Odd Lots - The Electric Vehicle Revolution Is On, and It’s Going to Change Everything

Episode Date: January 24, 2022

The EV revolution is official on. Sales are soaring around the world as the internal combustion engine era starts to fade. But if you're just thinking about what's inside the car, you're missing some big stories. All kinds of industries and patterns of behavior are going to change because of the switch. On this episode, we speak with Nat Bullard, the Chief Content Officer at BloombergNEF, who walks us through all the various ramifications both inside and outside of the existing auto industry.See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, you know, there's this weird thing going on. There's always weird things going on. Yeah, I was going to say you have to narrow it down. I'm going to narrow it down. There's this weird thing going on right now. where investors are really excited about car companies, even though car companies are like barely selling any cars these days because of the chip shortage.

Yeah, I have noticed this too, particularly by the way over in China, like there is just a massive amount of capital moving into cars at the moment. But it's concentrated in one particular type of car, which would be, you know, electric vehicles or, some sort of hybrid plug-in type things. Like, we have seen so much money move into that space recently. And I think part of it is the enthusiasm for tech that we saw last year, right? People are looking for those big structural shifts. And the idea of electric cars is definitely one of those things.

The weird thing, though, too, and I'll move it back to the U.S. perspective for a second, And it's like, okay, everyone knows like Tesla. It's done sort of this way out, it was way out ahead of this space. And the legacy automakers have, you know, are catching up and they're rolling out more and more electric vehicles. But like they're getting a lot of credit for it, at least recently, like four past $100 billion. It's not like these companies are like crushing it yet as far as I can tell on the EVs. But they're getting a lot of credit for it. And as you mentioned, sales exploding in China.

It's just investors not only seem to really like be bullish on EVs, but really just think, like, there's going to be tons of winners in this space. It's a lot of optimism. Yeah, well, it kind of begs the question as well. Like, how much does it take for an old school car company to convert itself into an electric vehicle manufacturer? And here, I have to admit, I really don't know anything about the technical differences between building a gas powered car versus an electric car. But it seems to me like you cannot just flip a switch and suddenly go into, you know, procuring batteries and making EVs. So I'm very curious how much of this, this narrative about the old school auto companies

suddenly becoming EV manufacturers. How much of that is hype versus reality? There's so many questions I have on that. Like, you know, one of the themes that we've talked to on many episodes, especially with advanced manufacturing is this idea of like, sort of like tacit knowledge is something Dan Wong talks a lot about. It's something we've talked a lot about on our semiconductor episodes. Like, do you just have the institutional knowledge to build these things? And then you're right, like there are different processes. I remember we had a good story a couple of years ago about

the unions in Germany being very anxious about the EV transition because there are fewer parts. In theory, that means fewer workers. So all kinds of huge questions about how this is going to work and what the EV transformation will look like. And like you, I really just like don't know much about this stuff, but it's happening so fast that I think we better catch up. Yeah, let's do it. Let's do it. I am very excited for today's guest.

We are going to be speaking to Nat Bullard. He is the chief content officer at Bloomberg, NEF, and one of the most knowledgeable people here at Bloomberg about all types of things, EV energy transitions, energy tech cars, and all of it. Nat, thank you so much for joining us. Joe and Tracy, thank you for having me. As I used to say in radio, long-time listener, first-time caller. So a treat to be here.

Thank you so much. So to get it right off the bat, like the EV revolution is on, right? Like, this is happening. That's right. I mean, we're right now at a position of, let's see, 10 years ago, less than a 10th of a percent sales of global cars were electric. And in the third quarter of last year, it was 10 percent globally. And there is, of course, some regional difference within that, as you can imagine, China finished the year in December at more than 20 percent

EV sales. And that's the world's biggest car market. That was 3.3 million EVs sold. Europe was about 17 and a half percent is probably going to end the year around 20 percent. The U.S. and the rest of North America a little bit lagging, you know, about less than 4 percent in the in the fourth quarter, or third quarter rather. But nonetheless, the trend very clearly is the electric vehicle's friend in this case. I mean, this is something that looks like a very classic, steep part of the S-curve in an exponential growth. And it's happening much more rapidly than even a lot of people embedded in the space would have expected. And so it's really a fascinating time,

and not just because a lot of units are being moved in cars, but because as you hinted at Joe, there are a lot of other industries adjacent to that. And I think, you know, we can have time to explore that maybe today, that it's so much more than just the car in terms of adjacent industries, things that flow into and out of this, and what it means for all kinds of stuff, for the built environment, for behaviors that customers have,

and for new competitions probably emerging and new coalitions emerging between all of these different sectors that might previously not have had much of a connection. So can I just ask, I suppose, the most basic question here. And you mentioned that demand for electric vehicles has really taken off in recent years. What is driving those sales? what is the attraction of an electric vehicle to a normal buyer who's out there thinking of getting a new car? So there's probably three things to point a one, undoubtedly is policy. So policies that either put limits on the amount of emissions per kilometer or mile driven in some jurisdictions,

