a16z Podcast - a16z Podcast: Tesla and the Nature of Disruption

Episode Date: September 17, 2018

with Benedict Evans (@BenedictEvans) and Steven Sinofsky (@SteveSi) In another of our hallway conversation episodes, Benedict Evans and Steven Sinofsky talk all about Tesla — and more broadly, the nature of disruption overall. How disruptive is Tesla really, and what exactly are they disrupting — from the dashboard to car makers to vendors to energy source to autonomy overall? The tech industry is littered with leading innovators... who nonetheless failed to be the dominant leader in the end. So the question should be, is this new thing fundamentally difficult for the incumbent to do, and how does it relate to market dominance? Which of these things are important in order for Tesla to be the new BMW or the new GM? Looking back at other examples historically (Microsoft, GM's Saturn Brand, and of course the iPhone), what kind of disruption matters most for market dominance? And what is the long view of how software is eating transportation?

Hi, and welcome to the A16Z podcast. In another of our hallway conversation episodes, Benedict Evans and Steven Sinovsky talk about Tesla and more broadly the nature of disruption overall. How disruptive is Tesla really? What exactly are they disrupting from the dashboard to carmakers to vendors to energy source to autonomy overall? And how much does each innovation matter? Looking back at other examples historically, what kind of disruption matters most for market dominance? Good morning. I'm Steven Sinovsky. I'm Benedict Evans. What we thought we would talk about today is a little bit about the nature of disruption, and in particular about Tesla and the rise of electric vehicles, and sort of how disruptive

is Tesla? You know, we're in an interesting time, like, certainly economically. Like if you look at the main U.S. car companies, you know, Ford, Fiat Chrysler, GM, all of them are worth less than Tesla in market cap individually. And certainly, if you look at the past year, Tesla has been worth twice as much as them at some point. So crazy, interesting world. But, you know, we use disruption a lot in Silicon Valley and in technology in particular. And what's interesting about looking at Tesla is, you know, it may or may not really be disruption in the way that the book is written, which is sort of,

oh my God, there's a whole new thing, and then the old thing just goes away, and it's all new players. Yeah, I thought it was interesting to look at how people think about it. Tesla here because you sort of on the one hand you set you have the narrative oh my god they're doing this stuff that the car companies can't do on the other you have the narrative oh my god they're making the cars in a tent and bits fall off when you drive down the highway ha ha ha it'll never work and this reminded me a lot of sort of hearing similar conversations around for example the iPhone um this is a terrible phone will add touch really easily um no one will ever buy a phone for that much money.

Sorry, I had to toss that in there. Exactly. On the one hand, people dismiss, people dismiss on, but in both directions. So they dismiss the new thing because it can't do what the old stuff does very well and don't realize that you might be able to learn that. But on the other hand, you also dismiss the difficulty of the old stuff and dismiss what the barriers to entry might actually be. And so I thought, as I looked at Tesla, I kind of wanted to pull apart, well, what are the different things that are happening here? Are they disruptive? Are they not? Are there barriers to entry, which bits are their barriers to entry, and barriers to entry to who?

It's one of the kind of the historical comparisons I use where, of course, Stephen has sort of scars on his back around this, is that if you look at, for example, what Apple did in the PC industry, Apple contributed to creating the PC. We had one of the first popular PCs, but Apple did not win PCs. So you can all talk about whether Apple disrupted IBM, but Apple didn't actually get the benefit from that. And in fact, PC companies didn't really get the benefit from that. PC companies became low- margin commodity companies, and the people who got the benefit were Microsoft and Intel. Yeah, well, what's so interesting about that disruption is sort of, you know, when can companies turn some technical innovation into a competitive advantage, and when is a company's go-to-market or technical innovation itself become like a hindrance to adoption? And our tech industry is littered with examples of the innovator failing to become the dominator, so to speak.

My favorite one is just, is replay TV, you know, gave us the DVR and then gave us TiVo, and now we all just have DVRs everywhere. Certainly, you know, the mainframe and the mini-computer led to the PC and the revenue numbers all came and dwarfed it. And then, you know, what you know so well on the phone industry is very similar. Yeah, so there is a question of, is this new thing fundamentally difficult for the incumbents to do? but also is it so there's sort of four things that I talked about in the blog post

so the first is that Tesla kind of has to learn the old stuff Tesla has to learn how to make cars at scale and there was a period when people said oh my God they're reinventing manufacturing actually know they just bought a second hand robot factory yes well Tesla has to work out how to do cars this is but we have to like we

it's almost worth of pause there just to remind people that other people's jobs are really much harder than you think they are and we tend to Even in the software-hardware world, I've yet to ever meet a company that makes hardware that thinks software is really, really hard.

And I've never met a hardware company or a software company that thinks they can't just go do hardware and buy it in China. And this notion that, like, to innovate in cars, you need to understand, like, cars more and manufacturing.

