WEBVTT - Trump Tariffs Could Break Global Auto Industry 0:00:01.720 --> 0:00:05.080 US President Donald Trump has threatened tariffs on a number 0:00:05.120 --> 0:00:08.520 of goods coming into the country, and that's including autos. 0:00:08.920 --> 0:00:12.080 There's still a lot of uncertainty, but what is threatened 0:00:12.080 --> 0:00:15.560 so far is twenty five percent tariffs on all cars 0:00:15.600 --> 0:00:18.680 coming into the US as early as April, and that's 0:00:18.680 --> 0:00:21.400 in addition to a slow of other charges on Mexico 0:00:21.560 --> 0:00:24.600 Canada steel and aluminum and more to come. 0:00:25.640 --> 0:00:28.800 Tariffs threatened to raise the price of a car in 0:00:28.840 --> 0:00:32.479 the US by thousands of dollars at a time when 0:00:32.600 --> 0:00:36.839 US consumer confidence is already weakening and some economists are 0:00:36.840 --> 0:00:40.159 even seeing the risk of a recession. It also comes 0:00:40.200 --> 0:00:42.640 at a bad time for American car makers, who are 0:00:43.159 --> 0:00:47.600 already facing challenges. The tariffs also threatened companies in South 0:00:47.680 --> 0:00:52.760 Korea and Japan, major suppliers to the US. Meanwhile, China's 0:00:52.800 --> 0:00:55.200 ev makers continue to gain market share. 0:00:58.320 --> 0:01:02.120 We're listening to Asia Centric from Bloomberg Intelligence. I'm John 0:01:02.200 --> 0:01:04.399 Lee calling in from Hong Kong, and I'm. 0:01:04.280 --> 0:01:05.959 Cart Tom Treva, also in Hong Kong. 0:01:06.440 --> 0:01:10.319 Today we've got Steve Man, Global Autos and Industrials research 0:01:10.400 --> 0:01:13.640 manager from Bloomberg Intelligence. He's been a regular on the 0:01:13.680 --> 0:01:17.440 podcast and he's dialing in from Princeton, New Jersey. Steve, 0:01:17.680 --> 0:01:18.240 Welcome to the. 0:01:18.240 --> 0:01:21.640 Show, Thanks John, Thanks Katia, happy to be here. 0:01:22.280 --> 0:01:25.800 Glad to have you on to unpack all this for US. So, 0:01:25.920 --> 0:01:29.880 President Trump has threatened twenty five percent tariffs on all 0:01:29.920 --> 0:01:34.320 autos coming into the US. So maybe big picture, if 0:01:34.319 --> 0:01:37.400 these tariffs were eventually to go through, which is an 0:01:37.560 --> 0:01:41.280 if in April, what would be sort of the biggest 0:01:41.319 --> 0:01:43.759 impact that you're looking at in the auto space. 0:01:45.400 --> 0:01:48.800 I think this time around, he's really going to implement 0:01:49.000 --> 0:01:53.160 the tariffs on autos and it's going to impact every 0:01:53.160 --> 0:01:56.680 automaker as well as the global auto supply chain in 0:01:56.720 --> 0:02:00.480 a significant way because he really really want to bring 0:02:00.520 --> 0:02:04.280 some of that manufacturing back into the US. No, he's 0:02:04.320 --> 0:02:08.240 asking that question. If Tesla can produce cars a profit 0:02:08.400 --> 0:02:12.480 in the US, why can't the Big three? Right, So, 0:02:12.680 --> 0:02:14.320 you know a lot of the cars are still built 0:02:14.480 --> 0:02:18.480 in Mexico and Canada. As of twenty twenty four, three 0:02:18.560 --> 0:02:21.920 point six million vehicles that are sold in the US 0:02:22.320 --> 0:02:25.680 and are built in Mexico and Canada. That's out of 0:02:25.720 --> 0:02:29.600 sixteen million, So it's a significant chunk. And the terraffs 0:02:29.639 --> 0:02:32.920 are not only going to be applied to Mexico and Canada, 0:02:32.960 --> 0:02:35.240 it's going to be applied globally, and that's going to 0:02:35.240 --> 0:02:38.800 impact half of the auto sales in the US because 0:02:38.840 --> 0:02:41.840 half of those are are all imported from somewhere else. 0:02:43.160 --> 0:02:46.120 Steve, how much will it increase the price of buying 0:02:46.160 --> 0:02:48.800 a car in the US if these tariffs were to occur. 