AAH #784 - Iran War and Supply Chain Disruptions; Make Vs Buy In AV Tech; Will Toyota Surpass GM In US Sales

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Speaker 2: So, Gabrielle, I mean, what's your sense when you're talking to people out in the real world about how they're dealing with this, whether they're you know, at at companies of the automotive stripe or others.

Speaker 3: Yeah, I mean, I just it's funny.

Speaker 4: Just yesterday I reached out to someone to have to catch up and have a chat. Listen, got to go

have a customer with a helium crisis right now. I

was like what, And you know, I think I maybe I've become a bit desensitized because, like, the auto industry has been through so much. I mean, it's already kind

of an industry that's not for the faint of heart.

And you've had the pandemic, the chip crisis. Even before

the pandemic, there was rubber, there was the there's memory chips, there's the you know, fire the fire at the Ford supplier up you know, in upstate New York.

Speaker 3: It's like people live with.

Speaker 4: An automatic Like it just feels like there's never been a time where there wasn't chaos, and it's just sort of the whether it's China squeezing our supply chains or now you know, war in Iran, it's just like it never lets up.

Speaker 3: So but I mean I do think that.

Speaker 4: Well, it's been said that like this year is the year that in terms of like there's no more absorbing the costs for consumers.

Speaker 3: Like the automakers can't do that.

Speaker 2: The careff costs that they were eating now they're trying to bleed through. So they probably the people off that

you know, working on the terraffs and moved them over to you know, dealing with supply chains from when you just enumerated.

Speaker 5: Yeah, most of.

Speaker 6: Them probably have a perpetual supply chain, That's what I'm saying.

Speaker 3: I don't think they ever took it. Yeah, they never

get just they didn't get.

Speaker 5: A break that normal the industry.

Speaker 3: Yeah.

Speaker 4: Yeah, but I mean to your point about the gas prices that you know, that's a very prevalent question right now, and everyone's like you know, someone who is going to buy a new truck with a hem engine that was all excited about that.

Speaker 3: Do they care?

Speaker 4: You know, if they were going to buy a truck at this price, do they really care? You know, is

it going to affect a new car purchase? Like I

think Stephanie said, it takes longer, but in terms of the strain and the stress on the industry that, you know, just more money they're not going to be able to make to plow into investment. They just took these huge

write downs on electric vehicles, tariff costs, moving their supply chains, rerouting them out of China, alidays. You know, if they

could just concentrate on you know, innovating and investing and making cool cars, that would be great. But that there's

so much other noise out there. This but yeah, I mean,

this is iron thing. If it's spiral keeps you know, it's.

Speaker 5: Based on what I've read now and talk to people about.

Even if the war ended this afternoon, yeah, it would take months months, not two months, many months for everything to settle down and get back to where it was.

Speaker 7: Oh we've seen this before, yeah, I mean how long to take after COVID? Right, this is a smaller example

of that in terms of not everything is going. You know,

it wasn't shut down the same way it was right after COVID, but you know it took us year and a half to get shifts back where they needed to be and kind of get things back running. So yes,

there's absolutely going to be a couple months of rejiggering where where ships are supposed to be and where things are.

Speaker 6: That is going to have to happen. It's going to

be a gradual.

Speaker 2: See what difference this time though is. I mean things

have been blown up and so it's not like this is in an inconvenient place, so we just opened.

Speaker 7: And some of that we don't have full visibility into until it's done. I mean we know that some energy assets.

Speaker 2: Happened, well, operations and cutter like they said, it'll be years.

Speaker 7: It'll be years before that that that's the times back up and run.

Speaker 6: So yes, there's that.

Speaker 7: I haven't gotten into that because it kind of goes outside my area. But there's a whole lot that you

and you bomba place for a couple of months and it's going to take time to recover from that.

Speaker 5: Okay, enough of the war for now. We talked enough

about that. Another big bomb that dropped this week, though,

is the announcing it's dropping a felt on Garby Ellen.

What do you think I mean?

Speaker 4: I think that I mean this it just feels like been waiting for shoes to drop all year, right, Yeah, you're right that maybe what took them so long, you know, but I mean we've just it's just sort of like waited.

You know, we saw GM four, then stilandis top of them, and you know it's going to come out sooner or later.

I was just thinking looking at you know, some of the things that my colleagues in Japan have written about this, and they say that, you know, yeah, I mean, it's just the price of putting all your eggs in that one basket. Right, They put all this, all these eggs

in the EV basket, and they don't have as many hybrids in their lineup as Toyota does, are not as competitive, Like you could screw up on EV's, but at least if you kept the flywheel spinning on your ice business, or you know, like you could keep if you could like, you know, keep all the other plates spinning, you're okay.

And some company has been able to do that better than others.

Speaker 3: But I think that there there was interesting change.

Speaker 4: I was just reading about this, like there was a decision to separate vehicle development from R and D at Honda right like years back, and there's a case to be made that that somehow sort of handicapped their ability to make more innovative competitive vehicles, and that that, you know, if you take away the EV charges, which they're certainly not alone and suffering that, there are other problems with the under That's why I'm talking about the keeping the other plates spinning, you know.

Speaker 5: So one of the stories I think it was Bloomberg in fact carried today is that On is running into real trouble with motorcycle sales because the Chinese are eating their launch on that, especially with electric bikes. And that's

where the scooter in the motorcycle business is headed, is electric, and that's the motorcycle side of the business is what kept Honda up recently financially speaking, and now they're running into problems with that, and all of a sudden, this great company that has made terrific products and powertrains and all that and a wide variety of none automotive products looks like it's in trouble.

Speaker 2: Wow, so Stephanie, So the Sony Honda company, it will still exist, right, Well, Sony and.

Speaker 7: Hondo will still exist. What happens to the JV. They're

still starting starting to work.

Speaker 2: So did I mean, did the market need another ninety thousand dollars plus EV that didn't have all that great in the way of specs.

Speaker 5: No?

Speaker 8: So yeah, So I mean, so what was your assessment.

Speaker 2: I mean, they've been they've been talking about this, they've been at cees, they've been showing this thing.

Speaker 7: On a very personal level. I was never a fan

of the APELA. I from the first CS presentation, I

was like, what are we doing here?

