Motley Fool Hidden Gems Investing - Ferrari, Tesla, and the Future of Cars

Episode Date: July 31, 2022

Eddie Alterman really likes cars. He is the Chief Brand Officer of Hearst Autos and was the editor-in-chief of Car & Driver. Alterman’s new podcast is called “Car Show! with Eddie Alterman”. He joined Ricky Mulvey to discuss: - Why autonomous cars feel farther away today than in 2017 - One way that Tesla could become the new Standard Oil - Ferrari’s strategy toward electric cars - Why traditional carmakers may not get enough credit from investors - Cadillacs with dry bars and LP record players Host: Ricky Mulvey Guest: Eddie Alterman Engineer: Dan Boyd Stocks: BMWYY, TSLA, F, GM, BA, POAHY, RACE, HYMTF Learn more about your ad choices. Visit megaphone.fm/adchoices

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BetMGM operates pursuant to an operating agreement with iGaming Ontario. another monopoly. He's basically Standard Oil all over again. I'm Chris Hill, and that's Eddie Alterman. He spent a decade as the editor-in-chief of Car and Driver, and he's got a new podcast called Car Show. He really likes cars, so that's what this episode is all about. Ricky Mulvey caught up with Eddie to talk about the tenuous future of self-driving cars, Tesla's chances at becoming a monopoly, and why traditional automakers don't get enough credit from Wall Street. We've talked about the story a little bit on our show and it ties into this theme where we're excited about the future of cars.

There's plenty of innovation to watch and it's cool. But one thing is really driving me nuts and it's this essentially losing your ownership of a car you buy. I think you're seeing that with the story about BMW, where they're now rolling out monthly subscriptions for things like adaptive cruise control. In South Korea, I believe, they're trying to charge a monthly subscription just to heat the front seats. It's $18 a month with options to subscribe for a year for $180, or you can pay for unlimited access for $415. Is this a new wave? Is this a continuation of car dealers always getting a little extra on the base price of selling you a car? There's some of that. The blowback

on the BMW heated seats thing was comical. They should have been able to see that one coming. You can't charge a subscription for something that people expect in a luxury vehicle to begin with. I mean, come on. But the larger point is that this has been happening for a very, very long time. Whether it was Simonizing in the 70s and 80s or pinstriping, there's always a little bit of extra they try to chisel out of you. The larger trend, quite frankly, is away from ownership towards shared. Leasing is a midway point between owning something and having full responsibility for it and actually just renting it. Of course, there are penalties when you screw it up, and you have to carry insurance and all that. It's an ownership-like experience.

But we're moving, certainly, from pure ownership to either shared or owned by the company. In the case of, they keep threatening autonomous vehicles, those are probably going to be owned by the companies that provide the service. In many cases, I think some of the designs are, there's no steering wheel. Even if you want the option to drive the autonomous car. They're kind of removing the driver from the equation. I want to get to autonomous driving, but I want to stick on this theme for a little bit because I think the argument is not just the subscription part. It is you're paying the company to unlock something that is already built into the car. I think Tesla got a similar, tried that a few years ago where they had these

battery packs for the Model S and they said, hey, we can soup up your battery pack and give you an extended range. In reality, it was a software blocker in the car that was just limiting the miles driven. This is part and parcel of the transition from hardware-based cars to software-based cars. Porsche, for example, has a sports steering option that's $250, and it's a line of code. It's totally ridiculous. Tesla gets away with it. It gets you a little firmer steering. It's electric power steering, so you don't get any more road feel, but you get a little firmer weight, and that fools some people into thinking that the car is maybe sportier, but it's not. I mean, Tesla seems to get away with everything.

Sometimes they seem to be in a different business than the mainstream car makers or any other car maker, for example, just in terms of their valuation, the way that they beta test on their customers, their full self-driving stuff. Tesla aside, BMW cannot get away with this, and it just speaks to a general kind of tone deafness and bilking of the audience that is not good for business. What do you mean Tesla has the ability to beta test on their audience unlike other car makers? Because, I mean, I'm thinking about some of the episodes you've done on, let's just say, cars from the 60s, even General Motors experimenting with ideas for the Lunar Rover, and I know that's a completely different topic, but car makers trying new

features on customers is not a new concept. So, I guess, what is Tesla doing significantly differently? In the case of new features and amenities rolling out to consumers in the traditional way, the traditional sort of big iron way where things are tested and tested and tested until they're totally foolproof and nobody's going to sue you over it, to the Tesla way, when I think full self-driving, which is a misnomer, is an indicator of their approach. Like, yeah, we're going to try this. We're going to roll it out. And the point of it is not to provide full self-driving for the consumer in any kind of robust, fail-safe way. The point of it is for them to test it and gather data and improve it. And it's just a completely different approach than the traditional Detroit big iron approach. You can see I'm wearing my Tiger's cap, and I am, you know, a bit of a homeboy talking to you here from Detroit. But, you know, safety is a huge thing, and we're talking about a system that takes control of the vehicle and drives for you.

