Investing Billions - E15: Scott Painter on His Relationship with Elon Musk and the Future of Mobility

Starting point is 00:00:00 The following is an interview with Scott Painter, founder and CEO of Autonomy. I'm interviewing Scott in order to bring additional context to how VCs return 10x DPI funds, and that is by investing in 10x founders. This interview is roughly divided 50% discussing Scott's illustrious 28-year career in the auto industry and 50% into Scott's 20-year friendship with Elon Musk and observing greatness from firsthand experience. To reach Scott, you could email him at scottatautonomy.com. We now go to the previously recorded episode. Well, Scott, you're, in my opinion, one of the most prolific entrepreneurs and certainly one of the top entrepreneurs in the auto tech space.

Starting point is 00:00:48 You've been in an intersection of automotive and innovation since the 90s, founding companies such as 1-800-CAR-SEARCH way back in 1995. And you famously raised several billion dollars for FAIR.com from entities including SoftBank. Tell me the evolution of the space and how your career has evolved over the last 30 years. Well, I think, you know, great entrepreneurs and great companies solve a real problem. I've made my core focus trying to make buying and owning a car easier using technology.

Starting point is 00:01:18 And you contrast that with sort of the arc of technology and how things have changed over the last 25, 30 years. All of my companies have really been about what's next and trying to figure out how the technology is enabling a different way to interact. So when I founded carsdirect.com, I was an Idea Lab CEO, and we were the first company to put an upfront price on a car on the internet. That was a pretty big revelation because at the same time, AutoTrader, which was really getting started, was about digitizing the classifieds. Up until that moment, classifieds were the primary way to get information about who was selling what,

Starting point is 00:01:55 and they were pretty limited in terms of what they could show. And so we were at the beginning of this sort of digital revolution that followed the introduction of Mosaic and the sort of GUI interface on the web. So it was a big leap in terms of just the ability to gather information about what was for sale, but nobody had any context yet. So I was also the founder of a company called Truecar. We were the first to actually publish what everybody else paid for your car. And that was really about leveling the playing field between the buyer and the seller, trying to get people who were not experts about what a car is worth information to know what to pay based on what everybody else paid. If you could go to the same

Starting point is 00:02:28 dealership on the same day and buy the same configured vehicle from even in some cases, the same salesman, but pay as much as a 30% difference than a different customer, what was driving that outcome? And so the real mission at a company like Trucar was to narrow the delta between the person who paid the most and the person who paid the least. And in fact, within about 90 days of Trucar launching in a new geography, we were able to take that from 30% down to 3%. So the impact of transparency was massive. Consumers loved that brand and it was a hero brand in that case, but it was certainly a rough experience as an entrepreneur, because when you get an industry like auto dealers, um, totally against you, it's a high friction experience. Scott, what drives you as a founder?

Starting point is 00:03:15 It's funny. I just had a conversation with a good friend who said, you know, what drives me? And, uh, he's like, you know, do you just have a chip on your shoulder? Did you just, you know, have to prove stuff? And, and certainly I just have a chip on your shoulder? Did you just, you know, have to prove stuff? And certainly I do have a chip on my shoulder, but more than anything else, and the person I was talking to, we were talking about one of the more defining parts of my career as a career entrepreneur. And I've got four kids and, you know, the idea that I would want my children to follow in my footsteps and be an entrepreneur, it's hard. And I know it's hard. And it's not something you would wish for your kids. I want them to go to school and do well and graduate and get a good job and have an easier life. Being an entrepreneur has huge wins and it also has

Starting point is 00:03:52 huge gaps where you have to really sort of bear through all of that. Scott, you mentioned something curious off camera. You said you're driven by a boot on your neck, not a chip on your shoulder. What did you mean by that? The one more defining motivation in my career has been the boot to your neck, not a chip on your shoulder. What did you mean by that? The one more defining motivation in my career has been the boot to my neck, not the chip on my shoulder. I have had a liquidity challenge all the way through. I create these things that have, you know, an early stage or growth stage to them in almost all cases. And until those things become successful, you can't really get liquidity. And then in my case, I just reinvest everything every time. So I constantly go through these existential boom and bust moments where I am all in. And when I'm all in and something works, I get really well compensated. And that's

Starting point is 00:04:36 memorable enough. It's sort of like golf, I suppose. You hit a good golf swing, you come back and you go again, even though you're a horrible golfer. Do you think that's a compulsion to reinvest? Obviously, your friend Elon, who we'll talk about in a bit, he invested $170 million, half of it in SpaceX, half of it in Tesla. Are you compelled to go all in? And what is it about your personality that compels you to do so? Well, I think it's a fundamental belief that I'm able to do these things, right? I understand the flywheel of value creation and having had some success, I'm a little bit more intrepid about being willing to better myself. You know, it's funny because I've got a company right now where I'm doing something that I understand better than just about anybody. And even though we're at an early stage, that would mean by definition, we're a startup. We're not a startup at all. We don't have any of