Speaker 6: This is just a question nobody is asking.

Speaker 7: And then as it came through and it was only going to be a few stories in California and it was going to be ninety five thousand dollars, and of course it wasn't quite as autonomous as they imagined that it could be and would eventually be, I'm like, we just don't need this.

Speaker 6: So I'm not all that sad to see a filago.

Speaker 7: I do wish that kind of was able to bring those evs to market.

Speaker 6: Even if it was it was a struggle.

Speaker 7: It's it's and the Afela thing was just noise in the system. Honestly, you know, it was a product that

was going to have a really hard time finding any real home, and there is there's too many cars out there.

Speaker 6: There's enough of cars out there, you.

Speaker 7: Don't really need it, So it didn't feel like it had a great chance of success from the beginning. But

the Honda to your point about splitting vehicle development and an R and D. When I look at Honda stepping

away from that, one of the things that I see is that also means the ASIMO operating system is now not being put into play. I'm not sure if they're

going to be able to put that on another ice vehicle at some point, but that software defined vehicle technology is pretty important within the automotive space, and it's a big setback for Honda to not be able to deploy that and start working on that. Regardless of the eb SO,

I think that there's from a technology and a competitiveness standpoint, I think it could be a bigger problem for Honda to have dropped this than they realize.

Speaker 5: There's only one good thing coming out of this for Honda.

Now it's dealers will not sue it trying to sell Field cars direct to consumers.

Speaker 4: How many brands have we seen fall on that knife?

I mean, like Volkswagen bit off more than they can I'm sorry, not a Scout, you know different, you know.

Speaker 3: I mean, it's like.

Speaker 7: That's going to keep going back and forth. I mean,

you know, and you open the gates. You know, they

let Tesla do it, so it doesn't matter how long it's going to take. But that's I don't don't I

don't know that dealers are going to win with Scout.

Speaker 2: So John to the point of Honda though, I mean, so last year we were talking about the possible Honda Nissan merger. Might that come back?

Speaker 5: It could come back because it was a great story and automotive news of a meeting of jam On, the Japanese Automotive Automobile Manufacturers Association, and they got their hair on fire because they are losing sales and market share, especially in the global South right now, to Chinese automakers.

And remember if you look at Southeast Asia, you know, Japanese automakers had I want to say seventy five to eighty percent market share, So you're talking of them losing millions of units of capacity to the Chinese, and so they're deeply, deeply worried. And Jamma is saying, hey, all

us Chinese are Japanese automating. We've got to work together,

we've got to collaborate. And they've got this effort to

commonize components across the line, across the industry. So you know,

it's not just Toyota trying to share components within the Toyota group. They want all automakers to do this. And

of course that's a page right out of the Chinese playbook, because the Chinese have done this, communized all kinds of commodity components under an organization. It's it's katark at C

a RTC, and it's the China Automotive Technology I think Research something or other. But it has set specs for

everything that's a commodity, whether it's windshield wiper motors or hinges for doors or whatever.

Speaker 8: So wait a minute.

Speaker 2: So you're saying that if you buy a Gli and you buy a BYD, they will have.

Speaker 8: The same windshield wiper motor.

Speaker 5: I'm not saying that they do. There's a very good

chance they're the same.

Speaker 6: Very sassification, which is still right.

Speaker 5: And so there's two benefits to commonizing commodity. And when

I say commodities, I mean things that are under the skin, stuff that the customer never sees or touches or experiences.

And so if you commonize these these commodity components, you get massive economies of scale i e. Or costs go

way down. But the more important thing, in my view

is that when you're developing a new car, if you're an engineer who can just pull all these components off the shelf, you just saved a ton of design time.

And by the way, these are components that have been validate, validated, certified.

You know the suppliers, you know what the price is.

And this is a key part of why the Chinese are so fast at product development. You know, everybody talked

about the nine ninety six. You know they work from

nine am to nine pm, six days a week. I

don't think that's nearly as important as this part's commonization is in terms of shrinking down your product development time.

Speaker 7: Yeah, they're doing a lot of off the shelf. Just

give me breaks, they say, I'm a lot of them. Cool,

let's do that. And and that's and that's working. It's

saving a ton of time. That is a lot of it.

Speaker 4: It's it's so ironic though, I mean, it's just I mean, it's just it seems like kind of paradoxical that we're talking about how the Chinese are eating everybody's lunch and then these same companies, most of them are not making money.

Speaker 3: Yeah, you know, I mean, like it's just.

Speaker 8: How do they buy that lunch?

Speaker 2: Right?

Speaker 3: Exactly? You know, I mean, it's just such a weird they.

Speaker 4: I mean, I don't disagree, but it's just it's we say, oh, they're so unbeatable, and then you look at their own market.

Speaker 5: No, that's a that's a good point, guy. Yeah, there's

going to be a collapse of the Chinese auto industry. Now,

there will. Amongst the smolder ring ruins, there's probably going

to be a handful or two handfuls of automakers that survive, and they are going to have enormous economies of scale and they're going to be extremely powerful. But you're right,

most Chinese car companies do not make a profit.

Speaker 4: Uh.

Speaker 5: And the ones that are starting to get to profitability, I believe are doing it largely on exports because they can charge a lot more for those cars overseas than they can in their own price war driven market, right, yeah.

Speaker 7: They can, and they still still have to face deal with tariffs. So most markets they have tariffs and exports

and it's helping. The interesting thing is when they do

build more plants and in the blank country because they've got so much over capacity at home. So there's there's

a there's a contradiction there, right, got so much of over capacity at home that we need to export in order to deal with this capacity. But then we also

need to build locally to get around tarrifts, to get around all sorts of other things. More capacity and more capacity,

and you look at Europe being completely under overpastized, right, and you're like, wait a second, we're we're going to have way more capacity than.

Speaker 6: We need very we already do.

Speaker 5: We already, we already do.

Speaker 7: And so there's there's a correction that's going to come in that regard as well.

Speaker 5: Wow.

Speaker 3: So then it's like thinking about how do you survive that?

Speaker 4: Like you said, the when you come from the ashes, who's surviving among the Chinese players? But how to Japanese Korean?