or policies that incentivize buying an EV, which is a relatively common thing here in the United States, at the federal and the state level. The other is this sort of industrial reorganization that some companies have done around this. They've just sort of made the decision that, you know, going towards things that are mechanically simpler, may be advantageous for their future production. And then there's also, you know,

the element that consumers, it turns out, in many cases, actually like the electric vehicle experience. And I think we should probably widen out what that experience means. Obviously, driving-wise, it's very different. It's almost impossible to find somebody who's driven an EV for the first time it doesn't say, wow, that's a great driving experience. Yes. But it's also a buying experience that's very different for many people. And, you know, it's something that falls into an interesting place, I think, in our, the individual capital stack. Like, for most people, a car is probably the second biggest thing that they acquire in their life

after a house, but most people are probably acquiring more cars than they are houses every time. And there's all kinds of other stuff that goes with it. There's the hedonic signaling of who you want people to think you are, what you are aligned to, you know. How do you drive technology? I mean, anybody can have an iPhone. Not everybody can yet have an electric vehicle, but you can do a lot of signaling with it. And one thing that I think is unique in talking about this big sector that intersects all these other relatively staid things like electricity or oil and gas, is that there's an element of personal choice here and style that that is a challenge for a lot of long-term planners to think of because it's never really been a thing.

There hasn't been much of a power train choice in cars for like 120 years, really, until really right now. So I strongly, I still have a regular, an old car internal combustion engine. But I think, you know, the next time I get a car, it's going to be an EV. And I had that experience where I drove someone's and it's just like so smooth and nice. And then I went back to my car and it like, you know, did that thing where it like sort of like coughs and hiccups to start. And it's like God. And you know what?

It felt like it felt like going from an iPhone back to like a flip phone. It was just like, oh. And I, this analogy is not bad actually, Joe. You've gone back to candy bar keys and physical clicks as opposed to a seamless kind of universal surface. experience. So you hinted at this and then you said something specific. You're like, okay, this is going to hit so many different adjacent industries because it's not just a technological change. It's going to change everything. You said the buying experience is fundamentally different, which of course calls to mind the power of the dealer networks of the legacy automaker as we know that dealers are politically

powerful and there's this whole established way. People go to a car and they haggle and they get $500 dollars off and, you know, a year of satellite radio, et cetera. What makes the buying experience unique for EVs? Why will that inevitably change? Well, I should, I should quantify that a little bit, which is that it's, it's for the pure play EV companies, they are just doing direct sales. The challenge, I think, is going to come about for a GM or a Ford or a VW group that obviously has this huge embedded dealer network that it works with that wants to sell things,

you know, to get that, to get that undercoat, to get the, floor mats thrown in, you know, you could maybe cut a deal on your service schedule or something like that. So you've got kind of two poles set up, which is one, we have a new product. And if we're going to stand up in a new market, why not just do it differently? I mean, the internet does exist for all of these companies. And if you can kind of force a lot of your energy and attention into the web interface, you can probably save on other things versus, you know, putting the car into a new electric car into a universe of other existing models, wherein you're presenting a choice within a brand that may be kind of challenging

and that itself implies all kinds of different stuff about how well does the sales staff know to sell an electric field look? Do they know the, do they know the KPIs to talk about when they're pitching it? Do they know the specs? And also, do they know what kind of experience sort of they can promise down the line. But there's a wrinkle to that, which is that, you know, you handed at this in your introduction, you know, the engine in a BMW has got hundreds of moving parts. The motor in an electric vehicle has a few dozen. And the battery itself is something that has much less complication to it in one sense in terms of mechanical moving parts than the entire power train of an internal combustion engine vehicle. And that's a long way of saying

that there's a huge amount of embedded attention and business in the maintenance schedule for keeping a bunch of hot contacting metal parts that need lubrication and precision matching to work in the business. Like that's a huge part of the business. In fact, the last time I got an internal combustion engine car, I have a Subaru outback. I actually had to essentially sign a waiver to opt out of the maintenance schedule that they wanted to try to sell me because that's a big part of the business. recurring revenue relationship that car the car dealers have with individuals. So we've we've created

this this inherent tension between not only what you're selling but how you're selling and also what people need to know and how they need to convey that selling experience and stuff like that. And yes, it's gotten a huge amount of pushback from the dealers. And as you indicated, dealers are very, very powerful locally. I mean, pretty much every jurisdiction in the United States has got some kind of car dealer in it versus not every jurisdiction having, say, an auto manufacturer in it and even fewer that have a purely electric manufacturer. This is Tom Keane inviting you to join us for the Bloomberg Surveillance podcast. It's about making you smarter every business day.

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On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keene. Paul Sweeney and me, Alexis Christophorus. Subscribe today, wherever you get your podcasts. Bloomberg Surveillance, Essential Listening, each and every business day. So just on a related note to the differences in the buying experience, could you maybe walk us through the difference in manufacturing a traditional car versus an electric vehicle?