Starting point is 00:05:29 the technology risk or startup, I think, unanswered questions that most entrepreneurs would have. I'm essentially doing what I've done a dozen times already. And so that fearlessness, given what I know about value creation in this particular space, leads me to say every time, and I don't just invest my own money. I'll borrow money. I'll go on margin to borrow high cost debt to invest high risk equity in an early stage venture that I'm running. I don't think that's high risk. I think that's believing in yourself and having the degree of confidence that you can solve this. One thing I'll note, you know, taking high risk debt in order to parlay that into your company

Starting point is 00:06:17 and gain even more ownership is something that I've seen in some of the top entrepreneurs. It doesn't always work out, but in an industry that's driven by power laws, it is something that I look for and is something that I personally invest in. You know, there are a lot of reasons why a company doesn't work. Just because something doesn't work doesn't mean it's also a bad idea. You could also have failed to execute properly. So I feel sort of like that movie Die Another Day, where you just keep going through the same sequence of events and solving it further and further and further. I am building the same company right now that I have been building for the last 30 years. And I'm just not going to make any of the mistakes that I've made in any of those other businesses to get to this point. I'm further down the funnel than I've ever been. The definition of success is at scale solving the automotive ownership problem, providing flexible access to mobility. There's so much potential revenue and profit in solving that problem for consumers that if you do it better than anybody else, you should get rewarded very well. I've never met an entrepreneur that's been 28 years in the same industry just going at it and continuing to hit company after company. Bology from Andreessen Horowitz

Starting point is 00:07:25 coined the term earned secrets or the IDMAs, which is basically something that you earn over time. One thing on the show that we're trying to ascertain is where is alpha? Where is alpha in you as an entrepreneur? Well, I do think I'm driven. I do have a set of core set of beliefs. You know, the term visionary really applies to somebody who sees something that others don't. And I still believe that there is a lot of unclaimed territory in the automotive problem around the kinds of things we're working on. I think that if you're going to win in a consumer direct to consumer business or with a brand building business, you've got to have a product that is better, and not just by a little bit, I mean radically better than the alternative.

Starting point is 00:08:08 So I'm not nearly as interested in being in these businesses because I want to make money. They're all in a very high-volume, lucrative transaction, buying a car or selling a car, where there's a lot of profit to go around. A lot of car dealers are in the business because it's generational and they sort of stepped into it because that's what their family does and they understand it, but they do it because they want to make money. They want to get a boat or they want to get a plane or whatever they want to do. In my case, I am absolutely a crusader. I'm the William Wallace, you know, believing that buying and owning a car should be easier and it should be completely seamless and done on your phone.

Starting point is 00:08:52 Scott, I know you're very passionate about autonomy users and customers. Why are you so passionate about your customer base? This idea that somebody early in their life has to go into soul-crushing debt to be able to get access to mobility is a fundamental problem, especially when the average interest rate for a car, for a person who is near prime, is approaching 10%. It's not a good bargain to tell somebody to go into debt to buy a depreciating asset. What do you see as a true TAM for the market? And just to put a sense on how big this is, you know, effective GDP globally is about $85 trillion. We all spend nearly 15% of what we

Starting point is 00:09:35 generate in terms of gross income on mobility. Mobility covers the car plus all the other stuff. You got the car, the taxes, the title, the registration, the insurance, the maintenance, and then whether you need fuel or charging. You're spending, if you make $100,000 a year, you're spending $15,000 a year on mobility. Understanding that rubric, globally, we're spending close to $11 or $12 trillion a year on mobility, and half of that is going to debt, and it's becoming high interest rate debt. Over half of what we all pay for getting around goes to the money, not even to the car. So I think we're coming up on a couple of really big sort of thematic changes in the whole automotive landscape, and I think they're going to be more profound and more transformational

Starting point is 00:10:19 than the introduction of the car in the first place. Why are we seeing these transformational changes take place in the auto industry? Because these industries are all so big. Just take insurance, for example. If we know where the car is and how it's being used in real time, what about the sale of episodic time-based insurance? I'm not talking about mileage-based insurance, but if you don't drive the car, you shouldn't be paying very expensive liability insurance rates. 30% of humans cannot afford an annual auto insurance premium for liability coverage in the U.S., and that's a problem. But accessibility is a way to unlock affordability. If I sold you

Starting point is 00:10:56 auto insurance for $5 a day on only the days you drove the car and did it in real time and charged you like you were streaming a song, $5 a day all of a sudden becomes a pretty expensive insurance policy if you were to pay for it on an annual basis, but everybody can afford the $5 for the day. So I think that how we think about cars is going to change how we think about relating to our cars. These are pretty exciting changes, and the implications are profound for all of the different slices of the mobility sector. I think profits are going to change radically, but the insurance space just alone, which is about 30% of the total profit that's in the mobility wallet,