You know, what's the strategy when you were talking about the common components. Maybe it's just I covered Chrysler or Stilantis,

but you know, sharing things and only differentiating on the things that customer feels or that make their defined to your brand. That's from confessions of a capital Junke. I

mean we've tried, We've talked about this for years and years and years in the auto industry. Is it's just

not we're not centralized enough, I think, or the mentality.

Speaker 3: We're so diverse in.

Speaker 4: Our you know, different cultures of different companies, they come from different countries.

Speaker 5: I would put it differently. I think it comes down

to the corporate ego. We don't need to share with those

other companies. We're the best, we have the best designs,

the best man. It's pure ego, I believe.

Speaker 3: I mean that's in finaced with culture.

Speaker 6: I think it's culture.

Speaker 7: And there's silly things, you know, like we can't get lighting commulligated cross regions, oh for like regulatory and tape type.

Speaker 6: Of European won't agree with Canada won't agree with you.

Speaker 3: That that's a trade issue.

Speaker 7: Just a trade issue. I'm talking about that. The vehicle

safety standards, like there's different no I know, but I was.

Speaker 4: I've met a trade official this year who was talking about, oh, we're working very hard to get the US standards of home aligation adopted by Saudi Arabia or something like that.

So it's actually these regulatory things are also a tool to create to are used as a trade for trade leverage and things like that too.

Speaker 5: Yeah, but do you think for a second Nizza is going to say, you know what, why don't we close down and we'll just use the European safety standards. Yeah,

that's never going to happen, and vice versa. European regulators

are never going to say, you know what, the Americans are ahead of us in safety, we ought to adopt their They're never going to do that.

Speaker 3: They aren't.

Speaker 7: And you know, it's it's partially ego, right, but it's also partially that there are differences. If you think about

pedestrian safety standards that sort of started more in Europe and we've adopted some of them. We don't have the

density of cities that Europe does, and pedestrian accents were a bigger problem there, so it was something that was specific or more specific to that region.

Speaker 5: Walking Okay, but let's let's pick something that's common lighting to you should be you know these these these pixel headlamps that yeah, closed down on the pixels that might blind an oncoming driver.

Speaker 6: This shouldn't be so hard.

Speaker 5: It should have been approved ten years ago in this country.

Speaker 7: And it was approved like two years ago. And it's

still like two automakers happen.

Speaker 5: And look, and here's the other thing. It takes its

seven years to write a safety standard. That to me,

in my book, that's inexcusable. People are getting hurt, people

are getting chilled, and the regulators and their their hands are kind of tied because this is the procedure that they have to follow. But it's it's time to rip

it up and start over.

Speaker 6: It is, it has been.

Speaker 8: Its going to happen, all right.

Speaker 2: We're talking about building more plants, and Toyota announced this week they're spending a billion dollars in the US on factories Georgetown and their plant in Indiana.

Speaker 5: Remember this is just one billion of ten billion that they have committed before the end of the decade.

Speaker 2: Well, they announced at the end of twenty twenty five that they're spending nine hundred and twelve million.

Speaker 3: Yep, So we've spent two billion.

Speaker 8: For increasing hybrid production, so eric production, Well.

Speaker 2: Do you think John, the eight hundred million dollars being spent in the Georgetown plant.

Speaker 5: Look, you know in Toyota increase sales in the United States, you bet it can. Does it want to build them

here and not have to import them from Japan or Mexico or Canada and avoid the tariffs? You bet it does.

And this is something I don't hear any automotive executive talking about. When you look at robotaxis, they're popping up

in cities all over the world right now. And Boston

Consulting Group did a study that they say by twenty thirty five, which in automotive terms, is just a couple of design cycles away, that there could be anywhere from seven hundred thousand to three million robotaxis operating in the world.

And I'll just say, to make the math easy, one ROBOTAXI can probably replace four cars. I think you can

replace a lot more than that.

Speaker 3: But I'm skeptical.

Speaker 2: You're skeptical of what that they're going to or that they're places for cars.

Speaker 5: We'll think about this. It's not going to replace primary

cars for people who have them. But if you are

a household that has a second car, maybe even a third car, maybe you don't need that.

Speaker 6: Times, so why you have that second or third car?

Speaker 8: Argue with them, I will do it otherwise.

Speaker 7: I mean I had three cars at one point. I

sure didn't need three cars because there are fun.

Speaker 5: Because you can afford it. But there's a lot of

families for whom paycheck to paycheck is the reality. And

if you can go to them and say, you know what, if you give up that car and all the maintenance and all the insurance and all the fuel that you're putting into it, and you only pay for your miles as you need them, I can save you three to five thousand dollars a year. There's going to be households

that say, sign me up right now.

Speaker 7: I'm not convinced i'll save that much. And and it's

still where's that use time going to be? What are

you replacing? What were you doing with the second car

that you didn't need it and now you can go someplace else with it.

Speaker 3: So that's kind of.

Speaker 5: High congested cities. Let's say New York.

Speaker 6: Now, well New York doesn't own cars anyway.

Speaker 5: Drive down any street in New York, each side of the curve is a lot.

Speaker 3: Lot who are coming through.

Speaker 4: But most people who like live in New York City having a car is not necessary and it's more of a huge hassle. You have to move it for the

street cleaners, the parking all.

Speaker 8: You know, it's right congestion charges.

Speaker 4: If those are people coming in from like New Jersey, right, you know, in your island or something.

Speaker 5: Yeah, there's lots of cars in New York. And I

think robotaxis that are far cheaper than taxis or ride hailing, and we're saying, you know what, I'm going to use that.

Speaker 7: I think that there's potential for it to grow, and certainly it'll change the dynamic. I I just am not

as optimistic that it's going to grow as high as you think it's going to going to place.

Speaker 5: Quoting Boston Consulting Group, I'm quoting mckise that also says this.

Speaker 6: Is going to be between seven hundred and three million.

Speaker 8: Said, I don't know, I.

Speaker 5: Know, but the ads weren't ready then now they are.

Speaker 4: They are, they talk, they're still like phantom drivers that intervening something goes wrong. I mean they're not truly I

mean has been marketing full self driving since.