And I guess one thing I'm curious about is whether or not something like building EVs actually requires a different work culture, I guess, to building traditional vehicles. You know, people think of companies like Tesla as hardcore tech, you know, really innovating, doing something new. And when people look at GM, they tend to think of an old school car company. It just seems like there's a big cultural divide there. No, there's absolutely a big cultural divide. And I think we should sort of clarify a couple of things. So manufacturing the body of a car, if it's going to be stamped steel, you know, if you're going to be putting seats into it, if it's going to have windshields and windscreens, it's going to have wheels and tires and brakes, these things are largely coming from the same kind of supply chains and the same type of manufacturing. But it's kind of the core IP, and I would also say a lot of the corporate identity elements

that are kind of in fundamental conflict as you move from internal combustion engine to EVs. And that's the replacement of this massively complex and massively precise set of things that had been optimized for more than a hundred years to take things, take a fuel, aerosolize it, exploded, turn that into momentum that then makes the vehicle move, and that then also in the process dissipates heat, gets rid of gases and all these things, and in the process, of course, moves the vehicle, replacing it with a large, sealed up, more or less inert slab of electronics that is oftentimes integrated somewhere else, and then motors that may or may not be made in-house by an auto company, and then put together in a package that looks the same on the surface

and that does the same job. It's still moving a car. But that definitely kind of changes the frontier of where companies see a lot of their identity. Like a great example here is that is that Hyundai and Korea has just closed its R&D center, that develops new internal combustion engines. They've had this for 39 years. This was a massive part of the company's identity to be stood up as an independent company was to do this.

The chief of R&D there said that it's inevitable to convert into electrification and that our engine development is a great achievement, but we must change the system to create future innovation based on this great asset from the past. So like it's a big psychological moment. Like, you know, what battle are you fighting technically within the automobile? Is it for greater efficiency?

Is it for more speed and power and torque? All of those things that used to run through hundreds of moving parts being integrated into an engine and through a very sophisticated R&D apparatus are now having to rotate completely. it is a really important question to ask, like, how much of that can carry over from one place to another? Now, assembling a car carries over, but making a battery pack and a motor maybe does not. So you actually just mentioned one question that I wanted to ask, which is, where do batteries actually come from for electric vehicles? And do any EV manufacturers actually make their own batteries? Yes, Tesla makes its own.

for long-term, of course, in partnership with Panasonic. There are a number of manufacturers not far from you in southern China, C-A-T-L and B-Y-D. There's an increasing interest in doing manufacturing in Europe and some here in the Americas as well. And again, this will be an intriguing question to see how it plays out in terms of do companies have, or companies able to, I don't know, better leverage their supply chains by being diverse, having a number of suppliers or are they better off taking everything in house? You know, on the motor side, the analogy would be that many automakers may do their R&D, but they have a third party, here one supplier that manufactures motors.

So it's, you know, it's a bit of both at the moment. But again, it's very, very different and it's very highly concentrated at the moment, given the fact that so much of this capability is in China and the rest of East Asia. God, you know, there are so many different avenues we could go down. And I already feel like, Tracy, we're going to have to do like 10 episodes this year because I'm pretty sure I could ask an hour's worth of questions. No, seriously, like just on battery manufacture. And then, of course, the chemicals and commodities that go into battery manufacture. So, like, it's already, like, my head is, like, spinning out with different thoughts.

But I want to go back to this question of what becomes of an automaker's identity. in a sort of EV world. And something I'm sort of like wondering about is, you know, in like the late 90s with the personal computer. And suddenly it's like, okay, everyone just like puts the same operating system in the computer and everyone puts the same Intel chip in it. And suddenly all these like computer makers more or less lose their identity. And, you know, we can sort of remember all the ones that fell by the wayside like compact

and so forth. Is there a risk that that happens in all? where the tech sort of is really happening somewhere else, and they're sort of like assembling the same parts as everyone else and don't really have any sort of unique purpose anymore? It's a really great question, and I actually like this analogy, because I can put it right back into a question, which is, if we think back to the late 90s,

was there anybody who came to being like, I'm a compact guy, sorry. You know, I'm a gateway, I'm a gateway man. My family has been a gateway man. That's all I'm ever going to use for my desktop PC. Like, Dell almost got there. Dell almost got, dude, you're getting a Dell, right. Yeah, yeah, that was the closest. But yeah, almost got there.

I would say Apple has definitely carved out that territory, even for people who spent some sort of years in the technical wilderness with Apple. For sure. But I think the auto identity is not only deeper, but, I mean, it is really like multi-generational. My family has F-150s, not Ford's, F-150s. And they've had F-150s since we, since my stuff. father was buying them off construction sites in the 70s. Like that identity is as old as I am in a

sense. And so there's definitely a challenge for the big manufacturer, which is, you know, where does the kind of the loyalty lie within that? Like, is the case in which people saying, like, I love the F-150, but now that it's gone electric, I won't buy anything from Ford. Or on the other hand, and this is data from Ford last month, is it the case that, that by electrifying an iconic nameplate, the Mach E and the F-150 Lightning, are you able to achieve new people to your brand? And actually, Ford's case is really instructive because they've got about 200,000 reservations for the F-150 Lightning.