0:02:49.520 --> 0:02:53.360 Yeah, that's a really good question, John, because there's different 0:02:53.400 --> 0:02:55.639 ways of looking at it. If you just look at 0:02:55.680 --> 0:03:00.720 the tariff itself, the twenty five percent, we act estimate 0:03:00.800 --> 0:03:04.800 that it's going to increase prices for the consumer or 0:03:04.880 --> 0:03:07.639 the automakers will have to absorb, or the auto supplies 0:03:07.680 --> 0:03:11.880 will have to absorb about thirty five hundred dollars per vehicle. 0:03:12.440 --> 0:03:17.080 That's significant, especially you know what Katya was saying earlier. 0:03:17.200 --> 0:03:21.160 The auto market is not that healthy at the moment 0:03:21.360 --> 0:03:24.400 in the US. That demand is not that healthy. But 0:03:24.680 --> 0:03:26.839 if Trump says, oh, you're going to have to bring 0:03:26.880 --> 0:03:30.800 some of that production back in the US, wow, automakers 0:03:30.800 --> 0:03:33.520 in the supply chain will have to spend billions. We 0:03:33.639 --> 0:03:36.720 dis some quick analysis like if they have to shift 0:03:37.200 --> 0:03:40.520 just an example, about one hundred and fifty thousand units, 0:03:40.600 --> 0:03:45.120 that's about the size of a small assembly plant in 0:03:45.160 --> 0:03:49.360 the US that would cost between six hundred million if 0:03:49.360 --> 0:03:53.600 you're talking about ev to about a couple of billion 0:03:53.680 --> 0:03:56.920 dollars if you're building an suv a large pickup truck. 0:03:57.040 --> 0:04:00.800 So it's a lot of money these automakers have to spend. 0:04:01.000 --> 0:04:03.640 You know, that's going to be a huge added costs 0:04:03.720 --> 0:04:06.600 and an impact on cash flow for the automakers. 0:04:07.280 --> 0:04:10.600 So will that actually happen then? I mean, is there 0:04:10.600 --> 0:04:14.840 a world in which automakers just swallow the cost or 0:04:15.440 --> 0:04:18.200 raise the price, but don't necessarily go through the work 0:04:18.240 --> 0:04:21.520 of reconfiguring supply chains and building out plants because of 0:04:21.520 --> 0:04:23.400 course there's a human component too. I mean, will there 0:04:23.400 --> 0:04:25.279 even be people to work in these factories? 0:04:26.040 --> 0:04:28.599 Yeah? You know, Trump is a pretty dead set about 0:04:28.640 --> 0:04:34.040 bringing manufacturing back. So there's a one month delay. April 0:04:34.080 --> 0:04:37.279 second is the day, right, he's going to implement these tariffs, 0:04:37.920 --> 0:04:41.479 and that one month's delay. Look, automakers, the global auto 0:04:41.520 --> 0:04:44.760 supply chain can't really do anything in one month because 0:04:45.440 --> 0:04:49.320 the globalization of the auto industry really started in nineteen 0:04:49.360 --> 0:04:53.520 ninety four with the North American Free Trade Agreement NAFTA 0:04:53.760 --> 0:04:56.359 that was the predecessor to the current free Chair Agreement, 0:04:56.400 --> 0:04:59.960 which is the United States, Mexico Canada Free Chery Agreement, 0:05:00.480 --> 0:05:04.400 and so it took many, many decades to actually go global. 0:05:04.960 --> 0:05:07.400 To unwind all that, it's definitely going to take more 0:05:07.440 --> 0:05:09.400 than a month. So I think what Trump is really 0:05:09.440 --> 0:05:13.680 looking for within this one month is for the automakers 0:05:13.680 --> 0:05:16.600 in the supply chain to really come back and give 0:05:16.640 --> 0:05:19.880 them some concrete plans, you know, how to bring some 0:05:20.520 --> 0:05:24.599 or all manufacturing back into the US. And the plan 0:05:24.920 --> 0:05:28.440 well likely needs to come with a timeline. I'm pretty 0:05:28.440 --> 0:05:31.240 sure he probably wants a lot of this done before 0:05:31.279 --> 0:05:34.240 his term ends, because you know, is in his second 0:05:34.360 --> 0:05:35.279 term as president. 0:05:36.320 --> 0:05:39.039 And Steve, for the listener out there, how long will 0:05:39.040 --> 0:05:42.840 it take for an automaker to reshore into the US. 0:05:42.880 --> 0:05:45.400 So if they have a factory in Canada or Mexico 0:05:45.720 --> 0:05:48.560 and they decide to move it to the US, are 0:05:48.560 --> 0:05:49.680 we talking years? 