Starting point is 00:11:36 is going to move towards episodic time-based insurance. That's going to kill traditional liability and comp collision underwriting. What is the basic premise for autonomy? Flexible access to an electric vehicle. So we're EV only. And we believe that a couple of things that I think this is true of any great entrepreneur, any great company is you have to have a certain set of beliefs. I believe we're all going to be driving electric cars. And whether that happens in two years or 20 years, that's on its way to becoming a reality. And it's certainly evident based on a trillion dollar market cap at Tesla. It's also evident by every major OEM saying they're going to go all electric, not just one or two models,

Starting point is 00:12:18 but all electric. It's evident by wait lists on electric cars everywhere. And so I think that it's going to be a pretty radical thing. This episode is sponsored by Tactic. Every day, over 300 venture capital funds utilize Tactic for portfolio modeling in order to make up-to-the-minute portfolio construction decisions. Tactic is used for both internal decision-making as well as fundraising, allowing both emerging and established managers to share portfolio data with prospective limited partners. I'm a happy customer of Tactic.io, and I recommend Tactic for both emerging and established managers. Check them out at Tactic.io, T-A-C-T-Y-C.io. You say it's going to be a pretty radical thing. Give me some numbers to back up what you're saying. If you just think in the US, we sell roughly 15 million

Starting point is 00:13:14 new cars a year. We peaked about four years ago at 17 million. We're going to go back to that number. But if you just ask yourself, what percentage of new cars being produced are going to be electric? Right now, Tesla's producing 1.5 million electric cars, and about half of those go to the US market. So a little less than a million cars to the US market from Tesla. And overall, we're selling less than 1.3, 1.4 million electric cars per year, 2023. By 2030, and you can pick any, you know, consulting firm or anybody who's sort of predicting the future. You're talking about moving to a future state where you're looking at six to 8 million of the cars that are sold in the U S on the new car side,

Starting point is 00:14:01 being electric. That is so profound. If you just ladder that up to Tesla's dominance in the US on the new car side being electric. That is so profound. If you just ladder that up to Tesla's dominance in the market, this question of, is Tesla really a trillion-dollar company? It's, is Tesla not a $5 trillion company in five years? I mean, the flywheels of how the enterprise value is sort of stacking up here is radical. One of the most biggest differentiator in entrepreneurs that deliver alpha is their

Starting point is 00:14:30 ability to understand their business on the most nuanced level. I think you're one of the best examples of that. Can you tell a little bit about your business model? Yeah. So we are about unlocking this great customer experience that delivers predominantly on two things. One, it's cheaper and two, it's easier. So we're not just taking the electrification narrative and saying, we believe we're all going to be driving electric cars. We're also taking the mobile narrative saying we live on our smartphones. We're also taking the future of payments and the future of money and saying, it's all going to be digital. I mean, I've stopped even carrying cash when I go out anymore because you can't pay the valet with cash. I mean, the idea that these three things, electrification and technology and

Starting point is 00:15:14 payments are all going to intersect is sort of a big part of what drives our thesis. And it really does come down to somebody like me, whether it's me at Autonomy or any entrepreneur. And certainly this was the case for Tesla with Elon. It is a passionate, a rabidly passionate entrepreneur with a radically better product that says this has to work and this has to see the light of day. These things don't happen on their own. When you hire an expert, experts tell you where the boundaries are and what can't be done.

Starting point is 00:15:49 Experts don't generally innovate and break the rules and say they're going to go and do something that is obviously a better experience because there is a lot of risk. The more innovative your concept, the more radically better it is. And it turns out there's a high correlation between the level of risk that's required and the level of reward that is willing to be given, right? So alpha-based entrepreneurs, people who turn in these really big outsized returns, I succeed because I fail. I pitch five to seven times a day. I think raising money, for example, is a numbers game. I think you've got to be on your game. You've got to know your business very well. You've got to be able to defend it to anybody. But when you pitch five to seven times a day and you're pitching the smartest people in the world, you're getting all the negative feedback.

Starting point is 00:16:30 If you're able to internalize that and begin to pivot your model and do the things necessary to navigate that, it is sort of an advanced iterative lab that allows you to get to a better outcome. One of the biggest differentiation, it's kind of a paradox, but the top desks, all the top quartile VCs are willing to take the binary risk to do the 10X and to do the 100X. In venture capital, you look for fund returners. 90% of funds that have delivered over a 3X DPI have had a fund returner. Another way to say that is if you don't have a fund returner, you're essentially not going to deliver a 3X. Keith Raboy and Peter Thiel kind of have set this mission of finding the next $100 billion

Starting point is 00:17:10 exit. It's very difficult, if not impossible, to pick a $100 billion company. I think you do have to pick a $100 billion entrepreneur. And the number one characteristic in a $100 billion entrepreneur is anti-fragility. You're close to Elon. I told you I may or may not ask you on the podcast. I've decided to ask you. I'm too intrigued. What's your relationship with Elon? And tell us some stories. Well, I'm a good friend and I've known him well over the last 20 plus years. I've seen this time and time again with Elon. Elon has a little bit of an edge, right? The momentum that he has created is a whole flywheel in and of itself.

