Part 1: The Big News

Ali Tabibian:                 Self-driving cars are mostly fake news ...

Donald Trump:             Fake news for a long time.

Ali Tabibian:                 ... But the reals parts are big news. Welcome, welcome, welcome everyone to this episode of Tech Cars Machines where we make you smarter about how technology advances, everything from sensors to wireless connectivity to artificial intelligence is changing industry and transportation. Since [00:00:30] cars are especially fun and accessible to everyone, we're going to start with a few episodes on the influence of advanced technologies in transportation.

                                    My name is Ali Tabibian, I'm your host, moderator, and occasional monologuist. I'm a co-founder of GTK Partners, I'm based in San Francisco, I have partners around the globe. At GTK we focus on advising companies on mergers and acquisitions, helping them raise capital, mainly from strategic investors, and we also sometimes [00:01:00] invest our firm's capital in growth companies. 

                                    The hook in the episode title, the part about fake news, is obviously a provocative encapsulation of our view that the rumors of the death of the steering wheel, as Mark Twain would say, are greatly exaggerated. We've had this view for about, oh, two years. Sometimes the amusing effect, about a year ago I was called dystopian when presenting to a large audience at a technology incubator, somebody clearly didn't know what the word dystopian meant. 

                                    The point of this episode [00:01:30] isn't the fake news part of it really, it's the big news part of it. In other words, when you appreciate the size of the transportation industry in detail you'll see there's no need whatsoever to exaggerate about robot car freaks and what not. This industry is so big and so much is happening that it's easy to accomplish some big, amazing things even when you're working incrementally, and a lot of people are.

                                    You can also achieve big things with big breakthroughs that are initially an application, and a lot of people are. [00:02:00] Here's the organization of this episode. 

Robot Voice:                In Part One ...

Ali Tabibian:                 We're going to focus on the big news. We'll be talking about the size of the industry along the variety of metrics and how that's made for new and exciting companies and developments.

Robot Voice:                In Part Two ...

Ali Tabibian:                 We'll give some history and insights on general autonomy and the fake news part.

Robot Voice:                In Part Three ...

Ali Tabibian:                 We'll talk about the real news, where technology is making big differences in kind of the spacecrafty, roboty way that's really kind of fun to talk about, experience finance, and do work in. We've [00:02:30] tried to record this in a way where they're generally independent but I guarantee you it's worth listening through in the serial way that we've organized it. 

Robot Voice:                Part One ...

Ali Tabibian:                 Let's talk about the big news. The revenues of the transportation industry are huge, two trillion dollars a year globally, two trillion. Apple, Dell, Facebook, HP, Google, Microsoft, Samsung. Total revenues a bit north of 700 billion so most [00:03:00] of the names that define the global consumer technology experience added up are barely a third of the size of the auto industry, the vast majority of which, by the way, is passenger vehicles. Let's take a look at those unit volumes.

                                    100 million units, huge. 100 million units a year, about 75 million of it passenger vehicles and about 25 million of it commercial vehicles. We've kind of rounded off a bit there, obviously. That's three vehicles manufactured every second. Tech Cars Machines fun [00:03:30] fact, the largest parking lot in the world is at the West Edmonton Mall in Alberta, Canada, 20,000 parking spaces. With the unit production of the auto industry that means the world's largest parking lot is 24 by seven 365 days a year is being filled by the transportation industry production every two hours.

                                    What's weird about this example is that Alberta's, what is it, February's average temperature is 20 degrees Fahrenheit so what I don't understand [00:04:00] is ... And this is a flat lie parking lot, how do people run across this thing in February? Imagine with this kind of scale how much you can do when some new features become reasonably prevalent in vehicles.

                                    Remember when having a screen in your car was big news? Playing CDs, MP3s, seeing the cover art, blah-blah-blah, that's called infotainment. Just one of the participants is a company called Harmon. Remember Harman, Kardon, and JBL Speakers, some of you probably do, that's the company. Samsung bought them for eight billion dollars [00:04:30] about a year ago and that's because Harman has a very strong position in providing both the stereo systems as well as the infotainment systems in a lot of vehicles.