Speaker 8: How long right and it's not and it's not right.

Speaker 3: But no argument with for me that it's progressing and it's getting better.

Speaker 4: But another question to think about, and all that that I think is so interesting is more about generational differences and cultural tastes.

Speaker 3: I've talked.

Speaker 4: I've talked to friends who are auto engineers who say they're really worried that, like, younger generations just don't have the passion for driving or the passion for cars that people who grew up with like older generations do. And

it's not about I mean because again there was this whole thing. We've seen this before. Everyone's going to have

a shared uber, they don't want kids, don't want to get driver's license. That is a very like urban coastal

perspective that doesn't speak to the realities of like the majority of America. People need to be able to get

around cheaply, safely. So maybe that'll be in autonomous uber or.

Speaker 3: You know, a way mo.

Speaker 4: I don't know, but I just think I'm like, one thing I'm really watching is is this generation really different?

I mean, can they not afford I mean, you know, people are more pessimistic about being able to do things like buy a house or a home.

Speaker 3: But even do they have that passion.

Speaker 4: Like if they're staying home and like texting their friends on the phone or playing video games or they're on discord, they're not having those experiences of like going out on a date or sneaking out of the house and you know, stealing dad's car whatever. You know, all those things you

did in a car when you were a teenager. That's

just something I don't want to generalize about a generation, of course, but like that's just a question. When I

look about this av question, I just think about how our generational consumer tastes change.

Speaker 2: Okay, so this is John would say this, but I'll say it before it is. So, so Uber is gonna

get fifty thousand vehicles from Rivian.

Speaker 8: Okay, So then I looked at Nobo tax Robotich.

Speaker 2: Sorry, So, so I looked at Uber's site and and so today they announced that there's they're working with a company vern and pony Ai in Europe for the first commercial robot taxi service.

Speaker 8: In Europe, going to begin in Zagreb.

Speaker 2: It was interesting they're using the Arctic.

Speaker 8: Fox Alpha T five robotaxi.

Speaker 2: Well, it's comes from b A I c Yeah, where.

Speaker 8: Is then there?

Speaker 2: Then on March third, so this is the twenty six.

On March surteenth, they announced to deal with Motional, the Hyundai company for robotaxis.

Speaker 5: In last all these robotaxi.

Speaker 2: Eleventh okay, so now we've got March eleventh wave, Uber and Nissan memorim of understanding for robotaxis, and in the.

Speaker 7: Middle of their they Lucid said that Uber is also going to take the mid size as well as to gravity, so they're more Eudelucid as well.

Speaker 2: March eleventh, Uber announced deal with Zookes they'll be using that.

So then late last year stillantos what five thousand in Vidia powered autonomous vehicles for Uber?

Speaker 4: I just okay, first of all, just robotaxi announcements after again, like I'm not that they're not going to I mean, I'm just very sky I always like I keep a grain assault with all these announcements because I've seen this movie before. Not that there isn't real progress happening, but

to me, that is indicative. I don't know what that

says about consumer demand. What that says is Uber feels

like it needs to hurry up and get more cars deploys so we can keep up with way moment Tesla exactly on technology.

Speaker 3: That everybody wants, doesn't want to own a car.

Speaker 4: It just means that tech company are throwing money at a new technology to try to maintain their age, which is different.

Speaker 7: And Uber's doing it interestingly because they're buying technology and buying the cars. Like you guys, figure out how to

make it work. You just show it up being to

put it on the thing. But you know, there's still

there's still open questions about whether it's you know, whether it's profitable rights and doing this. They're switching from paying.

Speaker 5: Ony ai just toasted of profit in the fourth quarter.

Finally now they they first started running robotaxis twenty twenty one, that was their first ones. So here we are twenty

twenty six, and so they're profitable in their fourth quarter.

Now it's not a big profit, but they already have turned the corner good.

Speaker 4: We need to see so, you know, because there's still like where's Weimo on that Weimo doesn't release.

Speaker 5: They don't talk about financials, right the beauty opponent is it?

Speaker 7: Wom has also said back to the point of affordability.

Weimo has also said that they're they're finding that you are perfectly happy to pay ten percent more than the regular rate ride haling bay to get the autonomous car.

That's another question that I have for this is does it actually turn out to be cheaper than righte hailing no competition?

Speaker 5: Wait till there's multiple companies offering robotaxi rides, then you'll see the cost come down.

Speaker 3: Well, let me think about Oh sorry, go ahead.

Speaker 7: It depends on if the business model works. You still

have a very expensive piece of machinery that you have to own. You still have an expensive perise of machinery

that has plenty of dead heading time, you still have to manage your d D.

Speaker 5: Says it's selling its fully equipped robotaxis for under forty grand and.

Speaker 3: That's China's market based commonies. And China is definitely full

steam ahead on this.

Speaker 7: They've got, you know, ten times the number of people that we do, So there's a little bit different transportation dynamics there four times of people.

Speaker 5: So if you're just talking the US versus.

Speaker 7: China, Yeah, so it's a it's a completely different different dynamic as well.

Speaker 4: Yeah, but just the question about Uber and will it be cheaper, Let's just look at the history of Uber so far again.

Speaker 3: I lived in New York City for ten years.

Speaker 4: I remember when there was very fierce ride sharing competition, and it was like a price war and you could get great deals. And then, you know, once it becomes

less crowded, all of a sudden, oh we have surge pricing.

You know, if you want, if it's raining, if it's you know, after midnight on a Saturday, it's not cheaper.

I end up going back to the gypsy cabs and back to the old school guys because they're cheaper than the ride hailing. So I just I would not put

any faith that it's going to be cheaper.

Speaker 3: I don't know how I use Uber.

Speaker 6: Because you want to go to a concert, it's more expensive because the concert. So how is that like? Yeah,

you know, well because you.

Speaker 2: Went to the concert, you drove your own car. Then

you had to pay for parking this way.

Speaker 5: Yeah, I still maintain wait till you have you know, more than one ride hand we want more than one mobile market.

Speaker 3: But even that great period, yeah.

Speaker 5: Hey, look, we got to take a quick commercial break for our sponsors. Right now, let's go to that. We'll

get back to all these other things we're talking about it is great.