And to innovate in the software in cars, you need to understand software more if you're living in Detroit. Well, this is the thing that people in software don't really understand enough about cars and people in cars don't really know enough about software.

But so to the point on Tesla, clearly there's this whole conversation now about the production hell, and they're making cars intense, and the panel gaps are terrible, and they're having fires in the paint line and so on. Tesla has to learn how to do what Detroit already knows how to do

and what Japan already knows how to do, which is to make cars reliably and efficiently. Or at least Germany and Japan. Okay, well, to make cars reliably, well, Detroit doesn't make cars anymore, but make cars reliably and efficiently at scale. that's just a condition of entry Tesla gets through production hell

that doesn't get them victory that just gets them to continue to that just keeps them in the game what they also have to do is be doing something that the existing car industries can't do or will struggle to do for kind of deep structural reasons

that they won't just be able to hire engineers and just add that and that stuff has to be in some way fundamentally important it has to be like a profound reason why you would buy a car and it also has to be something that other tech companies

will struggle to do which is to the Apple versus Microsoft point or the Apple versus Dell point. So Apple did stuff that IBM, for the sake of argument, found it hard to do, but Dell did it better in partnership with Microsoft and Intel.

Equally, HTC were the first people to make Android smartphones or the first people to make Android smartphones, but HGC turned not to have the right positioning in the marketplace to take all the rewards from that. And so you can kind of look at like the beautiful product and you have to kind of unpick okay how are they going to make millions of them what is it in that

that is difficult as opposed to easy for other people to do which of those things are fundamentally important and which of those things also will like not just BMW you can't just say well BMW isn't going to be able to make software you also have to say well BMW isn't going to be able to buy those

from some combination of Huawei and Shenzhen and Google in order to get you to okay Tesla is going to be the new BMW or the new gem. Right. That's sort of a very important point. Like, in the sense,

instead of looking at this is disruption, another way to look at this is to use an old phrase that existed before disruption and just refer to it as a secular shift. And that this is a shift,

there's just a shift. We're going to all be in electric cars and electric vehicles and electric transportation at some point, which is very different than it's disruptive because disruptive tends to focus

on the micro, like one company versus another company. Whereas if everything is going to move, to this, it's not clear that it just means that only the companies that are currently doing something are going to benefit. And going back to the DVR example, it turns out DVRs are like a commodity now. Like everything that can receive video has the capability of just being a DVR. So we should probably kind of dig through kind of what those separate components are. Yeah. I mean, the analogy that I use, I mean, I thought what I tried to do is to break it apart.

So there is the electric itself, which is the battery and the motors and the power train and the controlling software for that. Not exactly the most revolutionary technology. Yeah, lithium my own batteries are not something that got invented by Tesla and Panasonic five years ago. There's that. Then there is the sort of one level up all the integration of the control systems around the car. And then there is the dashboard on the car and the experience, the broader experience of buying a car like do you go through a dealer, their charging stations everywhere, do you have lots of fiddly little buttons or just one beautiful touchscreen? And we kind of look at those and think

well what are the how are the dynamics of each of those going to play out and how harder they for new people to play in and if we kind of start with electric the analogy I thought was kind of interesting here was to look at multi-touch so Apple was actually not the first company to sell a mobile phone with a capacity of multi-type screen I think there was an LG1 a year earlier and maybe a couple of others

but Apple was the company that said oh my god we can actually use this to totally change what it is to be a phone well it's actually an important point is that they weren't first at the using technology, but they were the first to integrate the technology and pull it all together, which, as we go through and discuss each of these, it's worth saying that I'm fairly optimistic on the prospects of being able to solve this equation, and others are going to be fairly pessimistic. And this is really about just analyzing that conversation, not sort of debating the winner. Yeah, exactly. So you have this, fundamentally, you have this

insight into a new piece of technology. Okay, we could use this to make a phone. Lithium ion batteries are going to get cheap enough that you could use them to make a car. This is like the foundational insight of Tesla. But if you go into a store today, there are a thousand phones with capacity of multi-type screens. And so clearly just using a multi-tart screen of itself didn't get you anything because everyone could buy those. Even BlackBree was selling phones with capacity of multi-tart screens. And so within that, you split that out. On the one hand, the, legacy company, so Nokia, Blackberry, Palm, struggled to make a phone with a good capacity

of multi-type screen. On the other hand, in partnership with Google, Samsung and a lot of other people found it really easy to make phones with capacity multi-type screens. And so today, the entire industry makes these things. This is also just like, all of a sudden, everybody adds a notch to their phone. Yeah. Like, something that appears like, whoa, that's going to be super tricky. All of a sudden, a supply chain appears, other people with expertise appear, and you have a lot innovators sort of building the same thing. So this is the thing if you look at what the P, the way the PC industry works, the way the mobile phone industry works, indeed the way the car industry works.