The F-150, for those of you, outside the US, is the best-selling car or vehicle in the United States for more than four decades. They have 200,000 reservations, of which 75% of the customers are new to Ford, which is pretty extraordinary. If you think about it from a capture perspective, being able to capture market in doing that is pretty great if you're looking at this as a manufacturer. That said, there's always the risk of, I think,

the kind of the EV-1 experience, which is also from the late 90s, of delivering a subpar experience, and not necessarily, necessarily self-sabotaging it, but underselling it. And that could take the form of deliberately saying this is a compliance vehicle and we're not really interested in it to kind of the soft pedal version, which is people just don't know how to sell it.

But it seems to be that with the electrification of the two best selling, the F-150 lighting and the Chevy Silverado full-sized truck, that you've got this interpolin of new things into an old, not just brand, but an old nameplate that people have a lot of loyalty to. So I think it's going to be extremely interesting to see how this plays out. Because at the same time, of course, you have companies building off of their own, like what Elon Musk would call first principles for EVs. And that's not just obviously Tesla, but that's Rivian, that's Lucid. You know, the two friend of vehicles of a year last year in the truck where the Lucid Air

car and the Rivian R1T truck. So with all this attention on electric vehicles, investors getting very enthusiastic about the space, as Joe mentioned in the intro, lots of money flowing into it. Do we see any signs or should we be at all concerned about oversupply? And one of the reasons I ask is because in China, at least, we have seen some EV companies that, you know, set themselves up, attracted a lot of initial investment and then seem to very quietly shut down. And I guess one follow-up question, and it's related to your point about brand loyalty earlier, but what does being competitive in the EV space actually look like? And how do you differentiate between winners versus losers? As far as like lots of brands

popping up and then quietly going away, well, that looks very much like the early days of the auto industry at large, you know, when we had hundreds of manufacturers in the United States. And, you know, some of them lasted longer than others. There were Packards around and then our parents were born. But, you know, Stutz as a brand is no longer with us. Detroit Electric is no longer with us. There are more things that fall by the wayside than not. And actually, maybe to go back for our sort of desktop computing analogy, it may be the same kind of thing. Lots of people were trying something similar. Differentiation will be determined maybe more by the market than by anything else. But another wrinkle to this, and I hinted at it with Ford, is that the fact that

you, that a lot of these new models are kind of doing a determination of product market fit and product scale by asking for reservations is a way to kind of size the market in advance. So for instance, Ford doubled and then doubled again the planned production capacity for the F-150 Lightning based on reservations. So rather than like stuffing a lot with product that nobody wants to move, what they're working for here is a more supple and a more kind of bidirectional sense of demand and supply at the same time. I'm not quite sure how that plays in the Chinese auto market, but it's definitely something

that as companies are testing the thesis here in the States, they're finding that the reservation method is an interesting way to get things going. And it's been, you know, it's also, let's be honest, it's also been part of a very nice story to tell the markets when Ford is able to go to the market and say it an investor day, hey, look, we doubled our, we doubled production based on reservations and then we're doubling it again based on reservations. On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times

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beginning April 16. You know, I was just, I'm going to ask you, you mentioned that the Ford F150, the electric version, it's had this extraordinary thing, new people are coming into it. What about your family or the old, the families of F-150 loyalists who had one specific idea about what an F-150 was? Are they excited? I don't mean your family specifically, although maybe you can answer, but are the generations of F-150 owners showing enthusiasm for switching over to an electric version? I haven't seen that data yet, but I'm going to sort of, I'm going to game this out,

which is first tailgate, and you're the dude who can run like a 1,500-watt sound system plugged in off of your car. Oh, that's cool. Right? You pop open the front trunk and you've got your Yeti in there full of beer, and you're like, look, you know, the space to keep things cold. There's also, and this is definitely sort of the feature set for four. and for Rivian as well is using the vehicle as essentially a mobile hub for all the other

electric activities that you may need to do when you're working. The fact that you can charge, you can run a chop saw, you can run a mitersaw, you could probably run a table saw if you wanted. You can definitely charge every other peripheral battery that you've got off of what's in the F-150. That's definitely going to get noticed. I handed that my family always had F-150s, but we got them as fleet cars. They were white F-150s, no crew cab with a flat six and then the Ford they've been making for

decades. Like they were just, they were work cars. Yeah. And so like when you, when you put this into the workcase, it's extra fuel you don't need to buy. It's all kinds of capabilities that I think people will find to have, on the consumer level, what kind of gee whiz aspect? I haven't thought about this at all that like this is the first time this occurred to me

where I realized this, that if you have like this powerful battery and not, unlike with an existing car battery, you know, like that goes to zero. Right, you drain it out just by leaving the lights on for five minutes or whatever. Like, this is like a really powerful piece of equipment that you're carrying around with you. Yeah. I mean, like, I think, I think that we'll be, will be interested to see how that kind of peripheral use cases evolve around this. Like, if you look at like Rivian's advertising, for instance, has got somebody set up and set up in the R1T in the woods at a camping site. but they're running,

they're running like hundreds of feet of LED Edison bulbs, you know, basically setting up your Instagram ready camping site. But without being like, oh, I need to bring a generator for this or I'm going to drain my battery in doing so. Oh, that's cool. Yeah.

