power trains, electric, hybrid, gas, whatever, and I thought, boy, I don't think that's the right way, because we know that if you have a dedicated EV platform, you can maximize its efficiency, if you build it in a plant dedicated to evs, you can maximize the efficiency of the plants.

So to me, that made all the sense in the world.

But that's when just a few years ago we thought EV volume sales volumes would be much bigger than what they've turned out to be. And so right now I

think this multi powertrain approach per platform makes all the sense in the world. So I would say BMW's there,

and I would also give GM a lot of credit.

It is sticking largely, not entirely, to its EV strategy and what they claim right now, is that on a variable profit basis, IE, don't count all the investment that went in, don't count all the engineering. Just look at

what it costs us to get all the parts and labor and make a vehicle. They're profitable right now. That's

the first step. They're saying. By the end of this year,

things will look even better.

Speaker 2: But that is assuming they're going to gain some scale.

Speaker 1: Correct, Okay, yes it does.

Speaker 3: And so what we what we started with.

Speaker 2: We basically what we started with by saying the seventy five hundred dollars is going away to get that and you're not going to get the charging. And if you

look at any surveys about reluctance to getting an EV charging is right up there.

Speaker 1: Now.

Speaker 2: I know that lots of people charging their homes. I

understand that, but I also understand that lots of people don't own their homes that live in this country. Lots

of people in this country live in apartments, So there are these You know, charging is something that needs to be taken into accounts, right and if suddenly all that money we were spending on charging is going to be spent on something else, Yeah, it's it's going to be a problem for General Motors or anybody else.

Speaker 1: Everybody, everybody, Yeah, okaycept.

Speaker 3: A Tesla probably yeah, to sell.

Speaker 2: But I mean even even Tesla is going to be in some some fix because they're their salors going down, and.

Speaker 1: So what do you think? So, you know, the Tesla

riti out there, we'll all say, oh, you guys, you dinosaurs, you don't understand that. You know, people have been waiting

for the redesign of the model. Why that's why sales

are down or uh you know, they've got other excuses as to I personally believe EV buyers who tend to be liberals are totally turned off by Elon Musk and they're looking for other alternatives. And guess what, there are

other alternatives. You know, we mentioned the BMW's Uh I

see a lot of these Cadillac lyrics all over the place, and uh so there's alternatives to Tesla that there wasn't just a few years ago.

Speaker 2: Well, I mean, you know, his his model was basically predicated on you know, the Silicon Valley cell phone model, whereby you you change what it does, you don't change what it is.

Speaker 3: Therefore, this you know, model refreshes.

Speaker 2: Like you know why bother you know this, this is, this is and what people are paying for. People are

paying for the digital experience, and I think that they're First of all, the tremendous number of teslas that have been sold perhaps is such that it's saturated, right that that those those who want one have one, or maybe they have two, or maybe they have three.

Speaker 1: I mean, and everywhere they go they see their car.

Speaker 2: And and so you know, you you do have these alternatives that that people are me looking at, and you know, and I think that in large part, they didn't do themselves any favors by opening up the supercharger network to other OEMs. Because you know, if if there's a Ford

lightning in front of you and you're waiting for that thing to charge and you're sitting in your your Model X or your model Model three, you're not happy.

Speaker 3: And so that was an advantage they had.

Speaker 1: It was clearly an advantage. It still kind of is.

But you're right, I think they hurt themselves by opening it up.

Speaker 2: But you know, you were mentioning what you know, like like BMW in Europe. So earlier this week, Porsha announced

that it's going to be spending eight hundred million euro on developing combustion engines. I mean that's a lot of dough.

And they're in financial trouble. I mean they're they're struggling,

and they're thinking, Okay, you know, maybe a Porsche is something that has an engine that goes really fast.

Speaker 1: Yeah no, yeah, yeah, And just think of what you said, Porsche is struggling financially. I mean a year ago, I

would have laughed if you had said that was going to happen. So it turns out people who buy Porsche's,

especially the sports cars, are not interested in electrics. They're

not much. You know, they did their tekon thing and

they've done that. Now they're back to their nine to

elevens and moreover, we talked about this a little bit earlier.

They're getting their clocks cleaned in China. I think their

sales are down something like thirty percent, which is incredible.

That's a massive drop. So uh yeah, I can see

where Porsche said, you know, we need more ice in the lineup. Volkswagen came out this week and said we're

modernizing ice engines and we're going to extend the ice lineup that we've got. So yeah, you see a number

of companies taking a step back, and then you know it's going to undoubtedly happen here as we've been talking about it. You yank all the subsidies for EV's and

add another thousand dollars tacks on top of them, that's not going to help sales at all.

