AAH #756 – A Darkening World for EV Startups

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Hey everybody, thanks for joining us on AutoLine After Hours.

Mr. Gary is here as always, I'm doing well, you too.

Absolutely.

Yeah.

So we've got to let everybody know, we've got Venkatesh Prasad from the Center for

Automotive Research in Ann Arbor.

Who goes by Prasad?

That's right.

Yeah.

And we've got Paul Eisenstein from headlightnews.com.

Headlight, no, no, no, no, headlight.news, no.com.

Oh, okay.

Headlight.news.

We've got people from a site in Arkansas.

We wouldn't want that at all.

So we've got to give you your title because it is an important title and then a little

bit of your background to put this all into context.

You're the Senior Vice President of Research and Chief Innovation Officer at the Center

for Automotive Research.

And before that, you had more than 26 years at Ford and, notably, you founded and led

the Ford Silicon Valley Labs in Palo Alto.

So that's quite a statement as we hear more and more about things coming out of Silicon

Valley nowadays.

Thank you.

Thank you, Gary.

Thank you, John.

And thank you all.

Good to see you all here.

See you.

So, I mean, you're a tech guy.

So give us your overview of what the landscape looks now in the auto industry in terms

of tech.

Fascinating, I'd say, as technology just does its job.

It pushes along and forces a lot of what it enables and sometimes it just tries to change

and doesn't really wait for much to happen.

So, Saddo, we're seeing a real divergence here with the new EV startups taking a totally

different approach to doing cars, especially when it comes to technology versus the legacy

automakers.

Do you see that converging at any point in what I'm thinking is software-defined vehicles,

zonal compute, and that sort of thing?

Yeah, I think there'd be selective convergences and by that, I mean the legacy car makers

and these are those who have to find free cash flow by selling highly profitable products

and those profits come from products that they know how to make and make well and where

there's a clear consumer demand, customer demand, and those tend to be internal combustion

engine vehicles.

And so they can reselluate those vehicles and tune them in a way in which they can

sell them profitably.

And so while they do that, make the free cash flow they need and put that into the

growth business, they would sooner or later and they have, and you've seen these play out

in a number of forms, they need new capabilities.

And to find those new capabilities, they either build or they buy or they partner.

And so when they look to partner, they look to partner with certainly trusted,

tested suppliers that they have, but then those tested and trusted suppliers also

have to have new capabilities.

And so that's when the startups come in, that's when people who are experimenting

without the burden of having to run a legacy operation and have two operating systems,

ICE and EV, can quickly adapt to the changes needed, but they don't have scale.

And so they're looking for that validation and so that's when those partnerships

would come in.

I'm curious about where the industry is going versus what consumers are asking for.

Now I'm a tech person.

I mean, I always have boxes of new things to play with, but at the same time, I get

into a lot of new cars and either I have the Microsoft Word Syndrome where there's

tons of stuff that I either never knew I had or don't use.

And there's many a time where I just get angry, Rivian putting controls for your

mirrors and your seats and your vents on the touchscreen.

And when I look at studies and when I talk to a lot of consumers, I get this mixed

message, people want the technology, but they're angry at their technology.

So I wonder if you can address this, this sort of schizophrenia, if you will,

in the market.

Yeah, I think that dichotomy is a valid and legitimate one.

I think going back to sort of the framing of that whole question against the

context of what technology does, and ultimately firms have to take

technologies, companies have to take technologies and then tune it to what

the market needs in the near term and midterm and long term.

And then they pretty quickly discover that the design question, the meta

design question, how do you design, how do you take technology that's doing

its job as I said earlier on, but then in some sense harness that to get the

optimal design you need for the profits you need, the customer satisfaction

you need, all that to happen.

And that then comes to a usability design question down below.

But there's also the bigger design of how do you design the

organization, how do you design what goes into making these things

possible.

And I think these are all still emerging being tested out.

And so just the fact that you can't just go open the door latch and the

expectation was that if you couldn't open it you'd try again and that was

like a magic number of 130 milliseconds or so.

Today you press a button and you go past 130 milliseconds you got away for a

click to here.

And so that's, we've gotten used to it in some sense humans have

gotten trained with these digital interfaces that we have no tolerance

for when you went to an analog interface.

Just by opening a latch, mechanical one, if it doesn't open in that 130

some milliseconds you're going to try it again because that's what we're used to

with mechanical systems.

And you see this digital thing you press a button on a light glows and then

you hear a click, right?

That already has gone past your time budget for human acceptance.

And so there's a number of user interface questions that are going

to come up at the individual sort of widget level but also at the system

level.

Do you see some automakers pulling back?

I hear this anecdotally and I've seen a few things.

Hyundai has put more emphasis on having secondary controls for example for

climate and for audio as opposed to keeping everything just on the touch

screen.

Yeah, I think there was certainly a rush to put everything on the touch

screen because it seemed that there was a good way to reduce costs,

reduce complexity.

But there's a recognition that at the end of the day you want

to go from A to B and you want to come back safely and you want to also

perhaps allow that to happen without necessarily being on a screen yet

another time because you're so screen inundated from the time one wakes

up to when we go to sleep.

And so you want that little bit, perhaps this is that, that'll come

back and say I don't want that.

I just want to drive without that screen.

So Prasad, John mentioned startup EV companies are appearing.

You mentioned the legacy companies that have the cash flow from ICE.

OK, so it seems that these are two entirely different cultures yet

both of these cultures are competing in the same marketplace.

So how do either of these companies perform successfully,

perform in a way that will allow technological advances such as

autonomous driving or more EVs?

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Yeah, no, I think it's through staged and carefully

orchestrated partnerships, a series of partnerships

where the startups can offer a lot with the right kind of support,

can offer a lot of innovation designs or innovative designs

but also production innovations, pathways.