So, I mean, we've been talking a lot about the F-150. And when I think about pickup trucks, I kind of think about people, you know, I don't know, in the hinterlands of Texas or something,

somewhere out in the country doing country things. And I know that's a stereotype and it's probably not really true anymore. And pickup trucks are very, very popular in the cities as well. But this sort of begs the question of, I guess, infrastructure. And my understanding is that charging stations are still an issue outside of major cities. So I guess the question is, how long is it going to take to build out that infrastructure and how much does demand? and for EVs actually depend on that happening? So I have a different take on this,

which is that actually I think that the charging infrastructure is largely a bigger issue in cities than in the suburbs. All right. Where it is an issue in the countryside is for long-distance driving where you want to be charging as quickly as possible. The reason that I don't have an EV is that I don't have a garage. I park on the street. and I have yet to sort of figure out exactly how I would negotiate charging.

Now, my neighbors down the street have two Tesmas. I have no idea where they charge them, but obviously they do. And whether they're doing it at the office, whether they're doing it at Whole Foods, or whether they're going somewhere else and kind of finding a charging solution, I'm not really sure yet. I think what's going to be interesting is, like, yes, we're going to need this massive buildout of charging networks. And right now, globally we have about,

1.5 million charging connectors worldwide, of which 900,000 of them were in China. By the end of this year, that's probably going to be like 2.7 million. So it's almost doubling in total size. And it's going to solve a number of different potential needs. So one of them is the is essentially replacing the inner city gas station. So a place that you would normally go fill up and leave, but now you need to go and spend slightly more time. The other is, in a place like a big box retailer where you're you were already going to be spending some time and that kind of matches your the amount of time you're going to spend. Then there's the third case of like, well, we need to build a network for highway driving. I'm going to drive on I-95 from New York City

to Miami and I want to do it in my EV. Where am I going to charge it one way? And then there's the other case, which is, you know, I have a home and I have a place to park. And maybe I will use that is my charging solution. I think it's going to, it's a knot to play for here. You know, are homeowners going to find the need to charge their car in 20 minutes? Probably not. Are people in the highway going to be happy to spend two hours waiting for their vehicle to charge? Also probably not. And so I think what's interesting to me is not just what gets built, but who owns it and what's the knock on business? And Joe, I always think about this in like, what's the Bucke's future? Yeah, yeah. For electric views.

vehicles. For those of y'all who don't know Buckees, I don't know, Joe, you can probably tell better, tell me better than, than I can what Buckees is like. Yeah, it's the best. You know, they have great bathrooms, for one thing. So I have memories of, like, the best place to change your baby's diaper if you're on the road is definitely a Buckees. But it's like this, like, amazing sort of like Texas institution that has tons and tons of places to fill up your gas tank, but also, like, tons of gifts and barbecue inside and tons of. And, of like dried smoked meats and t-shirts to try on and cowboy hats. And like you just kind of want to hang out there and they pay their staff really well.

So they have a very good staff. It's very pleasant. Like I said, the bathrooms are extremely clean. And so like, and I think, you know, our colleague Connor sent in Bloomberg opinion wrote like a thing is like,

if all gas stations were like as enjoyable as Buckees, like, oh, 30 minutes to like charge your car. Yeah, I'm cool with that. But like obviously most gas stations are nearly not. nice enough that you would want to spend 30 minutes there. But I think it's super important for us to consider what this is like because, like, you know, there's a time carve out to charging. It's not as long as what a lot of people think, but it may not be that daunting.

I mean, if you're on a road trip, you know, if, let's say you had a 400-mile battery capacity. Well, at that point, you're in a battle between battery capacity and ladder capacity. Like, you got to stop at some point. And when you do, maybe there. there's a, charging is part of a sort of nexus of other attractions that take you to a place. Well, you have to stop to eat, too, especially if you have kids. If you have kids, exactly. And, you know, like, it's funny because the pushback I've gotten on this when I, when I said a point is that is where I'm like, yeah, I hit the road and I go. I was like, do you have children under five because you can't do that.

