Chit Chat Stocks - Electric Vehicle Collapse: Why EV Stocks Are (Mostly) Doomed (RIVN, TSLA, BYDDY)

Starting point is 00:00:00 Welcome to Chit Chat Stocks. Before we get to this episode, we want to talk about our friends at Public. If you want to earn a 6.9% yield for the next four years or more, you need to check out the bond account at Public.com. It's a new way to invest in a diversified portfolio of bonds and receive monthly interest payments. The best part, if you act now, you can potentially lock in a 6.9% yield until 2028. In other words, no need to worry about the Fed's upcoming rate cuts. With a bond account at public.com, you can earn a 6.9% yield even as rates fall. It only takes a couple of minutes to get started, but you have to act fast if you want to take advantage of some of the highest bond yields in years. Discover how you can lock in a 6.9% yield until 2028.

Starting point is 00:00:44 The new bond account only at public.com forward slash chitchat stocks. Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. all right welcome into chit chat stocks we have another great wednesday episode this week and we have a guest travis hoyum from asymmetric investing and the motley fool and for anyone that doesn't know a new father this summer so congratulations for that we had a third

Starting point is 00:01:39 yeah uh and we're talking electric vehicles today we're gonna be talking ribbian we're going to be talking plug-in hybrids, maybe a little Tesla, maybe a little China supply, kind of a EB special as the sector is at a bit of a crossroads. For anyone that's been following it, we're seeing price cuts across the board. We're seeing supply projections coming down. We're seeing manufacturing CapEx projections coming down. We're going to get to all that. But Travis, welcome to the show. And why don't you kick things off by saying and telling the audience, what is the asymmetric investing strategy? Asymmetric investing is about leaning into the advantages that we as retail investors have over the market. So this is what my newsletter

Starting point is 00:02:27 is built on. And that's really kind of the foundation of asymmetric investing. And then I also have a YouTube channel. So that's where you can find my content related to asymmetric investing. But it's really about being a longer term investor than most typical institutional investors or analysts are in the market taking more risk. I say that in not necessarily a crazy sense, but really in more of a beta sense and more of an academic sense. Because if you take more risks, you're going to have higher returns in aggregate. And so if you combine those two things together and you do things like buying companies at reasonable valuations, buying in markets that are extremely large and have the ability to grow even larger over time. So a lot of technology

Starting point is 00:03:09 companies end up in this, if you lean into founder-led companies, there are all these advantages that we fundamentally have over the market that over the course of 10, 20, 30 years can lead to really phenomenal returns. All right. And that, I think, you know, there's a lot of stuff in the electric vehicle and automotive industry that could potentially be asymmetric. Ryan, you have something to add there before we get going i would also mention that if you go back through our podcast feed you'll recognize that travis was on once before and we talked about general motors i believe and since you were on the stock is up i think around 50 so if that's any uh if that's any foreshadowing

Starting point is 00:03:57 it looks like we may this one might be worth uh heeding any advice he has but uh brett you want to take us through some of the uh other questions topics we have for today yeah let let us hope that's the case yeah and general motors classic one makes a lot of sense you know yet they have the electric vehicle and full not i'm saying full self-driving like tesla because we were talking about that beforehand but they have their cruise unit and the autonomous stuff there that has a lot of potential upside and that's really the asymmetric potential right there is cruise that was what i was interested in yeah but when you're buying a stock at a 5pe multiple you can you know get the thesis a little bit wrong and still be right. So that's, you know, that's one of the advantages

Starting point is 00:04:37 you have there. Exactly, exactly. You have that legacy business generating cash flow that can provide a lot of, you know, durability and a margin of safety there. But we're going to kick things off for the whole industry. What makes a good versus bad automotive company? And I know this is a tough question. We talked about this beforehand, but kind of springboard how difficult this industry can be. Yeah, extremely difficult industry. And if you look back throughout history, we had, you know, you had the Henry Ford days where you kind of get to mass market, you know, you can have a Model T as long as it's black. And over the next 30 or 40 years, there were dozens, maybe even hundreds of auto companies started. But at the end of the day, most of them

Starting point is 00:05:24 either went bankrupt or merged with each other. And you really ended up with, I think it was three in the US. And those have kind of changed hands and the brands have moved all around. But basically the same companies still exist today. And the only real newcomer that has had any modicum of success was Tesla. And that's why I think people got so excited about this industry. But overall, the returns, if you want to look at return on invested capital, over time are extremely low in the auto industry because you're investing so much in building out manufacturing capacity. you have relatively little operating leverage because you have relatively low margins. It's a very competitive market. So what differentiates a great company from a bad company? It's the

Starting point is 00:06:07 little things like, do you have a attractive line of vehicles? Are you in a market that's becoming more competitive or less competitive? This is one of the reasons that I like GM. They are really big into trucks and SUVs. As all this money pours into electric vehicles, guess what's getting forgotten. Internal combustion engine, trucks, and SUVs. So that's where all the money is being made. I've compared this to buying cigarette stocks in the late 90s or early 2000s. Everybody just left that entire industry for dead and all investment went elsewhere. Well, it turns out, I live in the Midwest. People are still buying a lot of trucks and SUVs. And so the transition, I think, if your thesis is that it's going to take longer than expected and those returns for

Starting point is 00:06:51 those new companies are going to go down, then the returns are going to go up for some of the legacy companies. So there's a lot of nuance in, you know, is GM making better vehicles today than Ford? I think that's probably true. You know, same thing with something like Stellantis, which is having some operational issues. But you can, a free cash flow is really the biggest thing that I watch from this industry, because if you're not generating cash from all the money that you're investing in the industry, then what are you going to do in the future? And you want to be able to turn inventory and all that kind of stuff. So lots of nuance. I know I didn't give a detailed number example, but there's just a lot going on in the industry right now.