Starting point is 00:17:50 The Midas touch, if you will, the presumption of succeeding is so strong, he's sort of bending the rules of what's humanly possible because he doesn't have to deal with the friction of rejection. If he says he wants to go do it, he's gonna go do it at this point. If you're a force of nature, it's really about how much credit somebody going to give you to go out and do these things. I don't know if anybody's ever

Starting point is 00:18:13 said this, but I think Elon is probably one of the greatest salesmen of all time. I mean, he is P.T. Barnum all the way. He believes in the things he says, which is really important. And he also has a very idealistic view of how things should be. It's almost as though every pitch is in the context of, if the following were true, then this would happen. And that's when he keeps saying that he is a, you know, sort of physics-based, bottoms-up thinker. This idea of being first principles is really about understanding how to definitively say no to bad ideas. And bad ideas can come from experts, right? He's willing to step across that business risk moment and just say, yeah, but it should be this way. I think that

Starting point is 00:19:06 almost everything that I've seen Elon do is first tested in the, you know, sort of theory. So you would ask for a story, you know, in November of 2019, and this is, I think, the way that Elon thinks. I was on my way to Tokyo to meet with Masayoshi-san, who invested in FAIR considerably. Two totally different humans. But Elon had asked me, thought exercise, how could Tesla sell half of the cars in the United States? And it's funny because my initial reaction was, I don't think you can make half the cars. And he just cut me off and said, assume we can make the cars.

Starting point is 00:19:44 How would you do it? Well, my answer went right to sort of the financial architecture of the theory behind if you price the car at the below the median price point, doesn't matter what the car is, people like the brand and certainly they like Tesla and it's reliable and predictable, you will sell half the cars. And that has been, I believe, a guiding principle for this argument that he's made around the vehicle must be affordable in order to scale. So it really is, what's the median monthly payment and can we be below that number? And that's been a bogey that's been moving over the last three or four years. It started when I told him it was $500 a month.

Starting point is 00:20:20 And he very, very astutely, I think, just priced his Tesla Model 3 lease below that $4, a month. And he very, very astutely, I think just priced his Tesla Model 3 at least below that $499 a month Mendoza line. And that has been the key to scaling that business and scaling that. He takes these really interesting sort of idealistic themes and then applies them in a very disciplined binary way, which is just don't let the car become unaffordable. And then whatever you have to do to get there is then justified. He doesn't really play by the same rules that almost everybody else in the car business plays by. And I think it's important that I don't, you know, speak for him. I observe him just like everybody else does. You know, I get a lot of people who ask me about

Starting point is 00:21:02 the discounting, for example. I think I understand it, but maybe I don't. I can tell you that he has made most of the mainstream Tesla models and trims available to qualify for the full federal tax credit. None of the other new entrants from Rivian, Lucid, Polestar, Fisker, BYD, or VinFast have done that. Not one of those cars qualifies for one penny. He qualifies for it every time. And that's 20% of the cost of the car. And if you are thinking about discounting your car by another 5%, why not do it by 7% if the 7%

Starting point is 00:21:35 unlocks another 20, right? So I think that there are some really interesting- Is that one of the kind of financial hacks to autonomy? Is that one of your advantages? There's headwinds, there's tailwinds, and that is certainly paying less for cars is one of those things. But I think that if we can reduce the cost of a car by as much as half, by ensuring that we are able to harvest those tax credits, federal tax credits, incentives, rebates, discounts, all of those things, you know, In California, for example, there's another $9,500 if you make below a certain amount of money. Well, $9,500, I mean, where we're at today on the Tesla Model 3 is it's a sub $40,000 car with a $7,500 tax credit, which we can harvest. That gets it down to the low 30s. You get another $9,500. You're in the mid-20s. If I can cap cost a car for 25 and put it to work competing against a brand new one that

Starting point is 00:22:29 costs 40, that's a pretty definitive advantage that allows us to unlock cheaper. I mean, we deeply understand how that business works, but oddly, all of the raging debate around what is happening right now at Tesla, everybody thinks it's just very simply, he is giving up margin for scale. And the reason why he's continuing to discount is because demand is softening. But people aren't acknowledging the fact that when a car costs $40,000, most people don't pay cash. So the problem heretofore has been that interest rates have been going up. So traditional auto finance is almost dead on arrival everywhere. It's not as though demand is waning for electric cars. Demand is waning for anything that costs $40,000 where I got to go borrow a big pile of money. So I think that everybody is suffering that same problem. And what Tesla has done is really

Starting point is 00:23:19 unlocked additional help to get you there. Unfortunately, it's very hard for an individual consumer to apply for and get or harvest the full $7,500 federal tax credit. It's largely a Goldilocks problem. If you don't make at least $115,000, you don't make enough to have a high enough tax bill to offset the $7,500. If you make more than $275,000 a year, you don't get it at all. Well, companies like ours, by design, can harvest the whole $7,500. That's a really important advantage for us. And it certainly informs how people are going to shift how they own these things. And I've had this conversation with CEOs of OEMs who are thinking, Elon's going to have to wake up and smell the coffee. And I can just tell you what if he doesn't care about volume or margin. What if his definition of success is how many humans are being driven by how many miles in an electric car?