Like, right, right. You need to go somewhere. And, you know, it'll be like driving perhaps in the early days of the interstate highway in which attractions pop up. You know, you know, is it the mystery spot? You know, is it wall drug? You know, what kind of thing is it that people plan their journey around? But I just want to give some cost here on like how big this in this industry is in the United States that is going to eventually have to deal with this. There are 960,000 people working in gas stations in the United States. Most of those have a convenience store related to it. There are 150,000 convenience stores. 81% of them sell fuel. And they sell about 80% of, of the motor fuel that's purchased in the U.S. But also, like 60% of that 150,000, about 90,000 of them are single operators. So like there's a huge set of questions to be answered here that's not just buying like the Buckees and the Flying Js of the world,

but by tens of thousands of sole proprietorship. So I guess we've been talking about how electric vehicles might change things like the way we live, this idea of using them as a center for all your electric activities or, you know, a transportable center for all your electric activities and the way they might change traditional car companies, garages and things like that. I wanted to ask, I guess, a even more macro question, which is what is the impact on demand for oil if everyone is suddenly driving EVs. And do countries, you know, nowadays Saudi Arabia, United Arab Emirates, big oil producers clearly hold some geopolitical sway because of their oil reserves. And I guess my

question is, does a country that has a bunch of lithium reserves suddenly become the new Saudi Arabia under a scenario where everyone is driving EVs and there's a need for a lot of batteries? This is one that's definitely worth parsing out to sort of figure out what's the same and what's different in the resource inputs for these cars. So yes, definitely there's there's potential on the lithium side, on the nickel side for some short-term shortages. And you can definitely see that in pricing. The price of lithium really went really skyrocketed last year by a factor of about five over the course of the year. We do expect that to sort of moderate over time as more capacity comes online. So it definitely within that domain kind of shifts the locus of control to like a few places at a period in time.

The one thing you can say about materials in battery, the battery metals is that they can be and will be recycled. We hear oftentimes people saying nobody recycles them. I'm like, well, they're still on the road. Nobody recycles them in the way that they're not recycling a lot of iPhone 13 maxes. Like, it's just not, you know, they're not rolled off the market yet. And also, I think that we will see a pretty sophisticated apparatus to decide what to do with batteries at the end of their life. But to take it back to the oil producers, the interesting thing here is that is that we think should think about this from like a marginal cost curve. If demand goes down, then you start chopping off with the margin, which is always the highest price. And oftentimes, sometimes the smallest units of supply that are in the market. you know, my colleagues would expect that by the middle of the century, we've got tens of millions of barrels a day, less demand for road transport fuel. Now, that doesn't mean that it crams all oil demand down and that it starts to move negative, but it's definitely entirely possible.

But when that happens, what it's probably going to do is follow very kind of classical economics, which is producers with the most flexible supply and with the lowest price are probably the ones that will be pumping the remaining barrels of oil over time. And so what it probably does is put the powerful position back in the hands of big producers, lots of capacity and with low cost. And those are the producers in the Persian Gulf, Saudi Arabia, the UAE, it's Russia. Definitely the the impetus there is that these companies will, or these countries rather, will almost certainly be pumping the very glass barrels of oil that come out of the ground because they're the ones able to withstand this change on the margin. The bigger challenge is for marginal small producers, for producers that have a

very inherent fundamental cost and things like that. So it may actually bed the strength of some of today's biggest oil producers. That's really interesting. And I hadn't thought about that at all. I want to talk more about some of these like deep structural. I don't want to say oppositional, but maybe oppositional like forces. You mentioned like something is going to happen with all of the gas stations and how many people that employs and all of the convenience stores associated. Like there's going to be, that's going to be turned up somehow. We don't know. Maybe they'll all be like buckies or I'm excited about roadside attractions like random like dinosaur museums in the middle of nowhere.

I want to go back to something we talked about at the beginning. the labor intensity of EV manufacturer. And obviously, we mentioned, you know, they're simpler. If you're moving parts, in theory, if you're moving parts, means fewer workers on a shop floor. What can we look at when we look at the labor intensity of a pure EV player, like a Tesla versus a GM or a Ford? And what does that tell?

What are the things that are going to arise for the legacy automakers? Even if they have popular products, you can solve that? part in terms of the stresses on their own workforce. So I think where the stress actually in the first instance is going to come in in the tier one and lower supplier network. You know, Toyota has Toyota City and it's made up of hundreds of suppliers that make very specific things. They make a specific kind of seal. They make specific types of valve. They make specific types of solenoids or connectors. All the different things that flow into making an automobile engine have got their own supply chain of small companies that produce very precisely

made and very precisely planned product. It's the same in Germany, obviously, where you have similar value chains, but even more than that, is it like there's another layer back from that, which is there's the capital equipment manufacturer. So the companies that make the tools that make those valves that go into a BMW engine or that go into a Toyota power train. We're going to start to see it resonate out further there. I mean, like in the big auto businesses or assembly businesses for the most part, there are, you know, there are still some companies that do full integration of things

that they're making. But they're, you know, the biggest part of the role in a plant is integrate. of pieces that have come from these very diverse supply chain. And it's the change in the supply chain that's going to be that big of a deal. I mean, if you think that like, if you think, you know, this is not exactly precise, but basically every part, one way or another is probably a company, and every company itself buys things from other companies that go into it. It's going to be this huge compression along the way.