It's not that there is one company that has to work out how to make this thing. It's not that Bosch is going to have to learn electric. It's that you have a whole ecosystem of hundreds of different companies, hundreds of very big companies full of good engineers who have to work out how to make this thing. Many of whom have been making batteries and electric motors for a long time already, just not quite the same kind. and so as you look at electric it seems pretty clear to me

that on a like a five or ten year view and bear in mind cars are on a five to ten year replacement cycle so it doesn't have to happen that quickly there will the entire car supply chain will have reoriented around electric and even more than that the entire electronics industry that already does electric stuff

will reorient around making components for electric cars so if you look at the kind of the teardowns of say a Chevy Volt a awful lot of the value in that comes from people that were not traditionally car manufacturers, car component suppliers, they're not the traditional tier ones. It's all LG.

Right, but in fact, what's super interesting about that too is that the expertise at existing car companies is in acquiring those technologies, building them out, establishing those relationships, negotiating the contracts, and getting all of that to happen. There's not like, for even GM that makes the bolt and the vault, it's not like there's this massive lithium-ion group at the company.

Yeah. And so what you get to there is you sort of think, okay, the car companies are going to be able to go out and buy these components just the way they buy their existing components. And there's not some fundamental intellectual property here. There's also no disruption story. It's not like they're sitting

thinking, oh, this is a terrible idea and we don't understand this, or it's an integration into their existing manufacturing process. On the other hand, if you're a German company that makes gearboxes for the car industry, you're not going to be able to switch to making lithium I on batteries. It's a totally different business.

And so your gearbox business is either going to disappear or you're going to shift to marine engines. And if you're an auto supply store on the corner, you know, and these cars don't need parts anymore, like that's like a thing to go short right now if you're in the business of speculating about timelines and things like that. Yeah, if you're in the business of making radiators for cars, that business is going to go away and you're probably not going to replace that with a business making electric batteries or power control systems.

So that will go. That's not even disruption. That's just your whole industry just disappears. That's the secular shift. Exactly. It's like all of a sudden horses are now centered around different set of technologies in different places that you use them. Exactly. But that's a different layer in the stack to the car manufacturers.

I mean, the analogy I used in my blog post was that for the sake of argument, the internet was radically disruptive to travel agents, not disruptive at all to airline companies. Airlines still sell tickets. They sell them differently through different people, still run planes, and that actually hasn't changed their business. For cars, an interesting view of this is the way that the change and the focus

on safety permeated the car industry. There was an era in the 60s when nobody worked on safety. And then, like, one manufacturer, particularly like Volvo, picked up on safety, and then the Germans picked up on safety. You partially do regulations in Europe and things like that moving faster. And, you know, oh my God,

the American companies are not going to be able to have anti-lock brakes. They're not going to be able to have all these things. And it turns out, like, now there's dozens of companies that contribute to that supply chain and it's just part of every car. You can't even differentiate on safety anymore because they're able to build that up and that's a car version of multi-touch.

Yeah, I mean, I think there's an interesting kind of question in this which is there is a new thing as opposed to are there sort of fundamental structural reasons why you're going to struggle to adjust to this. And so again, if you look at, for example, what happened with phones, Nokia had a was totally oriented around what the handset

what the mobile operators wanted they were totally oriented around optimization of component cost around having a huge supply of building blocks that they could use to make 50 or 60 different phones every year. Hundreds of models like hundreds of models like it's mind-boggling how many models they had exactly and so their whole structure was

around was deeply changed challenged by what the iPhone proposed, because the iPhone proposes, okay, one phone, totally different components, presume it lasts a day instead of two weeks, presume it doesn't matter if it drops instead of it, if it drops when you break it. Presume it doesn't care at all about bandwidth consumption or memory. Presume you're basically indifferent to the component cost because you're selling it for $600 instead of $150. And there are people at Nokia said you will never be able to sell a phone for more than $150. People Microsoft would say that too. Yeah, exactly. And so this is as though, this is more like the shift from,

ocean liners to aircraft. You know, it's not, it's, it's the difference would be on the one hand the shift from ocean liners to aircraft, on the other hand the shift from propellers to jets. And the shift from propellers to jets is basically all the same companies. The shift from ocean liners to aircraft, it's not the same companies. Although Q not actually bought an airliner in the 50s, because they could sort maybe that was what they could, but of course it didn't work. Well, and also that's like cars to jets and Rolls Roy still being a leading jet manufacturer.

