Episode 18

The following is Episode 18 from @oliverbruce.  Thanks, man!


 

SPK05

Asymcar 18. I read a few interesting auto industry items recently one of them was maybe wonder if we’ve reached peak names and that was Mercedes announcing that fourth here here on their S. U. V.’s without being named with three letters rather than one so the M. class will become G. L. E. G. L. X. all these things so they’re going from twenty six to nine hundred ninety nine possibilities along with the metadata around that of course the engine displacement all that and at the same time we had news that that at an animal was greatly underwhelming I think the national sales were twenty one thousand in the past year maybe a little more and the capacity is around that much per month. So right you know so so would are we seeing the paradox of choice happening in the car business it it’s it’s sort of astonishing and

SPK05

But it’s it’s it’s it’s these symptoms I mean on one hand I think the the the the explosion in in in product categories is is a symptom of oh sort of lack of room to to really innovate a on what matters having sixteen different very versions of S. U. V. when they were non there one on hours at least is one from missing is the G. vulcan a which I think they’re they’re keeping. you’re

SPK00

kidding right but it’s it’s hard to find it

SPK05

Um the the you know the same thing with the funny thing is a you know a likely likes to say that you know companies all feeling unison it’s hard to imagine there that they’re colluding to fail. But in this case the fact they’re all or makers feel like they need two hundred different car products which all or almost indistinguishable from each other is a symptom of something something else. I think the so so so for example I I know I how many versions of O. B. M. W. S. U. V.’s there right now we know even Portia has has to in its lineup. And that’s a sports car pure that so supposedly was yeah you’re pure company that develops only very a unix sports cars and know what’s next for our is gonna have an S. U. V. and and then they’re gonna have fifty S. U. V.’s so what’s going on I mean the the problem is in my opinion that the they’re not positioned on the job to be done their positioning and finding the or carving the market up into all these little subcategories exactly what Nokia did prior its the mine right right they they would say well the there are research shows and they had exhaustive research by the way our research shows that buyers are categorised by age by place so of residents by income by by gender and all these wonderful little remark numbers that they could produce to demonstrate the the this

SPK00

is for this product explosion

SPK05

what they would do is they would say that but this is simply the the here’s the way that happens is you send you go out send out your researchers who then ask people bunch of questions and the end up with the survey that shows and so the ass people what’s your age what your income the things that they measure and the beginning what is being counted what is being the categorised. So so you we see even today and I’m I’m finding it extremely frustrating when you say oh I saw somebody probably survey the elements in mobile phones. And what they say well you know that the age groups you how many times have you seen the survey that’s that’s saw stars to show what what’s the difference between Andrew denial as as a by gender what’s the difference between a hundred and I’ll ask by age group what’s the difference between Andrew then I’ll ask but income level and oh of these are meaningful all they’re saying is that we are able to capture that information easily and therefore we’re gonna plot that into rap and imply that there’s a causation behind the the age and and gender in their purchase decision. And that’s simply nonsense there’s no the the you cannot say that more women than men prefer product extra why because it it it simply that is the data you were able to capture the that when you ask why do they actually by that you find probably that they have a different job to be done than men and if at some point men were to acquire that job than they would buy that product. And so this is this is the and and I you know I’m generalising here and in the in some cases only women have the job but in some cases they don’t so you you you if you force yourself to then equate well we will build a product for when when the features you put into that product and say well you know the first appeal to women will make it pink and so will say that women therefore are gonna provide product X. because it’s pink and that you know bill for that that’s exactly the wrong thing and it it’s it yeah I I you know I I almost find it offencive to think about the the the S. U. V. and and the proliferation of different if U. S. U. V.’s is a symptom of that what they’re probably done is is determined that one C. don’t wanna C. D. they found some people bodice and they start to measure that population and they begin to divide it up in card it up and say well you know some people actually asking for a smaller version and some people asking for bigger version in some people are asking for one that

SPK00

no seven seats a minivan replacement yeah

SPK05

and so you know it’s it’s natural but it also the because this school the the the conspiracy extends to the people of manufacturing because once the marketing people show them the data the manufacturing people it resonates with the animals they’ll all we have to do to support that new product line is we’re gonna have to tweak our production run we’re building on a platform anyway so we’re gonna extend the for the the floor plan we’re gonna extend the the you know the the the machinery that that manufactures this equipment can tweak lots and yeah on the same production line we can generate that so it’s not gonna cost us much to improve to increase the product range and so the in engineering people the manufacturing people and the marketing people conspired together to build a product and nobody needs. And that’s that that’s the fundamental and just still something but they’re not going to actually grow that pie tremendously there and then of course the B. and O. B. M. W. guys will point to the Mercedes guys in use that as justification of the more I think we’ll have to have so I and and and that’s why. I think fundamentally in the meantime so that that’s one that what one question well do the brought up and at the same time yes just

SPK00

lastly to me because you know there was a lot of discussion with maybe a decade ago about than an O. and the Renault Logan you know this sort of new low cost somewhat traditional view

SPK05

that’s a problem cars just hasn’t happened yeah well so there I slightly different but temperamental tut tut and then oh is predicated on the lower the super land. And that’s a very disruptive idea in a way that you send going say that we’re gonna drop the cost of a car down to three thousand dollars is an order of magnitude lower than the average cost let’s say the united states. Now what that the implication being that people or less wealthy will wanna drive that car that that would have been a great idea in the nineteen forties and it was actually put it to use the nineteen forties by many many factors not only Volkswagen which of course had the beagle but basic training with the artist he was like yeah

SPK00

no one of our for five hundred years

SPK05

the remote the remote for the the British with the mini. And the japanese what they’re chi hours and okay sorry “‘kay” cars. And and so all these companies in that time frame between nineteen forty nineteen sixty we’re saying that we’re competing with non consumption therefore we need to get people in cars we need to get them as quickly as possible and that only way to do that is to lower the price “’cause” cars were too expensive not if you launch that concept into India today it might sound like the right thing because consumption is low but here’s the problem used cars used cars in in in the in the our agent particular are good enough. So the competition for the than oh was not a new car the cost too much it was a used car that cost just as much but was better. And then used car today is the low and brought a used car in the united states is dirt cheap in fact this is what you can launch in the united states is super you know remember the you go with lost in America it was it was in nineteen eighties for those lists there’s that don’t know what we want later alright it was launched in nineteen eighties as a and you is nothing more than a read that yeah if yet I don’t know which one but it was a very old Fiat from the seventies that was manufactured in yugoslavia. And that car lodged in the U. S. is a super low and disrupt are kind of like gonna be the new beetle well again by the nineteen eighties cars lasted a certain time they’re not they they they lasting longer back then they would’ve lasted maybe ten years today I think you get the car on the road in you know maintain the can go twenty years. Um and that meant that the car was competing against you know five year old equivalent that had appreciated like a rock because there’s there’s it was oversupply the market was over supplied so the the that that you go what’s the value of a new car that’s a marginal quality versus a a used car that also has its problems but it’s from a brand that you trust what you know about that you’re not gonna get left that when you drive around “’cause” it’s a commonly visible car in into that market of course the japanese at plenty of low end product as well not as cheap as a you go but you could trust that on that you could trust into your grand forever yeah and those if anything if any scholar student more to say O. G. G. I need to I need a little incarnated cheap car they’re gonna go for use coral and today it’s the same situation and in fact there’s there’s even the car lasting longer and if if you’re poor poor college student you can actually afford a pretty decent car for about ten thousand dollars ten thousand dollars which I think after inflation would be starting you know would be in the the price of when you go. So so if you think about what can you get for ten thousand dollars well maybe the local dealer one offer you much but if you go any day if you go on on online you can do a little shopping and and pick up a nice car. Um apparently and I personally don’t like this is all by herself in a and that personhood rust fifty thousand dollars on the car fact that drop thirty thousand Miles on the car and I feel like I’m rather well served with cars I found was that it I mean I I was you know I thought E. five hundred which is a very nice colour so that’s yeah it’s a it’s a it’s a it’s a over serving me it’s it’s it better card and I need it’s only bad thing about it is uses too much gas. But you know I I treated as a as a not like a commute recorded rather car pleasure just like people treat their horses you know their own the they’re not beasts of burden their their things which they use it for recreation. So so in that sense I think that the national failed because it was up against good enough japanese for and maybe even local brands probably local brands which are essentially. Um not copies necessarily but maybe variance of the models that were made in remote and older models in fact the the the this highly recommended series you ought to watch highly recommends I cannot recommended anymore if you’re every

SPK00

other automatic fabulous. So

SPK05

it’s it’s called it’s James may cars of the people that people’s cars no it’s cars of the people it’s they they subtitled the top your special though. It’s only James main it there’s no none of the other character opera

SPK00

what’ll you go when you mentioned that to me I I see this little refine apple here and I had a hard time finding it and you had to search the precise term in I. tunes for example the actually get the thing so yeah

SPK05

maybe maybe we get James may in there you might get it but it really basically so explicit on on I. tunes in H. D. I don’t know three bucks an episode or something like that there’s three episodes all should be well watched the what it what the great thing about it is not always agree history lesson not only does it have gratuitous amounts of course you can look at I and in in the great locations there’s a few stupid that’s with some violence and then silly military applications yes. I understand silliness in there just for the for the for the juvenile audience but it’s it’s it’s more it’s also that they actually dig deeper into the question of what is a people’s car and then what the cars mean to people and all that so the there’s a there’s a there’s a little bit of a twist that you can look forward to what what what it it told the story although is exactly this notion that how the mobility come to the masses and and I in it it’s a story of a time it isn’t something you can replicate and that’s the failure or the error in talk to it was the that they wanted to replicate what had happened in America in the nineteen twenties with the model T. what had happened in Europe during the fifties and sixties with the with the beetle and and others and in Russia happen in the seventies with looks lotta this is about mobilising it a population of not consumers the difference being though that in those in those markets at those times there was no excess inventory of used cars that weird no are those nowhere reliable so if you want to disrupt the market today you dealing with the highly saturated market in most areas even thinking emerging economies if they don’t have local used cars they’re gonna find a way to import used cars “’cause” the economic incentives are there so for example if you’re in the in you know context are if you’re in the wrong if you were to Africa you have access through the global supply network to container you know to to to to change clothes of used cars if you if you if there’s a local market you can get yourself a you know a thousand the so you’re a pickup trucks that are indestructible but they are offload it out of out of a Japan because the the government in Japan essentially poses a very onerous inspection regime of cars so they end up being a sold first almost scratch

SPK00

or their economic life is over in Japan after

SPK05

four years or five years when we the for with that vehicles mechanical wife was we acolytes is over exactly. So so what what because of the way things have been evolving over the last few centuries or that lead at least things are we in the difference like with the or market so low in the structure is very difficult what you need to do is create new market disruption and that means we define a job to be done and this is what we’ve been talking a lot about for so long on this on this show it’s how you redefine transportation how you redefine what people are willing to pay for and a lot of the electric market I think is gonna end up as redefining the the you know the notion of a card that does everything to a card that does a limited subset of things. Well enough with with a caviar being better in the the mention that matters to me which could be actually a psychological dimension and not a physical dimension for example feeling good about the environment or feeling feeling you know the meeting congestion one thing I should say would change made his credit the the emphasis in one of the shows was like none of these cars are congestion problems once you get the saturation again you get the problem other lessons

SPK00

right and I should also plug

SPK05

another book here which is the big roads I forgot the author was recommended to me by by James grant and I think we mentioned earlier we have can still Reading through it and it’s a absolutely great story because of the way explains how hand in hand the auto industry in the around the road building industries have to work together and government as well. And the the idea of how important nobody knows the story the story how roads are built is actually fascinating one frustration I’ll give you an example one frustration I have like come back to the united states is that the roads are actually pretty bad shape meaning there’s potholes there’s rough patches the I would seem to be on the construction all the time. There’s there’s a lot of disruption because of of a road construction not to mention that they’re actually builds willow work standard of quality. They don’t have water colours yeah but they don’t have for example they don’t have well design flows especially new England which is an older part of the country the things going are we weird ways that the the roads are like one of the worst things from lot of that these you get to the intersection it’s not a regular just section at ninety degrees services section where two roads actually emerge like the angle between the two roads is almost like

SPK00

Vera next yeah we have we have any was actually twenty

SPK05

degrees between that and you facing a stop sign. And so you’re supposed to start and usually when there’s traffic there’s a look a line of cars in front of you as well. So you’re supposed to stop and then ignore this proceeding need to look behind you know they really need to look behind you to see if someone’s coming that’s the stop sign right. And so you you you’re looking behind you and then be seen the the coast is clear and you you accelerate in you the guy in front of you. Because he has a moved out of the intersection yeah because he’s you just look behind him said okay now was time for me to go he starts off and then you think well that was not my turn you on the you you clear the S. and a fast enough and so you end up getting their reasons have

SPK00

to be done for your new three letter as you Mercedes S. U. V. or

SPK05

I can push that don’t know I have seen

SPK00

that I there’s a land Rover it settle audio one time that and anyway I digress but yes

SPK05

yeah I think I think the point is that the reason this happens is because these cars is rose I mean or ancient they were designed at a time when you know horses were on them so either in in modern traffic analysis model traffic our road design you get away from that what happens in Europe because the roles that I you drive on typically are built much more recently I would even say it will not last few decades seventies even they were built according to norms that more much more recently set and the best practise is for real design and building were were were were modern in our in our in in in that sense of the word and so you actually started on roll building the for Europe it it’s you know is because of Henry ford in the model T. have huge demand for road building in the nineteen twenties and so commissions in and the the government set out to design what roads well as we know them today that they have to invent everything that invent road signs yet invent merges yet invent shoulders getting then guard rails yet then side edge they had to invent you you know things like the the notion of a superhighway although initially they they didn’t realise for example how billboards will affect things they didn’t know how roadside this this is what affect things. And this really learned through trial and error but the the that that process is still ongoing because you know once they establish something you retrofitting all the time we have to fix all that stuff and in the U. S. as you pointed some political reasons there’s always and then you know there’s always a reluctance to really dig things up and change dramatically what’s what’s new people become converted all the utterance very little yeah they build something which there’s a great them and for months it’s matt they don’t want it to ever change again so anyway I I the the the

SPK00

I I thought that made it a wonderful job in that series of well the history was great but I thought the the relationship between the evolution of certain cars and governments plus politics was

SPK05

yeah it is very well studied this problem that that it to the courage yeah great insight in there I mean the this goes beyond I mean you can say you can enjoy it if you were twelve year old and you wanna look at cars and have them do funny things with them but but you also enjoy it does pretty well actually I think I think very few people quite will grass the rights of all the inside here well

SPK00

the writing was fantastic and and then the social aspects of you know the people in the thirties I thought the I’ve the the one of those islands are couples islands in the politics where you know they they set up those sort of rest cancer vacation spots where you were supposed to go you know with your your beetle in your coupons but of course the whole deal fell apart

SPK05

that sounds amazing story that’s just it’s history lessons there and itself but I think the the the the that that that that continues today yeah that

SPK00

really that’s sort of what I wanted to drift into next a bit was so given all these things are happening amongst the legacy auto makers and and you know you mention a twelve year old but someone smart one said recently that driving is for all people or so I don’t know how many twelve year old really pay attention you know I

SPK05

started coming in I I hearing this from from for many people that I you know I talked to my nephew was in college is a twenty two years old now I think and he yeah I asked this question you know you you and your friends really look forward all in cars are you are you are you into cars and disasters like you said like everybody that in that age group they’re basically don’t care at all about cars right and you know I pushed on that a little bit you know what are you gonna do if you need to go someplace and you know I think they think that it you know it’s an it’s a necessary evil that we need to sort it out at some point and get a car. Um and so it’s confirmation in that sense but I you know there’s also data showing that a lot of people are now getting cars because they have to but it’s not because a lot too but there’s gonna be spending the money because the the the need has not gone away. So so in a way the the opportunity might be that the cars for the latest generation will be would need to be positioned on a fundamental utility that they need but also if you gonna get “’em” excited to pay extra be on the commodity price you need to have them solve jobs that that the young people have to do and that means not horsepower and and and pinstripes big rather L.

SPK00

T. and the car it’s amazing how much data hyped in the states now I’m just shocked. They they must assume that people are gonna be charitable anyway you know obviously if you have a smart phone if you go for the smart phone the need for an L. T. for another bill another charging like monthly charge in the car would seem to be

SPK05

is it’s it’s I guess. It’s like marketing people you know certainly get get the get the memo and and and and and and maybe ten years later you know people are into telephones just like the idea of a three’s and maybe they need to swap out the cassette player and and they they get these these ideas and then they go all souls hardly go overboard on it and and it’s not solving the job they’re doing is they’re essentially checking out things awfully checklist and then the same thing with mapping remember that was all this in car navigation stuff

SPK00

thousand dollars two thousand exactly is now I

SPK05

I I I have a car. That’s two thousand six model year that has a map system in it and it’s of awful compared to my phone and my phone is just gonna get better I know it because it’s more it you down you know it is tolerated sell computer could do things yeah it does all kinds of things the screen isn’t on the screen isn’t that big in the car either but it it gets it it’s gonna get better in that regard as well as you we just saw with with the new I phones. And and so well and of course you have I pads as well and my concern with this car is where the white stick my I found that’s really become my obsession over which suction cup device ice slash they’ll so I was like but

SPK00

this this car has a has cup holders are you are you

SPK05

I know but they’re they’re a bit tricky to use in and out of the way but I do that so there there lot of the glove box first but

SPK00

interesting concession the someone on the way they I only bring this up because a a good friend of ours wife. They had five series B. M. W. for a while I think this was mid two thousand really to thousands and it did not have couplers and she was just very unhappy about this of course the car was traded for I think a japanese luxury car some sort that they have these things so it’s interesting to your point about

SPK05

yeah it’s a cup holders it that’s that’s one of the things I guess it’s a low hanging fruit in a retard but my point is about the the the the screen and intelligence of the device it they normally even this car also I’m ashamed to say it doesn’t even have auxiliary input on the radio so I or or sound system so I can listen to my I don’t know it little in and so it it it someone

SPK00

use to make a cassette a dad

SPK05

doesn’t that this I have a cassette over all possible yeah it’s C. D. but now but that’s it so needs is I need to get that every oh no no no

SPK00

it’s better right yeah yeah those are those are all those are adequate more they’re

SPK05

adequate and yeah but very very clumsy anyways

SPK00

anyway I but I I think so so we have all this going on in the legacy auto manufacturers and distribution and the game and all that and meanwhile this last week the there’s news that you know musk as cut a deal with the state of Nevada to build a gig a factory. And yeah

SPK05

you also said this stock is is overpriced right right well like ninety percent

SPK00

so we’ve mentioned this in the past that you know that in fact are the legacy people asleep at the switch well he’s just coming adam had on with this new capacity and you know it’s gonna be a few years but so where where is that how’s that gonna play outdoors I you know I

SPK05

he’s making these kind of bold moves that are there are there are you know the one looking far into the future. But sometimes you know so even the greatest visionaries who are right about their vision feel on their in their approach. So let me give you another example one on my greatest industrialist of all time whatever one of might be one of the greatest and one of my favourites is Henry Kaiser ocean and Henry Kaiser who is and sort of a these are sort of kind of industrialist genius low I by any other measure it was not a genius seems not we was not what well educated he was not particularly take the gifted in any kind of technical sense. But he built massive industries horrible study he he was a part of the building of the roads or on the west coast almost all the road systems from the from the pacific northwest to California had he had a hand in in building he built the road system or Cuba back before it was you know communist he built. Now that’s just getting started then he he was part of a six six companies I think that built the hoover dam. So he was involved in that message industrial project and that was during the depression and that during the war he then built the industry that build the liberty ships these are the the the ships that and and you know carried everything I wrote Fargo around whatever yeah something X. seventeen hundred ships in a couple years were built and he had to build the shipyards to build the ships and these should yours were built on on on marshall and that was not on using that includes self of separates us north actually in the northern part of San Francisco bay yeah right up near Emery villanova. Um and and so so he built shipyards that built ships in record time any record volume. He builds now in order for them to have the logistics. And supply and and supply chain for building ships at that rate he had to work out how to get steel and steal in the shapes and and forms needed to be assembled into shapes in those locations because at the time and he was building the shipyards most of California was not industrialised in California was agrarian. And didn’t have manufacturing capacity of any any significant certainly not enough steel around and so he have to build steel Mills he have to build steel Mills but then you have to have war for his deal also what we do keep the result mines to makes to get the for to get the steel Mills to get the ships yards to get the make the ships. And and and therefore you get the build railroads to connect all these things together but this is this is some amazing scale right he he was able to orchestrate in a vertical fashion something far grander I think than Henry ford it in the shorter amount of time of course we have a lot to learn from Henry ford yeah he leverage a lot of the knowledge that was built in the last you know in the decades prior to to doing that. But for personal such humble means he he he did an amazing job now mountains right literally literally move mountains and that’s eagle mountain in the in in California which is now ghost town but that that’s that was the or that was the mail that they sorry not the not the the mind that they used for for sourcing the steel door the behind or so anyway point is this that’s all that after the war what does Henry Kaiser do well in the meantime by the way in the meantime before I get to that in the meantime. He built the first H. M. O. and and the Kaiser permanently which

SPK00

remains today S. you wish to

SPK05

today remains it is also very innovative institution at the time was the first of its kind he need help care for is workers we created a health maintenance organisations that was widely copied still there’s his name now. That’s what he’d it created all that roads the railroads to damage to shipyards to mines and and and and so on everything in between and what a single after the war I mean after the war he he he gets is in they said to make cards yes Henry Kaiser gets into the car business now this is fascinating because this is this is a parallel to to test all because of the way. Here’s another man who’s a a great industrialist and that’s the old sense of the word he created in industries we created pay pal it creates many great things and he makes a car company because he really thinks he can change the world with cars not what he because the thought is that he would take over a excess capacity clad in fact he took over the willow run plant from Missouri force right right so they maybe twenty four seven that the time is probably the largest manufacturing site in the world. And they built they have built during the war something like I don’t know twelve thousand bombers us a ridiculous number maybe twenty thousand I don’t remember. But they they built this plan specifically in all the manufacturer for engine heavy bombers in the mass production fashion which was not possible for war can even make small aeroplanes and I can understand why and they’re making the biggest aeroplanes an assembly line. And it was an enormous plan with the runway in fact the whole airport adjacent to what the fly these things out of there. And and so you know he they have to have hotels for the pilots. But in the hotel their dormitories for the pilots that would be waiting in line trying to you know to fly to fly the planes out. So you know they have bunk beds laid out for for you know eight years all these pilots were essentially standing by to pick up the plane to be very out there not to mention the the the quarters for all the workers “’cause” this was built in the middle of nowhere anyway the war and he takes over this plucky buys it for for for peanuts “’cause” it was worth nothing there was excess that’s

SPK00

right we’re not building B. twenty fours anymore yeah so

SPK05

he decides to use the plan to make cars and he you launches of low and car you launches eight what we would call today disrupted idea. But again because he so he thinks at the end of the war the the car the industry to sort of the U. S. needs will need a lot more cars because consumers are are are have the in the star

SPK00

those are the supply right

SPK05

yeah and and and they’re they’re and and actually the problem was that’s but the big three had the same idea and so the big three are generating wrote gorgeous products while he’s try to do a low end product and again it didn’t work at that time the idea I had was a lotta Henry ford’s ideas about that adam now no idea and it didn’t fly. So it this is the this is the warning from history graded there’s no one could it would have bet against characterised for in nineteen forty eight fact known would have that as a guest and so forth because he came out at all industry to make yes alone over the bat against was that the lorry and when he locked the car company. But they all fail. They all feel the Kaiser this this was a flop check it out on on wiki P. D. A. Um you try to then replicate that in in Brazil that worked there either it you know it still didn’t work and Gloria didn’t work although they all feel for different reasons again it’s a question that they you know when you see a pattern is it is it because of a common cost fundamentally. So I I get a I. I’m not convinced not the giggle factory is again is about supplying yeah it’s applying a quirk core component so like it like I said I had before needed to build ships you didn’t have enough steel. So he built a steel plant and have all or for it. So you build an well mine and then he needed to connect them some people to railroad. That’s what he could do at the time so in the sense of mister. Um mask easy saying normal I’d love to make more of these cars I can’t because I know that batteries on the billboard that a battery plant. But it it the reason it worked in one context which was the war effort where government was was writing checks and there was the demand was essentially infinite them or the than the only the no matter how much you could produce the U. S. government would buy if there’s a war on but most of the war ended the literally the all the men disappeared it was zero them and so one from infinity to zero literally like two weeks between you know the end of the war and somehow the funny thing is that E. everybody was building stuff back then you know that it was gone and at some point you know you know you didn’t count on the war and lasting forever no no what no one the the the only question was when so sorry I was Reading as Reading allow you get this stuff now popular mechanics in popular science all these types amount to consumer magazines published in nineteen forties right in the war and it’s interesting to read the stories in the ads for for for you know training you know you know become become and you know become an electrician or an electrical their will or so well they’re all these things in that we’re saying yes you have a good job now these are the the ads right you have a great job now but what are you gonna do after the war ends and these were written in like nineteen forty three this is two years before the war ended. So we already two years before before the conflict and the people were like saying yeah I mean the project that was gonna happen that one when the when this is over it is of course the folks were back home that the ones in the in the in the far online yeah

SPK00

so so as we think about the gig a factory and some other topics we’ve discussed one of them jumped out at me recently this topic of inefficiency we’ve talked about that and a couple different contexts and I ran across a paper maybe a month or so ago by guy at the university of Texas and also want the you time they they have store one B. M. w.’s. S. A. V. acronym and re purposed it. So B. M. W. of course like Mercedes likes to use all these letters and things and so B. M. W. there S. A. B. is sports activity vehicle that these guys caller shared automated vehicle. So they interesting. So that they they concluded that if such a sure automated vehicle would emerge that we could remove nine of every ten cars from American roads