0:05:50.040 --> 0:05:52.479 Yeah, it could be years, it could be months. We 0:05:52.520 --> 0:05:57.800 also looked into that. For example, GM builds the Chevy Silverado, 0:05:57.920 --> 0:06:00.880 one of the best selling pickup trucks in the US 0:06:00.960 --> 0:06:04.600 as well as Canada. For GM, you know, the option 0:06:05.000 --> 0:06:08.760 is maybe shift some of that production back into a 0:06:08.880 --> 0:06:12.120 plant that builds the Silverado. In the US. You know, 0:06:12.160 --> 0:06:15.080 if they have capacity to do so, and all they 0:06:15.080 --> 0:06:17.200 would have to do, you know, they're going to have 0:06:17.200 --> 0:06:20.160 to spend money, for sure, hundreds of million dollars. It 0:06:20.200 --> 0:06:22.760 probably just some of the equipment could be just lifted 0:06:22.760 --> 0:06:25.200 off the ground in Canada and then transfer it back 0:06:25.200 --> 0:06:29.599 into US. That could take a few months. Right, But 0:06:30.200 --> 0:06:33.520 GM's evs, all their evs are actually built in Mexico, 0:06:34.760 --> 0:06:38.960 new plants, a new assembly line. They don't have any 0:06:39.120 --> 0:06:43.440 duplication of manufacturing assembly in the US, So for them 0:06:43.600 --> 0:06:47.440 to shift that back it could take years. If they 0:06:47.480 --> 0:06:51.560 have to construct a new building, years to get the approvals, 0:06:51.920 --> 0:06:55.279 any types of approval. They're gonna have to build the plant. 0:06:55.320 --> 0:06:58.159 They have to shift the production back, so it will 0:06:58.200 --> 0:07:00.680 take a couple of year, two three years if that's 0:07:00.839 --> 0:07:01.400 the case. 0:07:02.240 --> 0:07:07.240 Which carmakers do you see being hit the most by 0:07:07.279 --> 0:07:08.960 these tariffs kind of globally? 0:07:09.480 --> 0:07:13.280 I honestly think that Trump is really targeting the Asians 0:07:13.680 --> 0:07:17.160 and the European autos. Earlier we kind of alluded to 0:07:17.760 --> 0:07:20.920 Trump may not implement the tariffs as long as they 0:07:20.920 --> 0:07:24.200 have plans to bring production back. The other thing that 0:07:24.240 --> 0:07:27.960 we have to be cognizant of is the free trade agreement, 0:07:28.240 --> 0:07:31.840 the United States Mexico Canada Agreement. This is something that 0:07:31.880 --> 0:07:36.600 Trump signed in his first term. It's his baby, right, 0:07:37.240 --> 0:07:39.800 you know, he's a businessman, and I think he will 0:07:39.840 --> 0:07:45.720 also keep his word, meaning that if the automakers meet 0:07:45.840 --> 0:07:50.119 what we call the local content rule within the USMCA. 0:07:50.600 --> 0:07:54.520 That means that so within the USMCA, as long as 0:07:54.560 --> 0:07:58.160 the value of the components of the vehicles, you know, 0:07:58.400 --> 0:08:00.520 with seventy five of the value of the component are 0:08:01.040 --> 0:08:05.160 built in US, Mexico and Canada, those vehicles are exempt 0:08:05.400 --> 0:08:08.880 from terroriffs. Obviously, he can bypass that if he really 0:08:08.880 --> 0:08:11.560 wants to. But I think that he's going to cut 0:08:11.560 --> 0:08:14.040 a break for the Big three, especially a Big three, 0:08:14.320 --> 0:08:15.880 because you know, at the end of the day, they're 0:08:15.880 --> 0:08:20.800 American automobiles. I can't see why he would disadvantage, right, 0:08:20.920 --> 0:08:25.880 the American companies. You know, his mantra is really to 0:08:26.240 --> 0:08:29.200 make America great again, So he think he really wants 0:08:29.240 --> 0:08:33.360 to have the American automat makers thrive. So I think 0:08:33.520 --> 0:08:36.520 the terriffs will at the end of the day target 0:08:36.679 --> 0:08:41.720 the Japanese, the Koreans, and the Europeans. You know, Hondas 0:08:41.720 --> 0:08:43.599 built a lot of their cars that are sold in 0:08:43.640 --> 0:08:45.880 the US and Canada, and they also import a lot. 0:08:46.040 --> 0:08:49.040 Same thing with Toyota. Toyota actually still imports a lot, 0:08:49.080 --> 0:08:52.800 especially like Lexus. There's only one model that they built 0:08:52.840 --> 0:08:56.280 in North America. Every Lexus that they sell in North 0:08:56.280 --> 0:09:01.040 America are built in Japan