Yeah, exactly. Exactly. So you have that question of, is this some fundamental thing that they don't know how to do? Or is it they just haven't done it yet? And I think this is like a kind of a crucial misunderstanding people make, which is they've done it first. No one else is doing it today. Okay. Why is that? Is that because there's some fundamental structural reason they can't do it? Or is it because batteries are still $200 per kilowatt hour and that's not cost competitive with gasoline, which incidentally is also a big reason why Tesla is still losing money? and they're waiting for the battery prices to come down and then you're going to do it more slowly. And this is where it becomes very sort of an sense emotional about disruption and like either you're just like a very big bear

on how car companies behave and that they're entrenched bureaucracies. And it is important to put car companies in some broader context. These are 100-year-old companies that have survived many different waves of technology and many different changes. And in all fairness to them, they invented modern managers. Like everything that's interesting about management sort of came out of GM. Came out of GM. I mean, just as an ad, like everybody listening to this, please go read my ears of GM by Alfred Sloan.

It's just an amazing, amazing book because you're going to recognize many things in that book that companies do today about how they manage brands, how they deal with distribution and networks and manufacturing and all of that kind of stuff, even if some of it appears dated to you because there's like labor unions and things like that. So the interesting kind of break point when one looks at the cars is you kind of go up a level from the electric. And so, I mean, a great kind of vignette of this is Tesla discovered the Model 3 had a problem with a brake. They pushed down an over-the-air phoneware update that fixes the problem with the brakes. And so if you look at like the way that a conventional car you would buy today is put together, there are dozens and dozens of separate subsystems in there, all of which come from kind of separate vendors. So the ABS is a system, the backup camera is a system, the airbags are a system, and they all come from separate vendors, they're all integrated, as we were saying earlier, by the

car manufacturer, and they want all of those systems to be commodities so they can get the best price on them. And the only place, if they have a user interface, obviously some of them have no user interface, if they have a user interface, that manifests as a button on the dashboard. So there's an old joke that you can see the org chart of a car company in the dashboard, and you can see that the HVAC people hate the steering wheel people or something. Yeah. And so what you have is like an org structure that's set up

to deal with these parts as components and not integrate them at all. And you want them to be not integrated because then you can just swap out Bosch for Lucas and it doesn't matter. And you then look at the way Tesla have built their car and it's one central computer running an operating system as opposed to a real-time operating system

running like a real operating system on some Linux fork or something. And the way that this has been described is you go from basically complex cars with very simple software to actually very simple hard but with complex software. So you have a computer controlling the car. Yeah.

Which is also sort of an analogy of what happens with feature phones because there's the camera and there's the phone app and there's the SMS and they're not integrated except on the screen. And then you go to a smartphone where suddenly you've got a piece of software that's controlling all of these. And that's very similar. The PC industry actually had this exact. The reason that none of the PC makers other than Apple in a sense

are successful phone makers is because they were exactly like Detroit. They had a graphics group, they had a peripheral group, they had an I.O. group. They had a storage group. So I used to describe Dell as being a very specialized version of FedEx. Yeah. Oh, yeah. That they buy the parts and kind of put them together on the way to getting them to you. They're a logistics business as much as they are a technology business. There's lots of cool technology inside Dell as well. But basically they're an assembly business, which is also what Detroit was and what Apple isn't.

And if you literally look at the headcount of those companies, like the number of mechanical engineers relative to the number of supply chain managers procurement people and QA people it's sort of out of whack relative to what you would see at Apple but this gets you to kind of an interesting point like we're kind of setting aside electric

it seems pretty clear electric is a commodity over time you go up one level this stuff is stuff that's a bit kind of institutionally harder for car companies to think about because they've got a whole orchard that says well I've got an ABS man and I've got a backup camera person and I've got a brake light person

and no, Tesla doesn't have any backup light person. Tesla has a software team. Yeah, well, and speaking as a manager, this is a very, very real thing. Like, you're building your new electric car at big existing car company and it's going to have ABS brakes in it. So you're going to go to your brake

expert. You're not going to go to the software team and say, make me some breaks. Yes, it's not the software team's joint. It's not that the software team make a device driver for the brakes. So the brake people give you the brakes. Right. And so the break people are the brake people. And they're going to look at this problem and they're going to go, okay, first job, go to

Bosch and go get the brakes that I'm going to use for this. And in fact, some of this actually manifests itself in my Chevy Bolt. Because it's very clear that they went, like, for climate, for the heater and the AC, they went to the existing heater and AC people and said, I need a heater in an AC. Because one of the things that's super weird is, like, it's not really integrated. with the battery power train that's in the car and it's basically an old school

kind of heater. And the same with the dashboard. It's like the Chevy Bolt dashboard looks like a GM dashboard from all the other cars. And you see this through the whole experience. And so that's an interesting... Well, it's an interesting locus for disruption

because it's a lot easier to argue that this is difficult for car companies to adjust to than it is for electric per se. I think, and you see that manifest in things like, you know, the Tesla software update and in, to some extent, Tesla's ability to add new capabilities or new features to the car kind of over the air, never mind autonomy, which we may come to, I'll come to you later, but you know, you can do this, you can do that, it can do this thing or that, that cool thing, and you can just decide to add it as opposed to, you know, your conventional car,

which has I've got a BMW 3 series, it will get new features. When I buy a new BMW, I will not get new features to my existing. Well, you know, expect them, you don't want, them. But that really does speak to it. It is quite conceivable that there's a bunch of stuff that Tesla as a company is going to do that is, in fact, very, very difficult for car companies to do. The question, I think, is how this kind of gets to one of the four things we talked about earlier. How much does that change the competitive advantage of the car? And I think we had a conversation about this a few weeks ago where you were comparing this with laptops and phones.