SPK05

she whatever and they call it Fred or G. M. or something yeah our tail

SPK00

yeah you know Henry is

SPK05

that we did in works two mean or to the japanese and the germans but more the japanese have very complicated names for their aeroplanes. I mean they would have a manufacturing name and then like that’s a Mitsubishi and then they would have a bunch of letters and numbers designating the the model. So you would have been the you know the Mitsubishi you know you know body three and five something like that. And the trouble was the americans had to identify these enemy aircraft and decide what to do with them obviously you know if you wanna fight that a fighter you wanna fight with them with another fighter you don’t want to tangle with them if you’re a number longer. So so so they have these ways of identifying the every pilot and and and airmen have to be trained on on on spotting aircraft and ships. So you look at a silhouette from above or from the side. And it was just just the as you know black shape on a white background and you were asked okay this was like a quiz like with cards a name what that what that is well if they found out that they couldn’t get the pilots to remember these complex designations of the americans came up with the technical giving them names. So it was the Java one guy to come up with these names. And he’s he he he created a nomenclature or way of naming things so that all the bombers got female names but in order yeah and all the all the all the all the fighters got mail name so the American like the American aim for the for the zero it’s actually that wasn’t it’s official males officially was seek. And and the the the nickname that the ploughs usable zero because it also had a a zero and it’s original designation but that you know so the the the biggest mobiles produced bomber was the battery the the the bomber that was used in pearl harbour to do the dive bombing with Nate and and so on and the funny thing is the funny stories that all these names when you read them they’re actually all southern America names because the guy was name. “’cause” job it was was from the south. So you could pick all these really your colloquial names. And and and you know that from the thing is that yeah for them on X. right for for the for the ability to remember you’re much better off with the name them with the number and in fact or specially a combination of crap the combination of numbers and inland digits. And this is why to this day cars you especially japanese and American cars and are named you know core role of they they’re not named you know the X. twenty five or something like that the Europeans stuck to the name. So they’re more complicated convention but but the the the the is so so I would be I would encourage anybody to when you decide on the product name to try to come up with something easy to remember another that not an acronym. And that’s just common sense but it’s interesting how how history conference but anyway so back to the S. U. V. right

SPK00

so the S. T. V. so I was thinking about your your comment your conversation with your nephew about interest and then them and so you know this paper this analysis is taking a look at the utility aspect of cars. And as I said they conclude that a fully implemented shared automated vehicle would reduce demand for the would eliminate nine to ten cars on the road I think about this every now and then when I’m driving around or travelling you just see all these cars just sitting there right I mean most the time they just set. So yeah and then I also read this week that California has approved Audi Mercedes in Google to do some some testing on their core try real cars in in that state but apparently goes done testing on private roads to avoid some of these issues so you know is is this confluence let’s say of of consumer change societal change and then some level technology is that we’re going to see

SPK05

I let only just play devil’s advocate for a minute because I think the the the the issue is that okay oh sharing is wonderful but why is it that more people won’t buy used cars. Um and and I brought to the was one issue is that you don’t wanna write in some yeah this is not my personal problem. But I’ve heard this from several places that people don’t like the idea of being in someone else’s space if you well that the list in it and was in the in the in fact that it somehow with with their prices and this is this is like a touch alerted the printer copier that the thing where they they they did a test between multiple used cars and part of the test or part of the challenges that they were they got some forensic expert to go through that and find all the types of bodily secretions of bodily degree from from from previous owners and of course if you look hard enough you’ll find almost anything and they used car. And then so the the joking that afterwards you know they have to wear has met seats to sit in their own cars causing knew what had been there the and another friend am I said I I R. as a friend of mine once why is it that you don’t want to buy a used car because there’s so much cheaper he said in that you know is nice away he he said he didn’t want to have a car in which other people have sex and had or had had sex in a so so job to be done there’s a job to do that and you know and I was like gee I never thought of it that way and that still doesn’t bother me but but the the this is the thing with share the there are people who you know are are are are not comfortable with public transport for because of that reason because it’s treated airspace and I I find that by the way very perplexing because the same people define writing in a in a in a in a boring or an airbus. And S. C. you’d like to guarantee files if you have a clean white snow a thousand people S. that on that C. and you can on that tray which didn’t get cleaned afterwards so so I I you know I I I don’t understand that so that’s why I love it playing devil’s advocate but there is a question in my mind and every how many people really think of the car as personal space and when you transition into being a shared a conveyance then you start to think of it as public and you don’t take care of it and you you you you don’t respected as much. And so it that then becomes a a vicious cycle because as a story circulate about what people do in these shared things than people want to use them anymore and so then then those who do use them are are likely to abuse them and and and songs it’s on your goals and I I I worry about that because in uni ideally do wanna have a shared vehicle. But the the thing to do is to make it feel like an aeroplane and not like a bus you have to make the the the make that job in in take that job to be done in mind. And the reason we’re maybe more tolerant of an aeroplane is because the crew comes through after each time you sit in that seat and then tied easy it up a bit not deeply but you know they clean it out and and they turn over the plane remarkably quickly by the way I mean they’re in there through that aeroplane like twenty minutes without even ten minutes sometimes that rose yeah sometimes it shows but it it you know you you you can’t you see and the you know in the better airlines you know you see that the seatbelt has been properly adjusted so it looks like it’s you know it crossed

SPK00

so rarity anymore yeah

SPK05

I I maybe that’s more your but you know that all the magazines that are supposed to be in the right back pocket are there that there’s no trash anywhere and it looks reasonably clean about what would happen with the car if there’s no attended that’s gonna come through people are gonna use it you know there’s there they’ll dull stuff in there but was thing but axes I mean at least during during a taxi right there’s a person there who you’re a wary of but if there’s no drive the driver you know how we gonna treat that space. So anyway there is this question of intimacy this question of space and how falls vehicle is to to something that that you use emotional right yeah it’s personal in that that’s where I wonder again maybe the shared model just will not appeal to I don’t know what’s what what is it twenty percent of the population that squeamish about that idea of sharing I I was met a guy this is bull I’m right and then again you your present life but he there are new Yorkers that lived in new York their whole lives. And there and you know just like new Yorkers are they’re they’re very careful or local but they’re they’re very good I think that they’re cosmopolitan that there’s more more used to their to the idea of urban life. Well he said this a this K. so he doesn’t he’s not listening I set my my mother has never been on the subway right right and I I think I think to me one of the greatest advantages all living in new York is that you have a subway to get on

SPK00

no that’s what a drivers for that

SPK05

well apparently and you know or taxis I suppose you know if you have the option you you know and you have the means you always hop into a taxi and and so this is the the puzzle is like new Yorkers word like standing in the rain trying to get a tax it of course you can never get it actually the rain and and in the sort of low exasperated you can never get attacked are able to get some with that what’s wrong with you about this or lost but apparently the they won’t do that and and I don’t know why I guess it’s it’s maybe they they they have some childhood trauma of it I don’t know so also

SPK00

a like wait a bit the their way where was but I saw discussion recently of if with these things changing eventually and cars if perhaps some of them will referred to the the Volkswagen bus model where indeed it’s transport but it’s also housing and you you could sort of envision that you know it so so I guess that’s what I’m saying one sort of speculating is will the jobs to be done change

SPK05

yeah it was that there was another story in B. B. C. where the about the fact that some guy had lived on Google campus for something like eighty days I saw

SPK00

that yeah right and right yeah

SPK05

yeah he basically bought a camper parked in the parking lot slept the there was a guy actually with the name above the camping actually slept in a station wagon. And and he had of although I think and you parted indoors I mean like an underground parking so they wasn’t even when there wasn’t. But the guy with the way the the the camper van you know put a little like astroturf in front of it had a little chair for that. And they had is a little fortune minimal picket fence and so he you made it into a whole scene but the the the the station wagon guy more more or less with surreptitiously. But the idea was that they would you know obviously showers and and the showers at the gym and all the fleeing from all right right. So in many ways they could get away with that but but there are many stories of people living in their cars and maybe that is a job to be done I think that it it it’s kind of scene in a in a very bad way that that’s the worst most desperate thing to do but at the same time campers can be very luxurious things. But there might be some job to be done where you could compete with a low level motel by having a and the C. D. or of station wagon or even the pickup truck with some extension to it turn into a you know a good have read. And and and and the clay questions is talking about this years ago about why is a where trucks and vans they’re commercially when you orient oriented towards contractors and and yeah you know people work on the door on the go and and these guys are literally that’s their office. So the they’re filled with other filled with scraps of paper and two Miles

SPK00

and all these rules and close

SPK05

and and so that there’s this there’s this this job to be done this like we’ll look at the mention just redesigning the interior little bit so you you you know you could turn to seek sideways. So it would only work when it’s parked right you turn a six sideways and instead of having next to you the bench seat or the you know the passenger seat which is never occupied right or very rarely ever right and then you turn that into little desk we decided which used or you have a filing cabinet you have a a a computer station you gotta plug in there for one twenty which is a simple inverter you attach that is off the shelf you you you plug in your computer you you get your your phone running on coverage right exactly and use you park at the site the job site where you park at that a parking lot somewhere and you take care all the paperwork you take care all the next job in the next thing you have to do. So that would be fantastic I think for a lot of a lot of this type of a worker but not all these instead they you know they they pack them in with entertainment options and entertainment is that what you know it’s not that were just that it’s a good thing to have but it’s not job number one that’s the thing that strikes me about that at the auto industry not having a job to be done mentality. They they they are they’re superficial and they’re thinking about what their customers are actually doing with the product and just shocked by discussing the and all they have to do is observed they don’t have to run massive of data gathering campaigns they just need to watch what people do

SPK00

indeed indeed and and I wonder again if if we see some of the the seeds of these things and we were left and and these other services that are starting to what a two more P. peer to peer maybe is too strong but more you leveraging existing assets you know the existing car fleet the drivers to share back in my undergrad days and perhaps yours you know you had a right board right and so maybe with the communications then this was kind of the just of the Texas and Utah professors that there’s enough communications enough tools now that you know eventually we’re gonna start eating away at the car population because we’re gonna dramatically reduce the jobs to be done

SPK05

or or at risk of increased resistance that that that we’re gonna be able to do a design cars for what people really me just on this notion of sort of living in your car and and I know that sounds like an extreme it I think it would be sufficient just simply do the office in the car. But my thought is just let’s take for example if you had a shared resource you rented the vehicle by by the hour or by the just either remote aversion miles. But the thing about it let’s say you are a college student and you’re you’re strapped for time or you read in the business person like in Japan and one of the jobs to be done for business men is that they have to go out of like and as a result I think have to they have to drink and then they don’t have transportation right right and and usually the trains don’t run almighty that so what they do they have these capsule hotels see you kind of its little idea space tie space to spend an I. Think it up you at john and and some shaving kit like everything you need and it’s a wonderful little job to be done I’ve got a you know take a few hours between three and an eight A. M. to try to get myself ready for the ready for because I mean I can make it home that imagine if it’s that you know you have these vehicles that that you call up in you know they’re like taxis but you get them all to yourself and you’ve been out all night and you say you know sort of this thing driving me all the way home which is really far away and I’m gonna pay for those Miles I’m just gonna rent that static. And I’m just gonna crash in the car for you know overnight. And and yeah you you know maybe you have to work out a way to price this thing so that doesn’t happen but I guarantee that people will use the vehicle as a space not as a transport transport and the space what if you want to just have a meeting you figure out well you know for the for me to have a meeting and we could have it in the in in the in and starbucks but I want I needed private. I can’t have anybody here and so what you do what do you what your option go rent a hotels a meeting facility no there’s no other place you don’t have an office your individual you are in the middle of the city get a car get one of these cars things. And then just market and and and have your meeting in there you know that would be that would be really twisting the the logic there because the job to be done is I wanna rent it stays and it so happens that that cars Macon spaces there whether prove their air conditioned recently right sure reasonably quiet private. They they you can move into a place that’s more appropriate if you want to so so that’s why I think the the this stays in the car is far underrated in fact the the car companies knowledge which is why they spend so much and interiors because you know people respond to that and we’ll pay extra if you have a great interior they say they’re the old adage goes that people are attracted to the car bites locks on the outside. But decide to buy it bites look something inside that that that once you sit in it is that takes you over the edge in terms of making a purchase decision this is why they get a get such a lavish interior but big but also this is a sales job it’s not E. the problem is to get the sales the or the purchase decision of the transaction done of course but if you can you need to convince somebody if you if you sound utilitarian product need to convince somebody of its utility and you gotta say you know the sales process of a train and all that to say well this also is your office but again once you get the shared model people are gonna read these things for their their their space value that’s really probably very likely

SPK00

well we’ve cover the a good “’em” ground from Mercedes maybe even abusing their letter system to the failure I guess you’d say of that I don’t know and revisiting jobs to be done which is been sort of a common thread through is sim car so thanks or so it’s it’s always good to catch up and we’ll look forward to nineteen

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Episode 18

Episode 6

The following is Episode 6 from @oliverbruce.  Thanks, man!


 

SPK05

It’s Asymcar 6 today and Horace and I have a guest Steve Crandell. Steve joined just from central new jersey in Steve maybe you can give us a brief introduction of how you came to a simpler.

SPK05

Yeah G. M. I. actually about a year ago a friend of mine started telling me these stories about this league I or is on the same co and started me listening to the broadcast in following the blog unit branched off into the same car. Um yeah and I I have a natural interest in in transportation and have been following that and doing some kind of systems analysis work on transportation systems and there were so many of the subjects over things a a real interest to me that I I started sending emails to horace. And he responded in a email conversation started up so here I am

SPK00

Well just to just to make sure the audience is fully aware of who who’s T. V. what where you’re coming from can you tell us a bit more about right where what what you’ve done besides listen to to or five

SPK02

I sorry okay here is okay here’s the two minute version so yeah I am I I I grew up in Montana and I was fascinated by physics and ended up with the P. G. in particle physics and down that gee you cannot really survive on post sin being married at the same time so I I went to bell labs that except for a for a long time and in the nineties we started getting interested in physics calm down there we started getting interested in other problems and it became clear to me that in a day oh yeah

SPK00

sorry to interrupt the key for years you were at bell labs well

SPK02

I I was there from about nineteen eighty two and I it decision to became immediately research in about ninety five and I left eighteen T. research in two thousand two so so in the nineties we became it became clear to me that social problems were really hard really interesting so I started hanging around the some of the they have some really good outstrip little apology and sociology in human computer interface groups and I started learning from them. And I this that and the sort of the six was always interesting but there was this new class of problems and these technical social problems in transportation is one of them and you know the merging internet was one of interest eighteen T. and eighteen T. research got rid of the area I was in in two thousand two so fewest for the small consultancy and ever since I’ve been very interested in in systems problems and transportation problems is is a subset of that whether it’s cars or bicycles or combinations of everything or you know whatever mode of transportation and things that use energy you know the standard sort of a physics saying anything that happens requires use of energy so that’s interesting right

SPK00

frame or know you know can’t economists or this analysis as is user centred around the the the notion of conservation of of my it what’s not quite correct it’s a you know one value can be created so it’s not a zero sum game but typically if you if you if you follow the money you can get quite a bit of knowledge. I think the energy the the the the energy is the framework is actually very powerful method to look at other systems including ultimately even business but it’s something that of that you I I increasingly became so I began to think about what I was looking at at that these larger problems anyway I’m I’m sorry to interrupt So

SPK02

we will see one thing that you mentioned in our brief show email propose that you don’t go shopping that often right you only provide would and and I the sorrow maybe conclude you know is has the doom already set in for the auto because system because of all these other whether it’s energy or information factors of social factors you know what what your take on that well

SPK05

well in in my case we we made an effort to reduce our our car used to a very little figure that I mean I was very interested to know if you look at how much energy people use around the world and I wanted to use Denmark for whatever reason is kind of a reference that I just for curiosity if we could get down to that level which turns out to be extremely difficult. But we reduced our car used to about five thousand Miles you’re just by being careful and combining trips and this that and the other thing. But what we also noticed was along the shockingly we’re doing could convert online shopping and it’s shopping was fun and essential and and necessary so that kind of continued a lot of that is disclosed that can be done with so called active transportation you know active transportation is walking and biking and those kind of things where you’re using your muscles. Um but and some stores you it with ours and unnecessary commuting trips for the type of regular shopping we we’re doing it went to almost zero there’s still a big energy component because U. P. S. trucks corrected from Amazon can yeah right the Amazon prime is probably what pushes over the cliff

SPK00

so so what is the tables that then already I mean of these trends well underway that that you think that we will as a western society approach the danger is as other other factors at play

SPK05

I in getting down to the sort of levels are extremely a difficult we’ve got a lot of embedded use it’s it’s really interesting a really interesting way of looking at her she uses people a friend of mine pointed out to me that we don’t think in terms of energy we think more in terms of power empowers just the rate at which energy issues. So you you’d about twenty about two thousand calories a two today and that works out to about two point four kilowatt hours. So if you divide by the time you get average however person is about a hundred Watts that’s what you’re that’s what your metabolism requires. And so in in those terms the average American uses for you know all of your embedded use keep your house for running your car running what part of the government you have it’s about fifteen until kilowatts and so you know hot plate is about fifteen hundred Watts to think of ten hot plates turned on that’s average American dean is about six to seven thousand and so that’s an enormous difference a anyway but that that gets that gets far field but when you think in those terms you try do you find out where all of the inefficiencies are and and it’s it’s hard to change a lot of these structural inefficiencies

SPK00

right I one of the things that you brought up an hour also one are are pretty conversations was that when you think about vehicles and we we you know we we we call this a same car but the fact is that that’s a small part of the puzzle as you point out there’s there’s there’s a different ways to approach the the the question of energy and transportation. But one of the things I think that’s messed is the discussion about the network that cars depend on which is the road network one always just to synthesise the argument is that you know and matures talk about cars professionals talk about the roads. I think the the sort of the paraphrase the the old the story about you know armchair generals focusing on tactics whereas the real generals focus on logistics. Um the so my question is to what extent you pointed out this this dependence on the on the motor vehicle in the united states. But comparing to Denmark is not quite fair because the united states has been architect it in the sense that it has the the the land use and the the the the housing units are so widely distributed because it is such a young nation and and most of the settlement of land has happened in the last century during the time of the automobile whereas Europe was settled and and housing was established a a few centuries earlier so is isn’t there a problem with if you going to read are we think on transportation that you have to rethink housing you have to rethink even the question of of land use

SPK02

oh I I think you’re absolutely right in the there’s there’s there’s this great book the that are recommend by a guy named girls with called the big roads which looks at how the highway system developed in the united states here here we tend to think well you know Eisenhower solve that with interstate highway system but it turns out of is a very long and and rich process and that force the creation of a lot of communities enforced recreational suburbs and we really made America much different from from other countries and now we have countries trying to emulators and other countries still trying to maybe not make our mistakes and make their own

SPK00

it that’s one thing that strikes as as a still someone who’s lived in in several places in travelled many others is that how different cities are and architecture of cities and the course for example I live in helsinki. But I’ve also lived in many of the cities in the U. S. as well and the the once that I I had a friend who I’ve visited a Dallas fort worth I was actually that was but I you know I actually into D. F. W. and and I had to go to the airport to fly back out and that was sort of remarking at the distances I had to travel to the airport and my my my my host my my friend who told me about it said oh by the way this area is so big that it’s a hundred Miles on the ring ring the diameter of the ring road the round around the whole city wall and that and then I said all really nice and not only that but the D. F. W. airport is as big as Manhattan a interesting so that what I did was I what I went home and I took a Google maps picture that notice certain scale of the the D. F. W. area which is again the ring road around it. And then I I took and you know I I I I I I that was a a screen grab then and I I change the transparency so I could overlaid on top of it the same scale of helsinki. And it turns out that the Helsinki the whole city fits inside you thought the airport and and the whole southern Finland fits inside the F. W. metro area. And and so I you know here people are get very upset about the idea of having to to to commute or or travel across the city from one end to the other which we are sort of have to do because our son’s school happens to be quote unquote and I’m using quotes here because it’s across the city but that’s a twenty minute journey for us without traffic thirty maybe with traffic. And that would be nothing in in in many areas of the united states Los Angeles certainly you know Texas but even in in in them in in the northeast. Um and I think Europeans and I was visiting a friend another friend in in in the Netherlands and they pointed out yes of course maybe look take bikes to to every location everywhere they need to go they go by bike but the distances are quite short and yes the roads are great for it but there’s this question about how land is it how how spread things out are and by the way there’s there mega cities like do by sell all makes certainly yeah china you know shanghai which are enormous and and I you can’t imagine how someone might commute in those areas on bicycle especially because you know it’s also the the the climate. So but anyway just the thought of of you have to look at the the fact that some systems are not transplant a ball they just don’t work elsewhere right you you know so I don’t know how to think through this thing and we we see evidence of this with the with the with the fact that in the U. S. you can’t seem to get economics working for public transport or for for the the the rail network is for example which is I think a no brainer since there used to be one but somehow it’s still hard

SPK02

well you the thing I’ve been wondering about the that’s an excellent point the horse. This will the the change in our own experience roller technology revive maybe commutes because I I think certainly the the discussion has been the growth in the big cities around the world the top fifty cities you know we’ll have some huge portion of the population the next fifty two hundred years. Um but I wonder and that’s just pure speculation if in the next ten years if we do see tribal the cars become more prevalent that that will change the nature people’s behaviour and the economics of the more rural areas might become appealing based on changing the way people move around the least in the states Steve you have thoughts on that well you know this is just get bigger and the role areas will just

SPK05

because you know this is a this is a we we’ve kind of established or suburbs and you know it’s it’s difficult to think in terms of of flight from say suburbs to cities for example or vice versa because the cities are big enough to hold you know it’s a significant portion of the suburbs if that if that happens and then we have this huge embedded infrastructure a number that you can calculate and in several ways if you look at the percentage of the united states area including all fifty states including the water area about one point five to one point seven percent is strange. Um for for cars or for parking which is you know a a fair amount of land in that I was just an extraordinary amount of money changes change to that becomes hard oh formally what what you mentioned right prevalence cars making other other users interesting. I I I I think there’s a lot there getting from here to the dry rollers carnage you mentioned before in your last sure I think insurance issues and and getting the appropriate number of nines of reliability and it in all weather use it’s probably gonna be quite a bit more than ten years maybe we’ll we’ll we’ll see features of driver list cards come out number for the but that’s one of those technologies that may be a bit more delay than Google but maybe like to think but if it happened I I you can imagine all kinds of differences coming suddenly your commute is maybe not as boring you can handle traffic jams a lot a lot of possibilities there

SPK00

there was an article on rotors this weekend about the vietnam’s development I was there six years ago and they were talking about how the roads. And rail have failed to develop and again this is a a narrow country. And therefore the airlines are growing quickly because the city the city transport network just as bad and hasn’t developed and I’m wondering you know if if we’ll see that my sister spent some time in Germany and was talking about was much cheaper to fly from Berlin to Copenhagen you know it was to take the train. And yet again so as you think about these ecosystems will will other technologies arrive that change

SPK05

yeah I just wanna try monotonous “’cause” it’s interesting probably european perspective what the the real the perception and in in in in the U. S. is that that Europe has an amazing rail network and that’s of a very attractive form of transport and although it’s true it’s much much more developed in in the U. S. it is not a panacea the the costs for for travel on radio has have gone up tremendously right in the last few years and people are bitterly complaining about not just the the the the prices going up but the quality coming down. Um and that means delays and and and equipment breaking and so on. And I was shocked by this “’cause” I always thought it was utopia here in Europe that you know where people or or have all this convenience of public transport but it turns out that the cover the expenses are are escalating all the time these are infrastructure. And and labour issues that cannot be dealt with seen any disruptive way and so they tend to build up and build up and pressure. So in fact it with the the the peer pressure relief comes from air travel. So even in in Europe we we see no one really seriously considering a journey by rail for for any long distances anymore. And that’s wasn’t maybe the case if you knew twenty years ago

SPK02

yeah people if people in the northeast corridor at least talk about a great even around three hundred Miles if you’re within anything over three hundred Miles it’s probably reasonable flying the I unfortunately the line rates our instructors can be extraordinarily expensive depending on competition here. But for for flights and so sometimes that forces some long real rights I had to take a trip about a year ago to Rochester new York which isn’t that for maybe by road it’s well three hundred Miles the round trip airfare would’ve gone over a thousand dollars this three hundred mile trip and so I I took the train for a hundred dollars but that that the need to my journey through it right

SPK00

right right I mean here is the thing is that you have this this rise of discount airlines that that are both hated and and load Ryan air being kind of the the the poster child of that but there’s there’s many others and it really has changed I think the perception of value of of flights in in within your let’s not get too far down that road that whole I think the the what I wanted to to kind of and get get your take on the dusty was that on on some of these questions we’ve been tackling on a whether the the the current business model related to let’s say test la whether the the you electric or is it with a you wear each trash on drivers cars but the idea of electric cars. And different power train to being sustaining or disruptive and I’m of the opinion that what S. line bodies is is it is exciting but it is a potentially destructive unless the incumbents are really so incompetent and so powerless that they cannot respond I think it’s an actual it would be natural and then you know the industry for someone to say okay I see how it’s done this this test concept that’s just run with it. And I would imagine if it isn’t the the American auto makers that surfing the German or the japanese would have the resources and willpower to duplicate the effort and and essentially the the competitive what S. la what’s your take on that yeah

SPK02

I I I would agree with that I I mean test lose the the nice cars certainly to know a lot of work on it since the first one came out the first one was just a load a stroller that the the put electric motor factories and then and the the the forced to really allow them to do it was that laptop computers that made lithium I am batteries relatively inexpensive and I that kind of it it it made kind of a practical enough do you recall if you can spend approximately a hundred thousand dollars on it you can just get away with it. Um those prices are coming down the the battery prices the or a car or improving in the fairly slow array so seen this cool mass market it’s difficult to imagine that the what’s more interesting is looking at the manufacturers the card itself which although you know it’s been done in the state of the state of our robots and and all of these good things it’s a fairly conventional factory and the manufacturing techniques are fairly conventional there’s nothing really new there. Um the that nothing groundbreaking that’s going to really change the rule where where I think you might say test was doing some innovation they’re trying to break out of the concept of the dealer network and sell directly to people. Um and they’re fighting a lot of state and local laws doing that so that might be an uphill battle but the the alignments certainly very tenacious some person might yeah

SPK00

we we noted that it is well I think that that that is the a a an innovation if you well a a an asymmetry that is powerful but again if they succeeded breaking the the just value change yeah the the distribution monopoly exactly then why shouldn’t any other car maker follow and once I don T.