in Shandai. Same thing, a 0:09:01.040 --> 0:09:03.080 lot of the cars are built there in their home 0:09:03.120 --> 0:09:07.920 country and Europeans. Volkswagen has a plant here in the US, 0:09:08.040 --> 0:09:10.720 has a couple of plants in Mexico, but you know, 0:09:10.720 --> 0:09:13.680 a lot of it is important. And then even more 0:09:13.760 --> 0:09:18.120 so with the German luxuries, you know, the BMW, Mercedes 0:09:18.160 --> 0:09:23.120 and Volkswagen. I think those automakers will have to really 0:09:23.200 --> 0:09:27.120 brace for the cost hit that they're going to experience 0:09:27.240 --> 0:09:29.720 with the higher tariffs and state. 0:09:29.800 --> 0:09:33.319 On a macro front, even excluding these tariffs, there's a 0:09:33.360 --> 0:09:35.920 lot of news coming out that the US consumer is 0:09:36.000 --> 0:09:40.000 weakening and some economists are even talking about a recession 0:09:40.040 --> 0:09:43.840 in the US. Is the auto industry ready for this 0:09:44.160 --> 0:09:45.400 weakening macro picture? 0:09:45.920 --> 0:09:50.880 Yeah, John, the auto industry is already in a recession. Okay, Okay, 0:09:51.400 --> 0:09:56.040 sales have slowed. Look at Ford Ford's fourth quarter and 0:09:56.120 --> 0:10:00.600 first quarter sales. It was down in the teens. Part 0:10:00.600 --> 0:10:04.040 of it is related to some changeover on their popular vehicles. 0:10:04.400 --> 0:10:08.240 But if you listen to all the conference fourth quarter 0:10:08.360 --> 0:10:13.040 earnings calls from these companies, they are guiding down earnings. 0:10:13.320 --> 0:10:16.360 They are facing pricing pressure, and a lot of that 0:10:16.800 --> 0:10:21.360 is actually due to Stillentistalentis is based in Europe, but 0:10:21.440 --> 0:10:23.760 their biggest businesses in the US. You know, they have 0:10:23.840 --> 0:10:26.480 the Dodge brands, they have the Chrysler, they have the 0:10:26.559 --> 0:10:31.720 Jeep brands, and they can't sell vehicles. They had even 0:10:31.880 --> 0:10:35.800 new twenty twenty three models on their dealer floors. They 0:10:35.840 --> 0:10:40.520 had to cut prices left and right. They cut production 0:10:41.000 --> 0:10:44.079 just to manage inventory by a third, you know, they 0:10:44.120 --> 0:10:46.520 cut production by a third and a fourth quarter. So 0:10:46.640 --> 0:10:49.200 the US auto industry is actually in the cycle of 0:10:49.320 --> 0:10:53.800 price cutting and managing inventory and cutting production. I think 0:10:53.840 --> 0:10:55.960 you will see more of that in twenty twenty five. 0:10:56.840 --> 0:10:59.600 So if the auto industry, as you say, is already 0:11:00.240 --> 0:11:03.400 in such dire straits, you add tariffs on top of 0:11:03.480 --> 0:11:07.240 that and potentially, as you said, billions of dollars in 0:11:07.360 --> 0:11:11.000 costs to relocate. So where does that lead us in 0:11:11.080 --> 0:11:14.080 a year or two could we potentially see some of 0:11:14.120 --> 0:11:18.880 these companies fail or even more severe issues. 0:11:19.640 --> 0:11:24.479 Well, yeah, I think it's really hard for the automakers 0:11:24.800 --> 0:11:28.480 to pass those tariff related costs along with the consumer 0:11:28.600 --> 0:11:32.080 right now. You know, maybe Toyota can do it because 0:11:32.280 --> 0:11:36.040 if you look at all the brands, Toyota's actually has 0:11:36.160 --> 0:11:39.840 the smallest dealer inventory in North America. They have thirty days. 0:11:40.360 --> 0:11:42.719 A lot of them are above sixty days, some are 0:11:42.760 --> 0:11:47.240 at ninety days. Stialentists I just mentioned earlier. Some models 0:11:47.240 --> 0:11:51.080 are over one hundred days. So it'll be really, really 0:11:51.120 --> 0:11:54.960 hard for the automakers to actually pass those costs along 0:11:54.960 --> 0:11:58.800 to the consumer. And optimistically it's going to take a 0:11:58.880 --> 0:12:03.120 couple quarters to actually foolse inventories to wind down, and 0:12:03.440 --> 0:12:06.440 that assumes that there's going to be more price cuts 0:12:06.559 --> 0:12:07.320 for the consumer. 