Does this produce, does Tesla's approach produce a better car or does it produce a different car? And this notion of better and different, like this is why I think too, it's such an emotional debate for people when they sit in the Tesla versus sitting in a Chevy Bolt or sitting in a gas combustion car. It's like the Tesla experiences, it's a very different kind of car. when people talk about the Tesla experience a lot of what they're actually saying is stuff that's generic to electric so they say oh my God have you felt the acceleration you do understand in 10 years

the crappiest GM car you can buy will have the same acceleration because that's just electric I came from a Prius to my bolt and like the thing that I'm like oh my God this is the fastest car I've ever owned and this is very very similar this is one of the things that happened

with the original tablet PC that we made at Microsoft which was in around 2000, all of a sudden, like we did these internal surveys. Do you love your new tablet PC? We had gotten like 100 units and deployed them for a test. And everybody was like, this is the greatest PC I ever owned.

And like all of a sudden we're like, oh my God, we're onto something. It's really big. And then we dug into the research a little bit and we realized that, well, the thing is that these new tablet PCs that we had just made, like these one-offs, were actually made to be super, super good PCs. They actually weighed like three pounds. and they were super thin, and they had really great screens on them because of the pen screen was made really well.

And so we realized nobody was actually using ink at all. They just loved the fact that it was compared to their seven-and-a-half-pound think pad. Yeah, this is a sampling problem, isn't it? It was the smallest, lightest laptop they'd ever used. But I think the thing about the sort of the Tesla integration is, the first point is a big part of the experience is the acceleration. All cars will have that. Tesla. That's just electric. And all cars will have no

maintenance. They will have oil changes. They won't have oil changes. They will be quiet. This is just electric. This is not Tesla. And in all fairness, I think most of them are going to end up with a similar miles per kilowatt hour kind of range because the physics is sort of everybody shares these physics.

And there's not all this leakage that you might experience with choices you make and horsepower and gas combustion engines and stuff. There'll be a variance, of course. But even if you look today, like they're really pretty clustered around the same sets of measurements. Exactly.

So the electric stuff is a commodity. Then when you get to kind of the integration of these components, you can argue, well, it's going to be a lot more difficult for legacy car companies to do this. Structurally, like by the orchard. Yeah, they actually have actually reasons. They're shipping the orchard in the car. They have actual reasons why it's difficult for them to do this.

What's not quite so clear to me is whether that translates into a reason why you would or wouldn't buy the device, by why you wouldn't or wouldn't buy the car. And I think the analogy, I think what you were talking about a couple of weeks ago was the difference between an Apple laptop where there's no choice of any of the components and it's super super optimized and the case is made out of machined aluminium to fit each component and so the

laptop is really, really thin and has really good battery life and so on. As opposed to a Dell laptop where you've got a choice of 45 different components and you can swap and you can have this or you can have that and that means there's more empty space inside the laptop because they've got room for the bits you didn't choose and it's got to fit four different components

and it might have 10% worth battery life because it's not super optimized. The difference is okay it's also you have the choice of all the components and I think that's sort of the Tesla versus GM conversation that is it super super optimized and hyper designed around one specific configuration or is it you know okay we're running making five different cars on this line and we'll mix and match and we'll get this and we'll get that

I mean example I saw that Mercedes have just announced an SUV electric SUV and they're putting the electric motors in the front under the hood instead of kind of down and on the chassis level next to the axles, which is what Tesla is doing. And if you're only making electric cars, it's better to do it the way Tesla is doing.