SPK02

yeah absolutely there’s no no they they don’t have anything that they they we don’t in in in a in electric cars probably in the next ten years efficiency improvements in that some of that will come from electrified cars. So you know like hybrids where you have a regenerative braking and and oh stop start and and I’m really running the turbo charger supercharger with an electric motor these sort of things. Um we use up a much higher percentage what’s considered an electric vehicles than I’m up your electric or a picture like tricks have a lot of desirable features could they’re not quite to the point where it’s it’s mass market and the to current approaches are really pretty much regular cars we just electric motors in them

SPK00

so what the natural gas you know you you would send us a note. Maybe a few weeks ago about I think one of our shows mentioned the pecans and then you know horse was wondering why the fleet Byers haven’t adapted gas power plants in in any serious way and I think you talked about the scale and the reliability and just change

SPK05

let’s talk almost some of them are but typically these guys have to timekeeper vehicle for a long time. And they look at the historical trends of natural gas pricing which is been extremely volatile I mean there are signs that it might be less audible in the future but you you don’t know in right

SPK00

it’s and expensive times yeah

SPK05

and so you need a specially purposed because this point you have to convert well now I guess for it should be will make you if you’re a large enough to require that make a a dedicated vehicle but the conversion cost for small flea or individual can be quite high in particular if you want reliability. Um it just didn’t make sense in in the in the I in the sense that we know pretty much how are their vehicles goals so it turns out the energy density of the compressed natural gas is is low compared to gasoline. And so you can have a pretty big tank like half of the back of your pickup yeah hundred hundred fifty Miles range there might be just fine for delivery vehicle the same can be said about electrics you know in in certain cases they know very much they have a range changes I use that something they worry about this oh

SPK00

yeah it’s “’cause” they they know exactly the weather

SPK02

gonna be doing linguist they’re kind of an ideal case and a few large places and decided to go with that I think eighteen T. which is headquartered you know write down a natural gas country yeah there there I I think they’re covering a large amount of their slowly. Um the time remains to right now the low price people treating that maybe use artificial and this whole the there is another point that I I made this user really actually managers are very very conservative and so I using

SPK00

is it’s just a matter of time and yeah that they’re not really the early adopters just

SPK02

the prices you if the economics are there absolutely is the prices continue low for four or five years you’ll start seeing a lot of people doing it

SPK00

yeah you I wonder about the the you know stepping back a bit to the jobs to be done question with cars as I travel and then I’m curious about your observations as well Steven horses I I see more and more food delivery trucks. And obviously as you you mentioned Amazon prime U. P. S. and all that so I wonder if some of the things we saw really dot com euphoria with web and if somebody’s delivery services you know reflect getting again another level of reduced usage of personal cars because more more services are bringing things to us whether at the office or home. And and if that only implications for that on the auto ecosystem and

SPK05

and and not to mention working from home and then and and a lot of reduction and in commuting for work yeah I think that’s

SPK02

yeah I I I think these are all all making changes and you know you’re seen less I guess the price of either price of gas in some in that the person get useful is news to display this model problems and all it’s a and mouth. And but but I there’s much less joy Riding then when I was a kid you know just idea of going out and driving in the countryside. And there’s this very complex phenomena is kind of the generation X. driving less and getting fewer licenses and it when you look at the literature people studied it seriously it’s very complex there a lot of reasons. And but clearly the joy ride in is is out people not having much money boys not because I mean is interested in cars as they used to be but when when I was a kid you know they’re the thing was to take apart your dad’s car engine like you my my dad wasn’t like that that one of other kids were and and people regularly modified cars and when end up with complete disasters sometimes it works but the cost was low and a lot of it is a natural way to learn about kind of mechanical engineering in car mechanics class become so complicated that’s removed. So the natural interest of a lot of a lot of boys and the girls who were mechanically inclined is shifted to other things so so you combine a lot of things. And see you I

SPK00

do think we have pick peaks with cars in terms of dry dry dry hundred Miles or or whatever the metric you want to you

SPK02

if you go country by country in the european countries and now the north American countries there appears to be a moment maybe about five years ago it was was probably peak are for the united states and pick mileage for five years ago maybe a little bit earlier in some parts if you’re a little bit later but right in that period now where where Miles driven seems to be dropping off

SPK00

and one that topic we you know we we should look at history I think a bit about how we actually we transition from different forms of transport and one thing that that we noted in a previous episode was how actually the the road network we we the conventions related to with the the even the the dimensions of roads and and a lot of the the legacies came because we had former four types of transport we had a horse why have horse drawn you mentioned that actually we didn’t go straight from horse to car that we went through a a he’s when when actually had a different machine can you

SPK02

yeah I think it’s really interesting I mean the horses are very expensive on things you need them around that are but to have one in the city is just an enormous expense. Um and so you hasn’t brought wagons and things like this but in the late eighteen hundreds maybe rowdy genie safe bicycle was developed to refer to them as a safety bikes which looked pretty much like a conventional by today. And from the world it’s torn through you’re gonna storm down through even even Japan and the united states and so you had cities that you write these days you’ll hear about Amsterdam and someone will say well fifty percent of the trips are taken a bicycle was much higher back at the turn of the century. Um so I I I they were easy to make thousands of small manufacturers started out the specially parts might be made by you some even started mass production rollie and in the in the U. K. starting to figure out how to mass produce some so it they they were cheap enough that people can use and and in the united states by the I made eighteen nineties several hundred thousand people would form an association to force rows in the united it’s road improvement just to just to move bicycles along. But it was difficult the raw he’s

SPK00

actually the bicycles were were usable only on paved roads typically although you could go of you know sort of a on a on a dirt track but it wasn’t actually save there it’s

SPK02

nothing like this so called mountain bikes of today by bicycle tires were rarely more than about an inch and a half white. So so they just wanted hold up on these sloppy olds plus some courses love surprises and there are any number of problems some european cities did come up with three small pavement and and breaks and cobblestones and and things like that and we’re able to sustain them for longer amounts of time but it it we created a a real desire and and early cars if you and Henry for was work on bicycles before we worked on the cars for you know in in so I don’t think he did it as a business but a lot of the small car manufacturers to start it up when this Cambrian explosion of carmakers female

SPK00

not to mention the the wright brothers were budget what we can yeah

SPK02

it it type people in the the mechanical engineering was very similar you just they made these some choir cycles and they they lash the two horsepower motor to it and and put on slides and some scenes in the way well not

SPK00

it. It’s funny because I it it reminds me so much of the way the computing industry when I see it the way I think of it so you have mechanical engineering for many decades a century even that was really but the the industrial revolution. But it was a large enterprise technology you you you you weren’t able to tinker much on your on your own with the steam engine they were massive things very very dangerous and and the people who who we’re able to make steam engines work where where essentially highly capitalised people the the the the interesting thing with the bicycle is that it brought it down to the average person who could not only old but could actually build or or or fixed or or improve on and that is very similar pattern emerged with computers because computers from nineteen forty till about nineteen seventy where instruments of of large business there were instrumental of the special radio yeah all the all of those all these stereotypes of of sort of centralised computing but in the D. that really boils down to having the money to to run a computer. And and so the microprocessor allowed computing to be done by individuals that electronics or I should say most circuit type of of I think we could’ve been done you know have radios and many things in nineteen fifties and sixties or a lot a lot of people who are doing their own electronics but the the the thing is with computing is that once you have the microprocessor then you actually had the first microcomputers being mostly hobbyist. And and so people were playing with these things. They were interesting for yeah

SPK02

it’s yeah it’s really amazing someone all of a sudden sees. Um see something and they’re able to jump scales in for a jump on the nature scale like I was thinking oh earlier we were talk you know about Henry for and he came up with this model T. which was kind of the Everyman score one of the beauties of that was that you know it was still very difficult to move them around in cities and and so you had all these people getting cars and wanting to have roads bill but at the same time. Um for recognise and a lot of these would be used to early so he made sure there was a power take off there was that you could hear the pulley on a shelf thinking about an inch and then so you could run various farm implements that what’s interesting if you roll the clock back to about the eighteen seventies farms we’re starting to grow in the united states and particularly on things like we for for ploughing it requires an enormous amount of area. And so you had to have these teams of forces are stories about teens of twenty twenty five courses. And the solution was to take a small steam engine miniaturised the steam engine as much as you got these things were still big we ten twenty times with big steel tires on them. And this would be a pharmacy mention and you could you could run a big pile with it but you also it was also a portable power source. And only the very big farms can afford it was an actual need but it could be scale. And stored in addition to making the the Everyman score managed to bring that feature. And make it desirable for for world Farmers and all the other Farmers who were always suspicious of city people in Texas for making roads and all this all of a sudden they wanted approach to sure

SPK00

so seeing this to repeat example but I have a good friend who’s in them like business around the world and you have talked over the years about the emergence of electric bikes the elderly and some of the countries in Europe and so it would be sort of see all these things chipping away at the traditional jobs to be done for you know others you know I I play taking a further distance faster and

SPK05

I don’t think so I think oh lot electric bikes are are are very interesting it’s interesting if you compare Denmark and the Netherlands in Denmark people you by some very short trips the the use them a lot but the average tripped solution kilometres more or less in in the Netherlands to use some for longer trips and the there’s kind of a competition between the two countries holland at the start of the balance for a long time is how these so called like super highways Denmark starting to put in their first in Denmark it’s more you use makes transportation you know you trying to your your bike into a bus or the train and or either that or you read a bike at the other end of the journey have a but in in the Netherlands there are people who are interested in what what happens is the distance becomes you know ten to fifteen kilometres that how do you handle that and so electric bikes are a good way to do it without sweat another thing that a merged although it’s more complex to take care of this the the streamlined by bicycle which is available Beal which can be electrified too and and so you can almost think of that as a very lightweight electric car that a human can assist in the in the movement of that and they’re they’re they’re still very rare but they’re extraordinarily efficient

SPK00

problems they’ve run to at least according to my friend is the the behaviour changes required right especially in cooler areas where no battery size is limited on these devices and then of course you have to keep them charge somehow so if you forget the charger well there are all these things so hopefully it’ll be working. B. D. I. phone or the smart phones will help with it’s

SPK05

not work you know and it’s funny you mention that I found in this ah there are four five by designs are sort of themselves inside bikes there so or from from particular revolutionary what exactly the

SPK00

actually thing so is like just go hopping back at history little bit is how the bicycle was actually a catalyst for the car and arguably even potentially for the prettier aircraft a and whether were seen that the catalyst between in the all will be laws we see today and whatever it emerges next might be the smart personal technology or might be the fact that all could it be something more that people can make their own things or could we be looking at the the the tinkering of oh people with with with you know you know this may sound a bit here brain but the the the printing all of your own cards or the ability to manufacture things modular the more easily that that would allow people I mean people can build their own cars interior I mean it’s not technology that that today you know if you use if you use I was just browsing and I found that of course I could go by any number of kit cars online a problem you know cobra replica too many other kinds of sports cars but I I think see the question in my mind is do are we seeing the potential for that we had this this at a changing period during the late nineteenth century when right with the safety bicycle came the new industries of automobiles and and their craft and the the late twentieth century with the microprocessor we had the emergence of the personal computer and later the mobile computer which all started as as essentially garage in the industries. But anymore you know became global powerhouses just like you know cars being the car company became the largest company in the world general motors right in the middle of the twentieth century and the largest company in but market cap is now apple presumably and so the the the the the history of the emergent industry being enabled by by essentially hobbyists are we gonna see that again with respect to transportation is it going to go through another transition where the the do it yourself or others are actually going to be it’s it it does it sound crazy

SPK02

ah well for if you’re talking about something which takes the place of what people consider a car. I don’t think it would happen here because they’re so tightly regulated. But if it’s I you know safety regulations and and things like that. So you can build like a car or you can build a very small volume manufacture car. Um and and get away with that you can get around the the safety requirements. Um but if you’re going to do anything which then tries to scale it might be more difficult if it’s something that’s transportation but is not quite in that area and and this might be you know just the bicycle plus cluster size and you know or

SPK00

exactly something isometric something that that story that’s

SPK02

very doable and and you know it’s it’s interest you know bicycles the there are several thousand custom bicycle makers in the country who can make two frames a lot of them now specialising carbon fibre which is extraordinarily expensive but like like way. Um but a lot of them are going back to to steal and some of them are are going to titanium which is light and and is is very serious. And but we’re seen is the versions of the extremely technically sophisticated classes people who can build things with frames and their brushes. And so if you have an idea and you don’t have these skills yourself you can go to your local bicycle maker and if you’re in a town of a hundred thousand or more there are gonna be one or two and you can have this thing framed a and you know if you need custom wheels made there or or tires I should say there are places in Ohio and which will do it for you. Um so yeah you could put together interesting vehicles could emerge to pieces and I think but

SPK00

the the the the court with the clock or question though is that the there’s something that capitalises this in the question in my mind is that it it is it information technology that it’s not just the the with the you might say the the the nostalgia of all building your own things but actually what you are building or you’re able to build is actually asymmetric it’s better in some ways worse in many others but it’s better in some crucial ways. And it allows the the the the paradigm to shift one I by the way I mean I I I we often are critical of all that stuff but this actually proves somewhat order is consistent with the point that here is a do it yourself type of person although heavily capitalise highly highly you know billions of dollars involved but nevertheless we had the emergence we have proof of existence hero of the emergence of a new car company from from which was impossible for it was and as you pointed out it was made possible by innovations that happen in the computer industry and then wasn’t in computers per se but rather in the batteries. So you know there’s something potentially happening here maybe maybe the size of the the model of course and we had many filled business models in the beginning of the can of the of the car century. And and so I still wonder how we’re gonna go through this transition I think it’s mysterious it’s something that will be imperceptible as it has it happens about the obvious one it when it’s finished there

SPK02

is actually an interesting emerging class of vehicles in the U. S. in other countries that now become quite regulated user off road a T. V. three four Wheelers even Danny on the wall street journal reviewed one I think it was a player Sir john deer. And these things go up to seventy five Miles an hour the four Wheelers they’re thirteen eighteen thousand dollars but they have become quite regulate it so I I think you see the challenges of approaching. This justice to the current market at least in terms of using the publicly available road so maybe we’ll see innovation in the service chain in horse you when I’ve talked about this before as the information later versions. And we see perhaps the the P. car five years ago so maybe the auto companies or somebody and there’s interloper might step in with more of a service model

SPK05

and everyone more thing that the it started just I just remembered that this this this phrase the human the car took thirty years before the model T. right we had the the the the the the bands happened bargain which was I think eighteen eighty six where and the model T. nineteen well yeah teens it’s not twenties then the the sort of hit its stride and and in between we had the the bicycle and what interesting actually I think you pointed out this deep to me as well is that actually cars sorry forces which are the predominant there so we have we have a emerging cars we have a boom around bicycles and we have horses them around for a long long time and certainly you see these new technologies are people get really excited but they’re very very low penetration and forces in the meantime continue to grow and in fact he course occurred in the twentieth century occurred actually I found the data in the in the book which we should we should refer to other to to to our note it’s the rise and fall of infrastructure is by Arnold Google or who D. he shows a lot of data and I I solid chart in there would show the P. course in the united states occurred in nineteen ten yeah

SPK02

so and that’s the other thing about forces there was this need to replace them because they’re just so expensive to to keep up and it’s interesting that the railroads were always seen as you know they’re going to do away with horses and when we’re rose came. Um courses actually increased because they didn’t solve the same problem that they didn’t all the last mile problem there were there were train stations in front of the kind of all houses. And it increase the amount the dump arms could put out so you needed more courses to where the farms so trains actually I actually it into that rising force curved. Um but it’s it’s so we we you

SPK00

just just to recap we had the invention of your movie or in the eighteen eighty six and the the the really a ramp up you know we think that everything just split but it took thirty years you know a little for for for truly the the the manliness treated the yeah the Mormon mass market lane that sort of early stage of the of the the fusion curve or whatever you want to call it to really take off with cars that of course the world is very different today. But it’s in the speech of things are are probably faster especially take along the technology adoptions but the but the world is also much much bigger than it used to be and and and the the ceiling of the adoption what a hundred percent represents is much much bigger than it used to be right. So so yeah so I’m just wondering if it’s a time issue whether this transition although we’re we’re we’re finding it hard to put our finger on is it happening or not but are we giving it enough time

SPK02

to like what is a rising I think you’re I think that’s a really interesting point because you know we look at know some people look at the explosion of cell phones are smart phones but you know if you’re if you’re being honest you really have to trace it back to a portable radio telephony which goes back to the fifties and so there was this extremely long just learning curve and a lot of experiments and then it was eighteen or nineteen eighties before people sorted out how to do cellular networks and even in the late he’s eighteen T. internally decided that you don’t know more than a million people in the world whatever you somewhat let’s a off our assets in so these these things timing

SPK00

is everything vision I I like to say this all the vision is worth exactly nothing without time things. Uh it’s it’s unbelievable and it’s extremely frustrating to someone who’s actually analytically minded because you can see things easily in advance that things will go a certain way I mean I I I remember because I was I was you know and they nineteen ninety nine I was I was convinced that that computing would be something that would fit in your pocket it didn’t you know it didn’t help either

SPK02

oh event or I go I what you mention

SPK05

should go on my tombstone I’m just

SPK00

a I were like it was actually doctor warlock the founder of but adobe to the first first I heard him say that although I I don’t think he invented it either so these said something along those lines that you can foretell the future with a hundred percent accuracy it just as an awareness yes

SPK02

absolutely right but you know I when we think of the future we tend to think of these self driving cars insured vehicles and I and in the there are all kinds of obstacles I have to think of what what about a third world place where people are starting to become communicative Leah right a friend of our young friend of ours losing cameron. And something like ninety percent of the of the people under thirty and this is a terribly or country have access to cell phones on the spider phone penetration is that much but somehow. She’s running a low and then tried smart phone. And you know so she’s she’s very used to these sort of things. I have to wonder if people start there and right now they’re kind of the stage where they’re moving in the there of course tracks for businesses and things like this but no one can afford anything with them over on it if you get a lot of money you get a motorbike but that’s about it. I have to wonder if this new notion of timeshare vehicles which we’re starting to see and you know stage yeah if that scheduling technology in a more efficient and usable should

SPK00

always pulling as we talk yeah I

SPK05

have the ability to make miracles inexpensively locally of all of those things start to come together we might see the members and really unlikely places like like Africa or you know hold a reasonable and statistics like that first

SPK00

well but we just saw last week that talk to announce the perhaps a rethinking of them national so maybe it is timing I mean you can

SPK05

what they say I didn’t I missed out what really posted

SPK02

on the river the sales are bad and and cars are selling for maybe four five times as much so much better than the and you know maybe it is a network problem or but

SPK05

you know that that’s interesting is I I what I heard about the thought that again I I felt it wasn’t going to be disruptive and then the idea behind it an interesting I think I don’t know how much it had to do a questions and by the way because I think he he is or was on the board of data but it I think it was on the board of talk to consulting but maybe that that’s irrelevant or or very relevant I don’t know but the point is that I think what they were trying to do with the no no it was very much following the rule book on disruption. But it didn’t work and this is this is where I I struggle with how much the theory actually is being applied or whether the series showing an anomaly here the the problem with the than all and I I I again there’s a video you can watch somewhere I think that national geographic did on how the national production line is set up the the the the they’re probably a several the documentaries that they have been down to about them and also you can find out quite a bit the interesting thing was that again they used exact same production system for for and then they simply squeeze this much costly could out of it but it was still very much a same process same same tooling same you know whether you make the oh I’d like to put it this way whether you make an at all or a portion or Ferrari unless it’s carbon fibre but more or less they’re all done the same way and and and that’s why I felt that unless you address production in a disruptive way you’re not going to get a disruptive product at the end of the process well

SPK02

they Steve jobs according to to maybe think a bit differently about those I don’t know what the topic was a few years ago but it was something about usability or behaviour and he said the mortality rate will take care of this and perhaps when you think about thirty year cycles you know whether it’s steam power or the or or transition some of it is simply anthropological right it’s people’s behaviour expectations changing and maybe the young people getting fewer drivers licenses and being more comfortable with social interaction via network

SPK05

I I don’t know because I think one of the proposal let that the that’s this this to go quick critic of non animal firstly because you’re using a she sheet metal process you’re going to have to cut corners to such a degree to get this thing economical at that price point. But it’s going to come out as a very boring car and so you end up not just boring but it’s a it it it for for a performance and and it just not sexy you mean you’re not hitting the buttons all the buyer in a way that that they they they did some analysis for I remember this is a one of these of these anecdotes around them and was that they thought why not make it a three wheeled vehicle because it could you can squeeze more cost out of it and the answer they got back was that no one would buy it and they couldn’t get the the the answers out of these buyers why couldn’t would should buy three will cut just said no and it turned out that they they they did some jobs to be done analysis then you realise that many men would buy a car in order to to get married in order to attract a woman somewhat and that a three wheeled vehicle fill in the category a scooter and that was a working vehicle about a family vehicle only just is not socially acceptable but taking that further than that old doesn’t become socially acceptable one put next to a proper and you know regular looking car that had that has all of the aspiration all aspects of of you know four doors and and and and and whatever attractive styling you get with the with the with the regular car the point I so I’m not gonna be little the the the design but the the the the point is that because of the process they couldn’t push on the audible all style. And and I think if I had they re architect at the production system around the modular architecture that would allow them to style the vehicle more in reaction to what the market was telling them the point wasn’t that well sorry we’ve got a dog in terms of style the point is can you make a car but you can adjust after you figure out what this what the market wants and and that could not be Donna with a sheet metal stamp process yeah you have to investing billions of dollars in order to to get it set up and run think

SPK02

that’s an excellent point I when you’re making nearest standard sheet metal car used are worrying about getting your design finalising including the dice ready about three years before production so the production cycle in the united states for new models is about six years something like that to five would be really pushing the and Audi likes to talk about eight years ten years between models it it it’s extremely expire

SPK00

this a platform to and of course the way they do it is they they create a platform which is usually the the the floor plan with the with the front and the back of the car maybe with slight adjustment and we’ll we’ll base that you can you can you can do after you’ve set it up but these are platform concepts and then you do certain styling on the sheet metal on top but the fundamentally you cannot really change a pickup truck into an economy car you know you maybe change a pickup truck into an S. U. V. or actually pick up is the wrong wrong example they’re usually frame based but let’s say you know an S. U. V. sort of many S. U. V. into a the crossover or whatever these are possible during an eight year cycle the problem is when you really when the market like especially in the me in you when you’re trying to go for this type of a non consumer and you’re try to figure out in Asia or in Africa working out all these details because you can’t ahead of time yeah oh all these top to be done is I mean logical job it may turn out and I think you know a lot of brands in the U. S. or or Europe went through this we need to know the Mustang didn’t know it would be a hit product and and the creating a whole new you know category of car around this sort of only car concept or the muscle cars are are in Europe that the super manes and and the the the some of the category surprises that created icons that that nobody knew ahead of time when you when you read these biographies of these people who created these great brands whether they be the he had five hundred or the or the mini or or the volkswagen. So they were completely caught by surprise in terms of success they never engineered these cars because they thought they would become mass market icons famously Volkswagen was almost killed by by the British who took over administration of the buildings which which of what books bargained then you know it was only serendipity that allow the whole thing to keep going some some some officer in the British army sort of you know was exasperated and then decided just like what we gotta do something with this. So there’s a lot of these funny anecdotes and I think the the point is that if you if you you if that’s the way the world works that it’s mostly that you discover something by chance. You’ve got to have the flexibility in your designed to allow for that zoom generation emerge yeah oh yeah I

SPK02

yeah I think that’s so so if you look back to the Cambrian explosion one when cars for a meeting you know stays there was a point where there were more than a thousand car manufacturers. And I mean that was you know the average car manufacturer would fail that was kind of like the average Da bomb on the internet company would fail I have ever

SPK00

ab software cup. So so you guys that failure. So experiment he

SPK05

was a lot of that level but once very company and establish can experimentation is more difficult unless you have the platform I I think one interesting thing about the the top and then at all the that someone pointed out to me in India if you’re if you’re kind of in the area where you kind of for one year aspiration on your probably here probably rising I yeah hopefully rising you’d like to think you are and horses pointing that you know you might do it trying to get married or something like this. Um you’re you’re trying to project a rising every so somehow they completely cheap and it down and they they made maybe if they made but it motor scooter would have sold I

SPK00

but it it was the right idea let’s make a really low in car and change the change of the the the way cars are made that’s a great noble goal the problem is that because you’re stuck with the production system yeah you not able to adjust once you go down this path by way another questions and man tries that you need to have a plan to learn that’s how he calls it or you you did this the the the the idea is that as you shouldn’t arrow he has this great diagram is let’s say you set a target and you should an arrow but but during the arrows travel you have these powerful magnets and imagine arrows sort of has some iron in it really powerful magnets and end up pulling the our remote left or right away from the target and this that’s the market giving you information as as you as you go on your journey and and all the data proves that every startup that succeeds is probably diaper did dramatically from its initial plans it was only lucky or server what what was it was able to succeed only because he was able to to to survive changing itself over that period. So the the idea is for for his a is a device would be too large companies is is to somehow be magically flexible. But if yeah if it doesn’t work right we know that the problem the problem though is when you when you are setting a goal to be disruptive then you saying okay we’re gonna make a super low cost vehicle it might work in India maybe it’ll work somewhere else we don’t know but let’s get going on this path the the I. The the the the way you should do that I think I believe is that you actually redesigned you manufacturing process not to say let’s just make the actual cheap car in existing factory model we have and because then not only can you not change the design after we young you know you you you you you green lighted but also you can’t change the volume in case you’ve actually screwed up or you realise that you don’t have enough capacity or you have too much capacity. So that there’s the problem of scaling is well that that the current production system does allow it’s either on or off and and you you have to have market you success with the how certain number of units otherwise the whole thing is pointless what what if you know you you you have double the them and you have to build two factories or have to them and then and then you’d actually shut it down because it doesn’t make sense to operate at fifty percent capacity so that’s the problem and and the thing about tats are is that I I think this is another cause to the or or issue with with the with with that with the product was top that was actually an incumbent they wear a manufacture of course one of the largest and India and therefore they look at the problem and they said that we shall apply existing techniques to it and not they were not an entrant in that sense and that’s the trouble also with the chinese when you see the efforts of chinese auto makers they are not disrupted essentially are copy pasting quote unquote best practise is from the west but the building it locally and and to the point where you’ve of course they actually mimic the cars well or or about right copy the designs. That’s not the disruptive approaching life anyway that’s my around you know no. So somewhat sounds

SPK02

we we see many things changing around the auto ecosystem from cultural changes societal changes you young people getting their driver’s licenses too many things that Steve pointed out which are energy changes and and Dave urging use cases for transportation. So we don’t know that we don’t know the timeframe but it seems as if procedure there for for big change and perhaps we are just five years past the peak are as you said Steve

SPK05

yeah yeah we all have to be botanists and the other looking to identify these scenes

SPK00

exactly exactly well it’s been a pleasure to chat today and Steve thanks for joining us for is in I

Episode 6

Episode 2,

The following is Episode 2 from @oliverbruce.  Thanks, man!