Speaker 2: I got two picking on you now, and not just mean.

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Speaker 4: The automotive industry continues to evolve, and so do the opportunities to define it. Forg Warner, one of the world's

most admired companies, gets its partners where they need to go.

Speaker 5: Let's do something big together. All right, we're back talking

about or are we arguing about everything going on in the industry, Gabrielle. You recently had a story in Bloomberg

that was really interesting about automakers who put billions of dollars into making evy battery plants. I'm talking largely in

the US right now, going you know, slamming on the brakes.

But they've got these sunken usments and now they're pivoting to make batteries for data storage.

Speaker 3: Yeah, it's been really remarkable.

Speaker 4: It's funny, how like the estimates for this business have been so far off, so are always off base. So

you know, there was an over you know, over estimation of how much demand there would be for evs.

Speaker 3: All this capacity was built for battery plants.

Speaker 4: In part, you know, incentivized by the Biden administration, the Inflation Reduction Act and all the subsidies you could get by building batteries in the US and everyone, even though we're seeing all these you know, painful of billions of dollars in write downs for evs, the AI data center, but it's not just because there's also questions about the bubble, you know, around AI.

Speaker 3: But even I was for that.

Speaker 4: Story talking to LG, they said, even if you know the AI bubble pops, we still need to you know, build out the grid, make it more resilient, make it more efficient, and all that requires batteries. So look, it

doesn't take away the doesn't take away the pain of all the money they already wrote off on EV's but it is kind of a nice thing to pivot to.

It's kind of saving their bacon a little bit. Certainly

for LG, it's been amazing to watch how quickly they are converting all these plants from EV to stationary storage.

Speaker 5: But it's it's it's not a flick of the switch, right, there's some significant changes in the plants that have got to take place.

Speaker 4: There are huh, yeah, it was not a chemistry, right, yeah, but with this, I mean with uh for example, that plant is the spring Hill Plant Ultium in Tennessee. I

think they went from making a nickel based battery for cars to a lithium iron phosphate LFP battery. And there's yes,

there's some pieces of the plant that have to change, of course, but not there are some pieces that don't have to change. I mean they said it's about ten

to twenty percent cost to retool it and do that, and you know, it's not like it started this year.

I think ELG has been retooling.

Speaker 3: They saw the.

Speaker 4: Ride on the wall and started, you know, redeploying things.

You know, people were selling out of the jvs things like that.

Speaker 2: That thought was interesting is is that I looked into it.

And so the forty five X Advanced Manufacturing Tax credit still applies. So just as when the car companies were

building batteries for evs and the government was giving them money, they can build batteries for data centers or just other stationary storage applications and the government gives them money.

Speaker 5: The money still there.

Speaker 3: It's pretty start.

Speaker 4: The consumer lost their tax credit, but the companies did not lose their tax credit because all these a lot of these plants are built in red states where they have a lot of jobs that depend on these new investments and they don't want to.

Speaker 3: See that go away.

Speaker 4: And you can really argue it is in our national interest to build out a battery supply chain. You know,

that's almost a bipartisan issue that we need to decouple from China and make more stuff here and this is the way to keep these plants going.

Speaker 3: That's that's good, you know, but it is kind of.

Speaker 4: Funny, like, oh, okay, I think you know, people can't buy an EV and get spending five hundred off anymore, you know, but the companies are still getting subsidized to make batteries.

Speaker 7: There was something in there that that they they did went with one big beat of flac. They did reduce

the availability of the forty five x that they changed the times factor on it.

Speaker 6: I believe for some of that, but I.

Speaker 4: Think they they were just what they did is they made it tougher to have Chinese content.

Speaker 3: There were loopholes in the.

Speaker 4: Subsidies where if you could get the credit even if you had you know, Chinese material in your supply chain that didn't apply to that applied to the consumer tax credit for this forty five X.

Speaker 3: There was no strings attached.

Speaker 4: You could X is what is the subject for battery manufacturing or like what like Hill would get any battery plant cranking out batteries, whether it's for EVS or for stationary storage.

Speaker 3: I'm going to screw up the numbers. I don't want

to say it's something for kilot.

Speaker 8: And then the But now there's the top of that.

Speaker 4: Stricter anti China strings attached to that, which is a really big boon to l G and is a pain in the neck for cl which has been very dominant in that market. And of course it's Ford's partner as well,

so that they made them, they kept them, but they changed some of the strings atten right.

Speaker 2: And HL has no manufacturing in the United States right now, so it doesn't really matter for them directly.

Speaker 4: Technology and they have but they sell a lot of batteries I guess they're exported from you know, but they sell a lot of batteries to people who use them for stationaries, right.

Speaker 2: But they're not making them here, so they wouldn't get the money from the forty five X.

Speaker 4: Well, I mean this is something that's debated in Congress.

They're chining to hawks who don't like the smell of it.

But yes, you could say, you know, it goes to Ford and then indirectly for cl is getting paid, you know, through their licensing and royalty contract with Ford to license their technology to build batteries in the US.

Speaker 5: You know what hitting though with you saying this, Look at the billions that GM and Ford and Stilantis have written off on their ev investments, but obviously they haven't written off these battery plants, right, I mean if the battery plants are pivoting to make l f B for energy storage.

Speaker 7: Oh yeah, some of those some of the right downs have been announced that are coming over a couple of years, and and they're covering it's not always clear exactly what that that total add up sum is, and and it's it's it's interesting seeing this the switch to s S and we don't track E s S as closely, but we're energy storage service. Yeah yeah, and but but there's

very likely going to be over capacity in that sector as as a result of all these changes, and even with the changes that we know of those moving around, we're still over capacity for evs and the available battery space.

The other thing is that that if they do pivot as they pivot the plants to energy storage solutions instead of automotive batteries. One of the reasons that that Ford

and GM would like to do that and not give up all of their plants is because while it would take a little bit of time and a little money to reconvert it back, it can be done. So if

if GM, you know, gives up one of their plants to LG, but they keep the other one, they do still have some skin in the game.