Starting point is 00:07:31 And what I'm looking for with a lot of these companies is optionality. What do they have beyond just making cars and doing the same thing that they were doing 10 years ago? Is there something that potentially has 10X or 100X opportunity? Yeah. And I think that leads in perfectly to my next question, which will lead into our discussion on Rivian. You wrote a article that I think it was thought provoking. I think it was supposed to kind of bring in a lot of the bullish people on electric vehicles. And I think the title was why EV companies are uninvestable today. Why is that? Why do you believe that? Most of the electric vehicle companies today are facing an environment where they have falling margins. So Tesla would be an example of that.

Starting point is 00:08:20 They're going to have to invest more and more money in new capacity. So Ravine is a great example of that. They're building out not only their normal Illinois facility, but they're also building out this Georgia facility. And what are the returns on that? Well, you're going to increase supply into a market that is already arguably oversupplied. So you're betting on an industry industry adoption of electric vehicles increasing, I think at a faster rate than it is actually increasing. And then you get into these laws of supply and demand, right? Like this is fundamentally what makes the auto industry so difficult to invest in, so difficult for these managers to run is if you build a manufacturing facility that has the ability to make a million cars a year,

Starting point is 00:09:04 you have a lot of operating expenses, not only capital expenses, but you have operating expenses that go into running that facility. If you only have demand for 500,000 vehicles, you're kind of screwed. And there's no easy answer. What do you do? You cut your prices to try to get to 600,000 units of demand, but now your margins are lower. The economics of manufacturing are just fundamentally different than the economics of technology. And a lot of investors that are probably listening to this today have cut their teeth with companies that are technology companies. So you have a ton of operating leverage in the business. If you increase your revenue by a dollar, your profit increases a dollar. Google falls into this category. Meta falls into this category.

Starting point is 00:09:51 Most tech companies, you're spending a ton of money up front, but the upside is your potential is unlimited and you're not limited by capacity typically. so you know your your revenue upside is limited so your your operating leverage is extremely high it's basically one-to-one in the auto industry if you have a 15 gross margin you increase your revenue by a dollar your gross profit goes up by 15 cents so your cost structure better be in line with what you're producing and what you're able to charge for those vehicles and i think that's, we'll get into this, but that's, I think, fundamentally the mismatch that Rivian has with the market is they have the wrong business model and the wrong cost structure for the opportunity

Starting point is 00:10:38 that they have. Right. And it seems like the big takeaway is an automotive industry, especially if you're trying to be vertically integrated. I know there's some that try to be almost outsourced that manufacturing, that might be a different case, but you need the scale. And it seems like you need to be selling your cars. It seems like average selling prices are something that you have to be tracking. And if it's moving in the wrong direction, that could be a huge warning sign. Do you agree with that? Is that something you follow within the industry? Yeah. And the average selling price is a little bit difficult to track. I mean, you can track things like discounting. I mean, Tesla is the one, I'll periodically post a chart that I keep track of

Starting point is 00:11:23 just their average selling price. And then you can see as their average sale prices declined since late 2022, no surprise, their gross margin has gone down as well. You can't make it up in volume when you're in manufacturing. Again, the opposite of tech, right? If an advertisement on Google or on Facebook gets cheaper and they increase their inventory, they're actually going to make more money. So it's like the opposite dynamics are happening in the manufacturing industry. You have to increase your margins as much as possible. You want to be Ferrari. I mean, Ferrari's got, I think, 50% gross margin. There's only one Ferrari though. So yeah, I mean, those are really the challenging dynamics is do you have scale? And then once you have scale, are you able

Starting point is 00:12:11 to generate at least a reasonable gross margin or operating margin on the business? And right now, Rivian doesn't have either of those things. And that's fundamentally the problem. They want to get there. And the comparison is always to Tesla. Tesla had a lot of different things going on with their business. I mean, they were the first mover in the market. Nobody was really coming after them from a competitive standpoint. They had very high margins until recently. So Rivian is just kind of facing a different competitive environment and they're not the only player in the game anymore yeah it's just so competitive and i think buffett gave a speech i want to say around maybe it was in like the 80s and he basically said like visualize yourself living in the late 1800s

Starting point is 00:13:00 and someone sends you a video of the future sends you a video of america 100 years from now And it shows all the cross-country highways, all the cars on the road. It would just be – it would feel like a no-brainer to want to own car companies. Yet it significantly lagged the market a lot – most of those companies did. So it's – yeah, it just goes to show that the returns can get competed away. The question I have for you is are there – I guess what are the advantages to being this scaled player? If you're the biggest producer or one of the leading producers, do you have some cost advantages, I would assume? Are there any sort of economies of scale here?