 

co

SPK01

Oh or so. Park

SPK01

as number to today’s topic is test

SPK00

So what what yeah well I start but

SPK01

S. let’s come up in the comments and you mentioned that the target let’s let’s start with the one positions

SPK00

it’s a great case study like I’m very curious about what’s gonna happen there the the the problem okay so here’s the the dilemma of the if you follow if you follow the innovators solution which is the the book that describes the the keys to to a successful disruption. Um and you go through the list of things that an innovator needs to do to be successful as a destructor it tends to be everything that S. doesn’t do or that test of this and do the things that are are enumerated there. So so the challenge therefore is either the prescription the innovators prescription four or or or or disrupt or the algorithm is wrong or or or test lies and disruptive so we have to we have to we have to get to the bottom of this so oh there are anomalies I mean first of all right off the bat you should declare that this this recipe is not cast in stone it’s not I I it’s not irrefutable there are success stories which are not following that recipe. But we have to ask exactly if if Tess lies an anomaly why and how exactly how we make how we make sense of it. So the thing is this that so let me let me go through some of these items and then we’ll get into some of the paradoxes as well all of all of test one first it’s it the first thing I look at is question of asymmetry no asymmetry of what’s typically what I look for is asymmetry of business model not asymmetry of technology not asymmetry of of management style or organisational structure I look simply for the reasons why someone who is incumbent in the business wouldn’t wanna do exactly what the entrance is doing. Um and the the logic of it is that if you’re entering a my market like at David versus Goliath you set new differently you set new rules and you you don’t need to engage in a head to head battle with the with the incumbent that preserves you because I mean typically what happens is the bigger guys when and most head to head battles or sustaining battles. Um they’re just have all the resources they have no incentive not to win well we’ll get back to that whether in the there something anomalous not so much in passionate but in the incumbents in this case but it at first glance it looks like Tess la is trying to make cars sell to the same customers using similar methods although yes there are some just there’s differences. But they are part of the same value network although again and there are some distinct differences as well. Um so the dramatic level yeah but they’re making money the same way the ideas use you buy a car for a certain amount of money and why wouldn’t an industry that has been cross inter breeding for so long where most or a large auto maker and or makers on a piece of another auto maker which share platforms which tend to share a lot of engines disappointed sharing suppliers to just tend to share even the even the even the distribution in terms of dealerships you have a dealership which handles multiple brands very common now. So why would they look at this new producer of cars and say well we don’t want any piece of it that is a real oh okay I think it power train in itself I mentioned this last time power train in itself isn’t something that would put people off yes it’s a quantum leap in terms of technology yes you may have to adapt a lotta process easier to link. But fundamentally user things with four wheels that drive on the same road subject the same regulation suffers the same economics I guess the fuel systems are different but then again you have various fuel systems available like diesel verses now ethanol and have some natural gas is coming up as well. So if if you’ll systems are different power train technology’s already which call have it the same value network. So that’s one issue I asymmetry the other issues are related to for example job to be done is the newer new the new newcomer addressing the job that’s an unmet need typically again this is a new market disruption not not a particularly low end one so you you would see for example what apple did in in the in in the making our phones more computer like it has essentially taken a new job to be done for the phone and and and exploited that and and sure enough people rushed in in to get hired a product for this new job does the S. that higher is the test was gonna be hard for a new job to be done in transportation well if they had a weird business model with you didn’t own cars for example we mentioned this again last time which would be well you don’t actually own test let you maybe deliberately said you rented or you it’s a shared car scheme or you know we take away the all the hassles of ownership we can take away the hassles of insurance we take away the hassles of a parking we take away a lot of issues which come along with ownership. That’s a service that’s an interesting you job many people have that problem especially in cities they’re not looking for more transportation there’ll actually actually looking for how do I not have transportation as much errors.

SPK01

it is like the car and and a few others out there that that are abstract yeah right and and taking that hassle from you and interestingly for the the card manufacturers abstracting you from the regular network from their sales process they’re releasing their financial the whole thing so you know that practically so symmetrical approach

SPK00

So so there’s there they are taking something is that they are taking and and at a distinct approach with respect to retail and that is you know the network issue L. go again we’ll get to that I think there is an exception there but I’m not sure how scalable it is as as a global infrastructure because again the the the dealer networks are actually quite strong politically and may actually be able to to stop tests like the the the the the impetus might be that the laws can change you know tessa will be powerful enough politically in its own right but we we can’t get into that quite to see what the dynamic will be but that’s that’s one of the the other thing is when you talk about the structure you have to sort of ask yourself what is a low and or is it a new market and this has been sort of the dichotomy of disruption that’s been going on for a long time. And it you know the words you you have to you have to understand will how exactly will this product compete. So on the basis that it’s low and it means it competes with non consumption typically it competes with over serving products that that have moved up market well the auto industry so broad that there are very few spots at the bottom truly in the in the markets that apple that the test lies attacking. So we’re not sure and obviously they’re not Christ as a low end product they’re actually price for the one percent of the world. So that is indeed a almost almost hyper high end because in fact these people are are or the buyers are expected to kind of be almost altruistic. And not not economically minded enough to to really that make a decision on the basis of of economy. So it’s

SPK01

almost a fashion statement at least I I consider Seymour castles even in my home of Madison which is interesting in the winter but the you know the different colours and I I think that one with environments that and all those

SPK00

right right so you know you you you’re still trying to go down to chop checklist here and saying okay I’m not I’m not sure it’s a low and so the next question would be Newmarket but again you market as we talked about in the zip car model it’s about really changing the job to be done looking outside of the core so is it really doing that it could be there is a sort of possibility that we’re not quite seen the market that the test lies enabling here. Um then there is a bunch of things about the value network that are troublesome does it conform or comply with the world that is is is that as we have it today or you’re trying to create a new world which is a very hard thing to do especially if you’re starter startup or an entrance well there’s this question about charging stations they’re trying to not only take on the car industry they’re trying to take on the dealer need the dealer industry that are trying to change the oil industry and and the but the actual people who own filling station I do that sort of work because it is a it is very different in that in the in the way the probably approaches that model now again it there might be asymmetries all those three in which case you could succeed but it’s very hard to make sure that you’re you’re not gonna get into the had to head battle with all those players I think the the the the interesting thing is the mentality of of the of the cup of the company I think the management they’re they’re they’re really not all the mind with that says we are humble we are meek we are going to go about this lonely. I think it’s exact opposite mentality to a sort of the disrupt there’s credo be hungry for profit be patient for growth it had it it’s none of these things it is bold it is brash it

SPK01

is there nodding have anybody that’s for sure

SPK00

yeah it is not not self effacing in anyway not try to hide and fly under the radar is the exact opposite of that it is a moon shot it is it is a a railroad building exercise in a way let’s let’s change the world in the in as as as as a aggressively as possible. So that that’s you go down the list and I’m finding it difficult to find conformance to the rulebook and that’s that’s what that’s why. I initially looked at it and said this doesn’t seem to comply. So that is one way to look at it but the the real question is maybe I’m missing something maybe there’s something going on here that would would allow them to succeed and prosper now one thing that is possible and this is thing coming up as as one of the potential keys is that the industry maybe so bad is so inept that they really and and this is this is so this is also yeah is it have yet to the to the to the the structure and hypothesis is that you normally in in most cases the incumbents will have motivation to respond. But in some cases they really do fall asleep at the switch. So that’s the question about that now first of all it’s hard to believe because they’re really a lot of incumbent. So if it’s not G. M. if it’s not for if it’s not Chrysler it could very well be one of the dozen other large manufacturers and it’s not them then there’s probably a few more which are smaller and mid mid size manufacturers who might be interested in what what certainly tell your is not full of fools and certainly the the koreans and and and japanese George and the chinese are no fools. So it it’s it’s this question I I was watching again the latest top gear I saw showed a Mercedes electric super car is it the C. L. S. or something like that it’s it’s a based on one of the top of the line sort of super cars we make but it has an electric power train with four different motors super high performance it’ll actually almost the the the the best performing equivalent all that hard so it’s yeah if it it the the you know six point three litre A. M. G. equivalent is isn’t is actually slower in some cases than this lecture vehicle it has some issues of range but it also has an architecture very similar to the test like having hundreds if not thousands of batteries it is it is a four wheel drive it has regenerative braking it has a very smart electronic control system to manage the the attraction not only through breaking but actually regeneration so that when he goes round corners really quickly criteria low centre of gravity lots longer process and yeah lots of software lots of processing power

SPK01

yeah yeah yeah be you has the I same

SPK00

idea coming all same idea but is or not and

SPK01

you know and if in Provence and the Monaco also it’s it’s targeting obviously very high yeah but it you know same tools from test are similar

SPK00

yeah so so already now couple beers only down the road of test was program progress already the larger more well resourced more engineering focused more more visionary manufacturers are beginning to actually reuse some of that’s ideas not to say that that they’re they’re copying but it’s it’s it the point is that that’s the nature of business. Um the engineers are certainly not gonna feel like hey these guys are smarter than we are I’m sure the German engineers who by the way our french or whatever I mean the they’ve been in the industry for decades they’ve been studying elect electrical systems and all these other things for decades and controls and so on. So they’re going to look at this as as a challenge and and so they’re going to respond very very effectively. So that’s one one piece of evidence to sort of say well maybe the from the lingerie and the the those makers will be building product that will compete with the model has now of course the others argument counter argument is that yes but test was going down market pretty quickly so they’re going to reach lower price points lower tiers of the market as they go forward but again. It’s gonna take a couple of years and I think also from the bottom we’ve seen lots of electrical or electric vehicles coming from citron some coming from the sound so

SPK01

it’s officially titled obviously

SPK00

and then we and and G. M. with with that so very and the ball. So there isn’t an absence and complete you know ignorance of the opportunity there either. Um but there’s one more thing which puzzles me and that is that one I had the if this is the the the electric vehicle is more about the job to be done is is the question yeah is more about economy being being efficient then why haven’t the people actually buy on vehicles on the basis of cost and efficiency I. E. not consumers. Why haven’t fully purchasers really said runs full speed towards electric vehicles because you would think delivery trucks you would think service roughly fleets of vehicles all these people would sort of look at the economics and say you know I’ll drop internal combustion in an instant because this thing is more efficient besides on my routes are predictable I I and the the the the the vehicle is parked every night you know fuel depot. So or in the depot where I can get it fuelled I have I can regulate everything about the way the vehicle is operated I can I can manage everything perfectly and thus for me as as a flea part electric would be the answer no manufactured that I’m aware of has addressed that market tessa mentioned it briefly I think in two thousand ten in in the sort of saying they’re gonna go there someday. But if that’s the it that’s the job to be done I. E. efficiency and economy why has has a U. P. S. why hasn’t that like haven’t why haven’t those guys jumped on it and specially in in Europe where where they’re dealing with smaller vehicles typically more more more urban areas and and and logo in higher density of of a of C. d.s. So you you have this collection of well the the E. if economy was the job to be done in efficiency that the route would have gone through the not the you know outside of the consumer space. And as as as the cases for example with these all these all is the absolute standard in high contracting that’s also in in distribution because it is extremely efficient. And you know the Miles per gallon on on these all are typically thirty percent off and higher than that then then you would get a on on on a gas vehicle and so of course if you fleet by are you gonna go for the the diesel of bands and so on. So that group of of binders hasn’t even been approached by manufacturers probably because it still doesn’t make sense on on the initial cost to purchase on the maintenance longterm it for that’s of the batteries not of the vehicle the vehicle will probably be cheaper to maintain but the batteries are gonna probably wear out. And and then you have to fold into the you know these are people who do nothing but sharpen their pencils and figure out that the the total cost of ownership. I there is another

SPK01

angle on the and I agree with you diesel remains the power plant choices that space but T. boone Pickens is then lobbying advocating marketing for natural gas power for large fleets yep run the country

SPK00

and I know this great engine technology there that hasn’t been deployed I think there are several car companies that are in the diesel business or thinking the switch out to light a natural gas for fleets and that makes a lotta sense folks there are probably thinking hey the economics of this this technology are perfect for us. So why yeah that’s the puzzle to me it’s electric seems to be something position for consumers not for those who are really concerned about efficiency. And the consumer pitch as was the case with the price which by the way again why has a hybrid window approach to fleet say everything right right right. So so hybrid is great it it does improve efficiency of gasoline engines but it still doesn’t add up in terms of

SPK01

the cost absolutely the tax for yes there’s

SPK00

a tax port so so this is again I’m not saying there’s an actual proof here. But there’s a weirdness about it. Why hasn’t the industry gone through that path police assistance it seems the the past is going through a psychological job to be done rather than truly an economic rational job to be done and so the psychological job is much more round feeling good about your purchase and showing that’s in that’s why I say that the the job of tests la. And the job of price to some degree is to give people comfort about their consumption. And that’s nothing wrong with that I’m not judging here I think that’s a fine job lots of lots of businesses have been built on the notion of providing psychological comfort. But it we just have to be clear about it because that will will that means you don’t have to fight a battle of just a few key ish and and have to simply say and and and many brands do this all the time. It’s it’s about motivation it’s about feeling good it’s about solving that job to be done and and that’s why I’m I’m I’m thinking that perhaps that you know it’s a case point these luxury cars and and it’s you may we mentioned Mercedes but I think there for example I’ve heard a range Rover I’ve heard of a Bentley in in in in in something some examples doing show showing off concept cars which are hybrid or and or a like traffic and the idea is that again that if you are going to spend hundreds of thousands of dollars which is what these cars cost you you might want to feel good about your purchase because you getting some green credentials with with the fact that the power train is is is a little bit more green. So it doesn’t make an impact really but it is in in economic sense but it is there as a as a job to be done. So I get would just kind of circling around the right person. So yeah the

SPK01

certainly one thing we’re saying is a crime and I’m in the software business incredible growth in software in these cars I was really review the U. G. T. I. and they were talking about software that uses the brakes to give you different facts you know depending on your settings both in the suspension and in you know when you’re cornering to give you a bit of the overseer runners you’re depending on your perspective and all those sorts of things and obviously that S. all world. B. U. B. M. W. I. three the a Mercedes you mention the certainly that were pretty as they have incredible amounts of software and that’s all gonna grow so wonder if some of those players maybe it’s apples on whether I was in the car if they have another angle market both from a customer relationship perspective value chain all those

SPK00

right you know and that’s another thing that and usually breaks through the disruptive breakthrough comes from outside industry now you mask is from outside in the car industry so you kinda qualifies along. But he hired people to build a business very much in the same. So as as as as as you know the the the line I talk about this last time it was about the fact that from my point of view the production methods are that are put to use our actually they the they’ve argued well we’re gonna have a different power train we’re gonna have a different dealer network we’re gonna have a different charging system or fuelling system. But we’re gonna make art the same exact way as every other car we know by the fact that plant that used to make cars free mount California we’re gonna build them using the same tooling the same machines the same sheet metal the same unit body the same level than technology as far as welding it together and so on up paint everything is is is more or less copy paste or or a forklift technology right you pick it up when you drop ship that and that’s you got yourself a car factory. And there are people who suggest that the problem is is not the things with that that text slice solving the problem is actually that very thing all the productions just that the production system is one that forces you to be happy big security guy and an inefficient and especially because the capital required also forces you into a scale mentality that means that that so the real asymmetry and I think also the question of what’s what’s over serving what’s always serving the market today. Um is not the current cars because actually they very all across the spectrum you can get yourself from the cheapest card to divorce most expensive prices for cars vary from I don’t even know what the bottom is that maybe fifteen thousand up to you know hundreds of thousands or millions even so there’s no there’s no gap in the price band really maybe can global fifteen but there are some issues with that in terms of just simply getting regulation and all that so the the the problem is that I think the or services in in in the production systems which are in use today that they’re more than good enough that you need to think about how can you make a production system that costs ten percent of what exists what is what is in in use today and it it produces one tenth the volume. So you have this sort of threshold beyond which your project will not get approval you better sell three hundred thousand a year or something like that would probably fill the plant

SPK01

I thought about that that’s an excellent point and you weary every no the wall street journal reviewed a class of these new off road vehicles cool side by side a couple weeks ago and he mentioned that they are mutating and up to seventy five Miles an hour. And you know Kawasaki makes them yeah Polaris D. lease states. And you know you want and I thought it looked like

SPK00

original then we’re more clear and

SPK01

obviously really bottle teens early cars obviously much more sophisticated but the interesting part of the article was the fact that the consumer product safety commission in U. S. has gone after some of them for different safety issues and all these things and one can imagine how different the car industry would be if you had to start today with all those regulations and requirements and so it

SPK00

one of one of the curious things about safety. And this is always a as a great gem of the story is that if you think about motorcycles. Um motorcycles or horribly unsafe I mean they are lethal force of they are but they are because basically to turn operators into organ donors you can sort of think of them as that as

SPK01

a positive efficient absolutely yeah

SPK00

it’s an organ donor that created creation product. But the funny thing is that if you imagine if they didn’t exist if someone were to say hey I think that that a two wheeled vehicle that you just kinda hang on to it in a go hundred fifty Miles an hour. Um and it’s protecting you with the you know in some places with a thin sheet of plastic over your head and that that’s that’s the if someone put that out there they would just not be a they’ll be laughed out of out of existence but motorcycles or grandfather right so in that sense you you have carmakers being put to increasingly onerous safety requirements but motorcycles are nor for example are trucks but the the point is that the the year we as consumers don’t value. But the safety say that it it’s it’s a purely artificial construct in the sense that most buyers are not conscious of all of this all all the subtlety as far as a safety we have to simply entrust what’s already is was supposedly know what they’re doing to certify these products and and they’re given very vague ratings in in you know one to five on some on some scale. It’s it’s a yeah to

SPK01

consider the safety questions to back up a minute well my favourite writers now deceased car magazine the U. K. was O. J. K. separate room article some years ago and so that if people had worn seatbelts for many years we would never had the explosion and all the around vehicles in vehicle safety requirements the bumpers airbags and all these other things. Um that what about that obviously the point

SPK00

we we don’t it’s there isn’t the market mechanism work safety has not been driven by market forces. It’s been driven by by is yeah well it it it there are simple east things which are felt to be the right thing and then you simply impose a blanket requirement. But you except a few things like we set of motorcycles trucks certain vehicles which aren’t cool cars. And and that’s that’s the the the the the interesting thing is that in order for you to innovate now you you you have to somehow jump out of the classification of car to make something that actually solves a job. That’s different this is this is sort of the the the and I I don’t argue against safety regulation but we have to you using there isn’t room within that to think about where do we go from here. Um and it also you can’t think outside of the the the the network affects because we have also roads. And service stations and all of the the paraphernalia that come along with car roll

SPK01

Texas tools you expects always use all insurance costs all the teachers are aligned

SPK00

exactly and that’s all a an interconnected a mash that with that prevents anything from really changing it. And there are places in the world which may still be open to innovation but most places aren’t and that’s even emerging markets are instead of thinking well how can we create an infrastructure for transportation they simply say okay we’ll have whatever they’re having will will just adopted the standard quote best practises. And so we don’t get even experiments that happened with the do you know people be immediately say but the this wouldn’t have happened if you adopted the best standards. So in that sense it’s a little bit depressing and I I’m I’m maybe test was simply doing the plastic can best given the circumstances given the fact that they are an American company but it’s it’s still it’s still a struggle to me to think outside this box and and maybe maybe you know pressure builds up over time as you know the the the the fact is more more more young people are choosing not to own a car more and more so you’ll have potentially in the future less driving which means lower taxes from all of these fuel and in cars and road yeah is

SPK01

that what’s the talking yeah well alright.

SPK00

So so they’re going to squeeze right people so that those were remain with with cars and and and the main thing is that it actually may affect all kinds of things I mean the U. S. has been built in the last century glass half century or you or I would argue even the whole let’s say last century has been built around your automobile meaning that we’ve had urban planning or lack thereof we’ve had the the road network itself which is one of the most impressive networks in the world with the like trick or or or not and and and and the way homes are built the way people live the with the the the way people shop the the retail environment the Mall concept to the the and then all that is been built on the premise of a car now I didn’t say internal combustion car I simply said car. So what what would enforce or what would perpetuate the network and make sure people don’t have to abandon their homes and don’t have to it’s a change jobs and moo moo moo from where they live a lot of that will allow the car to be sustained as it is in terms of as a vehicle for finite number of passengers et cetera you’re not going to see suddenly a new road network that’s probably the bicycles when new rail or public transport network that will emerge these are not economically viable because even if you can come and engineer the the the the the the trains and the and the and the vehicles you can’t rebuild the infrastructure easily enough. So their questions about land use their questions about zoning their questions about laws their questions about millions and millions of hundreds of millions of people having bin a vested in the system

SPK01

all of the like people have then fairly successful certain places tapping some of the gas tax revenues to build bike lanes are separate bypass but I wanna go back even farther because I think this cultural or political or economic incentive to maintain the car environment we have auto increment it tells us a little bit of the story from segue way you know everyone’s say it was super hyped and and I know one of the first things I ran into was getting political approval to operate these things in different places. And that seem to just stop a Walmart money

SPK00

and and and and curiously yeah that’s a great story segue way even sold. They the utility of of what is not the word they use the the this roughly type vehicle which was supposedly for mail carriers the mail carriers could use the the big this thing to to deliver mail and and the funny thing was the unions were against it because actually make them more productive right. And so you can see

SPK01

how you can just on of the lab sure

SPK00

end and just there’s resistance and it of course then the meeting you know you the municipalities or the local councils or whatever you in there called in different countries said no this no room for this it’s not a lot on the sidewalk it’s not a lot on the road and they try to lobby they lobby the for for all kinds of concessions but no it was the answer to all of them in in the ended up in in some really tiny in each is and that was a very low and you go back to me felt very disruptive because it had this this idea of mobility a at a at a tiny incremental improvement beyond walking. And it it was called the only thing it didn’t have which again is a deal killer is conform ability with the current network the current transportation and and and yeah well that’s all you can call it the egg and we go back to the question if you find countries which have adopted bicycles to a large degree you find that they did build a lot of by cats but they have to do it over decades you’ve been thinking about it since the seventies just to holland true even of of the nordic countries even though the weather is miserable here in Finland most of the year we have white hats everywhere you can go from almost any point at any other point in you can get a map urban map tell you exactly how it and people get on their bikes year round even in the snow any actually drive around with bikes would studded tires sees be change to winter tires and you and they’re not even mountain bikes these are people driving you know even old people driving Riding their bicycles in the snow. I’ve seen it the speaking of mail carriers mail carriers also use bicycles here and they do it in the winter so it. I should you know post some pictures I’ve taken over the years of bicycles in in the winter no yes we have two

SPK01

people directed Madison as well.