But the large manufacturers, the producers have that scale.

They have the ability to take things to scale

and be able to then industrialize it, if you will.

I think that's where the complementary capabilities lie.

So you think it's complementary versus...

I think there'll be a bit of both.

I mean, clearly you've seen Tesla take its form and grow

and BYD go to scale and they haven't been dependent

on a legacy car maker.

But you have others who are coming to the marketplace now

and one can see that they have the need for scale and it's not easy.

And the legacy car makers need to move quickly

and need to move with the ability to both balance their legacy portfolio

and quickly move when they have the opportunity to do so

with respect to the EVPs.

So yes, they have in-house designs but there's always the capability

that takes you to the next level that often you find on the outside

because you might have it in-house

but you might see it proven just enough on the outside

whereas the in-house version may not have had the chance

to get that early proof that you need in terms of design iterations.

Gary, I know you had some info from some recent studies

from the Center for Automotive Research

that triggered some questions in your mind.

Well, okay, so you guys most recently did the study of tariffs.

And now we got reporting today

that there's closer to a deal of the EU

which may bring it down to 15% from the 25% it did before.

But so when you guys did this study

and our friend Edgar Fowler who was on the show

who was involved in this. Also from Carr.

So you were saying that it would be an increased cost

of $107.7 billion to all US automakers

and the increased cost of $41.9 billion to the D3 automakers

and it impacted D3 production volume of 6.8 million vehicles.

So this is just cost of producing vehicles in the United States

and talk to us a little bit about that.

I mean, and then I want to mention you guys used

as one of your data points the American Automobile Labeling Act

and I was shocked to see some of the numbers

in terms of the Detroit 3 and what their domestic content is.

Right, so I think on the 108, roughly 108,

107.7 billion dollar number.

I think the best way to look at this

is to look at how that cost gets distributed.

So there's two parts.

What the sources of the, what the line items are

that result in that cost.

And that was based on the assumption that there's a uniform

25% tariff on all trading partners

with no relief for any existing agreement.

And then you can, so you look at that total amount

and then you say, well, who are all the players here

that at the end of the day need to come together

for this industry to be viable

and for consumers to benefit.

And that's the suppliers who supply components

and subsystems to the OEMs.

And then the finished products get distributed

and you have the dealers who then take it to the end user.

And so no one explicitly or otherwise until they have to

wants to speak about the end user, the consumer,

the customer and say, okay, we want to protect them.

So then you essentially get to dividing this number

by, you know, not by three,

but spread across three different entities,

the suppliers, the OEMs and distributors.

And then you, so that's how that dynamic works.

And so with the latest EU-US agreement,

you turn the knob slightly differently,

you go through the math again,

but you're gonna still come up with a pretty large amount

because it's not as if the US exports a whole lot to Europe

or Europe exports a whole lot to the US

where there's gonna be this big shift in these numbers.

And so I think that's where we are today.

Yeah, so it's to the point of, you know,

suppliers to the industry.

So I already quizzed John on this,

so I'll throw this one to you, Paul.

So Ford, what vehicle has the most domestic content

as measured by the American Automobile Labeling Act?

What vehicle is it and what is the percentage

of domestic content?

Well, I thought I remembered the Tesla.

No, no, just we're asking about Ford now.

So we're just looking at D3.

Oh, Ford, I'm sorry.

So just.

My instinct would be to say the Mustang,

but I'm probably wrong.

You probably are.

No, so if I were to look at it,

I don't know.

Yeah, it's a surprise to me.

It's the Ford Ranger pickup truck,

46% domestic content.

That's all.

And by the way, by domestic,

you are talking absolutely US, not North American.

I think it's USMCA, I believe,

is that's in those numbers, right?

Yeah, only 46%.

46%.

If I remember this year.

That was cars.com did the study.

Yeah, and Ford dropped out of the top 20,

if I remember correctly.

But then, okay, so let's move on to General Motors.

So what vehicle has the most domestic content

according to the AALA in 2025?

Damn, I wish I remembered.

I wrote this.

This one is just flabbergasting.

It's the Bright Drop.

Remember the?

Yes.

65%.

Which is, of course, Canadian assembled.

Which goes back to the point of USMCA.

So it's, now, if we were to take that out of this, okay,

so now we'll say what vehicle, consumer vehicle,

General Motors product.

Well, I'm gonna fail this.

I'm not even gonna get a D in this.

I don't know.

Colorado Canyon, 49%.

So the small pickups.

All right, so we'll give you the third one

and you may get this right because you're,

you now have a clue.

Stalantis.

Gladiator?

Bingo, you're right.

See?

Oh, good, I got a D plus, right?

And shockingly, it's 74% domestic content.

74, yeah.

And Stalantis as a whole is relatively low,

if I remember, on domestic content.

Yeah, it's like the Dodge Hornet and 500E,

they're the only ones that I find have 0%.

Which one?

The Hornet and the 500E have zero.

But what's surprising to me was the Nautilus,

which is assembled in China, has 5% domestic content.

I'd love to know what that 5% has.

Matt's?

So, I mean, to get back to your point though,

I mean, so, you know, these percentages,

so if we go to Colorado Canyon,

this means 51% is non-domestic content.

So this would be 51% that tariff is being paid on?

Yeah, tariff is being paid on.

And then you gotta go through the materials and say,

is this already covered by something else?

Is it covered by a bilateral agreement?

Is it a material that now perhaps can sit somewhere else,

get processed and then show up and then get charged less

because it's not the original form

in which it was imported.

That's now being imported in physical or in market terms.

So it could be sitting in an economic zone

where it gets preassembled and sold.