Starting point is 00:13:46 There's absolutely economies of scale. And I think the biggest thing is the operating. I'm going to keep saying operating leverage, but just to put some numbers to this. Rivian is going to make about 50, I think it's 57,000 vehicles this year. Their operating expenses are going to be about $4 billion. dollars. GM is going to sell a little over three million vehicles in the U.S. alone. And then if you add in their international, you get to about six million. Their operating expenses are about nine billion dollars. OK, so that is the fundamental challenge. What is your business

Starting point is 00:14:21 model around every piece of development? And what has happened over the last century really is a lot of these companies were built vertically integrated, right? Like Ford would make their own seats and they would make the engine and they would put it all together and blah, blah, blah. In the 80s, 90s, that's when you had a lot of these companies split off. So you had companies specialize in, you know, like even Tesla, they don't make their own seats. There's another company that makes seats. You go in and you say, hey, this is the kind of seat I want. This is the design. The Toyota model, right? That's kind of what the Toyota disruption back in the day. Yeah. And then they added that to, you know, just-in-time manufacturing or lean or,

Starting point is 00:15:01 so yes, but it was a modularization of the business, right? Like why design a drive shaft 50 different times when you can just design one drive shaft. So that's what a lot of the legacy automakers have done. And that's helped reduce their operating expenses, reduce their risks. So that's one of the things, even since, you know, the, the, like GM went bankrupt in 2009. That's one of the things that they've done is they've kind of gone from more operating costs to more variable costs in their business model. So you just take risk out of the business. The challenge is then you typically don't have as much margin, but that was the trend for decades. What Tesla did is they came in and they said, and this again, typically happens in industries when

Starting point is 00:15:48 there's a disruption happening. They come in and they say, Hey, the stuff that we want to do doesn't exist. Like the software doesn't exist. The drive train doesn't exist. The battery manufacturing capacity doesn't exist. So we have to build it all ourselves. So we become a vertically integrated company. Again, they were successful in doing that in part because they had basically unlimited access to capital from Wall Street. And they kept delivering, they kept growing. So they've gotten to now, I think, 2 million or so vehicles in production. So they've gotten to that scale point where they can put leverage on what they're developing. And by the way they're only making four now five vehicles and there's a lot of cross components there so

Starting point is 00:16:30 they're getting a lot of leverage on everything that they develop the problem for rivian is they're trying to copy a lot of the same things that tesla did they're designing their own their own motors they're designing all their own software you know they have this licensing deal with with volkswagen now uh and that's in part because they've spent billions and millions of dollars developing this infrastructure, but then they don't have any scale. So it would be, I think, you know, Apple is a perfect example of a company that has done this extremely well, right? When they started making a ton of iPhones, they said, Hey, if we can make our chips 5% better by designing them in house, we might as well do that because we have, we're selling

Starting point is 00:17:13 hundreds of millions of devices every year. If, if it increased, you know, our unit costs by two dollars who cares uh if it you know if it adds fifty dollars of value for every single customer um rivian is trying to do some of those same things say hey you know what we can make a better vehicle by being vertically integrated and designing all these things ourselves that may be true but if you can't then turn around and sell 400 000 r1s and r1ts then you're you're screwed i mean that's the the the really blunt way to put it is your economics just simply don't work and that's that's the challenge that they have right now okay let's dig in a little deeper on rivian here we've mentioned them a couple times now uh throughout this episode they were

Starting point is 00:18:05 i guess can you give maybe a little bit of a summary before we get into some of the like what the future looks like for them i'm just pulling up a chart here market cap reached 150 billion dollars in 2021 today it stands at about 13 billion um what a wild ride for shareholders can you give i guess what has happened since they came public what have they executed on and have they been anywhere near their goals so since they they were not actually making any vehicles when they went public um so a lot of speculation that was during those pandemic kind a heyday. So they raised capital at a great time. But they did start producing a small amount of vehicles. Last year was kind of the disappointing year for them. And they're in a weird situation

Starting point is 00:18:56 because you have to read a lot of tea leaves with Rivian. I've always questioned, do you have demand for 200,000? So they have capacity for 215,000 units coming from their normal Illinois facility. That's their current manufacturing facility. And the idea was, hey, we're going to sell this $70,000 truck or SUV. And if we can sell 200,000 of them, we're going to maybe not get to profitability, but we'll have really good economics if we have a 25% gross margin, which is still the bar that they have put out to investors. But they always run into these issues. Our costs are way too high. So we need to reconfigure or upgrade our manufacturing line. Okay, so now think about that. You just built this manufacturing facility. And two years later, you're like, you know what, we need to upgrade our manufacturing facility. It's not a demand problem. We don't have a demand problem. But we are going to only sell 50,000 vehicles, both in 2023 and in 2024. And the idea is we're going to lower our costs.

Starting point is 00:19:58 why weren't you doing all those things to start with first of all but two you're you're you're not answering the fundamental question that i would have with a company like rivian which is how much demand is there for a 70 to 100 000 electric truck and suv not much where i think we're saying not much i think that's exactly what we're seeing too um but you you still play this game where the people who are holding out hope for Rivian go, yeah, but you know what? When they get normal up to 215,000 units and they add another 200,000 units, including the R2 and the R3 in Georgia, again, that's another few billion dollar build out to build that manufacturing plant there. Suddenly you're going to get to, they still say to this day, they have visibility

Starting point is 00:20:50 to free cashflow positive. I think there's a lot of optimism built into that. And that optimism flies in the face of the reality that we've seen in the electric vehicle market over the last, say, 18 to 24 months. If you look at Tesla's deliveries and production, if you look at Tesla's margins, if you look at the comments from GM and Ford and every other legacy automaker who was like, look, we're still investing in EVs, but we're going to pull back because we're not going to oversupply the market. We're happy to make money on the vehicles that we're making money on rather than throwing good money after bad by going after this electric vehicle market that doesn't appear to be as big as we maybe thought it was a few years ago.