Of course, Mercedes is making on this on a line, which is also making, like, the 3-series and the C-U and where it is. And therefore, it's more efficient if they actually have sort of some overlap in the mechanical processes there. And you can argue, well, maybe they'll lose 5% battery life by doing it like that, or the weight distribution

won't be quite so good. On the other hand, they might save 10% on the cost of the amount of making the thing, which means it's $5,000 chief. This is, this thing, this is, it's so important to really hammer this point home because this is, this is in a sense disruption, but it's disruption at a, at a very micro level within an organization. When we were building Surface and ARM PCs at Microsoft, like one of the things that happened is we showed up and we said, look, when you use arm chips, the graphics card is like right next to the CPU and they're all part of the same thing. You can't buy an arm chip from one vendor and a graphics chip from another and mix and match them. And like most of the people, who traditionally make PCs, I was looking at across the table from the graphics person and from the CPU

person, and they didn't know who, which is getting fun. They thought literally one of them was going to not get to do their job. And then it went at another level where they're like, well, we actually need to leave room in order to be able to swap out like a new CPU

because if we get a different one in the middle of the production run, we want to save all of that upfront engineering cost on the chassis and on the assembly line. And we're like, the thing is they all just come soldered to a board at manufacturer time. So there's no, you can't switch them. And the dimensions, the CPU could just move around a whole bunch. Like, it'll all change.

And they literally couldn't, they just weren't interested in making it because, like, they didn't know what their job would be if they weren't optimizing that particular thing. And more importantly, they didn't know what their job would be if they couldn't change around the parts because their whole economics of what they were building was based on optimizing the inbound supply chain for switching different things.

Plus, the tech enthusiast side of it, the purchasers, who are like, we need to have a bunch of graphics on this device, so we're going to up the graphics level, or we need this device to have longer battery life, so we're going to lower that. And the marketing people who want to have good, better, best for every single PC,

they couldn't imagine just having good, better best be defined like Apple does by amount of storage or screen size. Like the Mac all in one desktop was always just small and medium and large. And like they were basically the same except for the screen size, which turns out to be very consumer-oriented way. And what's going to happen with cars is going to be very interesting because it's not just that offering.

It's the whole purchase process, supply process, advertising, dealer compensation process, all of these things. There's a whole kind of interesting question around what Electric does to the co-industry, is that if you, you know, you can imagine like a $15,000 car that does naught 60 in three seconds. And so all of the questions. And it's super safe, like by default and like no maintenance? That said, of course, a Porsche still drive, well, electric Porsche will drive an awful lot better than an electric Tesla because just because it goes fast in a straight line, there's more to being a good car than that. Right, right, right. But it does remove like layers of like

you buy the bigger engine. I mean, again, I've got like a, I have like a seven or eight year old BMW that I bought secondhand and it's, I don't even know what the engine is, but you look at the badges on the back and it says, is it the 328 or the 330 or the 335 or the 335 or the 335 I? And like, there will be, that will not mean anything. There will be, there will be one gearbox and it will be, you know, so those, those differentiations within the car will go away. You know, there will be not be different gearboxes. So how do you, so one last thing we have to talk about, though, is the really the big one for, you know, the sense of the sense of his software eating transportation is, you know, the very long term vision of like

where autonomy fits into all of this. So this is a thing. I mean, if we kind of, if we kind of go back to our four layers, so there is the electric, there is the kind of the integrations, which we've just kind of been kind of musing about. There is the driver experience. And then there is the driver and the dealers

and the over the air updates and the on screen dashboard. And then there is the autonomous part. And if you kind of go through those, the electric's a commodity. The integration stuff is a bunch of interesting internal questions in the supply chain and the car manufacturers, but it's not terribly clear

that translates into a different car or a car with strong competitive advantage. There's the dashboard experience, and then there's the autonomous part, and there's a dashboard and the dealers and everything else. The car experience. So I kind of talk briefly on the dashboard

and then talk about autonomy. I think the easiest place to locate or disruption is in the dashboard, because all the things we've been talking about the org chart is really hard for a traditional car company to say we're not going to have any manual controls in the car except for like a few sticks on the day. You tried it with the seven series like 20 years ago.

We're only going to, but this is like literally none. Like there were the sticks on the steering wheel and then there's a screen. Yep. And I think there's a bunch of reasons why it's really hard for legacy car companies to do that. The question is, is this like iPhone hard or is this when you buy an iPhone, it activates with AT&T over the air? Right, right. Is it channel hard or is it like physics hard? And is it, does it make a fundamental difference to people's willingness?

to buy the car. I mean, I did a totally unscientific Twitter poll. My question was, if BMW and Mercedes Tesla are all selling a car with exactly the same drive train, the same acceleration, same electric, everything is exactly the same. The only difference is that you have the big screen dashboard as opposed to the Mercedes or BMW dashboard. How excited would we be about Tesla as a company? And it's like, well, would this really be a $50 billion company if that was what he was? Two things on that. One is that, of course, You have to factor into that kind of choice. All of the negative selling that will happen from car companies without that,

they will talk about safety, driver distraction. They will literally go to the government and try to get dashboards like that, banned. This is exactly what Detroit has been doing for decades over electric. The phrase range anxiety was not dreamed up by the physicists at GM. It was dreamed up by the marketing people selling against electric vehicles. And then the other half of that is just going to be like the fans of gas combustion engines and the fans of existing companies like, well, if company XYZ that I love doesn't have an all in one dash, that means that they're bad. But the thing about it is that these lining up brands like this, this is, again, go back and read my years at GM because Detroit mastered the art of selling the same thing to different people at different prices.

with slightly different design. With slightly, slightly different things. I mean, we had a Camaro type LT. And I remember that when I was little because it had this LT right on the door where I would open it. And I always asked my mom, what does LT mean? My mom had no idea.