So there's all kinds of nuances that come into play here.

Well, we just saw more tariffs get dumped on a bunch

of steel and aluminum componentry.

To that point.

So that, you know, for example,

and it's very specific.

It was like mufflers, exhaust systems, clutches,

that sort of thing.

You pay a 50% tax on any of the steel or aluminum

that's in the component.

And then you pay the tariff on the component itself.

So it's a double dip.

It's a double whammy, right?

Similar to what's gonna happen with copper soon

from what he's been saying.

Yeah, well, again, they're looking at very specific,

it's not a blanket, you know,

kind of a tariff on the 50% that's cumulative.

It's on very specific products

and it also hits any kind of commercial vehicle

just about with an engine greater than 1,000 cc's.

So that's everything, right?

And then a lot of agricultural stuff, especially tractors.

Which is great for American farmers.

It goes back to the early colonization

we were having.

Having to pay a million dollar combined.

So, John and I were talking about this before the show.

And I know that Carr looks into plants and factories

and what's going on in that space.

So as we look at these tariffs,

as we look at the possibility of reshoring,

I mean, what is your sense of how long it would take

for that to meaningfully be producing in the US

so these tariffs would be avoided?

I think just to the point made just a few minutes ago

about how much content is not either within the US MCA

region or purely domestic US made.

The supply chains still go back and forth outside.

So that's one piece to keep in mind.

And the other piece is, so you reshor,

but you're still dependent on the ins and outs

of how trade happens and how freight logistics happen.

And then the second piece is when you come back,

you never come back the way something might have left.

You come back with increased levels of automation.

You come back with the need to be comparable now

with new markets that you have to be competing in.

Either directly at the product level

or if you're a supplier,

you have to be ready to be able to supply

to China, supply Europe and to the US.

And so that brings in a whole lot of dynamics

that then say some pieces, subsystems can,

some subsystems can come back in the course of a year.

If you're talking of total vehicle return,

that really depends on where a plant was gonna be ready

for receiving this new program anyway.

Or you'd come so close to making a decision

and you said it was gonna be either here

or in Mexico and there's some advantage of being in Mexico

but it's probably a site cost differential

working against us and keeping a plant here in the US,

keeping the program assigned to a plant in the US.

But now that's gone away

and therefore you bring it back here.

So otherwise it's really hard.

Let me ask Gary's question in a slightly different way.

At some point the tariffs,

the on-shoring because of tariffs

is going to level out.

They're gonna figure out what the appropriate level is.

The market will figure that out.

How long do you think that's going to take?

That can go through a couple of iterations.

You know, it has to,

there's always a lagging impact of almost everything

we speak about in the world of tariffs

because it takes a while for the stock to deplete

and then you buy the next wave of components

and then you go through the design changes.

Would it be five years?

Would it be eight years?

Would it be?

No, I'd say it'll be four or five years.

That's how long it takes at the very least.

I wonder about this.

We seem to be taking this position,

which I'll be honest.

I think the administration,

it just doesn't have a clue about how,

particularly the auto industry works

and why globalization is important.

And it's not just because in Vietnam

they have low wages because we know that wages

are not as much as many people believe

in the total cost of vehicles, for example.

So what we look at globalization,

a lot of it has to do with,

we have huge number of vehicles

compared to where we were 40, 50 years ago.

We might have had a handful of models

from a particular brand.

Now we have an endless supply of nameplates and trips

and the volumes are so much lower.

And the way that you allow for that

is by finding a place to produce vehicles

that go worldwide.

So we get worldwide volume.

Can we really keep the system that we have?

Well, we have huge choice in models and nameplates.

If what we have to do

is essentially build everything here.

It's gonna be very hard,

especially because the goal itself

of getting to electrified propulsion hasn't changed.

The goal postman have moved on a little further.

And so what that really means is that it's

the modes that existed before to creating products

and defending yourself against competition

have been reduced or gone away to a large extent.

And so it's gonna be very tempting

and you're seeing this in terms of

entry into the auto space

by people who were not there before.

So you have people who are battery manufacturers

are now making cars and doing a great job.

People who are tech manufacturers

experimenting with making cars.

And so you're gonna see a lot of options.

And so you might find this world

where you have a lot of brands make

some of which you haven't heard of at all

and a lot of different options.

At the end of the day, this has to consolidate

because you do need volumes.

But the volumes could come at the subsystem

and components level and finally assembly

being relatively simplified

as especially as you are seeing a lot of these announcements

these days about simplifying the assembly process

and making them more efficient.

You might almost do contract manufacturing on those.

You might have different pathways now.

But I still don't know how you can bring things back.

You have a lot, it wasn't that long ago

where if you didn't sell 100,000 vehicles

of a particular model, you couldn't make money.

And now we have a lot of five, eight, 10, 15,000 unit models.

And that is primarily because we find a place

whether it's in the US or somewhere else

where we're making up the additional volume

through exports or through sharing top hats and so on.

And it would seem to me that

if we're gonna bring a lot of manufacturing back in

you're gonna have to have fewer models

and perhaps fewer manufacturers too.

I don't see how you can do it otherwise.

Right, fewer, I'd say you certainly need enough capacity,

enough utilization of the capital investments you make

to your point.

So there's gotta be consolidation in many different ways.

And less choice for consumers, I would think.

Consumers might get choices in a different way.

And maybe that's where the consumer mindset

itself is shifting.

So they may not necessarily want the physical,

the physicality associated with choices,

but they might want the feature choices.

And that might come because you can use old hardware

in a way in which I don't mean old hardware.

But I mean, you can use hardware that's ready

for reprogrammability and ways by which

it can be mixed before they couldn't do earlier on.