SPK00

yeah but I sense here it’s it’s just a normal person it’s not some kind of guy showing off you know

SPK01

But is is said wait example of first the market first fail and I say that because I posted something on the sim car river the total ounce. This would not surprise me that they cut a deal with the city of school to begin as public sidewalk demonstration oh we’ll which looks quite similar to the segue way at to that or a personal transport assistance robot they’re calling it yeah I’ve seen

SPK00

I’ve seen some concepts of those so they’ve been looking at this personal transportation question knowing these vehicles I could be you know go from being scooters or or so essentially wheelchairs to to somehow more road friendly. And these are brilliant people and and and the robotics that that the technology in robotics in in in electric motors in battery technologies and or in in in the stabilisation all these are huge anything going to huge leaps which allow the side way to be born at lowe’s now all of these and again the japanese are no fools about these things that they they everybody have a very good process and a very good institutionalised engineering culture that allows the refinement of these great ideas and so the problem for Japan is the same as the problem for everyone else how do you make that conform and what they’ve done with this with the with the price is really impressive that they’ve actually managed to make that a great product but it wouldn’t succeed in the recent price doesn’t succeed very much ah but outside of of the U. S. and Japan is because it competes with these all in in in morning when you’re right in Europe there isn’t there is but you would essentially becomes a very expensive. So so mileage car those mileage figures that it it’s a blue cat are not not particularly good relative to diesel cars in Europe so it. It’s in Japan diesel is very rare and the U. S. it’s very rare but but that’s not the case in Europe and that’s why we’re seeing and in in Europe we have we have amazing you know seventy mile per gallon cars that that you know run circles around the price in terms of efficiency. They D. these are engines also that automatically stop right when when you’re the lights only more left for right yeah that part of the problem that price all well sort of saying we we provide motion or or energy in those moments when the internal combustion engine is inefficient those have been mitigated by a lot of a lot of wizardry with respect to software as you said and also the having stronger batteries and things like that just to start the engine. And and so for example great example of all the supervision engine is this is from here it’s it’s when it’s cold that when they’re right it’s about eight hundred C. C.s and yet it delivers about eighty horse power which is which is plenty enough for you know something like a have like a better for yeah tiny little car. But plenty good for Europe and that that number of H. P. is about one hundred H. P. per litre which is super car territory in the way it does it is is through turbo charging and the the engine is that when someone there but the is that this on theirs are essentially locked together. So they’re not actually reciprocating and and in in so it has a very very compact design very light weight and it delivers excellent excellent a performance not the mileage isn’t as good as a diesel. But it is good enough so it you you you can see how the the industry’s responding even to the hybrid notion by cranking up the improvement inefficiency walking down as extra insist yeah so so I still think a a diesel with and you said be some like for example many in the next generation many will have a three so the one point five litres the standard engine across both diesels and and internal combustion at three on there is is one of these weird configurations is very rare because it’s very unbalanced it’s not a it’s not an engine configuration that lends itself to symmetry

SPK01

but force foresight are console

SPK00

it’s it’s oh yeah oh yeah the four cycle problem or affect you have a four cycle engine means that there’s a there’s a there’s gonna be a lot of weird weird forces acting on the engine one it’s was only three but I think this all that somehow either through Dallas shafts which for J. add weight but you can probably hack it in such a way. So I agree it’s not a great configuration and the the best configuration is in in line six but the people moved away from that for very many years ago. I just yeah yeah I don’t think there’s any online sixes it’s also packaging problem in line six is a is a horribly big a hunk of metal to just take an accord that that you wanna have this as small space as possible for your engine. So I don’t know who makes them anymore thing maybe only B. M. W. still makes and then line six

SPK01

right and master volume anyway so sounds

SPK00

like our our discussion about the

SPK01

it is a metric aspects of tests let me is concluded that it’s mostly operating within the current structure maybe pushing the envelope here and there. But so where others you know with power trains or software the the last one I wanna mention is in again I find this interesting from an apple perspective that forty appears to be one of the few big carmakers trying to go their own way on soft and they have announced the developer program you can write apps for their Microsoft software their cars I don’t think it’s got traction I can see but I just wonder what that means you know if since apples middle cut deals with certain carmakers for trying to go on their own and obviously others are thinking U. W. goes their own you know where you see is there a value proposition or a disruption potential in in that experience your that’s

SPK00

yeah you know so this is gonna get a they should get it we should get a whole show going already on that because it is it yeah so let’s let’s just say that way a lot will depend on what we hear from apple is four hours of what they do with I was in the car I I think it’s it could be simply a protocol somewhat similar to the air play where where the device can use an internal display and in interpreters and controls and the whole thing maybe run over wife I so that they can they don’t even have to have a a physical wiring connection and the whole thing can be configured in software the there are two classes of software there’s the software which which drives your entertainment your navigation. And or your maybe some limited degree oh over of car control or or a control over over the environment you’re in but the the the the the the service offers the embedded stuff that controls the engine controls the the brakes suspension embraces Mormon Singers yeah okay yeah it that that that is probably off limits for for the time being because we think the you don’t want to have someone hacking just like when you have a mobile phone remember one the mobile phone became an applet platform a lot of operator said we need to be involved in that decision making as to whether map is a lot of not right because they used to wanna be involved even in to the point where we don’t we’re not sure if any phone at all that switched onto the our network is certified should do used to have to certify all kinds of phones and maybe still do. But famously eighteen T. didn’t even allow you to buy a phone but the phones even the old style rotary phones with their phones that you would least to you so that you can formula close yeah was a completely close the they will all terminals in the network and the term was something had to be certified compatible

SPK01

with network monthly fee the whole thing yes yeah

SPK00

so so to to some degree you’re seeing the industry holding on to this idea that we need to certify every piece of software everything connects to the grid which means the car that then we we have to ensure safety usually safeties the last the last have bastion of of the have the incumbent. So we’ll see how long it takes them to do allow E. P. I.s into the depths of the of the of the car. But also sort of future so yeah yeah seven some some I think the this’ll be a a gradual discussion I think the the the the main thing we’ll see is probably a display with which allows you to essentially mare your eye pad alrighty fall onto the the cars display and a lot a lot of the functionality to be to be visible and uncontrollable that way so we’ll see I I’m I’m really interested in them press that apple has managed even get this for that the car has become a potentially in accessories

SPK01

I don’t think cutting deals well what’s interesting about for dessert I think a sensual link a few months ago Jim Farley marketing guy said in the conference the auto industry has taught incorrectly about this that they you to think about the phone or the voices D. centre and as you say the cars at accessory and they have tried to put everything in the car now for this is going on their own with these that so it’s it’s and so

SPK00

my G. gonna be a yeah B. M. W. a lot of these guys are actually best that they have some cost and they have the same will be a that everyone who has a some cost mentality has that that you know you can’t let go

SPK01

I’m million but I can’t I can’t write that off. I can’t yeah okay that’s my job

SPK00

I it’s it’s it’s it’s a some cost that’s it and and those we know that means I mean you know it’s it’s not doesn’t help them well I I don’t know I will say some have run down the road with Microsoft and not gotten far right and we’ll see we’ll see and and it’s very very fragmented in some divisions of of a car company will do something and other divisions will do something completely different there’s no there’s no sort of tsar overrule overrunning the you know the little or talking about information systems in the car it’s not a that’s not a a a position to reporting directly to the C. D. L. so so we’ll we’ll see I I think that’s an interesting topic I think it might be an interesting way of breaking into the whole thing right but fundamentally I still worry about the ability of of the industry to accept an entrant that that is predicated on on manufacturing things. I ice you know I still think of the auto industry as being something that’s production oriented as much as people think that it’s about marketing it is that but it is also the the the cost structures so driven by the way the infrastructure manufacturing oh

SPK01

and and actually software is made that even stronger I think it has created increasing returns to that mentality as an example my sister just bought a new Honda minivan and she once various dealers in the twin cities and and they said if you buy this one not any these other ones which are the same configuration but this one because it’s been sitting here of course the inventory tells them that they’ll give you an extra thousand off whatever and and certainly they manage their mentor diminish the month and yeah the the production system is everything there’s no

SPK00

well what’s the cover they well

SPK01

look for the chatting

SPK00

Yeah

Episode 2,

Episode 1, new version

The following is Episode 1 from @oliverbruce.  Thanks, man!


Jim: So Horace, you’ve been talking about cars from time to time. I just bought a new car, so tell me what’s happening in your observations of the car business?

 

Horace: Cars are a great subject. I think I mentioned this on the critical path because I think it’s one of these industries that everybody knows and everybody has an opinion on. It’s been around for a hundred years, so we have a lot of data. It’s a huge driver of economic activity especially in developed countries. I read some statistics from an association of automobile manufacturers which claims like one in five jobs is due to the car industry or something to that effect. It’s some huge number about the value of the business and politically it’s very important because apparently large car companies are not allowed to fail. So that means somebody’s got an in on a politician somewhere. But at the same time though it’s diverse because you have, you do have—well it is and it isn’t—you have many countries who produce cars and you have many companies that produce cars and there is turnover in terms of who’s making money selling cars or building cars, but it is also weirdly consistent in many ways across, you know, the world. There was a time when there was a lot of difference between countries. There was a time when cars where differentiable or differentiated by the country they were build in, that I think is going away. It’s sort of become far more—the delta has come down. So the worst performers have gotten better and the best performers have gotten worse to some degree because they’ve tried to become bigger and had to compromise. And then at the same time we have entrance in the form of emerging markets like—mainly I think Korea in the last few decades. We’ve had Eastern European manufacturing going on, although not of new brands. We’ve had brands in Europe consolidate through ownership, through purchase, through acquisition. And some interesting developments—I mean Volkswagen, for example, is becoming a spectacular success in ways that are not so visible.

 

Jim: Right, right; they’re almost the largest now in the world and very vertically integrated, which is [crosstalk].

 

Horace: Exactly. It’s more about the fact that they’re successful with innovation on the business model side rather than on the car, you know, on the product side. So there’s a lot of moving parts, a lot of things you can look at. And there’s of course—the thing I’ve been obsessed about though is that we’ve had this notion of focus on the products. Product has been the thing that we analyze as far as the industry’s success or failure. So we tend to think about whether cars are getting bigger, whether cars are getting more fuel-efficient, whether cars are improving in one or another dimension or regressing on some dimension. And so we discuss the health of the industry in term of the product. And that’s, I think, actually becoming less interesting once the product is very difficult to differentiate between companies. This is why I would say start thinking more about the innovation; not on the product side, but rather on this business model and innovation as we mentioned, you know, Volkswagen becoming more integrated. Toyota came in—we don’t really talk about Toyota cars. I mean, the Toyota innovation has been for decades around their production system.

 

Jim: Production system, right.

 

Horace: Right? So even in the 1950s it wasn’t really that General Motors was the object of admiration for its cars. It was an object of admiration for its branding, its marketing, organization structure, the way it was able to run the ship. That became the thing that made GM rather than product. You know, I read a great book. It was not on the car industry; it was actually on the manufacture in World War II. And the thing was that it’s a great book. “Freedom’s Forge” I think it’s called. I think I mentioned it before. But the amazing story is how the auto industry was the blueprint for manufacturing almost everything during the war. And the people out of Detroit—who become the executives that were hired to solve the production problems for the whole of the US—they came from Detroit; or the school of thought, the school of production. And there wasn’t just in the US. The Soviet Union picked up almost all the tricks and in fact a lot of the tooling from the US in the 1930s. They were able to purchase a lot of spare capacity that was going idle in the US in the form of machine tools and so a lot of Stalin’s factories were tooled by American, you know, American manufactured tooling. Same thing with Nazi Germany; they were enthralled with the forth production system at that time and borrowed huge amounts of US sort of [inaudible 06:33] that sense, making Germany run on a production system that was mass production. And later, actually after the war, it was Japan that was actually built on those principles as well. So to me the fascination with automobiles goes beyond the product. It goes into this whole question of how a car is produced, how a car is marketed, how does a country industrialize even on the basis of this production method—so much learning. I am just now skimming yet another book also on aircraft production in World War II and no scholar of the history of World War II can ignore the auto industry. Even the writers of this book point out how the engines that went into airplanes, for example there were some manufacturers specifically of aero engines. Even in the 1920s and 30s a lot of the knowledge about engines came from the auto industry and there were auto manufacturers who were shipping engines to the aircraft industry. But the book points out how the economic value of the car industry during the 20s and the 30s was orders of magnitude higher than the aircraft industry. Aircraft industry was producing, in some terms of JDP or in terms of output, less than 1% of the value of the car industry. So if this was true in the 20s–30s, it was an amazing industry back then. So anyway long story, but one of the things that I’m curious about is how cars have… where do they go from here because we’ve gotten to a lot of interesting junctions in the road if you want. One is…

 

Jim: Alright. I think you’re getting to a great point which is other work; which is other industries you’ve looked at. The value proposition is changing. I mean, I’ve looked at some data this weekend. At least 20% of Americans from 14 to 34 don’t have a driver’s license now. And in Japan it’s significantly higher than that.

 

Horace: [crosstalk] In Europe too.

 

Jim: Yeah, this growing urbanization and then, of course, car insurance services and all the other things. So you’re right that the value proposition is certainly beginning to change and one wonders where that will lead us in the next five years.

 

Horace: Yeah, so what’s happening—usually disruptions come from places you don’t expect them, right? It happens when the product isn’t really… like I said, the obsession on the product side becomes—suddenly you’re looking at something you didn’t realize it was a product because the job is what’s being sold by the new thing and it isn’t necessarily something on four wheels.

 

Jim: VN engine or the Diesel engine, yeah, exactly.

 

Horace: Yeah, exactly. So one thing I have issues with is the Tesla thing. I think the Tesla product is—and I am not the only one—I mean, Tesla has been around for a while and when Tesla launched, they launched with a roadster that was hundred thousand dollars or something.

 

Jim: The Lotus, yes, exactly.

 

Horace: It was based on the Lotus chassis. I think their prototype was even based on the Ariel Atom, so predating that even. So there was an English chassis as well and then they went to Lotus and then, of course, the problem was that it was very expensive and so when Elon Musk was asked about this, he said all technologies begin with early adopters who are usually wealthy and willing to pay for the innovation at the beginning. So his point of view is very much the opposite of a disruptor’s point of view. The idea behind… even though people talk about this—you know, Tesla disrupting—it isn’t disrupting in the classic sense. Now, let me put some [inaudible 10:53] one, it may be that it is disruptive in terms of distribution; it may be that the idea of getting rid of dealers is a disruptive idea which allows them to evolve the product. Maybe the service aspect will be disruptive because then if you hire the cars transportation—but you don’t have to deal with sale, service issues and all the other thing because they take away and they make the car service. Then there might be opportunity there to redefine the value proposition. But fundamentally, the idea of changing everybody drives and the way transportation is handled isn’t going to come from a powertrain change. You know, there are in fact issues with this particular powertrain running headlong into obstacles. Not only do we have problems with filling stations, problems with range anxiety, problems with weather and applicability and all types of driving everywhere. They build these cars to solve too many problems. I think the more interesting approach—and this is what I would call the disruptive approach and, by the way, I would love to make this as a check list, so number one—capital deployed, Tesla; column one is Tesla; column two is the alternative. So column one—Tesla; capital deployed, line one—billions of dollars, alternative millions of dollars, okay? Let’s go down the list.

 

Jim:  He has Wall Street on his side these days too, certainly.

 

Horace: Yeah, target market—rich people, Tesla. Poor people—column B, okay? Third point—size of vehicle. Huge or—I would say even before—it was small, but essentially it was a toy. It was not meant to be utility-driven.

 

Jim: There was a marketing exercise, sure.

 

Horace: Its utility and prestige. We can even call that as the next object, you know, the next thing. A job-to-be-done of Tesla from day one has been to make rich people feel good about the fact that they destroy the world. And so you go down that list and also, you know, foothold market—the US. And you go down the list and you think, what is the exact opposite of what Tesla did? And you put that in column B. And by going down that list you will actually create a disruptive idea.

 

Jim: So let me pop the balloon. So why didn’t Tata’s Nano or the Renault Logan—why have those things not taken off? I mean is there a lack of infrastructure, is there…

 

Horace: I actually think that they haven’t been thought through in a system-wide fashion. And here is what I mean. [inaudible 14:05] actually has relation with Tata Group. At one point he was in the board of Tata Consulting. So I don’t know, I haven’t asked him, but I assume he has given some input on the Nano. But the problem is that, again, it’s product-oriented. It’s not the entire process—or I even say beyond the process—to rethink automobiles, you have to rethink all these things on my long list. Where does it take a foothold? Now one thing is, it is in India, but the company building them is an incumbent in India that has already one of the largest market shares of automobile manufacturing in India. So if you look at the percent of cars produced in India, the Tata Group—if it’s not number one—it’s certainly in the top three. The next problem is that they repurposed not just their business model; they repurposed their plants, their designers, their engineers, their production people. They built a new plant for the Nano. But it was on a blueprint of all the other plants anywhere in the world. You have to rethink at the very-very bottom the idea of what manufacturing actually is. There is one example I’ve seen of rethinking of the manufacturing process and that’s BMW’s—is it iDrive? Or not iDrive, I…

 

Jim: I City or something…

 

Horace: I Something… iProcess, I don’t know what they’re calling it.

 

Jim: Of course, their price points are not exactly emerging markets either.

 

Horace: Right, but that’s because you’ve got to go down this check list. They’re launching by building factories in Germany to make cars for Germans. Now, if you are going to do this right—again my idea would be, yes, the India part was the right thing to do, but the wrong thing was doing it using a large integrated plant. The better thing to do was build a cottage industry where people make parts for cars and then they get assembled in an almost do-it-yourself fashion. That is as low as possible. Not even the BMW vision changes dramatically the whole idea. So here is my dream of a new car metaphor because, again, we’ve seen this in computing—computing went personal. And computing went from something that only IBM in the most complicated and expensive way could make computers, down to a hobbyist who could do it themselves and that happened very early on. In the 70s and 80s hobbyists could make computers because of microprocessors and so the thing modularized once the microprocessor became available and so we haven’t seen anything like that in the auto industry. Of course, you have people putting cars together on their own, but first they’re discouraged from selling those cars because regulations say you cannot be a car manufacturer without getting the car certified and all these other things. But also the safety requirements and all these other things preclude someone from being a do-it-yourself car maker. And so this is where emerging economy is exciting because the components have been modularized to the point where you can buy them off-the-shelf. The body panel… here’s the other thing—when you look at the way a hobbyist would build a car, as a kit car, they would start with the frame. Usually it’s either body on frame or it’s a tubular exoskeleton-type thing; I don’t know the exact term for it. But the way cars are made in mass production, they are done as a unit body stamped sheet of metal welded by robots, painted and so on and so on. So the process of building cars is done the same way everywhere in the world when you’re dealing with mass production. And then the hobbyist model—which is like putting it together from a kit—you might welder a few things together, but it’s not going to be done; you do it in one off. What I’m struggling with… and I think the exciting thing is, what if you could create a hybrid between this two? Well, you could manufacture do-it-yourself cars on the large scale where the components don’t need a steel stamping press; which is, stamping machines are sometimes the size of buildings. They are probably the most expensive part of the factory. One data point just to give you an idea: I was reading an article about a new plant that was being built in Japan for Toyota—a new Toyota plant. There haven’t been very many in Japan, by the way, for quite a long time. There was a big deal that Toyota built a plant in Japan. And they did it as cheaply as possible and they said they were trying to move it also to the US and built a US plant along the same lines and an [inaudible 19:17] Toyota said that 60—was it 60 or 40? Gosh, I don’t remember exactly, but a significant amount of the cost of a car is paying back for the manufacturing plant.

 

Jim: Sure, massive capital.

 

Horace: So a multibillion dollar plant requires you to, sort of, mortgage your production to it for a long-long time. So a car for example that costs 15–20… I don’t know—cars don’t cost 15,000 anymore, do they?

 

Jim: 25.

 

Horace: 25,000. You know, like maybe 10,000 of that is actually paying back the mortgage on the plant.

 

Jim: It’s like an Intel fab, billions for the fab.

 

Horace: Exactly, exactly. So when you get into these car structures, you have to ask, could there be a better way? Could you squeeze that down so that it doesn’t cost billions, it costs millions? Tesla said… probably they didn’t even ask the question. They didn’t ask. He said, “Oh, we wanna make cars. So let’s call… does anybody know anybody who knows how to make cars?” So you pick up the phone, you find—because you’ve got money; you’ve got all the resources in the world—you go and get the best guys and the best guys are gonna tell you, “Yes, you need two billion dollars to make a plant” and then they bought the one in Freemont and [inaudible 20:32] car manufacturers and all the pomp and ceremony that goes with that. Instead of sort of saying, “Well, you know what? We don’t have the money; we don’t have any smart people that know how to make cars; let’s figure it out how to do it without that” and, by the way, the Chinese and Koreans and everybody—even the Indians who got into this business—they all do the same thing because the government said, “Yes, I think we should have a car industry” and so they brought on board the smartest brightest people and said, “Ok, you, you have the franchise, go forth and make a car industry for us” and they pick up the phone, find out the best manufacturing experts and, you know, let’s start building car plants and they’ll use the same blueprints as they did everywhere else—Canada; doesn’t matter; Iran.

 

Jim: It’s about jobs; it’s not about the cars at that point for the governments. They want the jobs and the taxes.

 

Horace: Exactly. No one stopped to say, “Wait a minute, is there another way to build cars?” No, there’s one way to build cars and that’s what all of us are using and you can prove it because it’s so commonly done and there’s no one; there’s no dissenting voices to this subject. And that to me is the frustration that it is very definitely possible. We have existing proofs all over the place—especially in the technology industry—and you can make stuff differently. And why should cars be exempt from this rule? Now one thing that may happen that could be exciting is this—if we have manufacturing technologies, you know, like the do-it-yourself… these…

 

Jim: 3D printing and all.

 

Horace: Yeah, they call it 3D printing. 3D printing of certain parts might change dramatically, you know, we need to get into larger stuff that needs to be made. But if you could use steel tubing for your frame; if you could use a composite material for your body panel; if you could use off-the-shelf—either electric or gas or Diesel, doesn’t matter—the powertrain is like picking a CPU for your…

 

Jim: That could be purchased, no doubt.

 

Horace: Yeah, exactly, so there are plenty of companies that make them as modules. So the only problem is how do you do the final set assembly, how do you deal with issues of painting, how do you deal with issues of regulatory approvals and so on and so on. By the way, so I mentioned also this Gordon Murray guy who has put forth some ideas. There’s not much to read, so I don’t know how far he’s on this trajectory, but he also has the right idea that says—I think he calls it iStream. The whole idea is to think from the very beginning. And it makes sense because he came from car racing and in car racing they have essentially a custom building process where—although you can make a run of cars—each one is hand built and it’s built from a design that is really light; that is very modular and it is optimized not for throughput production, but for performance. And if you borrow the best ideas from racing and then apply a little bit of mass production magic to it, I think that process could be a very exciting idea. The problem is he’s gonna run into a problem trying to sell this idea to existing manufacturers who have committed to workflows; who have committed to car structures and who have committed to markets that steer them away from it. That’s the whole problem. To break this knot, this impossible barrier, you need to take the idea outside of the context, which I think is into developing markets; to try to create indigenous production; to do something along these lines. And it will take a long time. It won’t seem like there’s much progress but, anyway, to me that’s the full stop.

 

Jim: So why have some of these niche assemblers not expanded? You have one of them, I think, in Finland [crosstalk].

 

Horace: Well, it’s only a contract manufacturer. That’s another thing. Very, very rare to have contract manufacturing in cars. Why? Contract manufacturing meaning that ok, you pick up the phone, you have a design—maybe you made the design yourself or you hired someone to make your design as happens in computers. In computers, HP doesn’t do anything. HP picks up the phone and says, “I need a computer for next year or the year after that” and somebody then [inaudible 25:16] presents them with the design and then they say, “Ok, I’ll take that design, now please arrange manufacturing” and somebody goes and picks up the phone again and calls the contract manufacturers. So you have contract designers, contract manufacturers and then somebody else does… you probably contract support and sales. So the company in the centre, HP or Acer or any of the brands we see on the computer, don’t ever touch the product.

 

Jim: Right.

 

Horace: They are not involved. I think one of them was famous about actually being proud of the fact they don’t touch the product at any stage of its value, of its existence. All they do is hire essentially a project manager, so they manage the project and the brand. The same is now happening in TVs. Visio, for example I think it’s called or something like that—one of the biggest brands in TV today—has nothing to do with TVs. They don’t make them, they don’t design them, they don’t ship them, they don’t service them, they don’t sell them. They’re a couple of hundred people in an office in San Diego. That is the brand.

 

Jim: So the Boxter and the Cayman, for example, are assembled, some of them, in Finland.

 

Horace: So what happens is you have a few of these plants. So they’re like the Foxconn. The number of units that get produced this way globally for the car industry must be like in the tens of thousands. It may be more common for the trucks and busses, but I don’t know that industry well. If you focus on passenger vehicles—cars on particular—it’s unheard of. You’ve got these tiny, sometimes, you know… like if you have a product, in the case of the Cayman or the Porche Boxter, these were not fitting into Porche’s existing plants. The existing plants were set up for the 911 or the Cayenne or something like that. Those were running at full speed, so for them to slot in a limited production or a limited run of a product extension, it made sense for them to actually outsource it. But this outsourced company or contract manufacturer is really batch-oriented; they’re not continuous flow type-of-business, so they’re not going to generate large volumes. In many ways so is actually Foxconn. That’s how they operate; more in the batch market.

 

Jim: Right. Massive demand and then it goes away. But you would think that these guys that make the niche cars would have some experience in the contract or the supplier relationships to think differently about this. I am just surprised it hasn’t happened actually.

 

Horace: You’re right. So that’s possibly where the disruption could take root. Some contract manufacturer says, “You know, I’ve been doing this for other people; I’m at their mercy.” In fact this plant in Finland—they had Porche for a while; they had even Saab. A couple of years ago they did a couple of Saabs, then they got a deal with Fiscar and then that whole thing imploded and they had to lay off their workforce. Basically their pay plan run dry and they couldn’t keep the plant open even. And they should have been scratching their heads and saying, “Why don’t we create our own company; I mean, our own brand” and then probably someone smart would tell them, “You know how much you’ll have to get through? You’ll have to get through regulatory issues; you’ll have to find a way to the market; you don’t have the competency to do any of these things.” And they would just say, “Yeah, looks like mission impossible.” But if you are naïve enough and you were in an emerging country in which you would do this contract work and then you realize that there might be a local demand for something that you built yourself—maybe it’s a tractor; maybe it’s not even a car, you know; it’s a motorcycle; it’s a moped or something like that. A lot of that is going on in China now. But these guys who used to do it for somebody else decide that, you know, we can actually build a brand, we can actually build engineering, we can actually build find people to buy it. So this happens so many times in so many different industries. It’s a little bit boring to even go back into it. But that’s what’s not happening in the car industry and you are pointing out exactly why it’s one of these things where you have to go and do more analysis. My instinct says that there hasn’t been indigenous production because people are fearful. They think it’s too expensive. They think they need an integrated approach. Even if you ask someone in an emerging country, “Why don’t you build a car company?”, they will say, “Yeah, but even the people in this country they respect BMW; they respect Western brands, so if I introduce a local brand, they are not going to buy from me, even though it’s made here and cheaper and so on because they’ve been brainwashed to think that only foreign cars are good.” You know what I mean?

 

Jim: Of course.