Starting point is 00:21:34 Yeah. It seems like automotive CEOs love to say we don't have a demand problem. We're ranting production. It's purely supply. We're just cutting costs. We're just cutting costs. Because if you do have a demand problem, I guess that is a much bigger issue, I would say. If you have to admit that you have a demand problem, it's a big issue. What's the runway look like for Rivian at, I guess, how long do you think they can last at this current pace? So if you just run their basic numbers using their existing operating expenses, you project out that they're going to get to their 215,000, maybe 400,000 units of production in 2026, 2027 is probably more likely. You have a real, real hard time

Starting point is 00:22:30 getting to the point where they're not burning through all of the cash that they have on their balance sheet. Maybe you have that in front of you. I can pull it up here in a second. But there is $5 or $6 billion worth of cash on the balance sheet. They just announced this deal with Volkswagen, which could they give them further runway? Again, why do you have to announce a deal with Volkswagen that is going to infuse your business with a ton of cash if you don't have a cash problem? But they're razor thin. And then you get to their projections and you get to the point where, let's go back to the operating cost number. If they keep having $4 billion of operating expenses, and you get to the point where at best, they're going to have about 400,000

Starting point is 00:23:10 units of capacity when the Georgia plant is completed. So again, we're talking probably late 2026, 2027, that is $10,000 per vehicle in operating expenses. So is that, are they going to have $10,000 of gross margin per vehicle? They have never generated a positive gross margin. So again, do they have enough cash runway to get to the point? Maybe, but you're projecting a lot of improvement in the business, in their manufacturing efficiency. You're assuming that their prices are not going to have to come down, which again, we've talked about, do they have enough demand for the R1T and R1S? I mean, I just want to point this out. They have this normal Illinois facility, but they've said that they're going to start building the R2 in normal Illinois.

Starting point is 00:24:02 they were supposed to be able to fill out the normal illinois with with the r1 line so and that's a 70 000 plus vehicle if you don't have enough demand for the r1 line to fill out the normal illinois facility and now you got to go down market which theoretically comes with even lower margins it's really tough to make the numbers work for them to get to um you know free cashflow positive, even when they build out the normal Illinois facility. Um, and you know, the cash runway, I, I think they're really, really, really tight, but that's why you have these, these deals with companies like Volkswagen. Yeah. Another number for listeners, free cashflow burn was $5 billion over the last 12 months, give or take that is a lot. And their cash pile is

Starting point is 00:24:52 only slightly higher than that so yes the volkswagen deal is coming in and we'll talk about that next when you ask about demand go ahead you put i want to add this one so because the free cash flow number you could say well but they're spending a lot of money on capital expenditures the operating cash flow was negative four billion dollars last quarter so that's operate that's not building the plant that's actually operating your business that's the one that should really worry investors. That's even more troubling. Yeah, I had not looked at that one before. A lot of things need to go right. I think another thing we'll talk about after this is the growth in plug-in hybrids, which should also be troubling for Rivian because as you

Starting point is 00:25:36 mentioned, there's the startup costs and flexibility. We'll get to that. We'll get to that. But I want to talk Volkswagen deal. What were the details here? Why do you think they did it and maybe why did both sides do it so volkswagen needs to improve their software infrastructure for electric vehicles um i have a volkswagen atlas uh not the best software company i think is a nice way to say it um you know sometimes the infotainment screen just goes black and i don't know i don't know why um so that's not really what they do particularly well so they need help in some of these areas i would i think you know gm's poaching a whole bunch of people from apple hoping that will help their software all of these legacy companies are trying to figure out software not

Starting point is 00:26:25 only kind of the infotainment side but how you actually run your vehicles um so you know how the the drivetrain works is actually runs with with software it's not you know running mechanically like you would in an old school vehicle. And they're also going from a world of, I mean, I forget the number, but one of the legacy auto companies talked about how many chips are in their vehicles.

Starting point is 00:26:47 And it's like an insane number, like hundreds of little tiny controller chips that are in their vehicles. And so what these more modern companies are doing is saying, hey, we're going to have a bigger, more powerful chip, but we're going to just have seven of them,

Starting point is 00:27:00 I think is what Rivian has. So they need help. Rivian needs cash and they need at leverage on those operating expenses. Again, I keep going back to that, but they're spending $4 billion on these operating expenses. Some of that cost is going into designing these systems and the parts that Volkswagen is now going to be using. So that is the idea for both of those companies. The details, we don't know a lot about. And there was a conference call after the deal was announced. And there were specific questions like, is this going to pull some of your operating

Starting point is 00:27:38 expenses from the Rivian income statement to this joint venture? And it was like, we don't really know because the deal isn't actually finalized. So that's the other thing. So it's announced, but there's no actual final deal. And they're expecting that later this year. But the I's have not been dotted, the T's have not been crossed. So there's a framework announcement, but it is very possible that at the end of the day, this doesn't really go anywhere. But there is an incentive for both of these companies to kind of figure it out. And I think, you know, quite frankly, this also puts Volkswagen in the lead to potentially take over Rivian if they need to, if an acquisition or merger makes sense in the future.