Starting point is 00:24:20 His belief is that everything will find its water level. And really, the core metric that I believe he works on, he knows exactly how many vehicles per square inch his factories can produce. And he is at Tesla pouring more factory floor square footage than all the other car companies combined in real time. So he's growing like a fractal. They're not catching up. He is going to continue, in my belief, to produce every car he can make at full tilt boogie. And while he was in his early days, a build to order car company, which had a ton of advantages for him at that stage in his life, if he's crossed over and he said, look, it's a trillion dollars. We're not going out of business anytime soon. The brand is where it is. We are going to make this happen. He's just going to keep producing every single car,

Starting point is 00:25:10 every square inch of his factory floors can produce irrespective of what the volume or the margin story is. And it may mean that he turns into a large rental car company that as those cars get a little age and a little use, they move over into a robo fleet. The robo car taxi, robo taxi economics without having to pay drivers is astonishing. I mean, that car can earn a lot more revenue. So, you know, it's very possible that Tesla doesn't even sell cars at some point that these cars just get produced in mass to give us access to mobility. So something that's wild about our conversation is we've only talked about him being CEO of Tesla. He's also CEO of SpaceX, chairman and CTO of Twitter,

Starting point is 00:25:52 or ex-founder of The Boring Company, co-founder of Neuralink, the president of the Musk Foundation, the co-founder of OpenAI, and now he's working on XAI. I know you say he has this, you know, essentially advantage in terms of signaling and not having to fundraise and lack of friction. That doesn't fully explain it.

Starting point is 00:26:10 He still is a man with 24 hours a day, seven days a week. What makes him so incredibly effective? Well, I think part of it is that you are measuring his effectiveness against the standard job definition of what is a CEO. Not as though he doesn't have astonishing humans running all of these companies. You know, Gwynne Shotwell at SpaceX is probably the most under-accredited human in the history of business. I mean, she is building such a phenomenal organization that allows Elon to come in over the top and comment about two degrees to the left, two degrees to the right, but he's not managing it in the same sense that you would think of as a CEO. He is able to see

Starting point is 00:26:50 the bigger picture and, you know, his ability to set his own calendar, for example, one of the craziest things about Elon is he doesn't have an assistant. He doesn't let any, and it's only for one reason. He doesn't let anybody else control his priorities. He decides what's most important. A, it means he can work anywhere. But, you know, when he tours his place and I've seen him go through, you know, Starbase or the, you know, the Fremont factory, he's looking for his direct lieutenants and he's looking them in the eye and they're communicating and there is the cult of Elon and it's a big deal when he shows up physically. And, you know, when he shows up and sleeps on the factory floor, that obviously makes everybody very, very tied into the fact that, okay, he's going to be here, get ready. And it's a leadership style. He, I mean, it's very palpable when he is, you know, physically in these spaces and what things are happening around him, but he doesn't have to actually go and swing a hammer or do anything. Despite the fact I've seen him on the factory floor, literally get in there and try to

Starting point is 00:27:56 help show how the car needs to be made because it was engineered properly, fitting windows into the back of the cars and stuff. It's remarkable. You know, the old story about, you know, give a man a fish, feed him for a day, teach him how to fish, feed him for a life. I mean, he, he really does rely on teaching and having people that are very, very tuned in to supporting and being a force multiplier for him, but he's not doing what you think he's doing. Is that, is that really his secret sauce teaching? I've read the book and Demon Mode and all those things. He seems to be more than any CEO in the history of the world, really, to be able to extract more from every employee. What allows him to do it?

Starting point is 00:28:36 How does he operationalize that ability? Well, first of all, ask yourself, if you took away all of the politics of being a CEO from every great CEO and just said, focus on execution, how much more effective could they be? So what he's really done is he shouldered the risk reward problem that any other CEO has and just said to his leaders, don't you worry about how we're going to fund this? Don't you worry about the risk? Don't you worry about X, Y, or Z? He spent his time focusing on the high level stuff that really matters, but he frees them up to get to work. So they're doing their best work. And I think that given that everybody is also a shareholder in these companies, their interests are aligned. And given the outsized returns that you see at, you know, everything that he touches,

Starting point is 00:29:26 I think everybody is inspired. They're motivated. You know, this is what built Silicon Valley. I mean, this idea of sharing equity. This is what had not happened in the world before. You know, sort of the, not just the internet, but also the, you know, computer boom was about sharing ownership and sharing equity in a way that allowed management to win. That is a huge component of this. And whether that ladders up to his

Starting point is 00:29:53 politics as a libertarian or whether that ladders up to his sort of worldview about everything, he allows the free market to sort of reward in a very, very literal way, in a way that does the inspiration for it. Equity as a management strategy or as a scale multiplier. Speaking of equity, we're both investors in SpaceX, both relatively early on. What's the latest on SpaceX? I know you don't speak for the company, but what are your views on the company? You know what?