Speaker 4: They do still have a battery plan, and they've got the workforce there. They've got the people trained to work

on it. It's like, you know, that's you know that there's

a benefit to that there.

Speaker 2: So when you're working on the story, I mean, do you have any sense of how the customers would feel about buying a battery from a General Motors or a Ford versus buying a battery from a Panasonic or or I don't think the energy I think.

Speaker 4: Well, I don't think that Like in the case of that deal with LG and GM in Tennessee, the Ultium which is, you know, the joint vendor between GM and LG is making cells. But then LG itself as a

you know, it's called VerTech. They have a business that sells.

So it's the person who's selling the brand that's selling the batteries to all these utilities or you know, it's not JAM, it's it's the same company they've always dealt with that hadn't provided them batteries.

Speaker 5: What do you think, Gary, will the customer care who made the battery in their car?

Speaker 3: Well, I don't know.

Speaker 2: I mean, I mean it occurred to me at one point that that maybe this would be beneficial for it to be badged General Motors or Ford. You know, we

make stuff that's reliable, you know, we build Ford tough, and this would be the battery system that you're buying.

And you'd be like, yeah, I don't.

Speaker 3: I mean Tesla does that. Tesla? Yeah, you know they

have you know, the pack you know, for your charger.

Speaker 4: They have a branded but you know that's a whole They developed all that at once. Here's an electric car,

here's your charging system, here's the supercharger network.

Speaker 3: It was all kind of a branded thing that was brought out to you.

Speaker 5: So, I mean, does.

Speaker 2: Tesla sell batteries for energy George stationary application?

Speaker 8: I mean not for houses I'm talking about.

Speaker 5: No, They've got huge gas.

Speaker 8: Okay, and it's it's branded Tesla. Yes, Okay.

Speaker 2: So you guys are making fun of me for seeing it out to be branded Ford.

Speaker 6: I'm not saying it can't, but I think.

Speaker 5: I've got the brand name that could carry that off.

I don't think you'd see build consumers running out to buy a Ford, or even gmgms trying to get into home energy systems too.

Speaker 4: I think they have, like, I think they have a lot of work to do and establishing credibility on that front.

Speaker 8: So I was very interested.

Speaker 2: I was reading about how General Motors decided to get into refrigerators and it ran frigid air for sixty years.

Speaker 3: Yeah yeow, I did not know that.

Speaker 2: Yeah that's right. See quality manufacturing, that's why they were

able to do that.

Speaker 8: Yeah, just like just like now, yeah we got to get Yeah.

Speaker 5: Well, you know that brings in the whole another great topic, buy or make? Should you buy the technology as an

auto maker or make it? And uh, you know what

what triggered that thought is going back to what we were talking about earlier Uber buying vehicles from Rivian because Rivian developed its own tech stack, And then wasn't it Nissan is going to buy and videos tech stack for its a VS. And you know this, this whole argument,

you know, runs out when does it make sense to buy?

When does it make sense to to bring it in house?

I would say, if it's hyper critical to the customer and you've got economies of scale, do it in house.

Otherwise outsource it.

Speaker 7: And again that and so it comes down to what's right for what product, and what's right for what company, and what's right for their strategy.

Speaker 6: There isn't one answer. It depends is.

Speaker 8: It's depending.

Speaker 5: Let's stick with a V technology right now? All right?

Speaker 2: So John, so, okay, Vivian did this, But okay, Rivian was a startup. Okay, Rivian was funded by Amazon and

and so yes, they designed all this stuff. Okay, but

does a legacy automaker have the wherewithal to compete with Nvidia?

Speaker 5: I say no, I would, I would agree with you.

Speaker 8: Okay.

Speaker 3: Therefore, right, that's kind where I was going to do so.

Speaker 2: So therefore it would seemed to me the thing I think is troublesome is that if we look at what the traditional automakers have been doing. I mean, the General

Motors just announced that they're running tests of their eyes off, hands off, level three, level three stuff going on, and that at some point WEIMO was going to go, you know what, I'll sell you a package and it'll have everything you need for L four.

Speaker 8: Skip that L three nonsense.

Speaker 2: We're going to go straight to L four and it's in this nice little box and it's got the processor and it's got the sensors wide our cameras. That's got

all you need and it's going to cost you a hundred bucks.

Speaker 4: WAMO is going to go to who GM or the customer. Yeah,

well I think that's that this we've again, this has been playing out already for years. But the car companies

they want to they know that data is the new oil to use that kind of cliched phrase, you know.

So they know they've got a lot of data inside the car and they don't want to give it up, you know, And so they I think that and not to mention all these future business models for car companies where they're going to have services, revenue and it's going to come from things like that Blue cruise and whatnot, or tire is at the floor d yeah, yeah, super super crews. I'm so sorry, you know. So that's a

big part of the strategy is to do it themselves.

Speaker 7: And and there's elements to the software stack. It's not

one thing. It's not this one little software stack that

they pick up from Navidia and stick on the front of a GM. It's there's multiple components, there's multiple developments,

so it isn't one stack that's off off the shop even way.

Speaker 2: Most don't think Jensen's going to put this together as a package and sell that to people.

Speaker 8: Oh I think.

Speaker 5: He's doing it because Nissan announced that it's taking in Vidious a vy tech stack.

Speaker 7: But there's still elements to that. That's not that is

working with other parts to the vehicle. It's not as

simple as one.

Speaker 8: Sorry, you got ten guys over there working.

Speaker 3: On the stuff.

Speaker 7: The software stack doesn't include the sensors, it doesn't necessarily include the lighter. It's the software that's right. So that's

I mean, the system is not a one piece system.

It's a system with four layers, five layers on it.

So it's it's not really you know, we hear that they're buying a software stack, or they're bought this part of technology for mobile eyre by that part of technology, and we're not talking about it very precisely. And there's

there's bits and pieces to it that come togethers are important.

Speaker 5: That you can buy different sensors from different suppliers. Sure,

and the tech stack, you know the way that Rivian describes it starts with the chip.

Speaker 3: It starts with the chip.

Speaker 5: They designed the chip.

Speaker 3: It starts with you.

Speaker 5: Know, I know Tesla does design of its own chips.