She just knew it was a Camaro, which was not the same as a firebird or as a transam. Even though they all looked like very, like Bert Reynolds sort of drove the same car as we had, but it didn't have an eagle on it. It was like, oh, the eagle is really expensive. I'm like, for the sticker,

they gave him one right right well that's a different thing so okay but autonomy is the software play so like now it's not the dashboard I think what we're getting at is the dashboard is fine

this is not the wealth of nations this is not the hundred billion dollar change right right it's the autonomy because electric is a commodity the dash the integration is a commodity the dashboard is fine its autonomy is a question and here we

well there's an autonomy question and there's a disruption conversation and the disruption conversation in this is Tesla is not who are the people who are competing here it's not Silicon Valley Software Company versus dumb Detroit guys it's Silicon Valley Software Company

versus 20 other Silicon Valley Software Companies plus Silicon Valley Software Company and China plus Silicon Valley Software Company that got bought by the dumb Detroit guys sorry Detroit but you know what I mean believe me that's what they said when that happened yeah who the Detroit guys or the Silicon Valley guys Either way

Yeah so the question here is clearly this is a fundamental, profound new technology. We can have a whole other conversation about how long away. We've done a lot of other podcasts about when will autonomy come and what will happen as a result of that. And the cities and towns will change and lives will change and everything changes. Exactly. Everything changes. But who is trying to build this right now? Google, all the big Chinese tech companies, crews, several dozen smaller companies

trying to build component parts of this, all of which at some point will be available for to anybody who gets any of this working. Plus, like, people who make components all have projects going on. Exactly. Like, if you make LiDAR, you are affiliated with projects to work on this. There's LIDAR companies, there's mapping companies, there's, you know, all radar companies, all sorts of people. There's simulation companies. All the delivery companies, all of the trucking companies.

But also, there's people building all of this component. So you've got Waymo building their own LIDAR, building their own camera systems, building their own databases, building their own mapping systems, and their own simulation tools. on the other hand, Voyage will buy the simulation tool from applied intuition and they'll buy the mapping from deep mapped. But the point is there is a whole ecosystem that's trying to create autonomy. And so within that ecosystem, Tesla is one company trying to build this as well. Now, and there's a conversation about where we think Tesla is positioned within the kind of the battle to build autonomy. From a disruption conversation, it's not, they're all disruptive or they're all innovative companies or

they're all new companies. Well, they're all participating in this giant transformation of a whole new scenario all at the same time. Exactly. So there is no sort of the new people are doing something that the old people won't want to do. There's 50 new people all competing against each other. And also, depending on where they are, these people are all coming out of the same universities, studying the same kinds of machine learning, and then they're all ending up these companies, and they're all spinning off from those companies, and they're all changing jobs. This is a whole community of knowledge that's being built at one time.

So there's another point in here which has sort of been implicit in several of the previous things we've talked about which is you have the sense that there is an entire ecosystem. So there was a whole ecosystem making gasoline car engine components and supply chain. There was a whole ecosystem making. Part of the reason

that Apple ran into such difficulty in the 80s and 90s was Apple was trying to compete with the entire ecosystem. They weren't just trying to compete with Microsoft. They were also trying to compete with all the people who were selling component. And they weren't trying to compete with Dell. They were trying to compete with Microsoft and Dell and the 300 companies and Intel and the 300 people and Seagate and everybody

and everybody who sold stuff to Dell they were trying to outcompete the entire UK system so yeah you have to really understand what was going on not that that wasn't but to what what this means is that there was Apple had to make one decision for every component that made a Mac and that was the only one they could make so when they picked like a hard drive they had to pick the brand of hard drive write all the firmware integrated into the operating system and do all that. And then they were done. And if like the industry went a different direction, they would just get left behind. Yeah. And if Dell decided, hey, we've got a better return on that drive versus this. So if they could just stop shipping C great and start

shipping Mac Store. And it's super important because of the maturity of the industry, you actually needed that flexibility then because you just didn't know where things were going to go. Like famously Apple dragged out like their Apple talk for a very, very long time, even though networking it all moved on to TCPIP. And then they were on SCSI. And then they were on SCSI. And then they were on SCSI. And that whole era, they seemed almost like a generation behind

if they were even behind at all. Like sometimes they picked Firewire, and it just never made it to the PC ecosystem. Yeah. And I hear that think about this when I see Tesla making their own this or making their own that, and you think, okay, set aside the fact

that you have a major cash flow problem and why are you spending money to do this rather than just buying it? Don't worry about that. Never mind the character question. Why do you want to compete with the entire ecosystem or should you be riding on top of that ecosystem and finding the unique thing that you alone can do?