0:12:08.000 --> 0:12:12.520 Do you think investors know this or are pricing this inot? 0:12:13.200 --> 0:12:15.120 I think some of that has already been priced in. 0:12:15.280 --> 0:12:19.000 You've seen the price action on some of these stocks. GM. 0:12:19.160 --> 0:12:25.400 They GM just announced very recently accelerated stock buyback program 0:12:25.559 --> 0:12:27.920 of two billion after I think they did about ten 0:12:27.960 --> 0:12:31.440 billion last year. Really, the stock they didn't even react 0:12:31.480 --> 0:12:33.960 to it. I think the investors are reading into it that, 0:12:34.040 --> 0:12:39.600 oh maybe they're anticipating lower earnings, and so they pre 0:12:39.600 --> 0:12:45.000 empt that by announcing another accelerated stock buy back. So 0:12:45.559 --> 0:12:48.160 I think, you know, in the next couple quarters, when 0:12:48.280 --> 0:12:51.680 more news come out, I think the Lentis will still 0:12:51.720 --> 0:12:54.599 have to cut production. I believe that we're going to 0:12:54.640 --> 0:12:58.320 see increasing pricing pressure that's going to have an impact 0:12:58.360 --> 0:13:01.040 on earnings for these companies for sure in the next 0:13:01.040 --> 0:13:02.040 couple quarters. 0:13:02.920 --> 0:13:06.240 Asia Centric is produced by Bloomberg Intelligence. We're more than 0:13:06.280 --> 0:13:10.120 five hundred experienced analysts and strategists work around the clock 0:13:10.200 --> 0:13:13.720 to bring you timely, world class research. Our coverage spans 0:13:13.720 --> 0:13:18.040 two hundred market industries, currencies, commodities, and industries, as well 0:13:18.040 --> 0:13:21.040 as over two thousand equities and credits. To learn more 0:13:21.080 --> 0:13:25.319 about Bloomberg Intelligence, visit bi go on the Bloomberg terminal. 0:13:25.840 --> 0:13:28.359 If you like what you're here, don't forget to subscribe 0:13:28.360 --> 0:13:32.160 and share. Steve, what's happening with Tesla. We have to 0:13:32.160 --> 0:13:35.440 talk about this stock. The market calap has almost halved 0:13:35.559 --> 0:13:38.600 since December, and arguably this is the one company that 0:13:38.679 --> 0:13:41.439 should benefit from tariffs, right because they make all their 0:13:41.480 --> 0:13:44.120 cars in the US. Tell us what's going on. 0:13:44.679 --> 0:13:47.560 There's a lot of noise around Tesla. It's a love 0:13:47.559 --> 0:13:51.800 and hate relationship long short, love and hate relationship with 0:13:51.920 --> 0:13:57.040 the stock. Politics aside, I really believe Tesla is at 0:13:57.120 --> 0:14:00.520 the cutting edge, right. I think they're really the only 0:14:00.559 --> 0:14:05.720 American automaker or Western automaker for that to compete with 0:14:05.840 --> 0:14:09.640 the Chinese in terms of not just EV. I mean, 0:14:09.920 --> 0:14:12.520 to me, Eve's old technology. I think the buzz is 0:14:12.559 --> 0:14:17.360 really on autonomous vehicle and AI. Tesla is at the 0:14:17.360 --> 0:14:21.760 forefront in North America, in the Western world, the only 0:14:21.800 --> 0:14:25.000 one I think for now be able to effectively compete 0:14:25.120 --> 0:14:28.440 with Tesla. But you know, Tesla is going through some 0:14:29.160 --> 0:14:33.160 pain h and again politics society. There's a lot of 0:14:33.200 --> 0:14:37.680 noise around where Tesla stands in terms of his his 0:14:37.760 --> 0:14:41.400 political stance. Uh, you know, what he's doing for the 0:14:41.480 --> 0:14:46.200 government has really raised some eyebrows for a lot of people. 0:14:46.800 --> 0:14:50.160 Musk with the Department of Government efficiency. 0:14:51.240 --> 0:14:54.640 That's right, But you know, we're very you know, we're 0:14:54.680 --> 0:14:59.440 equity analysts. His political stance does impact the stock. But 0:14:59.520 --> 0:15:01.960 you know, I think I think the other thing that 0:15:02.240 --> 0:15:05.240 a lot of people don't realize and are not talking 0:15:05.240 --> 0:15:08.600 about it is the company is going through a model change. 