Motley Fool Money - EV and Autonomy State of the Union

Starting point is 00:00:00 Are electric vehicles up or down and what's the future of autonomous driving? Motley Full Money starts now. Welcome to Motley Full Money. I am Travis Hoyum, joined today by Lou Whiteman and Rachel Warren. We are at the point where electric vehicles have gone mainstream and we know that autonomous vehicles are real, but what's the future of this business? And I want to start with this question for both of you. Waymo continues to chug along. They announced yesterday that they have driven 96 million.

Starting point is 00:00:43 miles fully autonomously. They're operating in five cities. They've got about a dozen cities or more that they're kind of laying the groundwork for operations. They even announced this morning they're going to be coming to Nashville on the Lyft network. Lift stock was up over 10% early in trading on that news. Lou, has Waymo gotten the strategy right here? They went with these expensive vehicles. That was always the criticism. They're about $250,000 or at least a couple of years ago they were. I have all this equipment on them. But they didn't go kind of cheap with vision only the way the Tesla did. They got a lot of criticism for that, but they're the one scaling right now. Yeah. Well, part of this is it's an unfair advantage,

Starting point is 00:01:22 right? Not everyone has Alphabet's money to fall back on, which I think that's a, it's a bit of a help for them. Yes. Yeah. But look, a part of this too is, and maybe this is because it's a kind of side business and not core to the company and the company's ability to attract investment, but this has always been a kind of boring engineering culture versus a hype culture. And others, I think, and I'm not just looking at you, Tesla. I think even GM got caught up in this. It was about, look at us, look at us, look at us. And either way, you can get there.

Starting point is 00:01:55 But I think just focusing on the bit by bit, blow by blow, incremental, I don't think we should be surprised that that gets there first. Look, we still don't know if this is scalable. You mentioned they're using these up to $250,000 per car. I don't even know what scalable means, Travis, because it could mean that over time, these components get cheaper as, as we see with a lot of products. It could be that there's just newer technologies that are going to come out and change the cost curve. I don't know who's going to get there.

Starting point is 00:02:26 I don't know how it's going to work. I don't know if I'm ready to say that they are the winner period. But I do think we should take a lesson out of their approach. And their approach was just shut up and slowly, bit by bit, do the work. Yeah, Rachel, the big thing here is that they do have. have all those sensors. They have benefited from things like LIDAR coming down 90% or so in cost over the past few years. It seems like that trajectory is going to continue as there's at least more buyers for these sensors. And Waymo is one of those buyers, but there's other players as well.

Starting point is 00:02:59 Yeah, it is really interesting to think about the journey of Waymo. And I do think that some of this success is the fact that they are a subsidiary of Alphabet. They have this really extensive engineering talent and capital that's behind them. But Waymo's also been developing its technology for almost two decades now, since 2009, going all the way back to the DARPA Grand Challenge team. One of the things that I think has been really interesting about Waymo is they've been very strategic in how they have scaled their service city by city. They'll focus first on these very specific geofenced areas. They rely on these very detailed pre-mapped environments, which essentially act as a digital twin of the real world. And that was always the criticism of them. I just want to point that out.

Starting point is 00:03:45 I know. And it's their advantage in a way. Yeah. And it also gives them, I think, something of a very precise understanding, right, of their driving environment before they ever enter it. And as you noted, you know, they have this very kind of robust sensor suite, you know, LiDar, radar, high resolution cameras. So their vehicles, you know, very practical issues. They can see clearly in diverse conditions, you know, including fog and rain. So I, I think right now it's clear that Waymo is at the front of the pack. Are they the winner long term? I think that still remains to be seen. I think it's also important to say, even as someone like myself who's bullish on this space, you know, autonomous vehicles are still met, I think, with a lot of public skepticism. You know,

Starting point is 00:04:26 Waymo itself is of course currently not profitable as well, which I think is important to note that other bets segment lost over a billion in operating income in Q2. So there's still a lot of road ahead, so to speak. But as an alphabet shareholder, I do enjoy being a part owner of Waymo too. Yeah, we don't quite know the economics behind these Waymo vehicles yet. We know the cost curve is coming down from a capital side. The other thing I think is interesting, if you just look at the number of rides that they've done, and the number of vehicles they have, you could back out.