 

Horace: There’s also counterexamples to that. Take the VW Beetle. The VW Beetle was the anti GM in a sense because when you look at their advertising, they celebrated the fact that they were quirky. They celebrated the fact that they were weird and they were an outsider and it didn’t conform to any of the notions of the time of being competitive. And they were great as a counterculture symbol; as a disruptive idea in the 1960s that, you know, a small car made sense in a big car country. You know, to every list of impossible goals and impossible things to overcome you have these examples in history where it did happen. And so you have to have faith at the end of the day. All the great bets are based on faith. The data will tell you not to do this. So, anyway, I don’t know…

 

Jim: One of the things we talked about a few months ago was the automakers missing the shift, you know, the position for the iPhone or apps and thinking that the car is the center point of the apps versus the smartphone or a tablet, let’s say. Is it possible that the value will change; the perception people have will change and car sharing or the apps… you know, somebody will—almost like iTunes on Windows—somebody will create a value model on top of the current industry and therefore make the entries more generic? Maybe that can occur.

 

Horace: That is, indeed, probably the most exciting way because an outsider will come in, look at the problem as an information problem not a transportation problem. They’ll look at it and say… This would be my dream. Someone would say, “You know, I see the job to be done here. The job is people don’t want [to own] cars. Ownership of cars is not just expensive but it’s actually adding a lot of waiting into your life. Waiting in traffic, waiting to park. Waiting at line in the DMV, whatever. You’ve got all these hassles associated with cars… So we’re going to solve your problem of transportation by providing you with less waiting.” And then they say, “That’s an information problem because knowing where the cars are and so on and allocating the car.” The car at that moment is ‘off-the-shelf’ and you say, “OK, but we’ll just pick whatever cars are available. Oh, if it’s electric it’s even better because our economics are going to be better with electric cars. It won’t break as much and so on.” The innovator in this case looks at it as an information problem, attacks a job to be done that’s on that, uses off the shelf technology which is just a city car with electric drive, and then goes back to the manufacturer and tells them, ‘You know what would make them better is if we had this, that, or the other thing.’” And then the manufacturer would say, “Thanks, we’ll get back to you in five years.” You don’t have that time. So you say, “No, I want to have it done in the next six months.” Then you start to think, “You know what? Maybe I can make the car myself.” That is really the spark of a potential story… And that’s the cool thing is it’s the same thing that happened with smartphones where Apple said, “In order for us to get a better phone we need to solve these problems and that may involve getting into new businesses.” You get into apps. You get into services. You get into Siri. You get into… Suddenly you’re solving a whole set of different problems.

 

Jim: Owning and leasing capital equipment.

 

Horace: Yeah. But the fuel was the huge profit you got because you solved a job. The fuel to get you into the new industries is supplied in ample quantities, beyond what you can absorb. And so suddenly, this guy was making a business selling information, really, to consumers about where to get a car at a time when they need it and not to get a car when they don’t need it. That simple shift makes them, hopefully, wealthy beyond their wildest dreams. They say, “You know what? I have so much capital now I can buy a car company.” And they’re actually quite cheap to buy because, as you know, they don’t make much money. And so, they’re usually wasting assets.

 

Jim: Right.

 

Horace: You go in and they could go and grab Saab, for example. Boom, just pick up Saab for peanuts or pick up a brand out of the UK or something as the Indians did. They bought Jaguar. They bought Land Rover. BMW bought Mini, which was essentially a defunct brand in the UK, as well. You can get that and you get the brand and you get some tooling, some facilities, some distribution network, whatever. Throw most of it away and rebuild the business along the lines that serve this need. And so, they would then create a niche for themselves in sort of electric vehicles optimized around the job to be done of not being owned. And then they have great connectivity that they have built-in mesh networking that they are build around the information problem. So they have perfect metering; they have better metering than taxies do, right? They’re getting down, getting the resolution…

 

Jim: That’s what’s already happening. I mean Anstar and others are selling their data to insurance companies. There’s deals back and over risk management, so for this revolution to happen—for this disruption to happen—do self-driving cars have to become available first given the regulatory issues or is there enough…

 

Horace: Self-driving is one of these things that I think is a little bit cramming, as they say. It’s a technology that has been crammed into too early a stage on the evolution of what can be absorbed. The problem, obviously, is because not only does it have social impact; not only does it have all kind of liability issues, all kinds of incredible problems in terms of fitting in to the existing networks; but fundamentally I think it may be simply too early. Technology itself is not the problem. The best example might be where… here you have great computing power and great technology and so it’s sitting on a shelf and you say, “Let’s apply it to the problems of cars by making cars drive themselves.” Now I am going to take you back and this is one of the great stories from Christensen, which is the story of the transistor. And the story of the transistor is that when it was developed, it was the idea of solid-state amplifying and solid-state gates that were driving the main application of that… The problem that the transistor solved was amplification and that was really radio and later the TV. And so when the transistor was invented, the guys who were making radios and TVs looked at it and said, “We can’t really make use of it because the quality of amplification is far worse than the tubes that we are using.” But they said, “But we are not ignoring it.” so they took it under R&D development and they began to develop better quality transistors and they spent billions on semiconductor research and solid-state but not bringing anything to market. In the meantime, the transistor was taken by hearing aid companies, by these Japanese transistor radios—which are very poor quality radios, which didn’t have a lot of amplification because you had a single earpiece to listen through. There wasn’t a need for filling a room with sound, which is what the radio market at that time was all about—the console radios and the console TVs which sat in the living room. And so what happened is that the disruptive approach came via a completely different track, not through the existing industry. So my point is that replace transistors with computing technology, with algorithms, all the clouded, all the stuff that Google works on and you say alright, so Google is taking that transistor and trying to apply it to the car today and there is going to be development for decades trying to make it work. In the meantime, somebody takes the information technology and says, “We’re going to make the equivalent of hearing aid or transistor radio, not to make cars drive themselves, but rather we’re gonna solve <<Hey, how about that cars are going to be available when I need them, right? I’ll drive them, but please tell me when and where I can go get a car and I am willing to pay for not owning it.>>”  That’s the solving of the problem and then those people who took that trajectory outside of the existing value network and the existing definition of what a car is and then they might actually solve the self-driving problem, but because they will take it in incremental steps. So one of the things obviously a smart car would have is self awareness in terms of where it is and so on. Maybe it sends you messages, maybe it begins to communicate with you in ways and help you get the job done. And maybe in some cases it will simply be inside of a parking facility and they will just drive themselves from its parking spot to sort of become a valet car. I mean, imagine instead of having self-driving cars, how about self-valet cars? There is an interesting problem, right? So you drop off the car in front of the building and it drives itself into a parking spot. It’s not building a railroad across the continent; it’s simply getting a small job done and it’s likely to learn from that to become better and better at doing it. And by the time it evolves into being a self-driving vehicle, they would have solved all the right problems and they would have ignored all the impossible ones. I’m thinking that’s how it should go.

 

Jim: There is an analogy to that. Maybe 10 years ago there were several startups trying to create tiny point-to-point air routes. One of my friends was involved in one. You know, where they had this whole idea of small jets, small planes…

 

Horace: Yeah, air taxis.

 

Jim: The whole thing, right. And I think it was a guy, I think from Citrix, can’t remember. He put a lot of money into it and, of course, he saw it as a big math problem, which it is in some ways, but just the economics never worked [crosstalk].

 

Horace: The downdraft in the market… in the whole economy, because a lot of customers would be somewhat more wealthy. I remember because Clay was talking about this also a few years ago— the air taxi business—and suggesting that that might be the disruption to the airline industry because it was about making planes, taking the whole job to be done to a new level. The problem still is that it relies on too many dependencies, one of which was actually… there have to be new types of airplanes, there have to be wealthy enough customers that it does work in the United States first and maybe not so easy to move to Europe, you know, and it’s got a lot of constrains on it. And there is one or two little things that might have killed it, you know, that it was too fragile as an idea although it had a lot of promise and I am not saying that this idea of an information-based car is gonna work out. I am just suggesting that a lot of the experiments I am seeing today have less of a chance even than these rather fragile ideas that we are putting forward here because these new fragile ideas at least have a disruptive potential; going against an entrenched system with cramming and brute forcing a solution into that. You know, it’s the Segway, it’s the Google Glass, it’s all these things which are “ambitious but rubbish at the same time”—to reuse a phrase from Jeremy Clarkson. They’re rubbish because they don’t work as well as the average person or even beyond a certain very tiny niche, they’re not gonna be useful. So, anyway, that’s my rent. We take it in so many directions. I think the job to be done… there are opportunities… I think we did a bit of e-mail exchange on this, on what would you look for in a new car and my answer to you—you remember—was that I liked the idea of making cars more to appeal to women, in particular if cars are…

 

Jim: Which was a factor in my purchase, by the way.

 

Horace: Yeah.

 

Jim: Absolutely.

 

Horace: You know, and the phrase I picked up was “a happy wife—a happy life.” It is one of these things that shocks me to this end because somehow women aren’t part of the discussion. They are more and more, but the car makers haven’t really nailed that question of…

 

Jim: Oh, definitely not.

 

Horace: What is it that… I know that there are many women who are working in car design—actually I met one once. I think maybe what they’ve been working on in sort of feminizing the industry a bit is exactly this—that we are seeing a little bit of that. I think the Mini brand—I mentioned it before, we have Mini now—the Mini brand is absolutely the brightest idea following this model. Mainly because when you look at—and I don’t know, there’s a lot of Mini fans out there and I’m not saying that there’s anything feminine about it, but it does break through to women and you can see it in the colors, you can see it in the way it is accessorizable…

 

Jim: Right, that was their key strategy; this almost limitless accessorization of the car, colors, you know, all these things.

 

Horace: If you looked through a brochure, like half of it is taken up by changing this or that little thing about it. Mostly it’s all aesthetics and, you know, having little labels. It has one on the car seat instead of having some kind of writing on it or something like that, but it has like a little clothing tag—you know, those things that come off—and says airbag on it. It’s got that tactile feeling; feels like an item of clothing. I won’t get into it. I’m not trying to sell Minis here, but the thing is that what I appreciated was that they understood that the job to be done is that you want to have a distinctive looking car that you can accessorize; that it also shows off your sense of style. It shows off your sense of taste and that is indeed the job that many women hire clothes for. They hire the clothes and their wardrobe and their shoes to show that they are competent in choosing clothes, you know; that they can put an outfit together and that it’s not just looking good and feeling good, but it’s a signaling method that “Look, I am…”

 

Jim: [crosstalk] And put together, of course.

 

Horace: Yeah, “I’m competent in this regard and you should respect me for it” and that’s… you know, men will do the same with all kinds of things, obviously. It’s not just a female-only job, but I’m saying that along the dimension of putting something together like that—and if you watch girls when they play, they also like to put things together and make an ensemble. That is one of the jobs and, as far as I know, only Mini solves it at this point and so obviously they become extremely attracted to it and—I don’t know what the numbers are, but I would be willing to bet and if you would drive a Mini, you start to notice a lot of other Minis just like in the Volkswagen you start to notice Volkswagens; but if you drive a Mini and you do see a lot of Minis and you look at the driver, I would say it’s 80% female. I just… that’s my impression, I could be wrong. And they’ll make a model that will be masculine if you wanted. Obviously the color changes and all these other things and you could make it a powerful version and all the other stuff. But that’s probably a small group relative to the ones we are really focused on just having a wonderful looking car. So anyway that’s one aspect of how you can take the car industry as it is but simply evolve the job to be done in a slightly new direction. And, you know, you’re dealing with 50% of the market in enabling that. And by the way, I’m sure Minis are often also second cars in the family so they wouldn’t be a compromise for the man because he would have also maybe his car. So anyway that’s just one thought I had about how you can solve the job to be done and I think what you see more and more with cars is positioning on jobs; or at least the clever ones are figuring out the jobs and not saying our car is a crossover for this or that demographic. They’ve created over time car categories, so if you ask any car worldwide, “What’s your portfolio?”, they’ll talk about… they all speak the same language, “Well it’s a compact segment car” as if that was somehow a universal language that everybody understands; that everybody consumer thinks…

 

Jim: Manufacture talk.

 

Horace: Yeah, I’m gonna go buy myself a compact segment. Or, or…

 

Jim: Crossover SUV, right?

 

Horace: Crossover SUV. So you see the copycats going on, you know, so you have somebody build, “Oh, we don’t have a minivan; oh, we’re going to have a minivan now because somebody else had” and then somebody builds an SUV, so “Oh, we gonna have an SUV”. So the establisher category is that there might be a proxy for a job, but eventually they all begin to say you have to have that category in your portfolio otherwise you’re… so what used to be in these categories are out of control. I mean, look at BMW, ok? BMW suddenly…

 

Jim: Car for the niche.

 

Horace: They’re all over the place and they have to have an SUV; not only one, but several; they have to have a crossover; they have to have a…

 

Jim: Station wagon.

 

Horace: Porche has to have one too. They have to have a tiny little city car, they have to have the mini for some things, but they also have the one series. Then they have to have a two-door, they have to have a four-door; on and on it goes. And then Mercedes did the same and so the Germans are like in lockstep following the same formulas and—whether you are French or German—I am sure you don’t know much about French cars, but you pretty much see the same thing. And so they’ve all lost any Frenchness of them, you know, or German because it used to be that German meant something and it meant performance, it meant luxury, but it meant mostly engineering. And now, you know…

 

Jim: It’s a brand now, mostly.

 

Horace: It’s brand and they all have the same bunch of cars—same sizes, the same cookie cutter as everyone else. And they are all built using the same process and, what’s more, if you start to look—and I don’t have proof of this—but if you start to look at the factories, you see the same tools are in use by every single car factory in the world and because the same tools are in use, it’s the same process; it’s the same car structure; it’s the same quality, so you can’t differentiate it anymore. So you want robots, you got robots. The same robot company will sell you robots for any car plant in the world; same sheet stamping; same painting process. It’s all certified so it doesn’t pollute, so you have to have the latest design that’s… all the governments got together and they all agreed it has to be water-based process. So you have this multiple hundreds-of-feet-long process for painting cars. And the same supplier supplies—probably there’s two suppliers in the world that can deliver that type of paint shop. So the paint shop is put in every factory in the world and that’s why they all look the same, they all feel the same.

 

Jim: So let’s sort of wrap up by just taking the inverse view. Again with the growing urbanization, the growing use of public transit by young people, in the States you know we have this thing—maybe you’ve seen it—Megabus. They, you know, $25 I think you go from Chicago to Minneapolis; you can ride it, you know. In New England there’s a lot of them, but they’re big double-decker buses that have WiFi.

 

Horace: Yeah, they took off first I think actually in the New York–Boston route.

 

Jim: Yeah, so they’ve grown. If you think about the job to be done, “Hey, you know I have my smartphone; I have my tablet; I am going to consume; I am going to create things; whatever I am going to do; so that is more important to me than sitting behind the wheel and dealing with traffic in these urban connections” let’s say.

 

Horace: Yeah, public transportation could be another thing. This has also kind of run into a wall. Public transportation in most of the world is quite good. We have a lot of options in Europe for example. In the US it’s stagnated and atrophied and in fact often regressed much to a lot of political debate around that. Unfortunately it’s missing the point. A lot of it about the economics of ridership, but in the end of the day you have to have the job done and, because of the way the infrastructure is laid out, the job cannot be done by public transport. But again there is an opportunity for someone to figure something out where you go to a hybrid model, where you figure out a new thing like communication infrastructure. If you make that available, people will commute more, because they’ll say “I can be productive during that hour on the train, bus.”

 

Jim: Exactly.

 

Horace: And I too… I have the thing that I could take my son to school driving or I could take my son to school in a bus. And the bus, though, takes about twice as long, maybe even a bit longer. So I would lose an hour a day probably if I took the bus. But it’s more comfortable in some ways because I don’t stress over the driving; I don’t stress especially when the weather is bad. But I feel like I’m wasting my time there, so in balance I still would take the driving option. But if a couple of things were tipped against driving, for example a congestion charge in the city…

 

Jim: Right.

 

Horace: Right, that would drive my costs to the roof. Second would be if they added WiFi on to the buses sufficiently and provide it—although there is 3G, there are some issues with using a computer in the bus. But if they architected it in such a way; give you a little bit more room; give you a little bit more or maybe a power socket or something like that; suddenly people will rethink public transportation and they’ll think of it as productive time and that’s where one wonders why aren’t they doing this. So yeah, focus on the job, do the proper research, serve the people, don’t ask them how much that would cost. Money is never usually the only thing that people care about and maybe the only thing that you can measure because it’s something easily surveyed and you can easily capture data on that. But the real problem is usually deeper and the calculus that takes place in a person’s mind is complicated—the decision process “Do I do it or do I not do it?” You have to sit down with somebody work through that in a long interview process, with an inquisitive type of mind that gets you to the answers and do it a few hundred times to get a good sample; then you paint the right picture and not much gets done that way so anyways…

 

Jim: I think we’ve covered a lot here, Horace, and probably we need to talk about bikes as well. I have a few things on that maybe…

 

Horace: Bikes, cars, buses, trucks—all these things, they all depend on roads and what few people talk about is how are roads built, how are roads funded, how are roads designed and that all these things—the design of infrastructure—cannot happen independent of the vehicle or the vehicle cannot be rebuild and redesigned without understanding the infrastructure. And this is why the world would think of it as already modular and we think cars are plug-compatible with roads, but they’re so plug-compatible that no other car fits in, right? And then we realize that, hang on, that means we can’t put bikes on the road because we don’t have places for them. We haven’t built roads to accommodate bikes and when we try, we get into all kinds of problems, and then the bike lane issues and all that stuff; yeah, so you’re right, we should talk about this next time.

 

Episode 1, new version

Later on…

It’s been a while.  I’m sure you know how time is precious.  I hadn’t thought to post here more, barring some radical windfall that allowed me a substantial increase in leisure time.

But then, @oliverbruce (marketing manager with Uber, from what I see in his twitter bio) emailed me saying he had a few more transcripts of Asymcar episodes and would I like them and yes very much thank you and how awesome.  Like that.

Almost immediately some inexcusably great long while after receiving them (sorry Oliver! and thanks much), here I am posting them for all to enjoy.

A small word of explanation:

  • Episodes 1 and 2 – anyone want to diff them and sort the discrepancies to arrive at an “official” version?  I’ll post Oliver’s versions so everyone will have both.
  • 6 and 18 are from Koemei.  If anyone feels so inclined to copyedit and format them and label the speakers’ words like what’s been posted so far, feel free.  If you send stuff to mithlond [d0t] stream (4t) gmail [d07] c0m I’ll post it here.  If you include your twitter handle I’ll credit you in the post.
Later on…