You know, that to me isn't the most advisable approach, and I don't think that a Ford or a General Motors or BMW could have gotten away with it. You know, you look at how GM approaches their level three autonomy with GM Super Cruise. It is a fail safe system. It's incredible. It's so well thought out and it's so bulletproof and it always works. Full self-driving, you know, if it confuses the environment, you know, they don't have super sophisticated computer vision on Teslas. If the environment is opaque to the car, lots of bad stuff can happen. What's the GM system like?

And as a novice to this kind of stuff, I don't understand what GM is doing differently with self-driving versus Tesla. Super Cruise is a much more robust, higher camera-dense system that forces you to really be alert. And it keeps you in between the lanes in a really kind of natural way.

It's just sort of better. I don't know how else to describe it other than it instills more confidence. So I guess this is kind of a lead into the question, but there are features of cars today where I'm sure we'll look back and grimace. You mentioned in your episode on minivans, you talk about the station wagon design,

which was, hey, we're going to have kids sit in the back of the car and we're going to face their, essentially, nostrils toward the exhaust fumes coming out of the engine. The one I think about is the story where Sammy Davis Jr. lost his eye. It was a 1953 Cadillac Eldorado.

And the designers of that car, this is a time where there were no seatbelts, no airbags, and they thought it would be very Art Deco cool to have in the center of the steering wheel directly pointed at the driver's heart, this conical, cone-shaped pointed design. So first question is, what are some of your favorite, I guess, features of those 1960s kind of cars where you just, you look back and think, how could they have thought this? Well, there were Cadillacs with dry bars and shot glasses in the vehicles, certain high-end Cadillacs with LP record players in the back seat. And those were hilarious. But, you know, the minivan was sort of this important turning point where cars went from these kind of wild

stallions. They were all about, they were really about freedom and exploration and personal expression and, you know, sort of all those great Don Draper attributes to a much more paranoid sort of covered wagon type of expression of what a vehicle should be with the minivan. The critical change from the station wagon to the minivan and the big unlock there that made families feel more secure was the third seat. The third seat wasn't faced backwards. It wasn't in the most, putting kids in the most vulnerable position in the car with their feet inches from the bumper. They weren't able to look at the serial killers behind them and make faces at them. Putting that third row forward facing, you know, sort of in the drive, not in the driver's seat,

But in this kind of command position in the vehicle where the whole family was facing the same direction, that allowed parents to look at their kids in the third row. That was a completely, that signaled a completely different moment in not just cars, but also in kind of parenting and the American experiment. And how much of that change was also coming from the Corvair fiasco? Yeah, Corvair sort of put safety in the headlines. It was a great sort of unintended consequences moment. You know, if GM hadn't, you know, there was this whole story about GM was super paranoid when that book came out. They had already made certain safety upgrades to the Corvair, but they were so worried that

it would be a blemish on their sterling reputation, this book from Ralph Nader, that they sent private investigators to tail him. And that's the story that broke first. And that's what gave attention to the book. So the book did raise the specter of safety, automotive safety in the American mind. And the Corvair was, in my opinion, a casualty of that. You know, I think you could draw a line from the Corvair to Al Gore not winning the election, you know, because Nader was a factor in there. I mean, who would Nader have been without it, And you can also make an argument, although it's tenuous, that if the Corvair had succeeded, General Motors would have been in a much stronger position to take on imports like Honda and Toyota in the 70s and 80s, the so-called malaise era of automotive.

So there's a lot of what-ifs. There's a lot of red pill, blue pill with the Corvair, which is one of the things I love about that story. But, you know, the car was a challenging car to the American public. You look at what Ford and Chrysler were doing at that same time when they had to downsize because imports were starting to really eat into their business, smaller, more efficient, more fun cars eating into their business. I mean, Ford just downsized their big cars and made the Falcon. But General Motors, which was really at the height of its powers, they said, no, we are

really going to take the fight to the imports. We're going to have a rear-engined, rear-drive, air-cooled vehicle, just like the Germans, and we're going to beat them at their own game. You know, a lot of people went into Chevrolet dealerships saying, oh, I just want a smaller Bel Air. This is affordable. This looks like fun. They didn't realize it was really sort of a sports sedan, and really the first American sports sedan. There's also a communications failure, which is that the specs on it and the way to maintain it was more in line with a European car. You talk about this in your show, which is even things like tire pressure and the way it could fishtail. And I think that was an important communications failure for Chevrolet.