I know. I believe Neo and SHAWM do. I don't

think anybody else does. I don't know. And this gets

back to the make versus by how much.

Speaker 2: Money has been made.

Speaker 7: None, it's zero, you know, a decade to make any money.

Speaker 2: You know, he's he's making dis argument that all this vertical integration is so marvelous but many money.

Speaker 5: No, I'm saying, if I were an automaker and wanted to get into the A V business right now, I'd go buy it. It's it's done, it's there. Why should I.

Speaker 4: There was rg AI, there was the GM bought Cruise like I mean, they already tried that, and then they were like Oh, this is too expensive and too hard, we can't do it.

Speaker 6: Yeah, they were too early, just like the Really they weren't.

They weren't car ready.

Speaker 7: And I would argue that they didn't really say that that that it was too expressive, they wouldn't do it.

But what GM ran into the problem with there's a couple of problems with crews, right.

Speaker 6: There was the accident that.

Speaker 7: You know, just went very badly around here around and it exposed some situations within the company that they weren't being within Cruise wasn't being as transparent as it needed to be. So you did that whole change, and GM

looked at it eventually and said, wait a second, we don't we're not in the righte hailing business. Let's close

that off, let's bring this stuff in house, and let's look at it on a personal level. So in twenty

eight they'll be at level three. They're on their way

to ultimately they want to do it in a different way.

Speaker 6: But they didn't just throw the.

Speaker 7: Technology away and say forget it, we don't, we can't do it ourselves, we give up.

Speaker 5: Here's insane with Ford. Remember Dan Ammon was running up

GM Cruise. He wanted to take the company public. Yeah,

he wanted it spun out a GM. Mary Barras said, no,

Dan was given the boot. What if Cruse had gone public?

What if it had gone a strictly as away from GM as a robo taxi company.

Speaker 7: I maintained one of the reasons Weymo is way where it is is because it's got alphabet Waymo has an endless, seemingly endless source of money.

Speaker 6: Cruise by itself would not have had that.

Speaker 4: But they still Waymo still raises money like a you know, venture capital money and all that stuff too.

Speaker 3: They're not just using Google's money.

Speaker 6: Yeah, I'm not sure. I'm not sure that that Cruise

they have.

Speaker 5: Done the Rithean model and sell their architecture to Volkswagon or sell it to Uber.

Speaker 4: Cruise not if it came not if they will yeah, I mean then but then sharing its technology with competitors.

Speaker 2: If it went well, we're sharing it with Volkswagon and sharing it with.

Speaker 7: Well, there's a but they have that's part Yeah in this a the av part yet that they're that they're sharing yet. But I think that that GM was was

right to keep Cruise. I think if you take a

longer term view, say, robotaxes are great. See I hone

us we get there in twenty thirty five, it's going to be matter and it already does in that they are using that technology, and they're using the engineers and using the things as they've learned to get to the level three that's going to get them the So I think on a long term basis, GM was smart to keep that technology for themselves.

Speaker 2: Remember all those pictures that for used to put out of those fusions delivering Domino's pizzas anonymously.

Speaker 8: What never happened to those?

Speaker 6: Remember the side note? Do you remember the Dominoes Chevrolet bolts. Yeah,

there's a Domino studio.

Speaker 7: There's a Dominoes across this right down the street from my house. It's still running at least two of those.

So I remember Domino's logos, Spark a Spark.

Speaker 5: And it was The conversions were done by Raush in Lavonia using the seat heater. Yeah right. They took the

seed heater out of the passenger of frock seat and use that in the little oven in the back of the car to keep the pizzas hot.

Speaker 6: There's at least two of those still in operation.

Speaker 3: Pizza from.

Speaker 2: All right, So let's let's combine. So this was a

topic that you wanted to talk about, John, and so we're going to come find things that we've just been discussing since.

Speaker 8: The top of the show practically about.

Speaker 2: So, the deal that General Motors has with SAIC in China runs.

Speaker 5: Out next year. Next year that agreement expise.

Speaker 8: Should they keep it going?

Speaker 5: Ooh, I guess I can argue both sides.

Speaker 3: Yeah, let's hear that argument.

Speaker 5: No, no, no, So here's my argument. If GM were to

go it alone, now it's its own boss. Now it

keeps all the money that it makes in China right now, Remember they only get equity payments out of SAIC, And boy that's dropped off a cliff because GM sales have gone down. But they'd be steering the car, so to speak.

On the other hand, China, you know, the Communist Party runs everything right, and having a Chinese partner runs a lot of interference for you, especially as an American company in China with growing antagonism between the US and China, and so youth you decide, you know, Sai see, uh, we don't really need them, but man, it's a great insurance policy. I don't know that that would.

Speaker 2: They still operate in China if they got rid of their Absolutely?

Speaker 5: Yeah, now you can't. China has lifted that requirement. You

no longer have to have a joint venture partner. So

doesn't have one.

Speaker 8: But that was sort of a special well Tussela broke the ice.

Speaker 3: It broke the They were the first one to take advantage of it. There was other oms have taken advantage

of it.

Speaker 2: Sense right, So so would would would your would your favorite Wooling Mini whatever it's called, still exist? I mean

I understand that Wooling is not SAIC, but SAIC and Wooling would be able to make that car?

Speaker 5: Yeah, that Health General Motors that car? You know what

do they sell for? Under five thousand bucks? The last

I looked at Wooling's financials, they were making about twenty dollars profit per vehicle. So GM's equity income coming out

of there is you know, we could put the spare change in our podet, but.

Speaker 4: We're only looking at the GM side. Does se I

C want to stay in a partnership with GM?

Speaker 5: That's a great question.

Speaker 3: I mean, that's my question. That's really I don't I

don't know, I have no special insight to that.

Speaker 4: But I'm just looking at you know, the Chinese companies used to used to need foreign carmakers.

Speaker 5: No, they don't.

Speaker 4: I don't know that they really do anymore. I mean,

so I guess that's just the question. I don't have answers, Sorry,

but that's my question. Is what's in it for SA?

What would be in it for US? Up owning pay Tech.

Speaker 2: That's the Asia Technical Center where they're.

Speaker 7: Doing the design and engineering, ends up owning that. That's

the answer the question.