Episode 2 in JSON format

[
	[
		{
			"speaker": "Jim",
			"words": "Welcome to Asymcar.  Well, Horace, podcast number two.  Today's topic is Tesla.  So what strikes you about Tesla?"
		},
		{
			"speaker": "Horace",
			"words": "Yeah, well, I..."
		},
		{
			"speaker": "Jim",
			"words": "It's come up in the comments.  And you've mentioned it from time to time.  Let's start with your observations."
		},
		{
			"speaker": "Horace",
			"words": "Well, I think it's a great case study.  And I'm very curious about what's going to happen there.  The problem... OK, so here's the dilemma.  If you follow the Innovator's Solution, which is the book that describes the keys to a successful disruption and you go through the list of things that an innovator needs to do to be successful, as a disruptor it tends to be everything that Tesla doesn't do.  Or that Tesla doesn't do the things that are enumerated there."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "So the challenge therefore is either the Innovator's Prescription for our disruptor... The algorithm is wrong, or Tesla isn't disruptive.  So we have to get to the bottom of this.  There are anomalies.  First of all, right off the bat you should declare that this recipe is not cast in stone.  It's not irrefutable.  There are success stories which are not following that recipe.  But we have to ask exactly if Tesla is an anomaly, why and how we make sense of it. So the thing is this, that...  So let me go through some of these items.  And then we'll get into some of the paradoxes as well, of Tesla."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "First, the first think I'd look at is a question of asymmetry.  Now, asymmetry of what?  Typically what I look for is asymmetry of business model.  Not asymmetry of technology.  Not asymmetry of management style or organizational structure.  I look simply for the reasons why someone who is incumbent in the business wouldn't want to do exactly what the entrant is doing.  And the logic of it is that if you're entering a market like a David versus Goliath you set new rules.  You don't need to engage in a head-to-head battle with the incumbent.  That preserves you.  Because typically what happens is the bigger guys win in most head-to-head battles, or sustaining battles."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "They just have all the resources.  They have no incentive not to win.  But we'll get back to that, whether indeed there's something anomalous - not so much in Tesla, but in the incumbents in this case.  But at first glance it looks like Tesla is trying to make cars to sell to the same customers using similar methods.  Although yes, there are some differences.  But they are part of the same value network.  Although again, there are some distinct differences as well."
		},
		{
			"speaker": "Jim",
			"words": "So they're joining the club, in other words."
		},
		{
			"speaker": "Horace",
			"words": "Yeah, but they're making money the same way.  The idea is you buy a car for a certain amount of money.  And why wouldn't an industry that has been cross-interbreeding for so long, where most large auto makers own a piece of another auto maker, which share platforms, which tend to share a lot of engines."
		}
	],
	[
		{
			"speaker": "Jim",
			"words": "Suppliers."
		},
		{
			"speaker": "Horace",
			"words": "Which tend to share suppliers, tend to share even distribution in terms of dealerships.  You have a dealership which handles multiple brands - very common now.  So why would they look at this new producer of cars and say, well we don't want any piece of it?  That is the real puzzle, ok?  I think power train in itself - and I mentioned this last time - power train in itself isn't something that would put people off.  Yes, it's a quantum leap in terms of technology.  Yes, you may have to adapt a lot of processes and tooling.  But fundamentally these are things with four wheels that drive on the same road, subject to the same regulation, subject to the same economics.  Yes, the fuel systems are different.  But then again, you have various fuel systems like diesel versus now ethanol."
		},
		{
			"speaker": "Jim",
			"words": "Natural gas."
		},
		{
			"speaker": "Horace",
			"words": "Natural gas coming up as well.  So there are different"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "fuel systems.  There are different power train technologies already which cohabit the same value network.  So that's one issue: asymmetry.  The other issues are related to, for example, job to be done.  Is the newcomer addressing a job that's an unmet need.  Typically, again, this is a new market disruption, not a particularly low-end one.  So you would see, for example, what Apple did in making our phones more computer-like.  It has essentially taken a new job to be done for the phone and exploited that.  And sure enough, people rushed in to hire the product for this new job.  Does the Tesla hire... Is the Tesla going to be hired for a new job to be done in transportation.  Well, if they had a weird business model where you didn't own a cars, for example - and we mentioned this,"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "again, the last time which would be...  Well, you don't actually own a Tesla.  You maybe don't even lease it.  You rent it.  Or it's a shared car scheme.  Or we take away the hassles of ownership.  We take away the hassles of insurance.  We take away the hassles of parking.  We take away a lot of issues which come along with ownership.  That's a service.  That's an interesting new job.  Many people have that problem, especially in cities.  They're not looking for more transportation.  They're actually looking for how do I not have transportation as much."
		},
		{
			"speaker": "Jim",
			"words": "Well there are a few companies like Zipcar."
		},
		{
			"speaker": "Horace",
			"words": "Yeah."
		},
		{
			"speaker": "Jim",
			"words": "And a few others out there that are abstracting that, right?"
		},
		{
			"speaker": "Horace",
			"words": "Exactly."
		},
		{
			"speaker": "Jim",
			"words": "And taking the hassle away from you.  And interestingly, for the current manufacturers abstracting you from their dealer network, from their sales process, the leasing the financial, the whole thing.  So that perhaps is an asymmetrical approach."
		},
		{
			"speaker": "Horace",
			"words": "Exactly.  So they are"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "taking some things...  They are taking a distinct approach with respect to retail.  That is the network issue.  Although, again, we'll get to that.  I think there is an exception there.  But I'm not sure how scalable it is as a global infrastructure because, again, the dealer networks are actually quite strong politically and may actually be able to stop Tesla.  The impetus might be that the laws can change.  Tesla will be powerful enough politically in its own right.  But we can't get into that, quite, to see what the dynamic will be.  But that's one of the...  The other thing is when you talk about disruption you sort of have to ask yourself, is it low end or is it new market.  And this has been sort of the dichotomy of disruption that's been going on for a long time.  And... In other words, you have to understand how exactly will this"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "product compete.  So, on the basis that it's low end it means that it competes with non-consumption, typically.  It competes with over-serving products that have moved up market.  Well, the auto industry is so broad that there are very few spots at the bottom.  Truly in the markets that Apple... that Tesla is attacking.  So we're not sure.  And obviously they're not priced as a low-end product.  They're actually priced for the one percent's of the world.  That is indeed an almost hyper-high end.  Because in fact these people are... Or the buyers are expected to kind of be almost altruistic and not economically-minded enough to really make a decision on the basis of economy."
		},
		{
			"speaker": "Jim",
			"words": "Well, it's almost a fashion statement.  I continue to see more Tesla's even in my home of Madison,"
		}
	],
	[
		{
			"speaker": "Jim",
			"words": "which is interesting, given winter.  But they're different colors.  And I view it that way, along with an environmental statement and all those things."
		},
		{
			"speaker": "Horace",
			"words": "Right, right. So you're still trying to go down the checklist and saying ok, I'm not sure it's a low-end.  The next question would be new market.  But again, new market as we talked about in the Zipcar model...  It's about really changing the job to be done, looking outside of the core.  So is it really doing that.  It could be.  There's is a sort of possibility that we're not quite seeing the market that Tesla is enabling here.  Then there [is] a bunch of things about the value network that are troublesome.  Does it conform or comply with the world that is as we have it today?  Or is it trying to create a new world?  Which is a very hard thing to do, especially if you're a startup or an entrant.  Well, there is this question about charging stations.  They're trying to not only take on the car industry, they're"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "trying to take on the dealer industry.  They're trying to take on..."
		},
		{
			"speaker": "Jim",
			"words": "The oil industry."
		},
		{
			"speaker": "Horace",
			"words": "The oil industry.  But the actual people who own filling stations and do that sort of work.  Because it is very different in the way that it approaches that model.  Now again, there might be asymmetries in all of those three, in which case it would succeed.  But it's very hard to make sure that you're not gonna get into a head-to-head battle with all of those players.  I think that the interesting thing is the mentality of the company.  I think the management there - they're really not of a mind that says, we are humble.  We are meek.  We are going to go about this slowly.  I think it's the exact opposite mentality to the disruptor's creedo: be hungry for profit; be patient for growth.  It exhibits none of these things.  It is bold.  It is brash.  It is..."
		},
		{
			"speaker": "Jim",
			"words": "Yes.  They're not sneaking up on anybody.  That's for sure."
		},
		{
			"speaker": "Horace",
			"words": "Yeah."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "It is not self-effacing in any way - not trying to hide and fly under the radar.  It is the exact opposite of that.  It is a moonshot.  It is a railroad building exercise, in a way.  Let's change the world in as aggressive way as possible.  So that's...  You go down the list, and I'm finding it difficult to find conformance to the rule book.  And that's why I initially looked at it and said hmm.  This doesn't seem to comply.  So that is one way to look at it.  But the real question is maybe I'm missing something.  Maybe there's something going on here that would allow them to succeed and prosper.  Now one thing that is possible - and this is, I think, coming up as one of the potential keys - is that the industry may be so bad, and so inept, that they really...  And this is..."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "So there's this sort of..."
		},
		{
			"speaker": "Jim",
			"words": "[crosstalk]"
		},
		{
			"speaker": "Horace",
			"words": "Yeah.  There's a caveat to the disruption hypothesis, is that normally - in most cases - the incumbents will have motivation to respond.  But in some cases they really do fall asleep at the switch.  So that's the question about that.  Now first of all, it's hard to believe because there are really a lot of incumbents.  So if it's not GM, if it's not Ford, if it's not Chrysler, it could very well be one of the dozen other large manufacturers.  And if not them, then there's probably a few more that are smaller and mid-sized manufacturers who might be interested in what...  Certainly Toyota is not full of fools.  And the Koreans and Japanese and Chinese are no fools.  So it's this question.  I was watching again... The latest Top Gear I saw showed a Mercedes"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "electric supercar.  Is it the CLS?  Or something like that.  It's based on one of the top of the line supercars they make.  But it has an electric power train with four different motors.  Super high performance.  It'll actually almost beat the best performing equivalent of that car."
		},
		{
			"speaker": "Jim",
			"words": "The traditional one.  Right."
		},
		{
			"speaker": "Horace",
			"words": "Yeah.  A 6.3 liter AMG equivalent is actually slower in some cases than this electric vehicle.  It has some issues with range.  But it also has an architecture very similar to the Tesla in having hundreds if not thousands of batteries.  It is four-wheel drive.  It has regenerative braking.  It has very smart electronic control system to manage the traction not only through braking, but actually"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "through regeneration so that when it goes around corners really quickly..."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "Very low center of gravity."
		},
		{
			"speaker": "Jim",
			"words": "Lots of software."
		},
		{
			"speaker": "Horace",
			"words": "On and on."
		},
		{
			"speaker": "Jim",
			"words": "Lots of software."
		},
		{
			"speaker": "Horace",
			"words": "And... Yeah, lots of software."
		},
		{
			"speaker": "Jim",
			"words": "Yeah."
		},
		{
			"speaker": "Horace",
			"words": "Lot's of processing power."
		},
		{
			"speaker": "Jim",
			"words": "To make all that work.  Yep. Yep.  But you know, BMW has the i8 - same idea - coming up."
		},
		{
			"speaker": "Horace",
			"words": "Same idea.  And so the l..."
		},
		{
			"speaker": "Jim",
			"words": "But it was marketed in Provence and Monaco and...  So it's targeting, obviously, the very high end."
		},
		{
			"speaker": "Horace",
			"words": "Yeah."
		},
		{
			"speaker": "Jim",
			"words": "But taking those same tools from Tesla, or similar tools.  And applying it to their models."
		},
		{
			"speaker": "Horace",
			"words": "So already now, only a couple years down the road of Tesla's progress, already the larger, more well-resourced, more engineering focused,"
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "...more visionary manufacturers are beginning to actually reuse some of its ideas.  Not to say that they're copying.  But it's...  The point is that that's the nature of business.  The engineers are certainly not gonna feel like, hey, these guys are smarter than we are.  I'm sure the German engineers who,"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "by the way, or French or whoever - they've been in the industry for decades.  They've been studying electrical systems and all these other things for decades, and controls and so on.  So they're going to look at this as a challenge.  And so they're going to respond very effectively.  So that's one piece of evidence to sort of say, well, maybe from the luxury end those makers will be building product that will compete with the Model S.  Now, of course, the other's argument - counter-argument - is that yes, but Tesla is going down-market pretty quickly.  So they're going to reach lower price points, lower tiers of the market, as they go forward.  But, again, it's gonna take a couple of years.  And, I think, also from the bottom we've seen a lot of electrical, or electric vehicles some coming from Citroen, some coming from Nissan, coming from..."
		},
		{
			"speaker": "Jim",
			"words": "Mitsubishi, and Toyota obviously.  Ford."
		},
		{
			"speaker": "Horace",
			"words": "And GM with its"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "own variant."
		},
		{
			"speaker": "Jim",
			"words": "The Volt."
		},
		{
			"speaker": "Horace",
			"words": "With the Volt.  So there isn't an absence and complete ignorance of the opportunity there either.  But there's one more thing which puzzles me.  And that is that, why have... If this electric vehicle is more about the job to be done, is the question.  If it's more about economy - being efficient - then why haven't the people who actually buy vehicles on the basis of costs and efficiency - i.e. not consumers - why haven't fleet purchasers run full speed towards electric vehicles.  Because you would think delivery trucks.  You would think service fleet vehicles.  All of these people would look at the economics and say, I'll drop internal combustion in an instant because this think is more efficient."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "Besides, my routes are predictable.  The vehicle is parked every night in the depot where I can get it fueled.  I can regulate everything about the way the vehicle is operated.  I can manage everything perfectly.  And thus, for me as a fleet buyer electric would be the answer.  No manufacturer that I'm aware of has addressed that market.  Tesla mentioned it briefly in 2010 saying they're going to go there someday.  But if that's the job to be done - i.e. efficiency and economy - why hasn't UPS, why hasn't FedEx..."
		},
		{
			"speaker": "Jim",
			"words": "FedEx."
		},
		{
			"speaker": "Horace",
			"words": "Why haven't those guys jumped on it.  And especially in Europe where they're dealing with smaller vehicles, typically.  Urban areas and higher density of"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "cities.  So you have this question of if economy was the job to be done and efficiency, the route would have gone through the... outside of the consumer space.  And as the case is, for example, with diesel.  Diesel is the absolute standard in trucking."
		},
		{
			"speaker": "Jim",
			"words": "Distribution."
		},
		{
			"speaker": "Horace",
			"words": "But also in distribution.  Because it is extremely efficient.  And the miles per gallon on diesel are often 30% - often higher than that - than you would get on a gas vehicle.  And so of course, if you're a fleet buyer you're going to go for the diesel vans and so on.  So that group of buyers hasn't even been approached by manufacturers, probably because it still doesn't make sense on the initial cost to purchase,"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "on the maintenance long-term of the batteries - not of the vehicle.  The vehicle will probably be cheaper to maintain.  But the batteries are going to probably wear out.  And then you have to fold into the...  These are people who do nothing other than sharpen their pencils and figure out the total cost of ownership."
		},
		{
			"speaker": "Jim",
			"words": "Sure.  It's called money.  I think that there is another angle on that.  And I agree with you that diesel remains the power plan of choice in that space.  But T Boone Pickins has been lobbying, marketing, advocating for natural gas power for natural gas fleets around the country."
		},
		{
			"speaker": "Horace",
			"words": "Yep.  And I know there's great engine technology there..."
		},
		{
			"speaker": "Jim",
			"words": "Yes."
		},
		{
			"speaker": "Horace",
			"words": "...that hasn't been deployed.  I think there are several companies that are in the diesel business are thinking to switch out to natural gas for fleets."
		},
		{
			"speaker": "Jim",
			"words": "Right. Exactly."
		},
		{
			"speaker": "Horace",
			"words": "And that makes a lot of sense.  Folks there are probably thinking hey, the economics of this technology are perfect for us.  So why... That is the puzzle to me.  Electric seems to be something positioned for consumers,"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "not for those who are really concerned about efficiency.  And the consumer pitch - as was the case with the Prius which, by the way, again why hasn't hybrid been the approach to fleet sales."
		},
		{
			"speaker": "Jim",
			"words": "Everything.  Right.  Right."
		},
		{
			"speaker": "Horace",
			"words": "Right.  So hybrid is great.  It does improve efficiency of gasoline engines.  But it still doesn't add up in terms of the econ..."
		},
		{
			"speaker": "Jim",
			"words": "Right - there's a cost.  There's a tax for it."
		},
		{
			"speaker": "Horace",
			"words": "There's a tax for it.  So this is again... I'm not saying there's an absolute proof here.  But there's a weirdness about it.  Why hasn't the industry gone through that path of least resistance.  It seems that the path is going through a psychological job to be done rather than truly an economic, rational job to be done.  And so the psychological job is much more around feeling good about your purchase.  And so in that...  And that's why I say the job of Tesla and the job of Prius,"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "to some degree, is to give people comfort about their consumption.  And that's... Nothing wrong with that.  Businesses have been built on the notion of providing psychological comfort.  But we just have to be clear about it.  Because that means you don't have to fight a battle of justification.  And you have to simply say - and many brands do this all the time - it's about motivation.  It's about feeling good.  It's about solving that job to be done.  And that's why I'm thinking that perhaps that...  Case in point: these luxury cars.  And we mentioned Mercedes.  I've heard of Range Rover.  I've heard of Bentley in some examples doing..."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "showing off concept cars which are hybrid and/or electric.  And the idea is, again, that if you are going to spend hundreds of thousands of dollars - which is what these cars cost - you might want to feel good about your purchase because you're getting some green credentials with the fact that the power train is a little bit more green.  So it doesn't make an impact, really, in the economic sense.  But it is there as a job to be done.  So again, we're just kind of circling around the real question here."
		},
		{
			"speaker": "Jim",
			"words": "Right.  Right."
		},
		{
			"speaker": "Horace",
			"words": "So... yeah."
		},
		{
			"speaker": "Jim",
			"words": "But certainly one thing we're seeing is an - and I'm in the software business - an incredible growth in software in these cars.  I was reading a review of the new GTI and they were talking about software that uses the brakes to give you different effects depending on your settings,"
		}
	],
	[
		{
			"speaker": "Jim",
			"words": "both in the suspension and in the... when you're cornering to give you a bit of an oversteer or understeer depending on your perspective.  And all those sorts of things.  And obviously the Tesla world, the BMW i8, i3, the Mercedes you mentioned, certainly the Toyota Prius - they have incredible amounts of software.  And that's only going to grow.  So I wonder if some of those players - and maybe it's Apple someday with their iOS in the Car - if they have another angle on the market, both from a customer relationship perspective, value chain, all those things."
		},
		{
			"speaker": "Horace",
			"words": "Right.  And that's another thing, that usually breakthrough - a disruptive breakthrough - comes from outside the industry.  Now Elon Musk is from outside the car industry.  So he kind of qualifies along...  But he hired people to build the business very much in the same..."
		},
		{
			"speaker": "Jim",
			"words": "Mold."
		},
		{
			"speaker": "Horace",
			"words": "... the same mold that exists.  And I talk about this last time.  It was about the fact that from my point of view the production methods that are put to use"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "are actually...  They've argued well, we're going to have a different power train.  We're going to have a different dealer network.  We're going to have a different charging system or fuel link system.  But we're going to make cars exactly the same way as every other car.  In fact, we're going to buy, in fact, a plant that used to make cars Fremont, California.  We're going to build them using the same tooling, the same machines, the same sheet metal, the same unibody, the same technology as far as welding it together, and so on.  Paint.  Everything is more or less copy/paste or forklift technology, right?  You pick it up and you drop ship it.  And that's...  You've got yourself a car factory.  And there are people who suggest that the problem is not the things that Tesla is solving.  The problem is actually the very thing of the production system.  The production system is one that forces you to be heavy, big,"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "and..."
		},
		{
			"speaker": "Jim",
			"words": "Sure.  It's huge capital.  Absolutely."
		},
		{
			"speaker": "Horace",
			"words": "...inefficient.  And especially because the capital required also forces you into a scale mentality.  That means that...  So the real asymmetry and, I think, also the question of what's overserving...  What's overserving the market today is not the current cars.  Because actually they vary all across the spectrum.  You can get yourself from the cheapest car to the most expensive - prices for cars vary from...  I don't even know what the bottom is, but maybe fifteen thousand up to hundreds of thousands or millions even.  So there is no gap in the price band.  Really.  Maybe you can go below fifteen.  But there's issues with that simply in terms of getting regulation and all that.  so the problem I think is that overservice is in the production systems which are in use today.  That they're more than good enough.  That you need to think about"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "how can you make a production system that costs ten percent of what exists, what is in use today.  And it produces one tenth the volume.  So you have this sort of threshold beyond which your project will not get approved.  You better sell three hundred thousand a year or something like that before you build the plant."
		},
		{
			"speaker": "Jim",
			"words": "I thought about that.  And that's an excellent point.  Dan Neil who I read every now and then in the Wall Street Journal reviewed a class of these new off-road vehicles called side-by-side a couple of weeks ago.  And he mentioned that they are mutating and up to seventy-five miles an hour.  And Kawasaki makes them.  Yamaha, Polaris, here at least in the states.  And I thought they looked like the original Daimler motor carriage and, obviously, earlier Model T and some of their earlier cars.  Obviously much more sophisticated, obviously.  The interesting part of the article was the fact that the Consumer Product Safety Commission"
		}
	],
	[
		{
			"speaker": "Jim",
			"words": "in the US has gone after some of them for different safety issues One can imagine how different the car industry would be if you had to start today..."
		},
		{
			"speaker": "Horace",
			"words": "Mmm hmm.  Mmm hmm."
		},
		{
			"speaker": "Jim",
			"words": "...with all of those regulations and requirements.  And so it is..."
		},
		{
			"speaker": "Horace",
			"words": "One of the curious things about safety - and this always is a great gem of a story - is that if you think about motorcycles...  Motorcycles are horribly unsafe.  I mean, they are lethal.  They are vehicles, basically, to turn operators into organ donors."
		},
		{
			"speaker": "Jim",
			"words": "[laughter]"
		},
		{
			"speaker": "Horace",
			"words": "You can sort of think of them as that, as a...  Sort of a positive way of looking at it."
		},
		{
			"speaker": "Jim",
			"words": "Very efficient.  Absolutely."
		},
		{
			"speaker": "Horace",
			"words": "Right.  It's an organ donor creation product."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "But the funny thing is that if you imagine if they didn't exist. If someone were to say, hey I invented a two-wheeled vehicle that you just kinda hang onto it and it'll go a hundred and fifty"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "miles an hour.  And it's protecting you with, in some places, with a thin sheet of plastic over your head.  And that's the... If someone put that out there they would just not be...  It would be laughed out of existence.  But motorcycles are grandfathered, right? So in that sense you have car makers being put to increasingly onerous safety requirements.  But motorcycles aren't.  Nor, for example, are trucks.  But the point is that the...  We as consumers don't value the safety ?  It's a purely artificial construct in the sense that most buyers are not conscious of all of the subtlety as far as safety.  We have to simply entrust"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "authorities who supposedly know what they're doing to certify these products.  And they're given very vague ratings.  One to five on some scale.  And yet..."
		},
		{
			"speaker": "Jim",
			"words": "It's interesting, though, to consider the safety question.  Just to back up a minute.  One of my favorite writers - now deceased - in Car Magazine in the UK was L. J. K. Setright. and he wrote an article some years ago and said that if people had worn seatbelts for many years we would never have had the explosion in all the... around vehicles safety requirements. The bumpers and the airbags and all these other things.  And I wonder about that."
		},
		{
			"speaker": "Horace",
			"words": "It's a good point."
		},
		{
			"speaker": "Jim",
			"words": "Obviously there's a lot of cost."
		},
		{
			"speaker": "Horace",
			"words": "There isn't a market mechanism at work.  Safety has not been driven by market forces.  It has been driven by..."
		},
		{
			"speaker": "Jim",
			"words": "Interests."
		},
		{
			"speaker": "Horace",
			"words": "Yeah.  There are simply things that are felt to be the right thing and you simply impose a blanket"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "requirement.  But you exempt a few things, like we said.  Motorcycles, trucks, certain vehicles which aren't, quote, cars.  And that's the interesting thing is that in order for you to innovate now, you have to somehow jump out of the classification of car to make something that actually solves a job that is different.  This is sort of the...  And I don't argue against safety regulation.  But we have to...  You see, there isn't room within that to think about where do we go from here.  And also, you can't think outside of the network effects.  Because we have also roads and service stations and all of the paraphernalia that come along with cars."
		},
		{
			"speaker": "Jim",
			"words": "Right.  Road taxes, tolls and vehicle taxes."
		},
		{
			"speaker": "Horace",
			"words": "Taxes, tolls."
		},
		{
			"speaker": "Jim",
			"words": "License fees.  Insurance costs.  All the interests are aligned. Yes."
		},
		{
			"speaker": "Horace",
			"words": "Exactly.  And it's all an"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "interconnected mesh that prevents anything from really changing it.  There are places in the world that may still be open to innovation.  But most places aren't.  And that's...  Even emerging markets are, instead of thinking how can we create an infrastructure for transportation, they simply say, ok we'll have whatever they're having."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "We'll just adopt the standard, quote, best practices.  And so we don't get even experiments that happen.  Or if they do, people immediately say, but this wouldn't have happened if you adopted the best standards.  In that sense it's a little bit depressing.  And I'm... Maybe Tesla is simply doing the best it can - the best given the circumstances, given the fact that they are an American company.  But it's still a struggle to me to think outside this box.  And maybe"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "pressure builds up over time.  As you noted, the fact is more and more young people are choosing not to own a car.  More and more...  So you'll have, potentially in the future, less driving.  Which means lower taxes from all of these fuels and cars and roads. Then you have..."
		},
		{
			"speaker": "Jim",
			"words": "Unless they raise them, which they're talking about. [laughter]  And the [crosstalk]"
		},
		{
			"speaker": "Horace",
			"words": "Well, they'll raise them.  So they're going to squeeze people..."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "...so that those who remain with cars..."
		},
		{
			"speaker": "Jim",
			"words": "Yes."
		},
		{
			"speaker": "Horace",
			"words": "And the main thing is that it actually may affect all kinds of things.  I mean, the U.S. has been built - in the last century, last half-century or, I would argue even the whole last century, let's say - has been built around the automobile.  Meaning that we've had urban planning, or lack thereof.  We've had the road network itself - which is one of the most impressive networks in the world, electric or not.  And the way homes are built, the way people live,"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "the way people shop, the retail environment, the mall concept, the...  All that has been build on the premise of a car.  Now I didn't say internal combustion car.  I simply said car.  So what would enforce, or what would perpetuate the network and make sure people don't have to abandon their homes and don't have to change jobs and move from where they live - a lot of that will allow the car to be sustained as it is in terms of a vehicle for a finite number of passengers, etc.  You're not going to see, suddenly, a new road network that's friendly to bicycles, a new rail or public transport network that will emerge.  These are not economically viable.  Because even if you can engineer the trains and the vehicles, you can't rebuild"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "the infrastructure easily enough.  So there are questions about land use.  There are questions about zoning.  There are questions about laws.  There are questions about millions and millions - hundreds of millions of people having been vested in a system."
		},
		{
			"speaker": "Jim",
			"words": "Although the bike people have been thinly successful in certain places in tapping some of the gas tax revenues to build bike lanes or separate bike paths.  But I want to go back even farther, because I think this cultural or political or economic incentive to maintain the current environment we have - the auto environment - it tells us a little bit of the story from Segway.  Remember when Segway was super hyped."
		},
		{
			"speaker": "Horace",
			"words": "Mmm hmm."
		},
		{
			"speaker": "Jim",
			"words": "I know one of the first things they ran into was getting political approval to operate these  things in different places.  And that seemed to just stop it.  Among other issues."
		},
		{
			"speaker": "Horace",
			"words": "Yeah, and...  That's a great story.  Segway even sold"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "a utility... what is... not the word... a fleet-type vehicle which was supposedly for mail carriers."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "The mail carriers could use this thing to deliver mail.  And the funny thing was the unions were against it.  Because actually it made them more productive."
		},
		{
			"speaker": "Jim",
			"words": "More productive, right. [laughter]"
		},
		{
			"speaker": "Horace",
			"words": "And so you can see how you introduce something..."
		},
		{
			"speaker": "Jim",
			"words": "Interests pile up.  Sure."
		},
		{
			"speaker": "Horace",
			"words": "And just... There's resistance.  And of course the municipalities or local councils or whatever they're called in different countries said, no, there's no room for this.  It's not allowed on the sidewalk, it's not allowed on the road.  And they tried to lobby.  They lobbied for all kinds of concessions.  But no was the answer to all of them.  And it ended up in some really tiny niches.  And that was a very low-end vehicle.  That, to me, felt very disruptive because it had"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "this idea of mobility at a tiny incremental improvement beyond walking.  And it was...  The only thing it didn't have - which, again, is a deal killer - was conformability with the current network.  The current transportation and...  Yeah.  Well, that's all you can call it.  And we go back to the question of if you find countries that have adopted bicycles to a large degree you find that they did build a lot of bike paths.  But they've had to do it over decades."
		},
		{
			"speaker": "Jim",
			"words": "Yes."
		},
		{
			"speaker": "Horace",
			"words": "They've been thinking about it since the seventies.  This is true of Holland.  This is true even of the Nordic countries.  Even though the weather is miserable here in Finland most of the year, we have bike paths everywhere.  You can go from almost any point to any other point.  And you can get a map - an urban map - to tell you exactly how to do that.  And people get on their bikes year-round, even in the snow. And they actually"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "drive around on bikes with studded tires.  So you change to winter tires.  And they're not even mountain bikes.  These are people driving - even old people - driving or riding their bicycles in the snow.  I've seen it.  Speaking of mail carriers, mail carriers also use bicycles here.  And they do it in the winter.  So I should post some pictures I've taken over the years of bicycles in knee-deep snow."
		},
		{
			"speaker": "Jim",
			"words": "In the winter.  Yes, yes, yes.  We have a few die-hards in Madison as well."
		},
		{
			"speaker": "Horace",
			"words": "In this sense here it's just some normal person.  It's not some kind of guy showing off."
		},
		{
			"speaker": "Jim",
			"words": "[laughter] Right. Is Segway an example of first-to-market, first-to-fail?  And I say that because I posted something on the Asymcar River that Toyota announced - and this would not surprise me - that they've cut a deal with the City of Tsukuba to begin a public sidewalk demonstration of Winglet, which looks quite similar to the Segway."
		}
	],
	[
		{
			"speaker": "Jim",
			"words": "A \"Toyota Personal Transport Assistance Robot\", they're calling it."
		},
		{
			"speaker": "Horace",
			"words": "Yeah, I've seen some concepts of those."
		},
		{
			"speaker": "Jim",
			"words": "Yep."
		},
		{
			"speaker": "Horace",
			"words": "So they've been looking at this personal transportation question.  These vehicles that can go from being scooters or, essentially, wheeled chairs to somehow more road-friendly.  And these are brilliant people.  And the robotics that...  The technology and robotics and electric motors and battery technologies and the stabilization - all of these have been going through huge leaps which allowed the Segway to be born.  It allows now all of these.  And again, the Japanese are no fools about these things.  They have a very good process and a very good institutionalized engineering culture that allows the refinement of these great ideas.  And so the problem for Japan is the same as the problem for everyone else.  How do you make that conform.  And"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "what they've done with the Prius is really impressive - that they've actually managed to make that a great product.  But it wouldn't succeed.  And the reason Prius doesn't succeed outside of the U.S. and Japan is because it competes with diesel."
		},
		{
			"speaker": "Jim",
			"words": "In most markets.  Right."
		},
		{
			"speaker": "Horace",
			"words": "In Europe there is... It essentially becomes a very expensive so-so mileage car.  Those mileage figures that it's able to get are not particularly relative to diesel cars in Europe.  So it's... In Japan diesel is very rare.  In the U.S. it's very rare.  But that's not the case in Europe.  And that's why we're seeing... In Europe we have amazing seventy mile-per-gallon cars that run circles around the Prius in terms of efficiency.  These are engines, also, that automatically stop"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "when you're at a light."
		},
		{
			"speaker": "Jim",
			"words": "Right.  More software."
		},
		{
			"speaker": "Horace",
			"words": "So that part of the problem that Prius solved of saying, we provide motion or energy in those moments when the internal combustion engine is inefficient.  Those have been mitigated by a lot of wizardry with respect to software, as you said.  And also the...  Having stronger batteries and things like that just to start the engine.  And so for example - great example - of super-efficient engine is...  This is from Fiat.  It's a twin..."
		},
		{
			"speaker": "Jim",
			"words": "The TwinAir.  Right."
		},
		{
			"speaker": "Horace",
			"words": "It's called the TwinAir.  It's about eight hundred CCs.  And yet it delivers about eighty horsepower which is plenty enough for something like a Fiat 500."
		},
		{
			"speaker": "Jim",
			"words": "City, urban car. Sure, sure."
		},
		{
			"speaker": "Horace",
			"words": "A tiny little car.  But plenty good for Europe.  And that number of HP is about one hundred HP per liter, which is supercar territory.  And the way it does it is through turbocharging."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "And the engine is a twin cylinder.  But the cylinders are essentially locked together.  So they are not actually reciprocating.  And so it has a very compact design.  Very lightweight.  And it delivers excellent performance.  The mileage isn't as good as a diesel.  But it is good enough.  So you can see how the industry is responding, even to the hybrid notion, by cranking up the improvement and the efficiency with..."
		},
		{
			"speaker": "Jim",
			"words": "Sure.  Doubling down on the current infrastructure."
		},
		{
			"speaker": "Horace",
			"words": "Yeah. So, I still think a diesel with...  And you sent me some links.  For example, Mini.  The next generation Mini will have a three cylinder, one point five liter as the standard engine across both diesels and internal combustion.  And three cylinders is one of these weird configurations."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "It's very rare because it's very unbalanced."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "It's not an engine configuration that lends itself to..."
		},
		{
			"speaker": "Jim",
			"words": "To symmetry."
		},
		{
			"speaker": "Horace",
			"words": "Four cycle."
		},
		{
			"speaker": "Jim",
			"words": "But software can solve a lot of it's problems."
		},
		{
			"speaker": "Horace",
			"words": "Right.  The four-cycle problem.  You have a four-cycle engine there's gonna be a lot of weird forces acting on the engine when it's only three."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "But I think they solved it somehow, either through balance shafts, which unfortunately add weight."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "But you can probably hack in such a way...  It's not a great configuration.  And the best configuration is an inline six.  But people moved away from that already many years ago."
		},
		{
			"speaker": "Jim",
			"words": "Yes.  It's too inefficient.  Yeah."
		},
		{
			"speaker": "Horace",
			"words": "Yeah.  I don't think there's any inline sixes.    It's also a packaging problem."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "An inline six is a horribly big hunk of metal to stick in a car that you want to have as small space as possible for your engine.  So I don't know who makes them anymore.  I think maybe only BMW still makes an inline six."
		},
		{
			"speaker": "Jim",
			"words": "I think you're right."
		}
	],
	[
		{
			"speaker": "Jim",
			"words": "In mass volume, anyway.  So it sounds like our discussion about the asymmetric aspects of Tesla has concluded that it's mostly operating within the current structure - maybe pushing the envelope here and there.  But so are others.  With powertrains or software...  The last one I want to mention is - and again, I find this interesting from an Apple perspective - that Ford appears to be one of the few big car makers trying to go their own way on software.  And they have announced a developer program.  You can write apps for their Microsoft-based software in their cars.  I don't think it's gotten any traction that I can see.  But I just wondered what that means.  If, since Apple's been able to cut deals with certain car makers...  Ford trying to go on their own.  And obviously others are thinking...  BMW builds their own.  And where do you see...  Is there a value proposition or a disruption potential in that experience or that space?"
		},
		{
			"speaker": "Horace",
			"words": "Yeah.  So this is gonna get... We should get a whole show going only on that."
		},
		{
			"speaker": "Jim",
			"words": "Right.  Tease it a bit.  Yeah."
		},
		{
			"speaker": "Horace",
			"words": "Yeah."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "So let's just say that a lot of it will depend on what we hear from Apple as far as what they do with iOS in the Car.  I think it's...  It could be simply a protocol similar to AirPlay where the device can use an internal..."
		},
		{
			"speaker": "Jim",
			"words": "Display."
		},
		{
			"speaker": "Horace",
			"words": "...an internal display."
		},
		{
			"speaker": "Jim",
			"words": "Some interfaces.  Yeah."
		},
		{
			"speaker": "Horace",
			"words": "And controls.  And the whole thing may be run over wifi so they don't even have to have a physical wiring connection.  And the whole thing can be configured in software.  There are two classes of software.  There's the software which drives your entertainment, your navigation, and your...  maybe some limited degree of car... control over the environment you're in.  But the other set of software is the embedded stuff that controls the engine, controls the..."
		}
	],
	[
		{
			"speaker": "Jim",
			"words": "The brakes, the suspension, the cooling system, the air conditioning, everything."
		},
		{
			"speaker": "Horace",
			"words": "The brakes, the performance.  Yeah."
		},
		{
			"speaker": "Jim",
			"words": "The entertainment."
		},
		{
			"speaker": "Horace",
			"words": "That is off limits for the time being because we think that you don't want to have someone hacking.  Just like when you have a mobile phone.  Remember when the mobile phone became an app platform.  A lot of operators said we need to be involved in the decision making as to whether this is allowed or not."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "Because they used to want to be involved even in to the point where we're not sure if any phone at all that's switched onto our network is certified. They used to have to certify all kinds of phones. Maybe they still do.  But famously AT&T didn't even allow you to buy a phone. But the phones - even the old style rotary phones - were their phones that they would lease to you so that you..."
		},
		{
			"speaker": "Jim",
			"words": "completely closed. Right. Exactly."
		},
		{
			"speaker": "Horace",
			"words": "Yeah. It was a completely closed... They were called terminals in the network. And the terminal was something that had to be certified compatible with the network."
		},
		{
			"speaker": "Jim",
			"words": "Monthly fee. The whole thing."
		},
		{
			"speaker": "Horace",
			"words": "Yeah. So..."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "so to some degree you're seeing the industry holding onto this idea that we need to certify every piece of software - everything that connects to the grid, which means the car - that we have to ensure safety.  Usually safety is the last..."
		},
		{
			"speaker": "Jim",
			"words": "The last bastion."
		},
		{
			"speaker": "Horace",
			"words": "The last bastion of the incumbent.  So we'll see how long it takes them to allow APIs into the depth of the car.  But..."
		},
		{
			"speaker": "Jim",
			"words": "Well, a good topic for a future show."
		},
		{
			"speaker": "Horace",
			"words": "Some... I think this will be a gradual discussion.  I think the main thing we'll see is probably a display with...  which allows you to essentially mirror your iPad or iPhone onto the car's display and allow a lot of the functionality to be"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "visible and controllable in that way.  We'll see.  I'm really interested and impressed that Apple has managed to even get this far.  That the car has become, potentially, an accessory to your iPhone which is..."
		},
		{
			"speaker": "Jim",
			"words": "[laughter]  Cutting deals.  Well, what's interesting about Ford is - I think I sent you a link a few months ago - Jim Farley, who's their marketing guy, said at a conference that the auto industry has thought incorrectly about this.  That they need to think about the phone or the device as the center and the car, as you say, as an accessory.  And they have tried to put everything in the car.  Now Ford, as I said, is going their on own with these apps.  So it's an interesting [crosstalk]."
		},
		{
			"speaker": "Horace",
			"words": "And so maybe... BMW...  A lot of these guys are actually invested."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "They have sunk costs.  And they have the same phobia that everyone who has a sunk cost mentality has.  That you can't let go.  We've put too much into it."
		},
		{
			"speaker": "Jim",
			"words": "We've spent fifty million.  Right.  I can't write that off."
		},
		{
			"speaker": "Horace",
			"words": "I can't... Right."
		},
		{
			"speaker": "Jim",
			"words": "I can't loose my job over this."
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "It's a sunk cost.  That's it.  And those who know what that means  It's not...  It doesn't help them at all.  I don't know.  We'll see."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "Some have run down the road with Microsoft and not gotten far."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "And we'll see.  And it's very fragmented.  And some divisions of a car company will do something.  And other divisions will do something completely different.  There's no sort of czar over running the..."
		},
		{
			"speaker": "Jim",
			"words": "No."
		},
		{
			"speaker": "Horace",
			"words": "Talking information systems in the car.  It's not a... That's not a sort of position reporting directly to the CEO.  I think that's an interesting topic.  I think it might be an interesting way of breaking into the whole thing."
		},
		{
			"speaker": "Jim",
			"words": "Right."
		},
		{
			"speaker": "Horace",
			"words": "But fundamentally I still worry about the ability of the industry to accept an entrant that"
		}
	],
	[
		{
			"speaker": "Horace",
			"words": "is predicated on manufacturing things.  I still think of the auto industry as being something that's production oriented.  As much as people think that it's about marketing.  It is that.  But it is also...  The cost structure is so driven by the way the infrastructure, manufacturing..."
		},
		{
			"speaker": "Jim",
			"words": "Oh, and software has made that even stronger.  It has creating increasing returns to that mentality.  My sister, for example, just bought a new Honda minivan.  And she went to various dealers in the Twin Cities.  And they said if you buy this one - not any of these other ones which have the same configuration - but this one (because it's been sitting here, of course; the inventory tells them that), they'll give you an extra thousand off, or whatever.  And certainly they manage their inventory.  They manage their month-end.  Yeah.  The production system is everything.  There's no doubt about that."
		},
		{
			"speaker": "Horace",
			"words": "Mmm hmm."
		},
		{
			"speaker": "Jim",
			"words": "Wow.  Lots to cover today.  We'll look forward to chatting again in a few weeks Horace."
		},
		{
			"speaker": "Horace",
			"words": "All right.  Well, thanks again."
		}
	]
]
Episode 2 in JSON format