Starting point is 00:30:21 I think it's one of the most important companies, period. Not only are the results evidence of that, but, you know, remember that movie Contact with E.L. Haddon? I mean, not only Elon, E.L. Haddon for sure. I think that this idea that we are living through this moment where human interaction is totally changing, the things that SpaceX unlocks, it's not just access to space for lower costs, but why? It's access to space for lower costs so you can launch more satellites, so you can make phones that all prior revolutions in history were really about resulting in freeing up humans to be able to go do other things that are more productive. You know, it was first about getting people out of the fields and into the factories. Then it was about getting them out of the factories and back into school. So this idea that robots are going to take over and AI is going to make life easier,

Starting point is 00:31:31 we're about to come into, I believe, an era of massive abundance. The whole concept of how do you really use AI to sort of become smarter or more effective. I've got a 17-year-old who's using AI to read all the books in my library as summaries. Just taking pictures of the books and then getting summaries and then asking the chatbot, you know, correlations between all these dystopian ideas and these different authors. I mean, the level of insight that he's gaining is a step function better than just search, right? I mean, he is really becoming smarter. And I think that we are coming into a window, like, you know, the age of experts is almost over. I mean, you don't need to have an expert to in the same way that I think Elon understands that,

Starting point is 00:32:28 you know, his ability to do these things is unlocked by his wealth. I don't think he has the objective to be richer. I think he understands though, that owning what he does of the company becomes very, very important as a lever. So make the company more valuable. I mean, that, you know, the, everything he is doing is based on sort of that flywheel multiplier effect. And I think that that has got to be part of any super impactful person's plan. They have to, it's not just like it used to be. I remember when I first became an entrepreneur, Ari, you know, you think about your parents telling your friends, is my son successful, yes or no? It was just, have they had a big obvious win and did they get paid? The ability to really be impactful at this point in life, I'm 55 now, is really about how many resources can you put against a problem? the problem. Elon's at a moment where he has infinite resources to put at those problems, not just because he personally has those resources, because everybody who does is

Starting point is 00:33:29 willing to make that bet with him. It's really powerful. I have a contrarian view on SpaceX that, especially given Elon's now founding of XAI and literally a fleet of rockets, they will likely be the first company to land and mine asteroids. Truffle has about $700 trillion in natural resources. The conventional view would be that you have the founder's dilemma and you have somebody else come in and leapfrog with new technologies. I'm betting on Elon. I'm betting on Elon against the field to be the first trillionaire and more.

Starting point is 00:34:03 Yeah, you know, it's interesting being in the business of putting people into an electric car. We were on the front line having to defend that propositions with, uh, with, with there's, there's a new batch of haters, right? Obviously the, the, um, the adventure into media comes with exposing yourself to criticism. Um, you know, Elon has not really had to do that up until now because the things he is doing are so high-minded and so impactful and so important to humanity that we've given

Starting point is 00:34:31 him that whole pass. I don't think anybody begrudges his success. I would submit to you that he is already a trillionaire. Please expand. Yeah. Well, I just, I don't think people know how to do the math. If you think about the companies he's created, you know, I worry more about a different thing. I worry about the fact that we're human and, you know, Elon's not the cover of men's fitness right now. I worry about his longevity as a friend. I, you know, I think one of the things that intuitively you would assume is that if you've got those kinds of resources, you would have somebody feeding you a science diet. I think that he needs to make sure he is healthy. We want him to stick around for as long as

Starting point is 00:35:17 possible. He is at this point, largely not a traditional entrepreneur working on problems that have risk and reward. He is just saying, how much time do I have left and how much of a difference can I make? I think he has achieved a level of impact capability that is substantially enough to not have to accelerate that further to do what he wants to do. I think that all the things he wants to solve are solvable based on a sort of, you know, a delegation strategy and an empowerment strategy. I mean, he has the resources and the ability to marshal those resources to do whatever he thinks matters. The question is, how long are we going to have him to be able to focus and redirect that

Starting point is 00:35:57 energy? And who does he empower around him to make that a legacy? That's a really interesting set of problems. I think you're a very good friend to care about that. I've been offered to be introduced to him actually twice. And my first thing was, he's very busy. There's nothing I don't want to take away from his energy and from everything that he's doing for the world. I'm always happy to serve in the Elon army, but in terms of, you know, using his resources, shit talking him on Twitter, I think it's sad that people can't find something better to do with their lives. For sure. And by the way, I don't think Elon is even an investor at this point, right? Because he's beyond- Yeah, he's all in

Starting point is 00:36:35 on his companies. Yeah. Yeah. It would be more annoying to him to have to track it, right, than anything else, even if it was an outrageous success. I think that there's probably a movie in what friends of Elon, and I know this generally about others, but over the years, the number of times I've been approached about an idea that somebody wants to pitch to Elon and he will never even know the things that I've had to turn down on his behalf just because I'm deeply enough I I understand his orientation of these I mean I've been pitched theme parks you know where he can make billions if he would just lend his name. And I say, it's like, like Elon is going to do what?