                                    Behind the scenes, these cars these days are now all calling to headquarters so a new generation of companies is now being spawned in that direction. For example, Cloud Car raised 50 million from Jaguar, I believe, Smart Car which is providing what's called the orchestration layer of software connecting ... Sort of being the glue layer between the car's operations [00:05:00] and whoever externally wants to talk to those operations, and another company called Harris which helps the car get registered on a network once someone takes possession of it.

                                    That's actually kind of a complicated event because manufacturers want to make the same car over and over again and be able to send them all over the world and have the car kind of discover the local network itself, and register itself, and start receiving information. None of this stuff sounds like science fiction but the impact is big and you can build some big companies enabling incremental updates [00:05:30] to vehicle.

                                    Here's something odd about car ownership. A car purchase is a really big deal for most people. What's interesting is, after people financially bet the farm to buy a car what's crazy is that they don't actually use it that much. Here's some stats from AAA Insurance for the United States. Remember, we're tagged around the world as being car crazy so here's the car crazy statistics here. The average American drives about 10,000 miles a year or about [00:06:00] 48 minutes a day. 

                                    If you're of working age you're driving probably about 13,000 miles a day, a little over an hour, and of course if you're not you're driving less than that. In the United States you purchase a vehicle for about $35,000, that's the rough average for the United States. It costs $1,500 to $2,000 a year to fuel and it's a pain in the neck. You've got to repair it, maintain it, it gets broken into, gets a flat, you can hit something, somebody can hit you, you can hit somebody, and basically [00:06:30] people are just parking it.

                                    This is why you can see companies like Uber and Lyft being so successful, although to some extent we should have successful in a quote because they still lose money on every ride. In any case though, they're clearly providing a convenience for the rider but just as important they're making the car ownership more sensible for the driver, they're increasing the utilization. 

                                    We're not done with these ride sharing concepts by any means. Take a look at a company called Kango. [00:07:00] They're basically trying to introduce similar concepts in a manner where people would be comfortable putting their kids in the car. Look at company called Axle which recently just got a little round of financing. They're trying to kind of do the same thing for intercity busing. Now, you wouldn't have thought about that but it's a pretty legitimate market. Not everybody's going to be an Uber and a Lyft but there's plenty of big things to get done just revolving around the under-utilization of this enormous asset base that this enormous industry has deployed around [00:07:30] the world.

                                    Now, if you own your car and want to monetize it, kind of like the example we just gave you, but you don't want to be a driver there's some really interesting concepts emerging. Two examples are, no relation to our own GTK partner, Mr. James S. Turo, and These are basically air BnBs of vehicles. What they're looking to do is to raise the utilization of the vehicle by not employing the owner as a driver but simply having the owner [00:08:00] rent out the car on a short term basis.

                                    Some really interesting twists are being introduced to this market by that connectivity that's coming into vehicles that we talked about just a few minutes ago. One example is Care by Volvo and the other one is a company called Test [inaudible 00:08:16]. In both cases these companies are ultimately looking to provide you management of your vehicle so although you own it it's Volvo or Test [inaudible 00:08:27] that guarantees a certain maintenance level of their vehicle and make sure [00:08:30] the tires are maintained, make sure it's been oiled and lubed and all this good stuff and in the case of an electric vehicle, presumably that has a certain level of charge in it.

                                    Notice how incremental improvements in the vehicle capability, just having the few sensors on the tires and on the fuel gauge, et cetera, and then connecting them to a wireless network, how much it enables to happen and how much change it enables in this industry without needing to have the car fly around like George Jetson's did. Here's another one of our contrarian [00:09:00] side notes, and we'll be quick about this. Car ownership is an expensive hassle but that tells you that people love getting where they want when they want. The absence of excellent public or semi-private transportation, which is really an urban thing, and sometimes even if you have those people worldwide buy a car as soon as they can possibly afford one.

                                    In other words, private car ownership isn't going to weigh very easily when you think about it globally. That's important to keep in mind as you try to predict [00:09:30] where all these technologies are going to take private car ownership. Here's an example. In the 1920s and '30s, my home town of San Francisco used to have a bunch of daily trains to Sacramento ... For our international listeners, that's the state capital 100 miles away, and it had about 40 rail cars running inside the city. By the 1960s, we were down to four rail cars, they'd all been ripped out in favor of private four wheel vehicle transportation. 