Speaker 2: So shifting back to hear into a topic that will also be roiling things, the proposed tentative twenty five percent tariffs on steel and aluminum coming in from Canada and Canada Mexico, and Jim Farley said at a conference this week, quote President Trump has talked a lot about making our US auto industry stronger, bringing more production here, more innovation in the US, and if his administration can achieve that, it would be one of the most signature, one of

the most signature accomplishments.

Speaker 3: So far, we're seeing. What we're seeing is a lot.

Speaker 2: Of cost and a lot of chaos, you know, predicated on tariffs of goods coming in as well as now these stealing aluminum tariffs.

Speaker 3: What do you make of this is going to do to the auto on.

Speaker 1: Desy, I don't understand what the President's doing here. You know,

the North American supply chain is a one, well oiled and organized machine. It's very efficient. US manufacturers need access

to low cost parts and components i e. Mexico, not everything,

but you need that to offset your top of the world UAW labor costs. And Canada, using aluminium as an example,

is the the world master when it comes to hydro power, you know, using electric uh Nigro Falls, Niagara Falls and stuff like that. So you've got a low energy costs

and as you know, aluminum very illuminum, very energy intensive to manufacture. Why blow up the supply chain? I mean, sure,

go after other countries if.

Speaker 3: You have to.

Speaker 1: I don't think that's right. But I don't understand this

priority of attacking Canada and Mexico. And you know I

looked into this on an automotive basis. The US and

Canada are even, Stephen when it comes to trade. We

export fifty seven billion dollars of vehicles and components to them.

They export fifty six point seven billion to US, so you know, almost even Stephen and uh So, you know, I don't see any need to pick on Canada. We

do have an overall trade deficit with Canada, but that's because we import so much. If we stopped signing the

oil we stopped by, which would drive up our prices.

I don't understand this. I'm sure my MAGA friends will say, John,

you don't understand. This is all about negotiating, you know,

to get other things done. In this specific instance of

aluminum and steel, I don't buy it. And it's definitely

going to drive up costs and create like like Farley saying, chaos.

And I know that's Trump's modus operandi. Turn things up

into turmoil and you know, go after other things that you want. But this is not good for the industry.

Speaker 6: Well, so.

Speaker 2: Do you think that because of the tariffs that just let's take the steel a unum tariffs. Because of those tariffs,

the price of a vehicle will go even higher than those numbers that I cited from from Kelly Blue Book.

And if the prices go higher, and you know, the prices of you know, inflation's going up, groceries are not getting any cheaper. You know, eggs are at a historic high.

To use a trivial example, but a real one for many people.

Speaker 3: That the number of vehicles.

Speaker 1: Bought in the United States will go down, yes, yes.

Speaker 2: And if the number of vehicles go down then there could be layoffs, of.

Speaker 1: Course, so absolutely, so I think this is what Farley's getting at.

Speaker 3: So, I mean, how.

Speaker 2: Damaging is this to the industry.

Speaker 1: Look, it's not good. Will it break the industries back? No,

not in and of itself, But take a look at what's going on. Car sales have not recovered from pre

COVID market times. We're a million units plus below what

we used to be. The consumer has said I've had

it up to here with pricing. Cars are too expensive.

You've got this move to electrification that has enormous investment that is not paying off. You've got these companies going

to software defined vehicles, which will pay off in the future, but very expensive and very difficult to do right now.

They're going to the centralizedonal computing systems. That's going to

pay off in the future, but right now it's really expensive and really hard to do. You've got the Chinese

taking over the rest of the world market, and now you've got Trump coming in and blowing things up on top of that. That's where it becomes the straw that

breaks the camels back in and of itself, No, but piled on all this other stuff, it's going to be bad.

Speaker 3: So what do we see break going on?

Speaker 1: I know I'm the voice of doom and gloom here, and I'm actually a half full guyind of guy. You know,

glass half full. So the half full glass of whiskey

that you do well. Like I said, it depends forward,

one down if it's If it's water, it's half If it's beer, it's half empty.

Speaker 3: Uh huh.

Speaker 1: So I don't know what is bright, what is good that's going on in the industry right now? I don't

see a lot of good now. I think it's an

extremely exciting time in the industry. Look to have Matthew

and Terry in here talking about unboxed assembly, revolutionary approach to doing things. There's so many good things going on

in next generation battery development. I think we're going to

solve this problem. I believe before the decades out we're

gonna have EV's that are cheaper than ice vehicles.

Speaker 3: I do believe that.

Speaker 1: You hold me to it, because the Chinese are already there.

We'll catch up to that. So there are autonomous vehicles.

There's a lot of really exciting stuff in terms of technology and new thinking. But from a business standpoint, so

business sucks.

Speaker 2: So if you're Mary Barra or you're Jim Farley. I mean,

are you happy that you're in the auto industry right now?