Starting point is 00:37:28 I mean, it's just, but he could make so much money. It's like, no, like he's, he's not going to, I mean, he's doing very important other things he would not even, and it would be embarrassing to put these, all these people together. You know, he also has a very real meritocracy based filter. You know, entertainment, Hollywood is all about who, you know, networking matters in tech. Totally not who, you know, in fact, if you know somebody, it's probably going to be a, you know, a demerit in terms of price. It's really about what have you done? Is it great?

Starting point is 00:38:02 And you can, you can know everything you need to know about a real entrepreneur like me based on going and looking at my products, the things I've created and say, okay, that's interesting to me, yes or no, right? I think that's very much his filter too. It's sort of why he famously doesn't care what your degrees are or any of that kind of stuff. Tell me about how you solved a particular problem, how you evaluated it, what you did and whether it worked, right? I think part of the entire arbitrage of capitalism is finding value in something before everybody else does. And a lot of time that's about not only first principles thinking, but it's about looking at things from a non-superficial lens. And people that are

Starting point is 00:38:38 able to do that in people and companies are the ones that are most successful. And of course, there's a paradoxical aspect to that because you see the billionaires going around that have done this systematically and they're non-superficial people and everybody's projecting superficial values onto them. What Elon has done, which is really interesting, is he has really, at a fundamental level, broken it down and understood

Starting point is 00:38:59 there's a flywheel to wealth creation. And in the beginning, it starts with being rabidly focused on what you believe and willing to ignore all of the experts that say it's not possible or it's not likely or it's not wise. He said famously many, many times that if something's worth it, even if it's unlikely, you do it. That's a big statement. I mean, I feel that about what I'm doing. I mean, I come up against some of the smartest people on the planet and they tell me again and again, yeah, this, that, and the other,

Starting point is 00:39:31 and it shouldn't work. It's like, well, they're not an expert in this particular field and they're not giving credit to how radical of a departure and how it really unlocks a value proposition that hasn't been unlocked yet. We've known each other only for three and a half years. I've seen the evolution and I know how you think. How does autonomy become a hundred billion dollar company? Yeah. So autonomy is really about refinancing an entire asset class. I mean, you know, if the average electric car is a $50,000 car, 20,000 cars is a billion dollars worth of cars. We're talking about a future state, whether it's 2030 or 2035 or even 2040, where 16 million new cars and 80 to 100 million new cars on planet Earth are going to be electric cars.

Starting point is 00:40:15 When you start to ladder that up, you're talking about a multi-trillion dollar asset class. And right now there is no one bank or lender or captive that has sort of said, we're going to bet on that as an asset class. So it's completely greenfield territory in terms of it. There's not a lot of new asset classes that get introduced at a given time. What we believe is that given that as humans, we spend 15% of our gross income on mobility, this issue of how do I get from point A to point B? We're to some degree in the same business as Tesla. We don't do the manufacturing. We're much more about providing a gateway and access. And ultimately, I don't think

Starting point is 00:40:50 that what we're doing is going to be unique. I think we're just early. I think that all car companies will be in the subscription business. Subscriptions are synonymous with leasing and rental in that the customer doesn't own the car and all the gnarly bits of ownership are handled by a third party. I think ultimately this is going to, you know, sort of consume all of the natural adjacencies to car ownership. And it's the natural sort of migration where everybody's going to go. I think it's the end of car ownership. So if we're right, we are the bank that unleashes ability to get access to an electric vehicle and do it in a way that provides flexible access without having to go into debt, all on your mobile phone. How do you quantify the end of car ownership, as you call it?

Starting point is 00:41:29 How does that accrue value to autonomy? What's fascinating is to do that, we have to get about 2% market share to be a $100 billion company, not 20%. It's not a winner-take-all market. This is such a massive market. And if you think about it, not only%. It's not a winner-take-all market. This is such a massive market. And if you think about it, not only the new cars, but everybody who's driving a used car is going to

Starting point is 00:41:50 want to drive a used electric car. So you've got a whole secondary market opportunity. And the used car market is five times larger than the new car market and much higher velocity. So I think if you eliminate the friction in getting access to a car, we're talking about, you know, a world where right now we've got about 1.6 billion cars on planet Earth and only three or four million of them are electric. That market turns over 15 to 20 percent per year. So auto finance is not a U.S. only phenomenon. Everywhere on planet Earth, access to an automobile costs about a third of the average human's net worth. Auto finance is essential as a catalyst for making that entire, you know, sort of category of the economy work everywhere. And the good news about building software is that it's easier to do in highly regulated environments because you have clear binary guardrails around what is and what cannot be done.