And should you bet that you will be the only person doing X when there's a whole ecosystem that's trying to do X? And also, this is where it has a lot of parallels to the early Mac because it's not just that they have to do all that, which is almost insurmountable the way that at least we described it, but they have to do it at a fairly low volume. Yeah. And the low volume in many of these things is what sort of makes it really, really difficult

because then you can't even get the attention of manufacturers to help you, even if they're like sort of white-labeled parts of it. Yeah, so this is, I've heard sort of gossip about this in the car supply chain that, of course, a lot of the bits of insider Tesla were bought from the car supply chain. Like most of the bits inside a Tesla come from the, like they're not making the... He did not do Henry Ford and go and buy tires starting from rubber. Yeah, they're not making their own glass for the windows. they're not making their own motors

to wind the seats backwards and forwards and of course the problem is the volume is so low that they can't get the best deals for the best manufacturers which is sort of a it's part of that whole ecosystem question and so we kind of come back to the autonomy question

again like with the electric piece so let me sort of think about another way of putting this so the kind of the ball case here would be Tesla is competing with car companies at doing software like they'll win and in autonomy they're competing with software companies at doing cars they'll win

The bare case is, no, no, no, no, Tesla is competing in cars. Tesla is competing with car companies at doing cars, and they're competing with software companies at doing software. And so that sort of gets you back to the kind of the autonomy, the disruption is only one of the strands through this. But like, where are you, what's your competitive positioning? Is it that you've done something no one else can do? Is it that you've done, or are you just trying to compete with a whole industry

at doing something that industry knows how to do? And where do you want to kind of put yourself within that? I think this is part of the genius of the turn of the Tim Cook era at Apple is, no, we're not going to make all the phones ourselves. Why are we going to make the phones themselves? No, we're not going to make the chips ourselves. No, we're not going to design this ourselves. We'll pick a certain number of key points of leverage and make those ourselves.

But we're not designing the own gyroscope. These are these incredible lessons from the Mac era. And they're putting them to work. And this notion of a learning company is what's incredibly important. And that's one of the things I would like to raise is this is a great car company example, which is we talked about my years at GM in the early days. Well, also another famous GM experiment was the GM Saturn brand, which was this experiment in the 80s that where GM was looking at Japan and they were losing everywhere.

They couldn't make small cars. They couldn't make fuel efficiency. Labor costs were too high. The dealer experience was hard. You know, back in the 80s, when you wanted to buy a Toyota, you would just go in and they would say, do you want a red one, a black one, or a white one? And if you went to a go by an American car, it was all the stereotypes of the worst.

They would sweat you in a small room forever. You would have to, like, option packages, number T4,3, or a QR7, and you'd have to figure out, and they overlapped. And it was a horrible experience. So what GM did is they did Clay Christensen before the book existed, which is they started a whole brand, they hired all different people, they relaxed every constraint imaginable, and they said, go do it. to your point, what they were trying to do was have this one badge of GM compete with all of Japan.

And it turns out, like, it's very, very hard to do that. And it ended up costing billions of dollars, and they shut the whole thing down as a failure. And books have been written, it's another great book, is about the history of Saturn. And so, like, did they really, did they fail because they couldn't make all the changes, or they couldn't recognize the changes, or they misunderstood what was really going on? yes I mean I suppose you could argue that the kind of the Saturn thesis would have been that will shut down all of GM and Saturn will become GM and at that point maybe it would have worked but as long as you're going to kind of continue running it as a separate thing

well what about the rest of GM and and that's where like so much of this becomes very very interesting because ultimately like your framework for thinking about Tesla it just it really raises so many very interesting questions and I think it all comes back to what our founders are always needing to make sure that they think about which is it's never just the product. It's never just the price. It's never just the way you promote it and use channel management. And it's never just about the pricing structure. You have to really consider all of these elements. The thing I was thinking about this recently was like one of the sort of, if I like the accumulated learning over my career is I'm always a sucker for a beautiful

product. And the thing that I've learned over time is okay, yes, but what's the route to market? Yes, but what's your differentiation? Yes, but how are you getting the components? Yes, but what's your sales process? Yes, but. Yes, but. And really, our final thought on this, I think, is it the beautiful product can really get you in front of a customer,

but it takes a lot of things to get you in front of all of the customers. Or you can get in front of all of the customers, but it's going to take a lot more to fully meet their needs in a differentiated way and get the price and the margins that you need. And all of those things are really coming together. and I think where we're seeing things now is that you have to start to consider all of those and not just anyone, and that's what's so interesting about this.

Right. Thank you. Thank you.