Speaker 1: Well, I mean you look at their paychecks. They can't

be that sad. There is that, right, But I mean, look,

the pressure on these execs is enormous. They work their

asses off. I mean, they work like dogs. They dedicate

their entire lives to the company. The company comes before

their family and friends. Literally. I mean that's how it is.

You know, they're on the plane all the time, they're traveling, they're all over the world. It's it's a brutal job.

And then you add, you know, a market that's going nowhere, you know, pricing that the consumer's revolting against. I mean,

where's the upside, right?

Speaker 2: I mean, and I look at it from the point of view that even if we didn't have these terriff issues and these other you know, artificially added issues, I mean, they had a pretty damn tough just going forward in terms of doing things like you know, changing their portfolio to more electric vehicles and then discovering people aren't buying them, changing such that you know, like look at the crew situation that General motors are so bullish on how this was going to be a big source of revenue and then suddenly going, oh, this.

Speaker 1: Isn't going to work out.

Speaker 2: We got we got to pull this back in and you know, sorry, sorry, fifteen thousand people or whatever the number of was that they that was not Cruise it was or.

Speaker 1: You're thinking Lear O Lear.

Speaker 2: Yeah.

Speaker 1: Yeah, So you know, there's a great example of what's going on in the pressure on the supplier industry. Lear,

the giant seating supplier, got rid of fifteen thousand people last year, fifteen thousand, mostly outside of the US. They

just announced this week they're going to cat another fifteen thousand and they're going to replace all these people with robots and automation. And that is where I think we're headed.

And that's another show I know that we've got coming up, this whole robot revolution.

Speaker 2: Okay, but so so they get rid of fifteen thousand people, they replace them with automation. And if we go back

to you were mentioning, you know Henry Ford earlier when you talking about the assembly line. Well, you remember Henry

Ford did the five dollars a day pay because he wanted people to buy his vehicles.

Speaker 1: Yeah, that's that's the mythology.

Speaker 2: That's a good mythology, though, Like, okay, but what happens if fifteen thousand people no longer have jobs?

Speaker 3: How many cars they yeah buy?

Speaker 1: Oh no, you're you're absolutely right, You're absolutely right. But

you know, just a quick minute on the five dollars day.

Ford Motor Company had to implement that because prior to the moving assembly line, they had what they called staged assembly.

And you would work as a team of roughly eight to ten people per car, and you had mill rights and tin snips and seamstresses and electrician and carpenter and you worked as a team, and you built this car up as a team, and there was this real pride and you were under the auspices of a master craftsman who could do each and every one of those jobs.

And so you built a car. I mean, you built

a car. And then they could not keep up with orders.

They were actually making seven hundred and fifty a day in Highland Park with this staged assembly, and then they got the idea Clarence Avery. Clarence Avery is the guy

I mean, there was a small team that came up with the moving assembly line. He ran the team Henry

Ford had nothing to do with it. It was Clarence Avery,

and he said, hey, we can do this moving assembly thing, and we can. We can take production to one thousand

cars a day doing it. But and we didn't get

into this in our discussion with Matthew and Terry. The

moving assembly line is actually inefficient, and we overcome that inefficiency by adding more stations on the line and more people at those stations. And so when Ford cranked up

the assembly line boom, they had to hire all kinds of people who and then they got rid of the stage's assembly, they got rid of the teams, and so you're standing in one spot all day long. At first

it was ten hours too, working like a little monkey, you know, on your little you know, you tighten these bolts and some things will come. And people could. They

hated it. They hated it. They lost all pride of workmanship,

and they started quitting in droves, in droves. So Ford

I think they were paying like a dollar ten a day.

They took it to two dollars a day. They took

it to two fifty a day. They took it to

three dollars a day. People were still quitting left, right,

and back. They finally Ford said five bucks a day

and it made headlines around the world. People could you

know that was big, big, big money, And so yeah, the mythology was, well, Ford wanted his people to be able to buy a car, and they could. But the

real reason was people were quitting in droves because they hated those jobs. And in fact, I would say this

is what led to the arise of labor unions because the thing was, I love my job in staged assembly.

I'm part of a team. I'm making this product. That's

my that's my baby. I did it to I'm just

a monkey standing in the station doing this. Well, geez

if all I'm here is to act like a monkey doing this stuff. I want more money. Are you're not

going to give me more money? We're going to form

a union and we're going to get more money out of you. I think that's exactly what led to the

development of the UAW.

Speaker 3: And here we are today.

Speaker 1: Here we are today with other problems. That's right. So

have we run through everything or much and anything else to talk about? Well, we could talk all day. We

don't want to bore your people anymore. So thanks for

having tuned in, Gary and I will be back here again next week, and I'm sure appreciative of all your support for autoline after hours

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