Now, if I'm an auto maker, I may not necessarily find this all that problematic. Having a more consolidated network of suppliers, maybe one that I can plan longer term. firm with, may be advantageous, but politically it puts a kind of schism within what we think of as the auto industry. You know, like tires and brakes may still be aligned with EVs. And in fact, tire manufacturers make a whole new set of products just for EVs. But auto assembly and making of engines and making of flanges and valves and solenoids and fittings is probably going to have a little bit of a crack up in time. So just on this note, I mean, we're basically talking about everyone who currently has a traditional car going out and buying a new car, which would obviously entail a lot of spending and the possibility of making a lot of money for companies that produce EVs.

I guess my question is, to what degree does this new industry spark a sort of follow-on boom in manufacturing and the parts that you were just discussing? Like, is there a possibility that in places like the U.S. as big car makers start to switch to EVs, that we do start seeing, I guess, more battery making or, you know, tire making or specific EV parts being made in the U.S. and that industry expanding? I mean, it's possible we see these new industries popping up and expanding. But another possibility is that, you know, so much of this essentially, because, becomes part of the semiconductor value chain, which as we know right now is pretty complicated. You know, my colleagues estimate that, you know, the semiconductor bill of vehicle bill of materials as a percentage of the vehicle bill of materials is like about 4% in 2019. It's probably going to be about 20% in 2030.

So if you think about replacing, you think about replacing all these little pieces that manage the flow of liquids, gases, then the portion of heat and then the lubrication of moving parts with things that maintain flow of electrons and do heat control and do system maintenance within a battery. Those are much more tronic than they are mechanical. And so, you know, it's going to be really interesting to see where that doesn't create new value chains popping up. I mean, there's an intriguing kind of thing happening here for Ferrari, wherein the new CEO of Ferrari, Benedetto Vina, has come from ST Microw. Electronics, which is a major Apple supplier.

And he, in turn, brought with him two executives from ST Microelectronics that have come over. And it's just a sort of like very in our face kind of example of maybe the new kind of core IP you need to fold into thinking about electrification. And needless to say, I think Ferrari has quite a bit of pride in the engines that it makes. I mean, you know, this sort of idea that all of these industries are tech, semiconductors, etc., bleeding over into each other. I remember a few years ago there was a lot of hype about the fangs, the Silicon Valley Giants, making some play in auto and Google had a thing. I think they're a little bit more focused on the autonomous side. And every once in a while there's a story about maybe there'll be an Apple car one day.

Are they playing in this space? is it sort of like actually maybe there is not some connection between the search engine and a car like where are they in all this? Yeah, I mean, it's like the question I guess is what does electrification sort of move the abstraction layer of cars in a way that a tech company could get in and play? And we can kind of start carving this off like do they want a business of stamping metal? Probably not. Probably not. Are they in the business of doing an operating system? Maybe. But do you want to be in the business doing an entertainment system as well as that? And also, what's the value capture that you get? And what's the model? Are you able to create an annual

recurring revenue relationship within the car that has software like margins? Or are you going to be doing auto industry margins for making physical stuff? It will be very interesting to see if Apple brings a product to market is and what it views as the relationship. But I don't know, But also, like, where does the technology point of control flow in a way that is important for a technology company to get into this? I mean, like in a sense, Apple and Google are in all of our cars every time we plug in our phone and use that for mapping and for music. You know, they have, they have actually, they've taken away market share from like in,

not market share, but kind of presence and brand presence from companies own self-developed entertainment systems or from navigation systems as well. I really hope we don't have to start paying monthly subscriptions for like our operating system in an EV or the entertainment system. I know, but Tracy, the way to think about it is that like I, as I mentioned the beginning, I had to opt out of the equivalent service agreement when I got my new car. So auto companies will definitely do their best to try to steer you in that direction to a services agreement. I do think that companies will try to do that and want to do it. The question is, you know, does an automaker know everything about me just because I go get the tires rotated once a quarter?

Not exactly in the same way that a technology company might. Right. You mentioned, okay, of course, like the semiconductor intensity or the chip intensity of these new cars is going to be much higher than they were. We know that there's a shortage of chips for the legacy cars, but a lot of them are at the low end. And so it's kind of a, the chips are at the low end. It's kind of a different story than the longer term. But, you know, like, I'm also wondering about the sort of like the mechanics community, the used car parts community, the O'Reilly's of the world, the pep boys of the world,

the auto zones of the world. This has been an issue for a while that like cars are getting more like computers and you hear it's like, oh, you can't repair your own car anymore. And, you know, it's just, it's not the same. So this is not strictly an EV thing. Like this sort of like phenomenon has been going on for a while and there's been anxiety about that. Is that going to accelerate the stress or is that whole industry going to find a way to adapt as it has for some time, even as our cars already become more like computers?

I mean, it's a really important thing. I mean, what's the pet boys or Napa Auto Parts business when there are hundreds of fewer moving parts in the part of the vehicle that wears out the quickest that needs the most maintenance? And for the record, there are just under 2 million people who work in dealerships and parts in the U.S. Like, it's a, it's a, it's a, it's, it's, it's, it's, It's a pretty big business. And it's recovered almost completely from diving during the pandemic. So that's a good question. Like, would you go to Pet Boys for what?