Starting point is 00:42:46 It's not the wild, wild west. And so we like the fact that auto finance, auto insurance, all of these things tend to be highly regulated, highly mature everywhere around the world. But- One of my theses in investing in autonomy was that there would be significant multiple expansion going from a highly capital intensive, high fixed cost business to this more fractional ownership and mobility. Do you see that as part

Starting point is 00:43:07 of your thesis? It's interesting because we're just now starting, you know, we've got a fleet of 1200 cars largely in California, but in a total of five states, our customers asking us for the ability to unlock full self-driving, to be able to unlock the Zoom feature in some of their cars in terms of all the communications. They're willing to pay a short-term fee for access to these benefits that are largely software-driven. So many of the things that are built into the Tesla business model around unlocking digital access to things that don't require hardware, I mean, the whole app revolution, I think, is going to be applied to cars. Cars are just a rolling communications device to get you from point A to point B. I think that, you know, there are so many beefy components to mobility

Starting point is 00:43:49 that get unlocked through a subscription platform. You just got to have a connected relationship with that customer. So a lot of the things that we're starting to see a part of modern life where we subscribe to everything, we don't have to buy everything. I remember when I was in college, I bought, I think I remember coming home from college and having a thousand CDs. I mean, what a preposterous thing. I mean, a thousand CDs, you know, but that's how the world has changed. I think the same is going to be true of mobility in our course. Is autonomy one of these perpetual private companies like SpaceX, or is there a case for it to go public and scale via the public markets? Well, autonomy is a little different than SpaceX. It's much more like a REIT where we use capital,

Starting point is 00:44:38 cheap capital, to buy an asset, and then we put that asset to work in the benefit of our customers. And so we need to have a stable asset that has a predictable residual value and all of that. But at the end of the day, I believe that we're going to have to be public just because the capital requirement to put, let's call it 100,000 cars on the road is $5 billion. You want to put a million cars on the road, you need $50 billion. That's a lot of capital. And that's not heretofore been really the claim that private companies get to make very often. I think it could be one of the fastest growing companies in terms of top line and bottom line, period. It doesn't have to solve problems in a radical way. We're just talking about simple, connected technology that turns the car into a vending machine that gives you bike size access to whatever dimension of mobility you want.

Starting point is 00:45:20 Well, Scott, I have to admit, I wanted to jump on a podcast to get an update on the company because I know you're very busy. So we hit two birds with one stone and you've allowed me to grill you and to probe into your private life with Elon and everybody. What would you like the audience to know about you, about autonomy and anything else you'd like to share? Yeah, I think that, you know, we're committed to making buying and owning a car easier using technology. Autonomy is the best answer to that question. We know it's not going to be easy, but if, you know, you've got a kid who's going to college or you're in the military or you're working in a town where you're not going to be in for a long period of time and you want flexible access to a thing, whether it's autonomy or pick your favorite car company, subscriptions are coming for everybody. The end of ownership is very, very near.

Starting point is 00:46:05 All of those things give way to try it before you buy it, find a way to do it in a flexible, no long-term commitment way. I think that the hardest part of our business is not building great product and scaling. I think the hardest part of our business will be the financial engineering to unlock the capital in this really, really volatile moment where we're all risk off.

Starting point is 00:46:28 I get into arguments all the time with different founders of these, you know, these new electric car companies from RJ to the Fiskars, RJ at Rivian. I mean, they need to decouple their enterprise value from their production constraints because there's only two kinds of companies in the world. Ones that get valued based on performance, Ford Motor Company, and those that get valued based on potential, Tesla. And I mean, there's no comparison. You want to be a company that is valued based on your potential. You've got to get out of the business of thinking that you are buying, making, and selling cars, but rather you are in the business of customers for life and better asset utilization. I think one of the interesting things about your business model in general, some of the most valuable companies become highly capital intensive as they grow. So you don't get diluted so much in the early stage, but I see

Starting point is 00:47:13 capital intensivity as you scale in the mode that it creates as a significant long-term competitive advantage. What is the best way for people to get in contact with you? Yeah, autonomy.com. And you can go to the app store and just put in autonomy or the Android store. We own autonomy on all of those platforms. And we also own 1-800-autonomy. So you can, I mean, there's a lot of ways to find us. You just Google me. Full circle from your first company. Great.

Starting point is 00:47:40 Well, thank you, Scott. I appreciate you jumping on a call and hope to catch up live soon. All right, David. Thank you so much. Thank you for listening to today's episode. We hope you enjoyed it. Eric and I have a special RFP to the community. Please intro us to any family offices, endowments, or foundations that are currently investing into emerging managers. All introductions which result in a podcast will receive a $500 Amazon gift card, as well as a special shout out on the episode. Not to mention, you'll forever hold a special place in the heart of the LP

Starting point is 00:48:10 introduced. Please introduce the LP to David at 10xcapital10xcapital.com and do not worry about having us double opt in. We thank you for your support.

Investing Billions - E15: Scott Painter on His Relationship with Elon Musk and the Future of Mobility

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