Starting point is 00:28:26 Yeah, this steals, maybe that steals my answer for this next question here. I'm going to force everyone to have an answer because it's a podcast and we're going to have hot takes. What are your prediction for what happens? Where is Rivian five years from now? Who owns them? What are they doing? Travis, you can go first. This episode is brought to you by our friends at Yellow Brick Investing. Yellow Brick is the best aggregator of stock pitches across the internet by tracking thousands of blogs, newsletters, fund letters, podcasts, and more They collect and summarize the best stock pitches and bring them to you in a single place. Try it for free or upgrade to a paid plan to see investor returns

Starting point is 00:29:05 and the latest stock pitches on joinyellowbrick.com slash chitchat. We genuinely use Yellow Brick every single week here for stock research on small and micro cap ideas and think you can as well. Try it for yourself. Simply go to joinyellowbrick.com slash chitchat and search a company or ticker you're interested in. you are bound to find a great report on just about any company. That's joinyellowbrick.com slash chitchat. I would have said somebody else previously, but after this deal,

Starting point is 00:29:38 I think Volkswagen owns them. And I think they buy them for basically the debt that's on the balance sheet. I think there's like four and a half billion dollars worth of debt on the balance sheet. I don't see there being a lot more value than that to anybody who would potentially acquire them. It's not real easy to acquire one of these companies and just fold it into your business. It isn't like, you know, the old school days when you just buy an auto brand here and an auto brand there, they were all kind of work the same. You know, maybe we'll have some synergies amongst our components. That's not really the way that these companies work anymore. So you have to have more integration. So given this deal is happening, VW makes a ton of sense.

Starting point is 00:30:14 I was going to say that exact same one. I think Volkswagen likely owns them and I hope amazon does not own them given that they have the long-term deal and i think they're part they still own shares but i'm not exactly sure if they do yeah i think they do ryan's gonna go off the wall pick pick something exciting right yeah i think it's gonna be just a cash generating machine 10 bagger from here bigger than tesla yeah uh put that in the title no i don't know it looks like if this deal with volkswagen goes through it does kind of set the groundwork for them potentially becoming one business or gobbling them up in the future and there is like it's not a worthless operation when run right you know there's there seems to be ours are good hey it's a good

Starting point is 00:31:01 looking car cars are yeah they look they work well it great seems to be people that like vehicles but a bad business and i think those are things that we as investors need to kind of disentangle those sometimes just because you like the product doesn't mean that it's something that's worth investing in um before we move on everyone like the other interesting one that i think would be a lot of fun would be ford because ford has screwed up their vehicle their electric vehicle both strategy and it seems like the architecture as well in a lot of different ways so if they swooped in uh and and bought them i think that would be a lot of fun it seems like at least volkswagen 2 would want manufacturing in the u.s given the subsidies with the reshoring stuff and the tax

Starting point is 00:31:42 things that could be at play here yeah and we don't know details but i think volkswagen is the company that's writing the huge check to tesla every year uh for their for their ev credits and again it's all kind of this backroom dealing and we don't know exactly what the details are but that's what i have always understood is that it's volkswagen that's um that needs those credits So they have an incentive to make a push into electric vehicles and, yeah, may have some interest in some of that manufacturing being in the U.S. All right. Next topic, plug-in hybrids. I'll include this chart in the newsletter.

Starting point is 00:32:23 We'll have one that goes along with this episode. And it's a pretty easy chart to describe for the people listening here. previously up until the third quarter of 2023 electric vehicles were growing unit volumes at over 50 a year plug-in hybrids were either falling or barely growing that's flipped in the last year electric vehicle unit volumes are at zero percent year-over-year growth and plug-in hybrids are growing at 60 why do you think this is happening i don't get it um i i did some i this was one of the questions you prepped me for and i i did some research on you know who's even introducing because i've heard gm talk about oh we're going to be investing more in plug-in hybrids um you know

Starting point is 00:33:11 that's the stock that i own in the asymmetric portfolio so i follow them the most closely um and it's always like oh that's interesting and i kind of you know lodge it in my brain but don't really think about it all that much their projection is that they won't actually have a plug-in hybrid vehicle until 2027 um you might remember they made the chevy volt before the chevy bolt bolt is fully electric the volt was i think 35 miles of range electric and then and then you had gas on top of that if you look at the companies that are actually producing hybrid vehicles it's the companies that completely missed electric vehicles in the first place so i think that's part of it and that we at least india acknowledge that that you know the toyotas

Starting point is 00:33:55 of the world um just they were still investing in hydrogen like you know four years ago uh so they they kind of missed the boat with electric and so a halfway way to do it is to is to go to the hybrid side. So most, a lot of those companies are companies that did not make the either real investment or, you know, kind of stated investment like that a GM or even a Ford did, you know, five or 10 years ago. So there, I want to take this with a bit of a grain of salt because I don't know, we're in such a muddled environment right now coming out of the pandemic. And I think this is the thing where we're not going to know until five years from now in hindsight what the real market is. I mean, the EV adoption rate went up so much during the pandemic because Tesla was