Speaker 5: GM would not want to give that up, you know, because it wants to have access to Chinese technology.

Speaker 8: And then you were out in China.

Speaker 2: Now are basically predicated on s A I see, and that's their.

Speaker 8: Big brand in China. So if SA is like.

Speaker 5: To stay, well, look it looks like they've bottomed out in China. You know, they've had I don't know how

many months, thirteen months of sales going up slightly. Now,

it's not where they were a decade ago. But they

don't want to give up on China. In fact, I

don't think any of the auto makers want to give up on China. They want to fight their way back.

Speaker 7: Yeah, you know, if you readjust for like this version of it versus what it was before, and you can still find it away and there was still his equity income.

I mean, it might not be a lot, but it's still it's still equity income that it is.

Speaker 5: But I would maintain that's all coming from SAIC. I

doubt GM is getting much.

Speaker 4: I think more important than that though, is that Like what you've mentioned about access to technology and just being in the Chinese market and understanding what's happening there.

Speaker 3: That seems like not that it saved anybody.

Speaker 4: The first time around, Right, They've all been there for years and they somehow didn't you know, adapt.

Speaker 3: To be able to take it.

Speaker 4: They weren't prepared for what was coming with the likes of BYD and Shelby and all these other startups. But

I feel like it seems like every car company these days feels like they have to have some sort of partnership with China, whether in China or outside of China, in order to be able to compete. Well, that seems

to be the conversation that we're having now. Was just

as a global auto industry, you know, Likegas, Atlantis, Elite, Motor Okay, they do you know, everybody's trying to arrange something.

Speaker 6: Yeah, I wouldn't rush out to I wouldn't rush out to kill it.

Speaker 2: Yeah, all right, So talking about competitive companies will bring it back to the United States. So at the Hundai

Motor Company General Shareholder Holder meeting today, Jose Muno's announced that from twenty twenty six now to twenty thirty, YNDAI plans to introduce thirty six all new or significantly enhanced models in the United States, and it wants more than eighty percent of the vehicles that it sells in the US to be built domestically by twenty thirty and it wants its apply chain content to be US.

Speaker 8: From sixty percent to eighty percent.

Speaker 3: Well, we sure lucky.

Speaker 4: We have the world's second biggest car market to make all these companies want to invest here. A lot of

other countries would love to have that, and they just don't have the market too, they don't.

Speaker 2: So I mean Hundai's got I mean, you know, their design and the vehicles they're putting out there, I mean are just sensational.

Speaker 8: So how you know, how do the companies.

Speaker 2: That are here going to feel about that?

Speaker 5: Well, they better have their hair on fire because you know, we talked earlier in the show about Toyota expanding production capacity in the United States. Toyota is about three hundred

thousand units a year behind GM in the US market.

I don't know off the top of my head how far behind the Hyundai group including Kia and Genesiss behind the Ford Motor Company. It's probably about a similar gap,

I'm guessing.

Speaker 4: I don't know, off I don't I know the r I checked the rankings now and again I don't know what the volume difference is.

Speaker 5: All I'm getting that is I can paint a picture that before the decade is over, three of the top or two of the top three automakers in the US market will be Asian. Could it will be number one,

GM will be number two, Hundai KI at number three, displacing forward.

Speaker 6: It could happen.

Speaker 7: But some of that, what what Jose talked about today wasn't necessarily they do what they are looking for. Some

capacity increase, So I'm not saying there's none, But you can have eighty percent sold here in eighty percent sourced here and still be at the same level.

Speaker 6: So I think they will.

Speaker 7: They will grow, But part of it is just where the sourcing is and the flip side of that is there's a plant somewhere else, it's not going to build something.

Speaker 5: Yeah, yeah, No, that's a good point.

Speaker 7: So that that not that they won't do these things, but that that is a the other flips.

Speaker 5: Is Ford going to introduce in the time frame that is going to bring thirty six? How many is GM

going to introduce in that time frame? And you know,

this business, the new stuff always does always have Yeah.

Speaker 7: And when we look at those while we were talking about this a little bit for the show too, as some of those models will be you know, a new new engine line, some of them is going to be a new trim line versus an extended rates.

Speaker 3: And the commercial van, which is the which is the.

Speaker 7: GM Hyundai Commercial Van project by the way, the commercial van.

Speaker 3: Yeah, they are right, they're working together and.

Speaker 6: Working together on that. So there's there's a lot there.

Speaker 7: But you're right, it comes down to product and and you bring up Ford and Ford. It's not got a

lot of new product coming necessarily, there's in there and they're really sticking with filling out more trucks and filling out more utility vehicles, and you know, I think there's opportunity for not cityans to come back back to twenty thirty percent or whatever. But there's opportunity for a little

bit more of that, and and Ford just does not as not prepared for that. They're not prepared for, you know,

deciding that everybody really wants to pick up bed.

Speaker 6: Really not everybody wants to pick up bed. It's where

to God, it's.

Speaker 7: True, and they're not They're not.

Speaker 6: Fully prepared for that.

Speaker 7: So I think there's some gaps in Ford's space that they don't have enough product coming in. Poor Lincoln just

keeps getting you know, every time you delay another Ford product, you've delayed another Lincoln product by a couple of years.

And so there's a product cadence issue at Ford.

Speaker 4: Well that's not just them, right, A lot of companies spend a lot of money on EV development and then had to cancel it. So they're not ready to just

pull ten more rabbits out of their rat you.

Speaker 7: Know, you know, you know, figuring out how to make your ice a little bit run a little bit longer, and refresh those and and maybe run that platform another another cycle. Yeah, so there's a lot of that happening too.

Speaker 5: We're gonna have to wrap this up a lot of time, unfortunately, but Gabrielle Cool coming from Bloomberg, Stephanie Brinley from S and P Global Mobility BINGO, thank you for being on the show today.

Speaker 3: Thanks for having me, Thanks for having me.

Speaker 6: Yeah, I appreciate it's good.

Speaker 5: Yes, we're good. It's good.

Speaker 6: Good.

Speaker 5: I want to thank all of you for having tuned in.

Speaker 1: Out online. After Hours is brought to you by Bridge

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