Like, what's the job to be done? Are you going to go there to jailbreak your vehicle software? Well, you know, Tesla will do that. It doesn't obviously jailbreak it, but Tesla will allow you to do over-the-year updates that happen automatically and improve performance or safety. And other automakers are moving in the same direction. So it is a big challenge for them.

As far as repairs, I mean, body work and things like that are the same, but you've got new things to be aware of. I remember Porsche has to do training for its mechanics around the battery pack and the new Taekon, because, you know, you could burn yourself by touching a hot metal in an internal combustion engine, but you can absolutely electrocute yourself. So, you know, like where's the specialization within that? And it's just not a big enough market probably yet for that to have emerged. Most of that still flows back through dealers. Not only that, like, these places occupy a lot of physical real estate. Like, what happens to the, what happens to the big box parts store and the people who work there?

There's a lot of things that are in play here that we're, I think, only just beginning to kind of think ahead about, you know, and I imagine that there are strokes within all of these companies that are starting to ask these questions. But, you know, we're not yet there volumetrically for this to really make a difference. But it will. that i mean that was amazing i do feel like you know in my mind there's like 10 more hours at least of uh episode there's probably more there's so there's so much more each one of these things itself is like a multi trillion dollar inquiry with tons of open questions you know what's the brand the loyalty to brand a name play the way the car moves the business model all kinds of stuff's going to get to be in play and it's going to be really interesting i mean i think that we'll see some

incumbents that make it. They're all, even Toyota has now sort of come around to the fact that they probably need to do this. But there is a place for new entrance and, you know, it's going to be, it's going to be interesting to see. And I do look forward to going to Buckees sometimes soon. Yeah, you got to go. This was great. I think, you know, we really need to do a lot more. And this was like a great starting point for what I think will be many odd lots on related topics. So, Nat, thank you so much for coming on the show. Thanks, Joe. Thanks, thanks, Tracy. Thanks so much, Nat.

Tracy, we got to do a battery episode, obviously, like the battery supply chain, right? Yeah. Lithium, probably oil as well. Oil, lithium. What else? The future of gas stations, that's its own. Future of, I guess, car repair shops. Future of car repair shops.

Probably like unions and automaker labor, either at the OEMs or the parts suppliers and how they're going to navigate that. so many. I'm so excited. I feel like we have like 10 what future of roadside attractions. Yes. I'd be interested in that one. The future of like the American road trip is like what I'm super excited. Right. So I do feel like this is going to end up being a semiconductor series Redux where every time we record an episode on EVs, it just leads to five more episodes. It already feels like that. But on the other hand, the notion. of everyone in the world, you know, maybe not immediately, but over the course of a few decades, switching to a new type of car. That is a really compelling argument that it's going to have to have some knock on effects. Oh, yeah. And, you know, just the sheer number of like employees in this space, you know, we're talking like a million here or a million there, like in the U.S.

Like, obviously cars are a huge deal in the U.S. specifically. But there's so many like, as many, like, millions of different industry, no, not millions of different industries, numerous different industries with millions of employees that are going to be affected by this. And look, there's going to be, it's also going to create tons of new jobs in ways that we don't expect. But yeah, it's going to, I think like that, regardless of who wins, this is going to change so many different aspects of the economy and life is one that I find to be quite convincing and quite compelling. Right. And I mean, if you think about cars specifically in a America, they're so entwined with society and culture the way cities and suburbs are planned and

actually work. It feels like once you start changing the actual thing that drives that, oh, pun, once you start changing actual cars, it just, it feels like it has the potential to impact all of society and the way we live. And I think Nat made a really compelling argument for that. You know, I was kind of like wondering, it's like, oh, are people going to like, like, what is the cultural pushback going to be when someone shows up at a job site or a football game with an electric F-150? But I find like that so compelling. It's like just like run all the machines and all the saws and all the equipment right from the car, like run an awesome, like sort of like tailgate operation with like a working refrigerator and a stove and all that right from the

car. Like, that's awesome. People are going to love that. So I'm like totally sold. Yeah, you'd be the cool guy, like, with the best pregame, right? A great sound system, probably a TV, like a huge TV or screen that you can set up. It sounds awesome. So I'm super excited about seeing them all over the place now. Yeah. All right. Well, it looks like we have our work cut out for us, but for now, shall we leave it there?

Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthal. You can follow me on Twitter at the Stubhouse. all work. Follow our guest, Nat Bullard on Twitter. He's at Nat Bullard. Follow our producer, Laura Carlson, Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy,

at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening. Bloomberg Tech returns to San Francisco, June 3rd and 4th. Join me, Emily Chang, along with Tom Giles, as we convene the CEOs, investors, and innovators shaping what's next in technology. powered by Bloomberg's global newsroom and unrivaled terminal data will break down the capital, connectivity, and big ideas driving the industry forward. Be part of the conversation. Register now at Bloomberglive.com slash tech.

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