So that level of I think flexibility and newness,

people might come to expect as opposed

to seeing a new model year every year, right?

So I think that's been discussed quite a bit.

So last year, Carter did a study almost a year ago,

today almost, it was the 24th that came out,

affordability, the $25,000 electric vehicle.

And you guys used $25,000 as saying,

okay, this is a low price.

It was just not how you do it.

But you were talking earlier about suppliers

and this whole discussion brings to mind,

this is a quote from that study

and I want you to comment on it.

For suppliers and particularly smaller

and lower tier suppliers, large and long-term orders

are key for amortization of investments.

Without this assurance, suppliers view heightened risk

in the EV transition as automakers adapt investment plans

to match market conditions.

Okay, that was just talking about trying to

capacitize for EVs.

Now the tariffs are on top of that

because this was written before tariffs were anything.

So what do these suppliers do?

How do these suppliers react to A, increase costs

and B, the investments that are necessary

to bring us to more EVs?

Yeah, I think one thing they might do

in the very short term is to go back to their customers

to look for extensions or look for business

in terms of components or subsystems

that they were supplying that were needed for ISO

or needed for plugins or needed now

for extended range vehicles.

While they still have to pay their monthly dues

on this new tool sitting there

that was designed to package cells into modules

and package modules into batteries.

And so they had to figure out a way

by which they can get some revenue

and either defer payments or reduce payments

on these other tools that they have

but that's the reality that they're facing.

So they went ahead and bought these tools

that were contingent on these orders that were coming in

or near a certainty of orders coming in

to build electric vehicles.

But since that went away, that big order

likely either got muted or put on hold for a while

or went away altogether.

They have to now look for alternative ways

by which they can get revenue.

And so these are always by which they have to sort of

go back and take an A.

Get back into that fuel exhaust pipe business

because I did this for you for five years or 10 years

and did well and so can we go back to that?

Prakash, we're at the bottom half of the show nut right now.

We're gonna have to wrap this segment up

but I really wanna thank you for coming on the show.

Thank you very much.

It's been very good insights there.

Thank you.

We should give a plug to Yobebe there.

So yes, the management briefing center

for anybody who's in Detroit,

the conference is going to be at the Michigan

Central's train station in downtown Detroit and-

Number 15th evening there's a reception

and 16th and 17th we have action packed discussions.

It's really exciting in so many different ways

as we just discussed there are so many topics

that are likely to be revisited

and some might sound familiar

but might have a completely new dynamic associated

with them others would be all in England

so we are really excited about that event

and hosting it for the first time now

and this is gonna be our 60th anniversary of MBS

and that's gonna happen for the first time

not in Traverse City but it's gonna happen here

at Michigan Central right in Detroit so welcome.

A lot of people in the industry

know about the management briefing seminars

so I'm glad you brought that up Gary.

And even if they're not in Detroit

I'm looking at this lineup

and they might wanna consider flying into Detroit.

Who do you see as the star of the show or the stars?

Well there's this guy who's sitting next to me.

Well he's always the star.

Joe Pratt from Toyota is going to be there.

I'm gonna completely just show-

Well anyway-

People can go online and find a full lineup

the agenda.

Yeah it's gonna be a great conference.

Thank you gentlemen.

Thanks again.

It's been some time with you.

We're gonna take a quick break right now

we're gonna be coming back

and talking about the latest news

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All right, we're back.

Talking about what's going on in this auto industry.

And one thing, Gary that I see in Paul too is

man, the situation is darkening for EV startups.

You've got the $7,500 credit that's going to go away

even perhaps more importantly

all the ZEV credit money which was in Tesla's case

billions of dollars going away.

And Rivian and.

And Rivian and Lucid and you know Lucid put out

a statement saying wait a minute

this was a significant amount of income for us.

The future doesn't look too bright at least short term.

So I mean this gets back to what Prasad was talking

about in terms of okay how do you make your

investments when you know you have this uncertainty.

Now there are the certainties that you just identified

but there's the other uncertainty of the market.

And Paul I know that you pay very close attention

to the consumer aspect of this.

I mean and you look at numbers of projections

that people are doing now.

I mean it'll be 8% maybe this year for the.

You just saw auto Pacific.

Ed Kim over at auto Pacific put out a release

this week on a study.

And the numbers were shocking.

I actually wrote a story on headlight.new

is combining that with something

that Bloomberg came up with first auto Pacific.

They are basically having the market share projections

through 2029 that they had made less than a year ago.

Which were the election.

What were they at?

This year was supposed to go to I think 11%

and they're now saying it'll be flat at 8%

compared to last year.

It should be.

And I can't remember the exact number

but basically 2029 is only going up to like 12%.

That was the big one.

It was the 50% drop they were saying.

It's slightly more than 50% less than the numbers they had.

They were actually on the conservative side

to begin with.

Now add to the fact that we are seeing sales level

and they use the word flatten

but really are going to slightly dip after September 30th.

And what you have is automakers including Lucid

that are trying to make up for the loss

of the $7,500 federal tax credit

on top of needing to motivate beyond that.

We've seen some big, big deals.

There are some EVs right now that are being sold

or should we say least for as little as $100 a month.

The prologue from Honda,

which was actually not doing badly,

you can get in some parts of the country a prologue,

which is what a $48,000 EV list price MSRP

for $200 a month.

I mean, that's insane.

That's a 48 month lease plus a little bit of down payment

but that's $200 a month.

Doesn't even cover the basic materials,

never mind all the production process.

So the question becomes do the entrance

like Rivian, like Lucid, do they survive?

Can they survive?

Hard to see how.

I mean, what Lucid is saying is it's going to pay

the $7,500 out of its own pocket.