And ultimately, that's why a lot of people lost their lives. That's exactly right. You know, tire pressures had to be very carefully maintained in that car. It was a complicated car, more complicated to own than the Chevrolets of the day. It was more complicated to drive in extreme maneuvers, not uncontrollable, as some people have put it. You know, I've had that car in extreme maneuvers. It's not uncontrollable, especially in the 65 era.

But, you know, the Corvair was in a very weird crux of a moment. You know, it got sort of pilloried by Nader, but it also was a victim of the Ford Mustang, It's just a much better targeted vehicle, much more fun, better sort of teenager car than a Corvair. You also make the case, you're catching some flack on this, so I want to revisit it on this show, but you make the case that after the Corvair and after all of the safety features have been implemented and as car makers have focused on that, the roads haven't gotten much safer. Well, statistically they have. What is true is that fatalities have, on a percentage basis, have come way way down but we're still killing way too many people on the road there you know

with all the advances in safety technology we're still killing 40 000 people a year on the american road and a lot of that is enabled in a weird way by the safety technology people feel invincible in their cars and people are still driving drunk and another interesting thing about the corvair era is it represented also a handoff in safety philosophy for drivers. There was something called the triple E philosophy of driving, which meant engineering, enforcement, and education. And the idea was we needed safer roads, we needed safer drivers, and we needed more police enforcement. And we needed to educate the American people on how to drive cars. Now, Now, Europeans are already sort of predisposed to driving in more challenging conditions.

You know, they have the Alps running through their countries. We do not, except for the Rocky Mountains and parts of Appalachia. America is pretty flat and people don't have to pay a ton of attention. Is your skepticism from these safety features that came after the Corvair, and I guess they made things better, but people are bad at driving. I think that's not a controversial statement to say. Is that one of the reasons you're skeptical about the rise of autonomous driving and those types of features in cars, is that it would encourage people to be even less attentive than they already are on the road? And that's part of

it. I also think that the issue with autonomous cars and why their delivery date keeps getting pushed out or their mass adoption date keeps getting pushed out and pushed out and pushed out. I mean, back in 2017, it was like, they're right around the corner. All the tech is here. What we sort of found out was that having the tech be really, really good wasn't enough. The tech had to be perfect. And the reason is, and this is another theory of mine, and I know this is actually, I share this theory with Malcolm Gladwell. Either he came up with it or I came up with it. I'm not exactly sure, but we both have said this on separate occasions, is that when you are driving, the risk is entirely voluntary. You feel as though you're in control.

And if something happens, well, it's the other guy's fault, or it's the car's fault, or it's never your problem. You're a great driver. Everybody thinks you're a great driver. But when you move to an autonomous car, you're in a situation of involuntary risk where something else is in control. And we're okay with people crashing into each other. We are not okay with machines crashing into each other. That is a level of sort of existential terror that we can't really cope with as humans. I mean, look at the Boeing 737 MAX. Two crashes.

statistically very insignificant, but nobody wants to fly on a 737 MAX now. And the reason is of that involuntary risk that you're assuming when you get onto a plane. A plane cannot crash. You know, if planes crashed with the frequency of cars, nobody would fly. And so I think the issue with autonomous vehicles is that they're not perfect and they might never be perfect. And we need that safety threshold of perfection for them to really catch on and for people to really embrace them. And until they do, and until that happens, I think they're going to be confined to cities or smaller areas or that sort of level of safety to take hold and to obtain. You really need sort of an air traffic control system. You need vehicles talking to each other. You need vehicles

talking to the infrastructure and it's their environment. So it knows if a ball rolls out into the street, it can see that it can take appropriate action. And until we have that sort of matrix domain environment for cars, I don't think you're going to get the level of safety required for people to take on that involuntary risk. And so as a result, unless all cars are autonomous in a given area or system, none of them could be. I don't think you can have autonomous and human-driven cars mixing. So lots of stuff going on with autonomous cars that are preventing them from mainstream acceptance. You made an episode about the Porsche 928. It's called Better Isn't Always Best. And essentially, it's about how Porsche created this car that

was allegedly improving upon the 911, but also took away a lot of the things that people loved, the ability to steer into skids, just a lot of the character that Porsche's had at the time. I'm wondering if you think Ferrari right now is making a similar mistake. Ferrari is making a big push to turn into more electric hybrid cars and is a casual observer. I do not drive a Ferrari. I drive a Acura with 225,000 miles on it. That's my point of view that I'm coming at this. However, it would seem to me is a concern troll that Ferrari might be making a mistake with this by taking away the thing that people ultimately love, which is a Ferrari engine in the name of progress towards electrification. Let's define our terms a little bit. There have been