0:15:09.160 --> 0:15:12.880 The model. Why you've probably seen pictures of its redesigned 0:15:13.120 --> 0:15:15.560 you know, inside and out, so a lot of it inside, 0:15:15.640 --> 0:15:18.600 you know, under the cover we can't really see. But 0:15:19.120 --> 0:15:23.000 Tesla is not a GM, they don't have multiple models, 0:15:23.040 --> 0:15:27.480 so model why being their best selling model globally of 0:15:27.600 --> 0:15:30.000 any type of car. You know, if they have to 0:15:30.040 --> 0:15:32.040 shut down plants for a month, they shut down a 0:15:32.080 --> 0:15:35.000 plant in China and Shanghai for a month for that changeover, 0:15:35.320 --> 0:15:38.840 it's definitely going to impact sex. They stop producing the 0:15:38.880 --> 0:15:41.800 old one, and really they don't have another hot selling 0:15:41.840 --> 0:15:45.880 car that actually can offset. From a business perspective, I 0:15:45.920 --> 0:15:48.920 think the company is going through a model change. I 0:15:48.960 --> 0:15:51.280 think the inflection point in terms of sales is actually 0:15:51.320 --> 0:15:54.640 in the second quarter. You know, orders from China has 0:15:54.680 --> 0:15:57.600 been really good. The other thing, you know, we're talking 0:15:57.640 --> 0:16:02.080 about Ton's vehicles. Tesla we started selling their full self 0:16:02.200 --> 0:16:07.120 driving autonomous vehicle and software in China for the first time, 0:16:07.480 --> 0:16:11.480 and I think if you follow Chinese social media, the 0:16:11.600 --> 0:16:15.400 reaction has been very positive. Everybody's been wild and amazing 0:16:15.560 --> 0:16:20.760 how well that thing works in China. So second quarter 0:16:20.960 --> 0:16:24.400 I think we'll see definitely improvement. Third quarter, definitely improvement 0:16:24.800 --> 0:16:25.360 in sales. 0:16:26.440 --> 0:16:28.440 So we were just talking about politics and the impact 0:16:28.440 --> 0:16:32.080 of politics on the brand. We're hearing about things like 0:16:32.320 --> 0:16:38.400 Americans boycotting Tesla as the sale in China has also 0:16:38.440 --> 0:16:42.200 been tough just because of the competition Chinese carmakers. How 0:16:42.240 --> 0:16:45.120 serious are these kinds of threats to the company. 0:16:46.200 --> 0:16:49.360 Yeah, it's a huge threat, not just for Tesla. If 0:16:49.440 --> 0:16:52.920 we're talking about China. Let's talk about China first. The 0:16:53.000 --> 0:16:56.360 local brands are very, very strong. They've come up the 0:16:56.400 --> 0:17:00.680 curve quite rapidly over the last ten fears fifteen years 0:17:00.720 --> 0:17:06.600 on quality, and you know, they understand the consumer very 0:17:06.640 --> 0:17:08.679 well over there. If you look at the age of 0:17:08.680 --> 0:17:12.560 the consumer base on average, you're talking about thirty something 0:17:12.680 --> 0:17:16.040 for car buyers in China versus North America, you're in 0:17:16.080 --> 0:17:19.320 the fifties. So the consumer there are much more open 0:17:19.560 --> 0:17:22.680 to the tech and that's more important to them. You know, 0:17:22.840 --> 0:17:25.720 what are the apps on the vehicles? What can the 0:17:25.840 --> 0:17:28.879 vehicles do for me? What are the voice activated apps 0:17:28.880 --> 0:17:31.080 that the car can do for me? That's more important 0:17:31.840 --> 0:17:36.040 for consumers over there. And the local automakers, you know, 0:17:36.280 --> 0:17:39.800 build cars and they're very savvy, very sophisticated now in 0:17:39.960 --> 0:17:42.560 terms of building these cars that cater to that age group. 