Starting point is 00:34:47 the only one increasing their production of vehicles. Nobody else could make vehicles. So if Tesla is your only option and you need a vehicle, then it kind of skews the numbers for a period of time. Now, eventually you will get back to what the natural trend line is, but we don't know exactly what that is. So I, I have a feeling there's some of that going on here where there's a group of people who are going, Hey, you know what? I want an electric, but I'm a Toyota person. So I'm going to get this hybrid. Um, and that isn't to say there isn't a market there. I just don't see if I was an executive, I would say, Hey, this is not something we want to spend a ton of time on because either, either make the move or don't. Okay. Here's one that

Starting point is 00:35:33 might be a leading question might be a dumb question but i'm curious your take have we hit peak demand for electric vehicles peak demand or peak growth peak uh whatever your definition of demand is you go you go from there peak demand absolutely not i think we are moving to an electric future i think it's just going to take decades whereas a lot of people three years ago thought we were going to have it done by 2030. Or now. Yeah, by now. I remember all the comments that like GM is going to go bankrupt, right? Just search that in YouTube and you got hundreds of videos talking about how GM is going to go bankrupt. Well, guess what? They didn't. They're generating about $10 billion in cash a year, which is five or 10 times more than Tesla is today.

Starting point is 00:36:25 So are we getting to an electric future? Yes, we will, but it will take a lot longer. And I think you can just look at the adoption rate in different states and see how this is kind of playing out. Like if you look at California, I think California is still at about 50% of all new vehicles are electric. I live in Minnesota. I think the number is like 3%. So the adoption curve is going to be very different in different parts of the country. That isn't to say that it's not going to happen. It's just, you know, people are, we got a lot of big SUVs here, a lot of big families with big SUVs. They're willing to spend, you know, 80, $90,000 on an Escalade, but a Rivian R1S is not an Escalade from a space standpoint. So we are not at the point where these are like

Starting point is 00:37:17 fully competitive and we're ready to make that transition yet. We'll get there. It's just going to take quite a while right and that that one is the battery tech just needs to get a little bit more efficient right until we get to you just can't really make a truck right now or talk about yeah yeah it's too expensive yeah maybe solid state batteries could be really interesting if they ever you know figure out that tech and are able to scale it cost efficiently um that would answer some of those questions. But yeah, you're seeing this with some of the bigger trucks, right? Like the Chevy Silverados come out, you got the Ford F-150 Lightning. They're just really, really expensive to just kind of just go electric. And I'm starting to see them pop up.

Starting point is 00:38:08 And we've got a number of Rivians here. It's just, it's not a flood. Finchat.io is the complete stock research platform for fundamental investors. They have all the standard financial data on more than 100,000 stocks globally. But beyond that, they have company-specific segment and KPI data on 1,800 stocks. Want to see NVIDIA's data center revenue? FinChat's got it. Like to track Spotify's premium subscribers? They've got that too. And they just added ETFs to the platform as well. The breadth of FinChat's data is truly one of a kind. We use FinChat every day, and I've personally been using the AI co-pilot more and more to summarize earnings calls and conference transcripts. To get 15% off any paid plan,

Starting point is 00:38:53 go to finchat.io slash chitchat. That is finchat.io slash chitchat. To get 15% off any paid plan today, the link is in the show notes. If you want to earn a 6.9% yield for the next four years or more, you need to check out the bond account at public.com. It's a new way to invest in a diversified portfolio of bonds, and receive monthly interest payments. The best part, if you act now, you can potentially lock in a 6.9% yield until 2028. That's the new bond account at public.com forward slash chitchat stocks. Okay. We mentioned earlier that auto companies hate to say they have a demand problem. One of those companies is Tesla. it's elon has come out a number of times and said this is not a demand issue whatsoever however

Starting point is 00:39:46 there's also price cuts how do you reconcile the two what do you make of tesla's price cuts they have a demand problem i mean that's there's no two ways around it this is how you can go back and i can send you guys the chart but during the pandemic when there is excess demand for electric vehicles and tesla vehicles in particular tesla was raising their prices their average sale per vehicle when their margins went up to i think it was peaked at 29 they were increasing their prices starting in 2020 december 2022 that was when they started to do that uh 7500 they were kind of like making up the um ev tax credit that was kind of going away that was when they started discounting vehicles and it's just been a steady drumbeat of discounts since then it's kind of

Starting point is 00:40:35 they've kind of slowed it down because they have to but they are also not remember when they were talking about increasing production 50 a year i mean i remember i was on a walk listening to that conference call and just like do doing math on my phone and just being like wait they're gonna make 17 million vehicles in you know 2028 like this doesn't make any sense um so they have a demand problem relative to what the previous expectations for their production were going to be. So this is all in unique context for all of this, right? They are delaying their Mexico plan. What does that tell you? They don't need it. So this is, again, Tesla's business model, and we could talk about the business models of all these companies forever,

Starting point is 00:41:30 But they have taken a very Apple business model, which means they have much lower operating expenses. But it also means that they can only kind of focus on one thing at a time. So they go and they say, you know what, we're going to make the Model 3 and Model Y. And they spend four or five years doing that. They go all in on it. It works. And then they do kind of nothing from a new product standpoint until the Cybertruck comes out. because they spent all their engineering energy,

Starting point is 00:41:58 all those engineers who were working on Model 3 and Model Y, then moved over to the Cybertruck. And then the Cybertruck flops. I think we can call that a flop. And so now you don't have another catalyst for the business until the next thing comes out. And we don't know what that is. Is it going to be some sort of robo-taxi in October?