This is a company that lost one and a half billion dollars

just in the first six months of the year.

They have one thing going for it, Saudi money.

And the Saudis seem intent

on positioning themselves for what they still believe

will be an eventual move away from oil.

And that's-

How long can you afford to lose that kind of money?

How long can the Saudis afford to lose that much money?

How many more years before the sun explodes?

Okay, but Paul is, I mean, you know,

this is the thing that has always astonished me.

When we're talking about companies or organizations

losing billions and billions of dollars.

Okay, so the question, if I were them

and I was saying, wow,

that investment isn't paying off very well,

maybe I had to put my money in something else.

Exactly, right?

They don't want to lose money.

No one wants to lose investments for that, right?

I get it.

And it's really funny because we've seen a couple

of the losers in the EV startup segment,

you know, Faraday Future,

who in the last few months have been like,

we're coming back, we're gonna make it.

Faraday was at the Pebble Beach Concord

just a little over a week ago showing off some stuff.

So there will be a few

that there's no question they're gonna go away.

I think there may be a couple of startups

that somehow or another are gonna squeak through,

they're gonna maybe push through

and some folks are gonna put money in them

to keep them alive,

hoping that as we move through the final years

of the Trump administration

that we may see some positive momentum.

But okay, what happens even to the Detroit three

in terms of their investments in EVs?

Do they begin to pull that back?

They already have.

I mean, but will this will be like more serious

than they are now because, you know,

you're saying the auto Pacific number shows

that the market is not going to be what

I'm not 100% convinced that the auto Pacific numbers,

the revised numbers are gonna be true.

Their EVs are such an unknown even now.

Ford could be changing the game dramatically

with the universal EV project that they have.

What happens if we start to have

a bunch of $30,000 EVs

and we just saw some pricing on leaf

that brings it down well below $30,000

and we start to get range

and there was another study that just came out.

I don't think it was well below.

It was a few thousand below, but...

Do you have that, Sean?

What was the leaf MSRP?

I thought it was 29,999

and then you throw in destination charges.

I thought I just saw a lower number for the base.

But anyway, we're also addressing

some of the other issues.

There was another study that just came out

that said despite the Trump administration

initially backing off on spending the money

for a national EV network that Biden had put out,

the $5 billion, that the pace of growth

of the EV network is faster than people expected.

And there was a significant improvement in charging,

that the problem with what do they call it?

Non-start charging events,

which you plug in and it doesn't work.

That number has started to drastically fall.

So there's so many things that could

actually help the EV market,

even without the $7,500.

And you have seen some people that said eventually,

even Musk had said this,

eventually we need to get out of the $7,500 subsidy.

Plus, a lot of vehicles

weren't being subsidized except in lease.

So I'm not as completely convinced

that EVs are in a near-death spiral as some folks are.

So John, what did you mention oil is going for?

Well, the Energy Information Agency,

which is a US agency that tracks

oil production prices and all that.

The numbers are astonishing.

I think a year ago, this timeframe,

oil was trading at $81 a barrel.

I think right now it's at $67 a barrel

and the EIA says it's gonna drop down to 50

and maybe below 50 next year.

So what's the argument for not building

more internal combustion engines?

Look, gasoline prices also by the EIA

will be consistently below $3 a gallon nationwide

next year.

So I mean, it's all the more impetus

for a lot of consumers to go out and buy a nice vehicle.

Well, now that also is the question.

Ice or hybrid?

Because even with what's happening,

there is a definite push.

There's no question, as far as I'm concerned,

that hybrid electric vehicles continue to take off.

Consumers are liking that.

Automakers have found a really smart way

to get hybrids to work.

I get great-

Some of them have.

Well, but more and more-

There's maybe three that are good at it.

Right, but don't be excited.

More and more are starting to say,

hey, we'll give you great mileage and better performance

and we're not gonna charge you all that much more.

Right, but let's not lose sight of the fact

that when we talk about hybrids,

it still has an internal combustion engine.

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Okay, so you're still building engines.

You're still using gasoline.

I mean, so again, going back to Prasad talking about,

okay, you need scale, you need volume.

Where is the volume and the scale going to be?

It's going to be making engines and transmissions.

In the short term for sure.

And I'm wondering how short this short term is.

I mean, it may be longer than we think.

Look, this is lighting a fire under automakers

to really figure out how are they going to take out cost

and come out with more compelling EVs.

You know, soft wards announcement last week.

You know, the rest of the legacies

have got to be working on the same thing.

Yeah, one of the things, I'm sorry, John,

but one of the things that I'm intrigued by

and it's certainly something that's happened

within our group, if you will, of journalists.

It wasn't very long ago that people were starting

to suddenly beat up on Akio Toyota.

The man who very often was seen as the visionary

in the industry, but also was very much against

a pure unadulterated switch to EVs.

He was a very big proponent of multi-energy.

And now we're seeing, first of all,

some manufacturers go back to that approach

and all of a sudden the companies that were using that,

Stellantis with the still a large platform

that can handle any of six different types of power trains

from pure ICE to pure EV,

they're all of a sudden looking like they're brilliant.

Yeah, well, you know, Akio is still excoriated

by the environmental community.

They still accuse him of dragging his feet on electric cars.

But you know, Toyota got it right.

For right now, hybrids really work.

People love the idea of getting up to 40 miles to the gallon.

And it's why the sales of them are going gangbusters.

But you know, the only strong players in the U.S. market

really are Toyota, Honda, and Ford.

The rest of them are scrambling to catch up.

No, no, no, Hyundai Kia as well.

If you look at the numbers, I just...

Their numbers are rising.

I came here directly from driving the new Kia Sportage HEV,

which is, I can't go very far in it.

It's impressive when you see the reviews.