                                    Getting back to the main argument, if you're an environmentalist [00:10:00] you're probably thinking, "Heavens, their car utilization is so low." You're probably mad at us for exposing ideas on how to raise that utilization. That's because another dimension of the transportation industry is really staggering because the fuel consumed by these vehicles really is staggering, basically a billion gallons of fuel worldwide every day. I tried to put an image to this and here's what I thought of.

                                    The Trans-America Tower which is a few blocks away from our offices here, it's that triangular building that's [00:10:30] always present in the panoramas of San Francisco. Now I'm quite a ways away from my engineering graduate work, somebody check my math here. By my calculations that Trans-America pyramid with its 48 floors can hold about 500,000 gallons of fuel. Folks, we're setting a match to a Trans-America pyramid sized vat of fuel in the morning to represent the western hemisphere consumption, doing it again at night to represent the eastern hemisphere consumption, every [00:11:00] day. Clear by now that technologies that make only a little bit of difference in fuel efficiency can have an enormous impact. Here's some examples.

                                    Rear view mirrors that can be replaced with cameras to reduce air friction. Recapture of energy during braking. The very complicated software that runs the start/stop function of engines. Each of these only contribute about a third of a mile to gallon to maybe close to a mile per gallon in terms of additional fuel economy. Because of the scale [00:11:30] of the global consumption it's like each of these is saving a floor of that Trans-America pyramid worth of fuel.

                                    Here's a screen worthy side note. Transportation consumes only about one-quarter of the world's oil so humanity ignites four billion gallons or eight Trans-America pyramid towers of oil every day. Now, in addition to the environmental impact this fuel is actually quite expensive these days compared to the cost of electricity, which may be a surprise to a lot [00:12:00] of people. In San Francisco, we not only bring you outrageously priced real estate, we're also the proud home of both the most expensive fuel and pretty much the most expensive electricity in the United States.

                                    In this town if you drive about 10,000 miles it would cost you about $2,000 a year of gas but only $500 of electricity. I'm comparing here a Model Three Tesla to a Five Series BMW of an E-Class Mercedes. This is really big news. [00:12:30] When you talk about all this fancy technology, there's a tendency to forget that the average consumer is really quite cost sensitive and very much so when it comes to car operating costs. 

                                    In this country when the price of fuel changes presidents give speeches on the subject. The question is, can we get consumers to focus on this big difference in operating costs between electric and gasoline vehicles? Can we get them to focus on this rather than, say, the driving range of an electric vehicle, the limitations of which have [00:13:00] been a show stopper for many consumers. I'm wondering, can we?

Obama:                        Yes we can, yes we can.

Ali Tabibian:                 Electric vehicle or EV sales used to be a trifle for 20 years. Then Tesla introduced the Model S with greater than 200 miles of range and GM in late 2016 did the same with the Chevy Bolt. Here are the stats. Tesla sells 100,000 fully electric sedans and SUVs a year. This is despite the almost $100,000 average selling price, [00:13:30] delivery delays, below average reliability, and zero advertising. The Bolt, which is still kind of an expensive vehicle by average standards, over 40K, over $40,000 with a few options, looks a little odd and only seats four, but the volumes are running around 30,000 units a year.

                                    My own experience in a Tesla Model Three, that because of the benefits of it being an electric vehicle amongst other things, it's just as likely to hurt mid-sized luxury competitors as the Model S did [00:14:00] to the same competitor's top of the line vehicles. Electrification means a lot of battery chemistry, very sophisticated software to manage battery utilization uniformly through the many cells in a battery pack, charging stations, and a lot of supplies of engines, and transmissions, and fuel, and repair stations with a lot less to do.

                                    Maybe we should start worrying less about autonomous vehicles rending drivers unemployed and more about electric vehicles putting internal combustion engineers and mechanics out of work. In our view, [00:14:30] one of the greatest missed inflection points in the last couple years is this ability of electric vehicles to compete with internal combustion engines on range. A special episode soon on electric vehicles and Tesla.

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