electrified Ferraris in the past. There are hybrid Ferraris like the LaFerrari, which is a plug-in hybrid and an exceptionally terrifying machine. And there's no lack of personality there. And do I have faith that Ferrari can make an EV that has the personality of a Ferrari? Yeah, I'd say I'm 50% on that. When you take the engine out of a Ferrari, you're scooping the heart out of the vehicle. And it's just, maybe I'm old school, but without that vibration, without the sound, without, you know, Ferraris are this amazing mix of intake noise, engine noise exhaust noise you really don't even need the radio on when you're driving these things it's so engaging the sound of the engine is just musical it's phenomenal and i think that's a huge

part of the appeal and why do they really need to do ebs i mean just to seem cool to seem like kind of with it to do i just don't get it i i'm a purist in that sense and i think that they will turn some people off yeah will people buy ferrari evs of course did people buy uh porsche suvs of course but it was you know the 928 that was that sort of sacrificial lamb it was the the thing that that you know had to die so that the cayenne could live so that the ferrari piro sang could live speaking of electric cars uh in 2018 you wrote a column called uh is elon musk more of a henry ford or a preston tucker why these two figures especially preston tucker i was wrong about him being preston tucker because i thought he was sort of a flash in the pan you know i don't think

i had a complete understanding of what his end game was and what he was really trying to do i think the cars at this point are marketing for his personal energy systems and personal energy independence and uh we learned about elon musk through the cars through tesla because they are so cool but i think what he really wants to be is utility uh you know he's got the best supercharger network i mean the other fast charging stations are terrible uh they do not compare in any way to the tesla supercharger station he needs to build more of those and then he's basically another monopoly. He's basically Standard Oil all over again. I think he wants to get everybody off the grid, and he wants home solar power. I see him as a much more

transformative figure now. Even with all the bullshit around Twitter and all that, I just think he's operating at a higher level. Outside of EVs, outside of self-driving, what trends in cars do you think people aren't paying enough attention to? because the only thing i i've got is that minivans are beating muscle cars in terms of horsepower or the old school muscle cars yeah well we've gotten to a point where you know there's tremendous commonality and homogenization in vehicles car makers are regressing more and more toward the mean everybody who's got a sedan has a 15 cubic foot trunk you know everybody's got a two liter four-cylinder turbo. Everybody's got an eight-speed ZF transmission. And the personalities

that used to differentiate one vehicle maker from another are really disappearing. I mean, there's no Citroëns anymore. There's no Saabs. I mean, even Porsche and Mercedes and BMW are getting closer and closer together. And you look at the VW Group's SUVs, you've got a Lamborghini a Urus, you've got a Porsche Cayenne, and you've got an Audi Q8, and a Bentley Bentayga all on the same platform. And yeah, that platform is not a bunch of shared parts. It's largely a way of building the cars. But it's a shared philosophy in a lot of ways. And some of the great sort of the Cambrian explosion of automotive philosophy, where one guy puts his engine in the back, one guy's got a front-engine V12, one guy's got a three-cylinder.

Some of that's going away. For car enthusiasts, that's a bummer. But what does sort of the average punter have to worry about now? Well, cars are much better than they've ever been. They're much more reliable. They're easier to access. There's more transparency around the retail aspects of them. I have a hard time finding anything wrong with any of that,

but I think that the personality is disappearing. One thing I'm contractually obligated to ask you as a producer of a Motley Fool podcast is about investing. You've spent a lot of time in the auto industry, and many car makers have historically played out to be bad investments with the exception of, let's say, Tesla. Maybe it's because sometimes you have someone like Volkswagen making Bugatti Veyrons that end up costing them $6 million more than they are selling them for. Sometimes car makers have been bad at math. But it's a long-winded way of asking you, for all the time you've spent around the auto industry, around automotive leaders, has it made you more or less likely to invest

in carmakers? Well, if you're looking for big returns, don't buy carmakers. But for long holds, I think that the way that these businesses are managed now, and look, I'm not an investor, I'm not an economist, the way that these businesses are managed, the amount of money they pump into an economy, they're just not getting enough credit for it. These are incredibly capital-intensive businesses. Things can go wrong if somebody makes a bad bet, as you said, with Bugatti, and they are highly regulated, very much bound by things like union contracts.

And it's a very, very, like the hardest business on the planet. just got and listen i'm biased but it has so many facets and so many factors and so many things to do right it's very hard to do right and i don't think that it's sexy enough for the street but the value is there if you look at what happens to nation's economy when a car maker goes away that's the value you know they just employ tons of people general motors created the middle class or the big three did, led by General Motors, I think we take it for granted. But that's not to say that you're going to realize gigantic gains by putting your money into a car maker. Eddie Alterman, he's the host of Car Show with Eddie Alterman. He likes cars. It's

been a real pleasure. Thanks for joining us on Motley Fool Money. Thanks so much, Ricky. It's great being with you. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening, we'll see you tomorrow.