Starting point is 00:04:56 They have about 24 rides per day per vehicle. So that's pretty compelling. Lou, let's explain a little bit on the business model side, because at the end of the day, technology is great, but if you don't have a good business model to back it up, you're not going to add value to shareholders and we are investors. So they're testing multiple different business models in different cities. In some cities like Los Angeles, San Francisco, they own the vehicles,

Starting point is 00:05:22 and they have the app, the Lyft or Uber competitor. In other cities, like I mentioned, that Lyft was announced today, that they're going to be launching in Nashville. Lyft is actually going to be the demand source and their subsidiary flex drive is going to maintain the vehicles. They've done some deals with Uber and some other companies as well in Phoenix. So they're kind of testing a whole bunch of different things. Where do you think this shakes out because they are able to kind of test these things out?

Starting point is 00:05:52 But there are also other players who are going to watch very closely, Tesla, Volkswagen, General Motors, everybody's sort of in this game in one way or another. But where do you think this goes from a business model standpoint? So the truth is, I don't know any more than, Waymo's management knows where this will end up. But as an investor, what I really like about Waymo is optionality. They are, they basically are in every boat. So whatever evolves wins. If you look, I mean, there's a lot of companies I think are doing interesting things here. Uber Lyft may only work with licensing and partnerships. I know they're dabbling, but I don't know

Starting point is 00:06:32 if they'll get there with the tech. MobileI only works as a licenser. They are not going to roll out their own fleet and their own system. Waymo, in theory, can win in any of these environments. They can license their technology. They can work with partners or they can Waymo one on its own. This is so early on. We don't know what the future holds. There's one company that, A, is doing it on the road, and B, seems to be future-proofing the business in just in terms of what consumers want and where the business side of it goes. And that, to me, I think might be the bigger advantage. they have than their lead in number of miles or number of cars out there. I think the other things you can catch up on a lot quicker than business model flexibility.

Starting point is 00:07:18 It doesn't get a lot of attention, but Waymo is so far ahead that I think this is a company that we need to pay more attention to as investors. Alphabet is now a $3 trillion company, but Waymo could be one of those optionality businesses that could add hundreds of billions, if not a trillion dollars or more in value long term. Next, we are going to talk about the latest updates at Rivian. They have now broken ground on their Georgia plant. You're listening to Motley Fool Money. The old adage goes, it isn't what you say.

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Starting point is 00:09:01 But they have not made vehicles profitably yet. They're still making less than 50. thousand vehicles per year. So, Rachel, with their vehicles and the demand that they have right now, the capacity that they have coming online, and oh, by the way, at the end of this month, the $7,500 tax credit, which wasn't a big impact on the R1 vehicles, but it will be an impact on the R2 vehicles. Where is Rivian sitting in this? Is this going to be a growth market that they can actually sort of differentiate themselves? I think there's a bit of an uphill battle for Rivian. And don't get me wrong, I do think it's an interesting business. I get why there's a lot of excitement around the vehicles. This has just not been for me an investment that I've been able to get

Starting point is 00:09:46 excited about. And obviously, I'm not alone in that. I mean, the stock's down more than 80% from its IPO price in 2021. But I think there are a lot of factors that we see when we look at Rivian's business and some of the challenges they've been contending with. I mean, obviously the EV market is increasingly crowded. There's the reality where you have a lot of legacy automakers that are directly competing with their core products. As you noted, Rivian is really still contending with significant financial losses, and its costs for the upcoming R2 launch are going to keep those expenses very high. It's also the case that their vehicles are very expensive. So that does kind of limit its target market compared to lower cost models. Now, the bulls for Rivian would say that the R2 and R3 models could be really critical new products that could significant.

Starting point is 00:10:33 boost their market presence. Some have compared that to be sort of aligned with how Tesla launched its mass market vehicles. I personally have some skepticism there. One thing that's important to note that you alluded to, a major source of Reveans revenue had come from selling regulatory credits to other automakers. And now that the tax law has eliminated the penalties for failing to meet emission standards, which was essentially why you would as a traditional automaker buy those credits from EV makers, that's going to be a much less prevalent. source of their business. So, you know, Amazon is still the largest shareholder of the company, right? They're a customer for its delivery van. So as an Amazon shareholder, I think I'm more

Starting point is 00:11:13 interested in investing indirectly that way. Yeah, Amazon is also now testing the bright drop, which comes from General Motors. So they're not a one-trick pony when it comes to an electric delivery vehicles. Lou, you've been following these more capital-intensive or manufacturing businesses for a long time. It sounds great to say, you know what? We're going to build another 200,000, maybe 400,000 vehicles. But Rivian has not shown the ability yet to actually manufacture the 215,000 or so vehicles that they can make in their normal Illinois plant currently.