Starting point is 00:42:17 Again, we don't need to go down that rabbit hole. But relative to their production, they have issues as far as demand goes. I think that's pretty clear. Yeah, it makes sense when you look at the narrative shift from the CEO to AI and robotics and robo taxis, when you look at the data around the electric vehicle business. Now, I've shared a chart here for anyone watching. I'll describe it.

Starting point is 00:42:45 This shows exactly what Travis was saying. It goes and tracks Tesla's used car prices, which probably match up pretty well with the actual prices. And it's going back to the 1st of January, 2022. In the beginning of 2022, prices actually went up, which is pretty astounding for used cars, but they were at $60,000. Today, a used Tesla is selling for about $30,000. I mean, that is a huge impact to the profits here.

Starting point is 00:43:16 It just has to be. And keep in mind too, that from a volume perspective, they have lost, remember when they announced that Hertz deal. And that was, I think, 100,000 vehicles. I don't think they ended up buying 100,000, but it was a sizable number of vehicles. And then they lost a whole bunch of money because they bought at the peak and then sold at the bottom. But that's, again, another source of demand. If you just want to go through basic, that article you mentioned earlier went through just basic supply and demand dynamics. If you have 2 million units of supply and suddenly a buyer who was buying 100,000 units falls off the map for you, that's an issue. You got to find

Starting point is 00:43:54 another 100,000 units of demand. Whereas in 2022 or 2021, whenever that deal was announced, they were making, it was something like a million vehicles, maybe even less than a million vehicles a year at that point. And you add 100,000 units of demand to that, you're like, whoa, we got way more demand than we can possibly produce but eventually you cross those two and that's when you run into problems as an automaker and again this is a tale as old as time we have seen this going back to you know some of those old old time vehicles uh like the that i'm not even gonna remember all the names like vanduzen or you know like all those companies went bankrupt because they didn't have enough demand for what they were making how does the flood of supply from china

Starting point is 00:44:40 EV makers and US tariffs connect to all this? It's a problem in China right now. And we're seeing this across the board with everybody. GM has basically said, we don't really know what to do with our China business right now. Tesla, it's part of their margin hit. Tesla's idea was to export those vehicles, particularly to Europe. So it seems like Europe is being a little bit more hostile to any sort of imports from China. The US is taking the same stance. This is not really surprising because it's such a big industry. It's such a big ticket item and it's so many jobs that are involved. So it's a problem that's going to continue. And if the industrial developments of the last 10 or 15 years are any indication, I don't see China backing off on just

Starting point is 00:45:39 increasing supply again and again and again. And I don't know, are 100% tariffs going to be enough to make them not attractive in the US? Probably. But it will put pressure on every one of these automakers that are trying to export vehicles from the US or even from China, everywhere else around the world. So it's a challenge from a global perspective. The US may be insulated, maybe Europe or parts of Europe are going to be insulated. But it's, you know, but then as a result, we're going to pay the price because our vehicles are going to be 60,000 when you could buy a amazing Chinese EV for 20,000. Yeah, I heard that a BYD basic one you can get for about $13,000 USD. Personally, I would like that to be available in the United States, you know,

Starting point is 00:46:25 please and thank you. Yeah, that would that wouldn't be too bad. All right. Let's wrap up with some broader questions. What do you think happens to the sector over the next few years? And is it a good hunting ground for investors? Because even now, but over the last couple of years, I talk with other individuals and they say, well, I'm in these EV companies or even other parts of the supply chain, this battery tech company, oh, this charging company. I mean, And there's this narrative around EVs that has trailed off a bit because of the AI boom. But there's so much excitement for, excuse my language, a lot of shit goes. Is this a good hunting ground for investors today?

Starting point is 00:47:12 And why or why not? The hunting ground is in the non-obvious places. So I mentioned that GM is a company that I own that's in the asymmetric portfolio. And part of that is because GM, surprise, surprise, is a leader in autonomous driving through their cruise unit. Again, we could talk about that for an entire show. But that's where you have to kind of take a contrarian view. And I'm buying GM at five times earnings. You know, that gives me a lot of leeway to be wrong about anything about the thesis I have on the company.

Starting point is 00:47:44 you know um tesla trading for depending on the multiple you look at is at 10 to 20 times more expensive than companies like gm and ford um not only that but they're in a more competitive environment i talked about that earlier right i think you want to be in the the areas where the competitors are leaving right like nobody's coming after the uh the chevy tahoe like nobody's making a there's three competitors, basically. Customers have their choice. We kind of understand the supply and demand dynamics. We understand the margin dynamics. Those are just going to be cash flow machines year after year. And so I think those are the opportunities is like those boring companies that GM is going to buy back 20% of their stock this year. Cool. That's fine with

Starting point is 00:48:30 me. I'll take that all day long. I think most of the electric vehicle companies, Tesla likely excluded because they got so much free cashflow during the pandemic. Most of the electric vehicle companies will go through bankruptcy or be acquired. And like we talked about, I don't think acquiring them is as easy as it would have been with some of the older technologies and brands where you're buying. Rivian's got something there. Somebody's going to want that asset, but what are they going to be willing to pay for it? I don't know. I mean, you talked about the market cap earlier. They're worth a quarter of what GM is worth. like, why would GM give up a quarter of their market cap for a company that's making 50,000