The numbers are good, the performance is good.

And if anything, they have gone from 15% HEV

just a couple of years ago to 25%

and they're aiming much higher

as they get through some production bottlenecks.

So you're gonna see the Koreans

become significant players.

I believe Kia right now is second only to Toyota

in the number of HEV models that they have on the market.

Offerings, yeah.

They're offerings to the market.

Yes, yes.

So, okay, given all this goodness of the HEV,

then what's the argument for the EV?

Right now it's a harder one to make, but not impossible.

I mean, I was driving a Honda Civic Hybrid sedan

and not even trying, got 59 miles per gallon.

Yeah, it was shocking.

Ask people who own them and I have one.

And I'd still go to an EV.

I love the driving experience.

It's a better driving experience.

The torque is wonderful, the control is wonderful.

I like one pedal driving.

I don't see myself going back

unless I get a narrow niche of products.

I'd love to own a Corvette,

but now I have a hybrid version of that, right?

Maybe under certain circumstances,

I might want a more likely hybrid model

if I was doing a lot of extended driving

or heavy, heavy towing.

But I don't see myself going back to a gas model.

Paul, I say this in the nicest, most respectful way.

You're an outlier.

I know more and more people that love EVs

when they get in them.

Look, you know, the stats show

once people have an electric,

they pretty much stay with it.

I want to say the retention rate

is somewhere around 75%.

So a quarter of them do go away,

but the vast majority stick with electric.

And often they go to an electrified vehicle

as opposed to an all-electric vehicle.

And that may be because they're outliers

in terms of where they live

or where their energy costs are

or because of their use case.

Yeah, I personally don't like the way that hybrids drive.

You know, if you mentioned the Corvette hybrid,

that's for performance.

That's not even really for fuel efficiency.

I just don't like the way they drive.

I'm sorry.

If you're the middle American taking the kids to the pool,

then it's brilliant.

They're not going to care.

Yeah, that's right.

And this explains why there is still

the greater number of people

who are buying just plain old cars.

Right.

Middle America will be perfectly satisfied

with a hybrid driving experience

until they experience driving an electric car.

And they're not going to be able to put their finger on it

exactly why they're just going to go,

man, this just drives better.

Exactly.

That's one of the reasons why I think EVs may hold on better.

When you start having some of the negatives beyond price

become minimized.

More charging stations, fewer charging failures

for a great example.

And you and I or whoever owns one starts saying,

I don't have any problems.

I just drove to Traverse City.

I didn't have an issue.

Or even better, I got the universal EV.

And what are you talking about?

My vehicle costs less than the gas model.

The thing to keep an eye on right now, I think,

is sales of used EVs.

How many secondary buyers are there really out there

in the market that are going to buy them?

Right now, used EV sales on a percentage basis

are growing faster than new ones.

But I think that's also people rushing into the market

to get the $4,000 rebate that they can on that.

That's the thing.

Once the rebate goes away and we let the market settle down

for a few months, I'm going to be curious

how well used ones sell.

Okay, so that's a perfect segue to sort of bring us away

from talking about EVs.

Okay, good.

Is the announcement by Hertz that its cars,

its used cars will now be available on Amazon autos.

Now, it's going to initially be in Dallas, Houston, LA,

and Seattle.

They have plans to expand Hertz car sales.

Hyundai's putting its used inventory on it.

Hyundai's putting its new inventory.

Oh, new inventory.

Yeah, they announced it at what LA last year.

Yeah, but I mean, it's just, yeah.

But it is used as well because I went to the website

to look and they were all used Hyundai's on there.

Okay, so what happens to dealerships

if Amazon begins selling these Hertz EVs?

Amazon is selling inventory that dealers are posting.

So, you know, with franchise laws being what they are,

Amazon can present the inventory

and it's probably going to take a cut

of whatever sale happens,

but you're actually going through a dealer

to get the car.

Okay, so in the case of Hertz, you go to Amazon autos,

they complete their purchase online

and then they pick up their vehicle at a Hertz sale.

So franchise laws.

Didn't the Hertz vehicles just used to go to auction houses?

Right.

No, no, no, there's, there's dealers.

They have their own, let's sell them.

Remember, this is how rental companies make their money.

They don't make their money renting cars.

They make their money selling cars

and the rental fees pay for all the depreciation

and the maintenance.

But when used cars, franchise laws

don't apply to used cars essentially.

But I mean, so I've got to believe

that this is going to have a deleterious effect on,

you know, all of those car dealers

that are 100 yards from where we're sitting right now

because they have used lots

and suddenly maybe they're not going to be selling

quite as many vehicles as they previously had

because of the frictionless buying experience

that Amazon offers.

Well, if I were a dealer,

I'd run to Amazon and put my inventory on there.

And so, you know, instead of just having people drive

by my dealership and maybe driving in

or maybe they get online to go just to my dealer to search.

No, they get on to Amazon, my inventory's there.

So does it lower, does it lower cost?

I mean, we always hear an argument

against using the franchise dealer system is the cost it adds.

Now you're adding another layer.

You have the used car dealer that doesn't go away

and they're going through Amazon.

It's going to take a cut.

So is Amazon going to make it efficient enough

that the whole process of selling used vehicles

can absorb whatever Amazon's going to charge?

Look, you got to sell your inventory, right?

How do you do that?

You do it with advertising.

This is just another form of advertising.

Putting your inventory on a website that gets mega traffic

way more than your dealership traffic site is going to have.

And so the real cost of dealerships

is not that they cost a whole lot more to sell a car.

It's that they've got acres of cars parked on their lots

waiting for somebody to show up.

Cars that the dealer has had to buy from the factory,

their floor planning it,

that's where all the cost comes from.