Starting point is 00:11:49 That was supposed to be filled with the R1 vehicles. They're going to now build R2 there initially. What do you think about this new plant? And is this kind of a go for broke bet by Rivian? I don't know if it's go for bro. I do think there's a reason for this, but I don't think there's a business case for this. As you say, it's 150,000 plus, up to 200,000 now at a normal. They delivered 51,000 vehicles last year. So they are not capacity constrained. They're spending $5 billion or so to add another

Starting point is 00:12:17 $200,000 in capacity initially, up to $400. There's just no need for this in a market where there's, you know, I love confidence, I love bold bets, but if you look at the macro trends, if you look at the tax cuts. There's a real question here. I think there's two answers, though, Travis. For some reason, they are committed to building the R3, which is the lower cost in Georgia. It seems to me it'd be cheaper to retool Illinois to just get that out. And look, it's not coming to 2028 either, but you mentioned it. There's a lot of government money here. We're coming up. We're now almost a year away from a governor's election in Georgia. And the current governor, who is not up for reelection, was a big champion of Rivier.

Starting point is 00:12:59 and has been, you know, throughout has been willing this into existence. It feels like that if you believe you can survive the now, now is the time to grab that while it's there. And I think that's what's going on here. I don't think there's a business case to do this. I think there is a long-term bet that maybe in two years, they may not have this ability, so do it now. I want to ask you this, Lou, first, quickly.

Starting point is 00:13:27 Tesla's deliveries peaked in 2023, 1.81 million vehicles. Rivian has had trouble getting past 50,000 deliveries. We've seen struggles at Lucid. GM has pulled back on their EV. Has this market already peaked from sort of a hype standpoint, and are we now at a, you know what, this is a manufacturing business. It's just going to be kind of steady and boring as it goes as the auto business has been for a century. Yeah, the early adapter stage is over.

Starting point is 00:13:56 The euphoria stage is over. That doesn't mean we can't see growth from here. I don't think, I'm not going to give consumers enough credit to think they're all waiting on quantum scape or something like that. But I don't think that EVs have really hit Main Street as a, yes, this is a viable alternative or this is, I can replace my entire fleet. So right now, yeah, we are dealing in, especially in Rivian's case, very expensive vehicles. We're all, we're waiting for this next inflection point where either the vehicles come down, in price, which they're all working on it, but we're not there yet. Or we see some sort of battery breakthrough slash charging breakthrough where they're more reliable. So I think we're going to tread

Starting point is 00:14:38 water until just there's another spark to move past the initial euphoria phase. Rachel, is an inflection point on the horizon? I mean, I think we're still looking at where the on ramps to adoption are, right? In the EV space, I agree with Lou. I do think the euphoria stage is over. And I think also some of it comes down to the expansion of the critical infrastructure that EV vehicle owners need. And I think that's something where we are still kind of way behind the curve, so to speak. And I think unless and until that changes, I think we're still going to see a very kind of slow adoption phase like we've been witnessing the last few years. Lots of questions for Rivian. And there are questions for another name in electric vehicles.

Starting point is 00:15:18 That is Tesla. We will get to that in just a second. You're listening to Motley Fool Money. In a world full of noise, long-term thinking stands. out. On the Capital Ideas podcast, Capital Group leaders explore the decisions that matter most in investing, leadership, and life. It's a rare look inside a firm that's been helping people pursue their financial goals for more than 90 years. Listen to the Capital Ideas podcast from Capital Group, published by Capital Client Group, Inc. Welcome back to Motley Full Money. Tesla was supposed to be the

Starting point is 00:15:47 runaway winner in electric vehicles. And looking at the stock market, you would still think that's the case today. The company's worth over a trillion dollars. But Elon, Musk has put a little less focus on the EV business in the past couple of years. Going back to 2021, he predicted there was going to be 50% annual growth in their production. They're now dropping their production from 2023 to 2025. So heading kind of in the wrong direction there. They've also launched the Robotaxy Service in Austin. They still have a safety driver in the front seat. But this is a decade after autopilot launched. Lou, is it time to give up on Tesla winning autonomy?