0:17:43.720 --> 0:17:48.720 So for automakers, it's really not their fault because their 0:17:48.760 --> 0:17:51.760 business have been very global. They can't just build cars 0:17:51.960 --> 0:17:54.879 just for China. They have the build cars for everybody 0:17:54.880 --> 0:17:58.800 in the world. So because of that, in terms of tech, 0:17:59.480 --> 0:18:03.280 in terms of user experience, user interface, they kind of 0:18:03.359 --> 0:18:06.719 lagged behind the Chinese and that's why, like going back 0:18:06.760 --> 0:18:09.720 to Tesla, you know, that's why they were very urgent 0:18:09.840 --> 0:18:12.960 in trying to roll out FSD. They were actually blocked 0:18:13.320 --> 0:18:17.240 for some time and rolling out FSD in China because 0:18:17.240 --> 0:18:20.239 of data privacy issues, but they were able to clear it. 0:18:20.600 --> 0:18:25.159 And I think Tesla still has a cachet in China, 0:18:25.920 --> 0:18:30.480 even though from a market share perspective it's shrinking. If 0:18:30.480 --> 0:18:32.960 you look at absolute numbers in terms of sales, they 0:18:33.000 --> 0:18:37.240 are growing. Okay, they're not grown as fast because of 0:18:37.320 --> 0:18:40.040 a lot of the choices that the consumer have there. 0:18:40.720 --> 0:18:43.600 But you know, I think Tesla, out of the Western 0:18:43.640 --> 0:18:48.479 auto makers again, they're leading the pack in building cars 0:18:48.480 --> 0:18:52.800 that cater to the consumer, the younger consumer in China 0:18:52.880 --> 0:18:55.240 and I would say probably the rest of the world. 0:18:55.960 --> 0:18:59.280 Steve, you said something surprising. You think that electric vehicle 0:18:59.320 --> 0:19:02.360 technology is already legacy. You think it's already old technology. 0:19:02.920 --> 0:19:07.359 And now you're talking about ADAS or advanced driver assistance 0:19:07.400 --> 0:19:10.840 systems as well as you know, robotaxis. How did the 0:19:10.960 --> 0:19:14.600 Chinese automakers compete or how do they fare versus Tesla 0:19:14.760 --> 0:19:15.600 in this technology? 0:19:16.440 --> 0:19:19.680 Yeah, you're right. In the EV is old technology. It's 0:19:19.720 --> 0:19:24.000 been around since the nineteen hundreds. Interesting point at Google 0:19:25.119 --> 0:19:29.840 charging stations in Chicago in the early nineteen hundred you'll 0:19:29.880 --> 0:19:33.600 see a bunch of them. It's just never got picked up. 0:19:33.680 --> 0:19:37.439 And everybody know internal commustionion engine became the standard. So 0:19:38.000 --> 0:19:42.800 automas driving is where the competition is now. It's actually 0:19:42.880 --> 0:19:47.240 where companies can generate the most profit building cars ev 0:19:47.720 --> 0:19:52.399 gasoline car razor thin margins. You can see Tesla's margin 0:19:52.440 --> 0:19:57.440 coming down very sensitive to pricing to demand. Right where 0:19:57.480 --> 0:20:03.280 the difference is automas vehicle, cyber cabs be it cyber cabs. 0:20:03.520 --> 0:20:07.240 You know Tesla rolling out their own fleet and adopting 0:20:07.359 --> 0:20:12.880 the Uber lift d D model. You can see the margins. 0:20:12.880 --> 0:20:16.040 I think they're double digits for Uber and Lyft. But 0:20:16.240 --> 0:20:20.920 if say companies like Tesla or someone else like Xpunk 0:20:21.119 --> 0:20:23.760 for example, down the road, you know they can actually 0:20:23.800 --> 0:20:28.400 license the self driving software to other automakers, and those 0:20:28.480 --> 0:20:32.359 margins are huge. You're talking about software type margins into 0:20:32.520 --> 0:20:38.439 sixties and seventy percent margins. So I think for automakers 0:20:38.720 --> 0:20:42.439 to succeed in the long term, they have to shift 0:20:42.480 --> 0:20:48.120 that business model to data, to AI, to self driving vehicles, 0:20:48.560 --> 0:20:54.720 you know. Staying put as a traditional car manufacturer, I 0:20:54.760 --> 0:20:56.520 think it's going to be a tough business. You can 0:20:56.560 --> 0:21:00.640 see with Nissan they're going through that right now. Nissan 0:21:01.520 --> 0:21:06.000 is having big problems not just on costs, but on 0:21:06.119 --> 0:21:07.520 demand for their vehicles. 