Starting point is 00:49:09 vehicles? So that's going to be the interesting dynamic there is who has the incentive to actually acquire one of these companies. But I think there's gonna be a lot of disaster and a lot of pain for investors. You know, the charging companies, I think, what advantage does any charging company have over any other charging company? And think about this super simply. electricity is a commodity the plug is a commodity and it is standardized why is the thing between those two commodities valuable at all yeah it's like a gas station with nothing except the gas and you don't have production yeah and and i wrote about this this was like two years ago but gm announced a partnership with like the leading six or seven charging companies. And in the

Starting point is 00:49:59 announcement, so this is Blink Charging, ChargePoint, like all of the big companies that you know. And they basically said, the customer is going to see us, GM. So when they look for a charging station, it's going to say, hey, here's a charging station, but that's going to be our interface. The payment is going to be our interface. So you're just basically white labeling all of the charging stations. And so that shows you that they have no value. There's no point of differentiation. There's no point of leverage. There's no reason I'm going to choose one charging station over another. If you pull into a target and they've got a charging station there, cool. I'll take that one. Whatever. It doesn't matter what it is. Okay. One more question.

Starting point is 00:50:46 What are you looking for for characteristics within some of these maybe sole EV companies, excluding the legacy players? What characteristics are you looking for in the business, financials, whatever, any sort of competitive advantage stuff that you would be identifying as, okay, this one might be going from uninvestable to investable? There has been some interesting things done with the business models. they haven't worked, but that's one of the things I'm keeping an eye on. One of the reasons I kept an eye on Fisker is because Fisker took a very different business model into the auto space.

Starting point is 00:51:24 They basically said, we're going to design the vehicle, we're going to market and sell the vehicle, but we're not going to be a manufacturer and we're not even going to do the service piece of it. So all of the physical stuff was outsourced to other people. So I was like, okay that's interesting if you can develop a cool vehicle and actually get this manufacturing relationship down you can you know have a leverage somebody else's costs right so you're not rivian having to build your own plants your your magna was their partner so that was really interesting obviously it didn't work but that is the kind of thing that i have my eye on there are technology companies that we talked about, solid state batteries, that might work. I'm been burned

Starting point is 00:52:09 enough by sort of buying into technology hype before it actually becomes economic reality. So this is one of those cases, again, if you're looking for asymmetric investments, I still think you're better off waiting until they prove that they can do the thing that they say that they're going to do, rather than when it's a story. And I think that's where a lot of investors get burned is, hey, I'm going to buy into the story. And then the story never ends, the story never dies. But the economic reality does become a reality. And so that's sort of the balance that we're at right now. And there's, you know, interesting things going on with with things like quantum companies like QuantumScape. But are they going to actually be able to do the

Starting point is 00:52:55 thing that they say we don't know yet. And so I'm a little bit skeptical from jumping into too many of those. I'm kind of, I would much rather have optionality from some of these big companies that are generating cashflow. So, you know, I buy GM, I get cruise for free, basically. I don't even have to. So what if it burns a billion dollars a year for the next 10 years? If it works someday, then that's going to be a huge investment. But yeah, that's what makes it that's what makes it challenging and like i said scale is so important in this industry that you're really just talking about a handful of really big companies that could potentially add value and talk about narrative plug power still around kicking around nicola still has a market cap of 300 million dollars

Starting point is 00:53:40 these things can last a long time and they can make you lose a lot of money if you want to if you want to look up a chart look up plug powers shares outstanding chart that's a good one yeah years uh it it is astounding how much stock they have issued and they've had revolutionary technology coming shortly yeah the entire time yeah i think that's gonna cover it we asked some of the questions from twitter i said thank you for tyler for writing a couple of really nice questions here taking the time to do that i think we got all of those so you know in one way or another so i don't think we have any twitter questions here and ryan unless you have any other questions I'll ask you, Travis, any closing thoughts for the listeners and where can investors

Starting point is 00:54:27 find your stuff? I think this is a space that if nothing else, if you are invested in this space, great place to learn about the economics of technology versus the economics of manufacturing. And I think that's one of the things that we'll look back 10 years from now. And the debate was, is Tesla a technology company or a manufacturing company? Is Rivian a technology company or a manufacturing company? And we'll learn a lot about that. So at the very least, learn as much as you can about this industry and kind of the dynamics there

Starting point is 00:55:00 because I think there's a lot changing, but a lot is very similar. So you can find me at asymmetricinvesting. If you go to asymmetric-investing.com, you can find me there. I'm also on YouTube. So I will be around. Thanks for having me, guys.

Starting point is 00:55:15 Yep, no problem. Let me lead us out here. Thank you all for tuning in. Brett and I are not financial advisors. Anything we say or discuss on this podcast is not formal advice or a recommendation. And Travis, I don't believe you're a financial advisor unless anything has changed. I am not. Okay.

Starting point is 00:55:32 Then anything we say on this show is not formal advice or a recommendation. We may buy, sell, or hold any positions discussed on this podcast. So please do your own work, do your own due diligence. And thank you all for tuning in. We will see you next time. I'll see you next time.

Chit Chat Stocks - Electric Vehicle Collapse: Why EV Stocks Are (Mostly) Doomed (RIVN, TSLA, BYDDY)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.