Starting point is 00:16:24 me. All right. Slow down, Mr. Hot take. First of all, all right. The whole EV, you know, giving up on EVs, the model two is right around the corner. I think in theory, we should be hearing more about that before the end of the year for production next year. Yes, there's been a lull. Yes, I don't think they invested enough to get new models here fast enough. But I'm not ready to say that Elon Musk and Tesla, you know, aren't going to be able to grow their EV business. I think that That's very much next year should. Let's come back a year from now, if not. As for winning and autonomy, my question is define winning.

Starting point is 00:17:05 I think there's a solid case to be made that Tesla will get there, and I'm not sure if there's real value in getting there first. I mean, there's some value. But look, in some ways, if they do what was originally designed where they're using your car and Rachel's car as their robotaxy feat, they are in effect sharing some of the CAPEX with their customers in terms of the investment of fleet. I think that could provide cost advantage. They do have a well-known brand. Take that what you will right now, but these things change. And it is, I think, a well-respected brand as far as technology.

Starting point is 00:17:41 I don't think they're winning right now. I agree with you that. But again, does it really matter to be, if they're first? The real question is, can they get there? I think they can. And so I'm I'm not ready to say busted thesis yet. Rachel, what is the future of Tesla's autonomy business? I don't think that winning autonomy is the near-term reality for Tesla. Obviously, that could change. And I think there's a few reasons for that. I mean, one of their kind of core differentiators and also, I think, one of the weaknesses we've

Starting point is 00:18:12 seen in their vision of the future of autonomy is their camera's only approach. You know, they had made that decision to remove radar. and in 2022, even ultrasonic sensors to reduce hardware costs. But from a very practical standpoint, that reliance on cameras makes their autonomous systems vulnerable to things like misinterpreting shadows or other really important visual cues. Yeah, they've had accidents where glare has been blamed. Correct. And so just from a technical standpoint, a radar has a different failure mode than a camera does.

Starting point is 00:18:44 So that's why a lot of these companies are using two different kinds of sensors because you don't want to fail on one of them and just have the system completely break or get into an accident. So, you know, this was an intentional decision that Elon Musk made that everybody else has gone the other way. Yeah. And, you know, Waymo, for example, they use a combo of cameras, you know, LiDAR for precision, radar for long range detection. There have been, I think, a lot of excitement around Tesla's autonomous journey, but right now their systems are really only semi-autonomous. I think that Tesla needs to focus on its core business, which is a quality business that I think has struggled the last couple years. I mean, you look at Q2. Their operating income was down about 42% year-over-year vehicle deliveries were down almost 14%. And they are also facing growing pressure from competitors, even the lower-cost EV manufacturers, for example, in China, like BYD. So I think that core part of their business is where the focus needs to be. I think the vision of autonomy for Tesla is still a very distant way. reality. All right. Let's end on this. In this space of electric vehicles and autonomy, what stocks are on the top of your radar or maybe your buy list? Lou, I'm going to start with you.

Starting point is 00:19:56 This is boring and I don't know, like valuation comes in, but Mobbili to me, because I do see a world where we're just going to get better and better, safer and safer, whether it's, you know, no steering wheels or just safe. They are kind of in a commoditized world, I like the supplier of that commodity, and that's MobileE to me. Rachel? I mean, you know, Amazon subsidiary Zooks is cool. If you want to invest in a big name and get exposure to this space, Zooks has about 50 purpose built vehicles in its fleet.

Starting point is 00:20:25 They most recently launched in Vegas. There's another way to approach this too. I mean, Nvidia, right? They provide the hardware and software and AI powered chips for self-driving cars. I think that's a fun way to approach this space too. Invidia is coming. They've been talking about this for a long time, but they are now partnering with companies like General Motors. So if some of these older OEMs get into autonomy, they may be leaning on some

Starting point is 00:20:47 of these tech-first companies like Nvidia, like MobileI. So lots of different ways to play this, but something we'll be talking a lot about, especially after this tax credit expires in a few weeks. As always, people on the program may have interests in the stocks they talk about. The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows the Motle Tools editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou Whiteman, Rachel Warren, and Dan Boy behind the glass, I'm Travis Hoyum. Thanks for

Starting point is 00:21:27 listening to Motley Full Money.

Motley Fool Money - EV and Autonomy State of the Union

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