0:21:08.040 --> 0:21:10.200 Yeah, we had a question here on Nissan and Honda, 0:21:10.240 --> 0:21:12.399 but before getting to that, I want to get your 0:21:12.400 --> 0:21:15.560 thoughts on how far away we are from that future 0:21:15.640 --> 0:21:18.640 that you just laid out. I mean, in the States, 0:21:18.760 --> 0:21:21.359 you don't see a lot of you know, robo taxis 0:21:21.440 --> 0:21:24.000 or self driving cars yet you know, you do see 0:21:24.000 --> 0:21:27.680 them sporadically, But how far away? How many years? Maybe 0:21:27.680 --> 0:21:30.040 it's decades, Like when could we have that? 0:21:31.480 --> 0:21:35.199 You know? Let's see. I mean Elon Musk is very ambitious, 0:21:35.520 --> 0:21:37.920 right you know, he are announced that he's going to 0:21:38.000 --> 0:21:41.960 roll out robotaxis in June. I think it's going to 0:21:42.000 --> 0:21:44.840 be in Austin, Texas, and then next one will be 0:21:44.960 --> 0:21:49.560 somewhere in California, and then you know his goal. We'll 0:21:49.600 --> 0:21:53.119 have to see if it happens. His goal is to 0:21:53.280 --> 0:21:56.040 roll out to multiple cities by year end, so it 0:21:56.080 --> 0:22:01.080 could be sooner than later. Now, the predominant taxi operator 0:22:01.160 --> 0:22:05.000 has been WEMO in the US, so WEAIMO has rolled 0:22:05.040 --> 0:22:08.280 out to a few cities around the country, and it 0:22:08.280 --> 0:22:10.800 has taken them a few years to get to those 0:22:10.880 --> 0:22:14.040 few cities. And there's a reason for that because the 0:22:14.080 --> 0:22:18.480 technology that WEIMO us is quite different than Tesla. So 0:22:18.600 --> 0:22:23.600 simply put it, Tesla's autonomous vehicle technology allows it to 0:22:23.800 --> 0:22:28.919 scale much faster than WEIMO. So Tesla uses what we 0:22:28.960 --> 0:22:33.520 call neural network, and then WEIMO still used the traditional algorithm. 0:22:33.560 --> 0:22:38.320 So neural network basically is a computer that teaches itself. 0:22:39.040 --> 0:22:42.000 As long as you feed it data, it'll learn, and 0:22:42.040 --> 0:22:47.720 it also create fictitious hypothetical driving situations that it'll learn. 0:22:48.960 --> 0:22:54.840 And so Tesla's vehicles theoretically you can PLoP it anywhere 0:22:54.840 --> 0:22:57.240 in the world and it should be able to drive itself. 0:22:57.359 --> 0:23:01.600 And actually the China Exams sample we talked about is 0:23:01.640 --> 0:23:05.119 a good example because Tesla was not able to collect 0:23:05.160 --> 0:23:09.639 any road data from its Tesla vehicles running in China. 0:23:10.040 --> 0:23:13.040 The way they taught the car or just to like 0:23:13.359 --> 0:23:18.360 familiarize the car with Chinese roads, was actually through YouTube videos. 0:23:18.760 --> 0:23:21.959 But you know, the car, once you PLoP it on 0:23:22.000 --> 0:23:24.960 a road in China, it's still able to drive itself 0:23:25.359 --> 0:23:27.800 in a very safe manner based on what I've seen 0:23:28.000 --> 0:23:31.800 on social media. Now, Waymo, Waymo's quite different. And Waymo 0:23:32.040 --> 0:23:35.800 uses algorithm millions and by billions of lines of codes 0:23:36.160 --> 0:23:40.480 to teach the system and then uses radars instead of 0:23:40.520 --> 0:23:43.840 a vision system like how you and I drive. So 0:23:43.880 --> 0:23:45.920 they have to program in, like if they're going to 0:23:45.960 --> 0:23:48.640 operate in Las Vegas, they have to program in all 0:23:48.720 --> 0:23:52.880 the road conditions, all the roads that in Las Vegas 0:23:52.920 --> 0:23:56.080 for it to operate. So for Weymo to start operating 0:23:56.119 --> 0:23:59.119 a new city, you basically have to what they call 0:23:59.200 --> 0:24:03.919 geofence it meaning that it has to learn specifically the 0:24:04.000 --> 0:24:07.520 roads of that city for it to operate. So to 0:24:07.560 --> 0:24:11.480 answer your question, if this neural network, which not only 0:24:11.480 --> 0:24:16.320 Tesla is using to teach cars how to drive, xpunk 0:24:16.400 --> 0:24:21.000 is doing the same thing. So if neural network works, 0:24:21.440 --> 0:24:23.639 and you know, maybe robotax is a lot sooner than 0:24:23.680 --> 0:24:24.600 we think, and. 0:24:24.560 --> 0:24:27.719 It sounds like robotaxi technology. It's a pretty much a 0:24:27.760 --> 0:24:30.920 two horse race between China and the US, Is that right? 0:24:31.040 --> 0:24:35.920 Stave yes, But you know, Mercedes have been doing a 0:24:35.960 --> 0:24:39.920 lot of work around self driving. They're rolling out what 0:24:39.960 --> 0:24:43.680