So the direct sales model was the ideal was

before the car even comes off the assembly line,

you know exactly the customer it's going to.

But as Tesla has scaled up,

it's got all kinds of inventory.

They're dropping the prices on their inventory right now.

They've got right now, you can lease CPO Teslas

funded by, I mean, they're trying to get rid of inventory.

So even their direct sales model

is not as direct as it used to be.

Paul, what's your sense of all this roiling

that's going on with Tesla?

How's it going to come out at the end?

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If you asked me this two months ago,

when Elon was in the news every day

and was really getting hated by both sides.

He had ticked off all the traditionally liberal,

green-minded buyers that supported Tesla.

And then he got into a tiff with Trump

and was ticking off the other side.

I would have thought,

the Tesla would be in much worse shape than it is.

The reality is that their sales in California,

the most liberal market,

the most traditionally liberal green-minded market,

are down less than 20%.

And then if you look in Europe where he got,

Musk himself got people really ticked off

because he stuck his nose into some politics

and in some ways it made it even uglier

than it was in the past.

It made it even uglier

supporting an essentially neo-Nazi party in Germany

and then taking on unions and workers in Scandinavia

where worker rights are just sacrosanct.

You actually saw what Norway rose, Britain rose in sales.

So it's-

Not Britain, Norway did.

Britain did one month as well.

Maybe I'm wrong, John.

It's Norway and they're up substantially.

Yeah, there was a period where Britain

was actually looking better than the rest.

Not right now.

Well, we'll catch up on that later.

But the bottom line is I think that Tesla

hasn't taken the big hit that I thought they would,

except of course with the symbol,

the vehicle that represents everything

that people dislike about Musk, the Cybertruck.

And that's, unless they find another way,

it's DOA.

I mean, it's, nobody wants it.

And the people who want it are the ones

who are in your face and say,

ha ha, I bought one anyway.

That's not a great recipe for a business.

Well, remember?

I'm just thinking back to when we had Warren Brown

on the show a year, or maybe even two years ago.

Maybe three years.

And he said, look-

He's been on here since then.

He's been on there since then, right.

But he used to do forecasting for General Motors

production and sales forecasting.

And he said two or three years ago,

look, none of them are gonna sell more than 40,000

of these electric pickups a year.

Not the full-size ones.

The market's just not there for it.

So, yeah, the Cybertruck's a total flop.

It's an engineering and technological masterpiece.

I'll disagree on some angles, but okay, I'll-

Well, it's-

Angles?

Is that a-

Yeah, yeah, yeah.

Going back to the whole dealer thing,

another couple of things that broke this week

is Jaguar dealers bailing from the brand.

They're looking at the brand going all electric.

They're looking at Jaguar doubling the price

of the cars they wanna sell.

It's got disaster written all over it.

Can you see anything that tells you

that Jaguar is on a course for survival?

No.

You asked before about startups.

In a way, Jaguar is a startup

with a once legendary name.

Yeah, right.

And no, look, as I said,

when they first showed their wild new designs,

bully for them for being so bold

and breaking the mold and going out there.

But by the same time,

they've left all their legacy behind,

all the legacy that Jaguar owners

have loved and cherished, that's gone.

And now dealers are looking at it and going,

you know what, I'll keep my Land Rover dealership,

but I'm dropping my Jaguar franchise.

And then the other thing that we saw too is VinFast.

So Gary, VinFast is dropping the direct sales model

and going with dealers.

Well, again, this was a situation where

that company has a lot on its plate

trying to bring a new name,

a new product to, for them, a new market

and to try to sell direct,

I think that's just too much for them to deal with.

And so they've cut some deals.

I think the first one is the dealership in San Diego.

Just opened their first, yeah.

Yeah, in San Diego.

So they had showrooms that they were gonna open,

many of which were just sitting there

and never did anything.

VinFast, the best thing that can happen for them

is that nobody remembers how bad the first product was.

I was stunned.

I went over to Vietnam twice.

When they first launched the company

and were making versions of the BMW X5

and then when they were just getting ready

to launch the VinFast VF8 and 9.

And a lot of us, many of whom you've had on the show,

were just stunned with how faulty it was and saying,

guys, this may be good, you've got the bones,

but you need a couple of years.

And they just stuck with the name VinFast

and rushed it to market.

And I have not been in any updated versions so far.

So I don't know if they've improved the product.

So this gets back to the earlier point you were making

about the entrance that are into the EV market.

Now, we would say compared to VinFast

that Rivian and Lucid are established companies, okay?

Does that company even have a possibility?

It's selling well in parts of Asia.

Yeah, but I don't see it surviving in the US market.

Yeah.

No, I don't.

Their business plan more than likely was predicated

on getting a bunch of ZEV credits

that they could sell as well.

You know, that's been, Tesla blazed the way

for all the other startups, get a bunch of money,

get all these car companies to pay for your ZEV credits.

Well, in the United States at least,

that money's gonna evaporate.

In fact, it already has.

The government has stopped even filling out the paperwork

or asking for the paperwork for all that.

That is being challenged in court, if I recall.

And I'm not sure, I don't know enough

about the legal precedent,

whether or not the Trump administration

may be forced to start going at it again.

I think it's done.

I don't see it coming back either.

I mean, look, I'm all for cleaning up the air

and improving the environment,

but in my opinion, too much has been placed

on the automotive industry.

Remember, light vehicles in the United States

account for 14% of all greenhouse gases, all 14%.

And I don't see any other industry at all

being regulated or fined anywhere close

to what the auto industry is.

And so even, you know, I'm all in favor of EVs.

Everybody who watches the show know I'm an EV proponent,

but, you know, they cut, you know,

a lifecycle basis, the emissions of,

compared to a gasoline car in half.

So even if you got everybody to drive an EV,

you'd take 14% of greenhouse gases

from the total down to 7%.

I mean, it doesn't solve the problem.

And so I think that the industry has been unfairly targeted

for all these improvements.

And even with a Democrat administration

coming in in the future,

I just don't see those levels of fines coming back.

All right, so I've got one,

because this is the year of autonomy.

Yes, 2025, brother.

This is real.

So I read that Neuro, which is a company

that makes automated driving technology

and has deals with companies like Kroger

to deliver autonomous groceries and so on.

It is now valued at $6 billion

following the closing of a series E funding round.

So I was thinking to myself, you know, $6 billion,

what does $6 billion mean?

Probably more than Nissan's worth.

Well, that was exactly so.

So as of now, Nissan is valued at $8.25 billion

to $8.39 billion in marketing.

Yeah, give it a week or two and then it'll be lower.

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How is this possible?

That what, Nissan's so low and Neurosow high?

Or vice versa.

Because look, the market, Wall Street rewards companies

that have projected future growth.

What would Tesla, I didn't look today.

Yesterday it was about 330 per share.

Yeah, so it's over a trillion.

Right, if you took the autonomous forecast

that Musk has come up with,

whether full self-driving or fake self-driving,

if you prefer, and robo-taxi and everything.

If you took that out, if tomorrow for some reason

that just, he said, nope, we can't do it.

How far would their price go?

Well, you know, they're trading at,

what is it, 170 times earnings

or something crazy like that?

It would drop down to legacy levels.

You know, what's GM trading at now?

I don't know off the top of my head,

I want to say eight times earnings,

six to eight times earnings.

So Tesla would drop down to that,

but it hasn't dropped down to that.

Because everybody's looking at the robo-taxies,

they're looking at the optimist robot,

they're looking at the AI stuff that Tesla's doing

and they're going, this company's

gonna continue to grow.

Now, if none of that growth materializes,

then it will go down to legacy levels of trade.

They really have a what, maybe two to three years

to prove that all these alternatives.

That's what I would give them, right.

But look, you know, the AI thing is huge.

In fact, that was another big story that just broke today.

I think the Wall Street Journal had it,

of General Motors going out and poaching AI experts

from all the tech companies in Silicon Valley,

Meta, Amazon, and-

See, we got to wonder though, John, that, okay, Meta,

Meta is paying like Meta mega dollars for AI.

Right.

So what's GM paying?

That's what's GM paying.

They gotta be paying that because why would you

otherwise leave this great paying job to go work for GM?

So is this how they're getting back into,

almost getting back into the cruise automation system?

Well, yes.

The shorthand answer is yes,

but they're looking at AI for a whole bunch of stuff.

They're looking at engineering,

they're looking at finance,

they're looking at HR,

they're looking at autonomy and other things.

Backery layouts.

Right, right.

And so it's very interesting that

top AI talent in the Valley is going,

yeah, I don't wanna go work for a legacy automaker

named General Motors.

And it's the same with Ford Skunkworks in California.

And I'd love to know, Gary,

what the hell they're paying those people

because the only way you're gonna get them,

I mean, if you're a top level programmer,

you get a million bucks a year.

That's what you get.

Whereas your engineers back here in Detroit

are maybe getting a couple of hundred thousand dollars,

depending on where they are with their bonus and stuff.

How do those guys feel?

They probably think that I wish I had learned coding.

Probably some of them are going back for it.

Yeah, they probably are,

but here's the other danger.

Now, remember when we had the head of MCD on the show here?

What was it, beginning of the year, late last year?

MCD is the mobility slash autonomy test track

at the University of Michigan.

He told us that his engineers have not been writing software

code for autonomous vehicles for two years

because AI is writing it all for them.

So you hire the AI engineers and you're good to go?

That's right, that's right.

Well, anyway, I'm out of topics.

You too?

It's a good time to wrap up.

So I hope you got a really good one.

I don't know, we'll let it go.

Okay, really good.

I will ask you one more thing.

You just brought up something very important.

And I know you touched on it a little bit

with Ford and the Universal.

One of the things I thought was really downplayed

until a couple of us started hammering the question.

How much is employment really gonna go down?

You talk about AI.

It's gonna go down everywhere.

Everywhere in the business.

I mean, Ford wanted to say,

oh, we're protecting or creating 4,000 jobs.

Well, yeah, but you're taking 600,

about what, a little over 20% of the factory jobs.

Almost 25% of it are going away.

That's right.

Look, I mean, that shows you

how much more efficient this new assembly process is.

Is that you can bring more work into the plant

and they're bringing more work in, they're insourcing

and still get rid of 25% of your workforce.

The other question that that whole thing brought up to me,

and I've had several people this week ask me,

you've got a company, Ford,

that can't get new products out the door

without major quality problems.

And yet they're saying this new process

will be even better quality.

And they're saying-

That isn't hard though, is it?

I mean, they just had a new recall

for 312,000 vehicles for brakes.

Short answer, Paul, because we'll wrap this up.

I believe Ford's quality problems

are systemic to their legacy system.

This new product is being developed outside of that,

completely 100%.

And so I think it has a much better chance.

I'm not gonna guarantee that the quality

is gonna be better.

I'm sure they're gonna have teething programs.

This is a radical change.

But I believe Ford's problems

are not from suppliers sending them shoddy parts.

It's systemic.

I believe due to the silos

within the legacy organization,

which does not exist at the Skunk Works.

But we'll see.

We'll see how it turns out.

Good.

All right.

Paul, thanks for coming on.

Gary, always good to see you.

And thanks to all of you for having to and done.

AAH #756 – A Darkening World for EV Startups

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