Episode 2

Episode no. 2
Title: Is Tesla Disruptive?  Also Segway, Multair, Winglet, Organ Donors, and Regulation Über Alles
Date: July 30, 2013
Hosts: Horace Dediu, Jim Zellmer
Episode summary: Horace Dediu and Jim Zellmer discuss the odds of disrupting the present automotive club via Tesla.  We further dive into the regulatory and cultural environment that sustains the current players, while reflecting a bit on Segway, Toyota’s Winglet, organ donors and the Fiat “multair” engine.  Finally, we preview a larger discussion on apps in and around the car.

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Jim:  Welcome to Asymcar.  Well, Horace, podcast number two.  Today’s topic is Tesla.  So what strikes you about Tesla?

Horace: Yeah, well, I…

Jim: It’s come up in the comments.  And you’ve mentioned it from time to time.  Let’s start with your observations.

Horace: Well, I think it’s a great case study.  And I’m very curious about what’s going to happen there.  The problem… OK, so here’s the dilemma.  If you follow the Innovator’s Solution, which is the book that describes the keys to a successful disruption and you go through the list of things that an innovator needs to do to be successful, as a disruptor it tends to be everything that Tesla doesn’t do.  Or that Tesla doesn’t do the things that are enumerated there.

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Horace (cont): So the challenge therefore is either the Innovator’s Prescription for our disruptor… The algorithm is wrong, or Tesla isn’t disruptive.  So we have to get to the bottom of this.  There are anomalies.  First of all, right off the bat you should declare that this recipe is not cast in stone.  It’s not irrefutable.  There are success stories which are not following that recipe.  But we have to ask exactly if Tesla is an anomaly, why and how we make sense of it. So the thing is this, that…  So let me go through some of these items.  And then we’ll get into some of the paradoxes as well, of Tesla.

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Horace (cont): First, the first think I’d look at is a question of asymmetry.  Now, asymmetry of what?  Typically what I look for is asymmetry of business model.  Not asymmetry of technology.  Not asymmetry of management style or organizational structure.  I look simply for the reasons why someone who is incumbent in the business wouldn’t want to do exactly what the entrant is doing.  And the logic of it is that if you’re entering a market like a David versus Goliath you set new rules.  You don’t need to engage in a head-to-head battle with the incumbent.  That preserves you.  Because typically what happens is the bigger guys win in most head-to-head battles, or sustaining battles.

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Horace (cont): They just have all the resources.  They have no incentive not to win.  But we’ll get back to that, whether indeed there’s something anomalous – not so much in Tesla, but in the incumbents in this case.  But at first glance it looks like Tesla is trying to make cars to sell to the same customers using similar methods.  Although yes, there are some differences.  But they are part of the same value network.  Although again, there are some distinct differences as well.

Jim: So they’re joining the club, in other words.

Horace: Yeah, but they’re making money the same way.  The idea is you buy a car for a certain amount of money.  And why wouldn’t an industry that has been cross-interbreeding for so long, where most large auto makers own a piece of another auto maker, which share platforms, which tend to share a lot of engines.

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Jim: Suppliers.

Horace: Which tend to share suppliers, tend to share even distribution in terms of dealerships.  You have a dealership which handles multiple brands – very common now.  So why would they look at this new producer of cars and say, well we don’t want any piece of it?  That is the real puzzle, ok?  I think power train in itself – and I mentioned this last time – power train in itself isn’t something that would put people off.  Yes, it’s a quantum leap in terms of technology.  Yes, you may have to adapt a lot of processes and tooling.  But fundamentally these are things with four wheels that drive on the same road, subject to the same regulation, subject to the same economics.  Yes, the fuel systems are different.  But then again, you have various fuel systems like diesel versus now ethanol.

Jim: Natural gas.

Horace: Natural gas coming up as well.  So there are different

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Horace (cont): fuel systems.  There are different power train technologies already which cohabit the same value network.  So that’s one issue: asymmetry.  The other issues are related to, for example, job to be done.  Is the newcomer addressing a job that’s an unmet need.  Typically, again, this is a new market disruption, not a particularly low-end one.  So you would see, for example, what Apple did in making our phones more computer-like.  It has essentially taken a new job to be done for the phone and exploited that.  And sure enough, people rushed in to hire the product for this new job.  Does the Tesla hire… Is the Tesla going to be hired for a new job to be done in transportation.  Well, if they had a weird business model where you didn’t own a cars, for example – and we mentioned this,

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Horace (cont): again, the last time which would be…  Well, you don’t actually own a Tesla.  You maybe don’t even lease it.  You rent it.  Or it’s a shared car scheme.  Or we take away the hassles of ownership.  We take away the hassles of insurance.  We take away the hassles of parking.  We take away a lot of issues which come along with ownership.  That’s a service.  That’s an interesting new job.  Many people have that problem, especially in cities.  They’re not looking for more transportation.  They’re actually looking for how do I not have transportation as much.

Jim:  Well there are a few companies like Zipcar.

Horace: Yeah.

Jim: And a few others out there that are abstracting that, right?

Horace: Exactly.

Jim: And taking the hassle away from you.  And interestingly, for the current manufacturers abstracting you from their dealer network, from their sales process, the leasing the financial, the whole thing.  So that perhaps is an asymmetrical approach.

Horace:  Exactly.  So they are

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Horace (cont): taking some things…  They are taking a distinct approach with respect to retail.  That is the network issue.  Although, again, we’ll get to that.  I think there is an exception there.  But I”m not sure how scalable it is as a global infrastructure because, again, the dealer networks are actually quite strong politically and may actually be able to stop Tesla.  The impetus might be that the laws can change.  Tesla will be powerful enough politically in its own right.  But we can’t get into that, quite, to see what the dynamic will be.  But that’s one of the…  The other thing is when you talk about disruption you sort of have to ask yourself, is it low end or is it new market.  And this has been sort of the dichotomy of disruption that’s been going on for a long time.  And… In other words, you have to understand how exactly will this

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Horace (cont): product compete.  So, on the basis that it’s low end it means that it competes with non-consumption, typically.  It competes with over-serving products that have moved up market.  Well, the auto industry is so broad that there are very few spots at the bottom.  Truly in the markets that Apple… that Tesla is attacking.  So we’re not sure.  And obviously they’re not priced as a low-end product.  They’re actually priced for the one percent’s of the world.  That is indeed an almost hyper-high end.  Because in fact these people are… Or the buyers are expected to kind of be almost altruistic and not economically-minded enough to really make a decision on the basis of economy.

Jim: Well, it’s almost a fashion statement.  I continue to see more Tesla’s even in my home of Madison,

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Jim (cont): which is interesting, given winter.  But they’re different colors.  And I view it that way, along with an environmental statement and all those things.

Horace: Right, right. So you’re still trying to go down the checklist and saying ok, I’m not sure it’s a low-end.  The next question would be new market.  But again, new market as we talked about in the Zipcar model…  It’s about really changing the job to be done, looking outside of the core.  So is it really doing that.  It could be.  There’s is a sort of possibility that we’re not quite seeing the market that Tesla is enabling here.  Then there [is] a bunch of things about the value network that are troublesome.  Does it conform or comply with the world that is as we have it today?  Or is it trying to create a new world?  Which is a very hard thing to do, especially if you’re a startup or an entrant.  Well, there is this question about charging stations.  They’re trying to not only take on the car industry, they’re

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Horace (cont): trying to take on the dealer industry.  They’re trying to take on…

Jim: The oil industry.

Horace: The oil industry.  But the actual people who own filling stations and do that sort of work.  Because it is very different in the way that it approaches that model.  Now again, there might be asymmetries in all of those three, in which case it would succeed.  But it’s very hard to make sure that you’re not gonna get into a head-to-head battle with all of those players.  I think that the interesting thing is the mentality of the company.  I think the management there – they’re really not of a mind that says, we are humble.  We are meek.  We are going to go about this slowly.  I think it’s the exact opposite mentality to the disruptor’s creedo: be hungry for profit; be patient for growth.  It exhibits none of these things.  It is bold.  It is brash.  It is…

Jim: Yes.  They’re not sneaking up on anybody.  That’s for sure.

Horace: Yeah.

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Horace (cont): It is not self-effacing in any way – not trying to hide and fly under the radar.  It is the exact opposite of that.  It is a moonshot.  It is a railroad building exercise, in a way.  Let’s change the world in as aggressive way as possible.  So that’s…  You go down the list, and I’m finding it difficult to find conformance to the rule book.  And that’s why I initially looked at it and said hmm.  This doesn’t seem to comply.  So that is one way to look at it.  But the real question is maybe I’m missing something.  Maybe there’s something going on here that would allow them to succeed and prosper.  Now one thing that is possible – and this is, I think, coming up as one of the potential keys – is that the industry may be so bad, and so inept, that they really…  And this is…

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Horace (cont): So there’s this sort of…

Jim: [crosstalk]

Horace: Yeah.  There’s a caveat to the disruption hypothesis, is that normally – in most cases – the incumbents will have motivation to respond.  But in some cases they really do fall asleep at the switch.  So that’s the question about that.  Now first of all, it’s hard to believe because there are really a lot of incumbents.  So if it’s not GM, if it’s not Ford, if it’s not Chrysler, it could very well be one of the dozen other large manufacturers.  And if not them, then there’s probably a few more that are smaller and mid-sized manufacturers who might be interested in what…  Certainly Toyota is not full of fools.  And the Koreans and Japanese and Chinese are no fools.  So it’s this question.  I was watching again… The latest Top Gear I saw showed a Mercedes

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Horace (cont): electric supercar.  Is it the CLS?  Or something like that.  It’s based on one of the top of the line supercars they make.  But it has an electric power train with four different motors.  Super high performance.  It’ll actually almost beat the best performing equivalent of that car.

Jim: The traditional one.  Right.

Horace: Yeah.  A 6.3 liter AMG equivalent is actually slower in some cases than this electric vehicle.  It has some issues with range.  But it also has an architecture very similar to the Tesla in having hundreds if not thousands of batteries.  It is four-wheel drive.  It has regenerative braking.  It has very smart electronic control system to manage the traction not only through braking, but actually

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Horace (cont): through regeneration so that when it goes around corners really quickly…

Jim: Right.

Horace: Very low center of gravity.

Jim: Lots of software.

Horace: On and on.

Jim: Lots of software.

Horace: And… Yeah, lots of software.

Jim: Yeah.

Horace: Lot’s of processing power.

Jim: To make all that work.  Yep. Yep.  But you know, BMW has the i8 – same idea – coming up.

Horace: Same idea.  And so the l…

Jim:  But it was marketed in Provence and Monaco and…  So it’s targeting, obviously, the very high end.

Horace: Yeah.

Jim:  But taking those same tools from Tesla, or similar tools.  And applying it to their models.

Horace: So already now, only a couple years down the road of Tesla’s progress, already the larger, more well-resourced, more engineering focused,

Jim: Right.

Horace: …more visionary manufacturers are beginning to actually reuse some of its ideas.  Not to say that they’re copying.  But it’s…  The point is that that’s the nature of business.  The engineers are certainly not gonna feel like, hey, these guys are smarter than we are.  I’m sure the German engineers who,

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Horace (cont): by the way, or French or whoever – they’ve been in the industry for decades.  They’ve been studying electrical systems and all these other things for decades, and controls and so on.  So they’re going to look at this as a challenge.  And so they’re going to respond very effectively.  So that’s one piece of evidence to sort of say, well, maybe from the luxury end those makers will be building product that will compete with the Model S.  Now, of course, the other’s argument – counter-argument – is that yes, but Tesla is going down-market pretty quickly.  So they’re going to reach lower price points, lower tiers of the market, as they go forward.  But, again, it’s gonna take a couple of years.  And, I think, also from the bottom we’ve seen a lot of electrical, or electric vehicles some coming from Citroen, some coming from Nissan, coming from…

Jim:  Mitsubishi, and Toyota obviously.  Ford.

Horace: And GM with its

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Horace (cont): own variant.

Jim: The Volt.

Horace: With the Volt.  So there isn’t an absence and complete ignorance of the opportunity there either.  But there’s one more thing which puzzles me.  And that is that, why have… If this electric vehicle is more about the job to be done, is the question.  If it’s more about economy – being efficient – then why haven’t the people who actually buy vehicles on the basis of costs and efficiency – i.e. not consumers – why haven’t fleet purchasers run full speed towards electric vehicles.  Because you would think delivery trucks.  You would think service fleet vehicles.  All of these people would look at the economics and say, I’ll drop internal combustion in an instant because this think is more efficient.

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Horace (cont): Besides, my routes are predictable.  The vehicle is parked every night in the depot where I can get it fueled.  I can regulate everything about the way the vehicle is operated.  I can manage everything perfectly.  And thus, for me as a fleet buyer electric would be the answer.  No manufacturer that I’m aware of has addressed that market.  Tesla mentioned it briefly in 2010 saying they’re going to go there someday.  But if that’s the job to be done – i.e. efficiency and economy – why hasn’t UPS, why hasn’t FedEx…

Jim: FedEx.

Horace: Why haven’t those guys jumped on it.  And especially in Europe where they’re dealing with smaller vehicles, typically.  Urban areas and higher density of

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Horace (cont): cities.  So you have this question of if economy was the job to be done and efficiency, the route would have gone through the… outside of the consumer space.  And as the case is, for example, with diesel.  Diesel is the absolute standard in trucking.

Jim: Distribution.

Horace: But also in distribution.  Because it is extremely efficient.  And the miles per gallon on diesel are often 30% – often higher than that – than you would get on a gas vehicle.  And so of course, if you’re a fleet buyer you’re going to go for the diesel vans and so on.  So that group of buyers hasn’t even been approached by manufacturers, probably because it still doesn’t make sense on the initial cost to purchase,

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Horace (cont): on the maintenance long-term of the batteries – not of the vehicle.  The vehicle will probably be cheaper to maintain.  But the batteries are going to probably wear out.  And then you have to fold into the…  These are people who do nothing other than sharpen their pencils and figure out the total cost of ownership.

Jim:  Sure.  It’s called money.  I think that there is another angle on that.  And I agree with you that diesel remains the power plan of choice in that space.  But T Boone Pickins has been lobbying, marketing, advocating for natural gas power for natural gas fleets around the country.

Horace: Yep.  And I know there’s great engine technology there…

Jim: Yes.

Horace: …that hasn’t been deployed.  I think there are several companies that are in the diesel business are thinking to switch out to natural gas for fleets.

Jim: Right. Exactly.

Horace:  And that makes a lot of sense.  Folks there are probably thinking hey, the economics of this technology are perfect for us.  So why… That is the puzzle to me.  Electric seems to be something positioned for consumers,

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Horace (cont): not for those who are really concerned about efficiency.  And the consumer pitch – as was the case with the Prius which, by the way, again why hasn’t hybrid been the approach to fleet sales.

Jim: Everything.  Right.  Right.

Horace: Right.  So hybrid is great.  It does improve efficiency of gasoline engines.  But it still doesn’t add up in terms of the econ…

Jim:  Right – there’s a cost.  There’s a tax for it.

Horace:  There’s a tax for it.  So this is again… I’m not saying there’s an absolute proof here.  But there’s a weirdness about it.  Why hasn’t the industry gone through that path of least resistance.  It seems that the path is going through a psychological job to be done rather than truly an economic, rational job to be done.  And so the psychological job is much more around feeling good about your purchase.  And so in that…  And that’s why I say the job of Tesla and the job of Prius,

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Horace (cont): to some degree, is to give people comfort about their consumption.  And that’s… Nothing wrong with that.  Businesses have been built on the notion of providing psychological comfort.  But we just have to be clear about it.  Because that means you don’t have to fight a battle of justification.  And you have to simply say – and many brands do this all the time – it’s about motivation.  It’s about feeling good.  It’s about solving that job to be done.  And that’s why I’m thinking that perhaps that…  Case in point: these luxury cars.  And we mentioned Mercedes.  I’ve heard of Range Rover.  I’ve heard of Bentley in some examples doing…

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Horace (cont): showing off concept cars which are hybrid and/or electric.  And the idea is, again, that if you are going to spend hundreds of thousands of dollars – which is what these cars cost – you might want to feel good about your purchase because you’re getting some green credentials with the fact that the power train is a little bit more green.  So it doesn’t make an impact, really, in the economic sense.  But it is there as a job to be done.  So again, we’re just kind of circling around the real question here.

Jim: Right.  Right.

Horace: So… yeah.

Jim: But certainly one thing we’re seeing is an – and I’m in the software business – an incredible growth in software in these cars.  I was reading a review of the new GTI and they were talking about software that uses the brakes to give you different effects depending on your settings,

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Jim (cont): both in the suspension and in the… when you’re cornering to give you a bit of an oversteer or understeer depending on your perspective.  And all those sorts of things.  And obviously the Tesla world, the BMW i8, i3, the Mercedes you mentioned, certainly the Toyota Prius – they have incredible amounts of software.  And that’s only going to grow.  So I wonder if some of those players – and maybe it’s Apple someday with their iOS in the Car – if they have another angle on the market, both from a customer relationship perspective, value chain, all those things.

Horace: Right.  And that’s another thing, that usually breakthrough – a disruptive breakthrough – comes from outside the industry.  Now Elon Musk is from outside the car industry.  So he kind of qualifies along…  But he hired people to build the business very much in the same…

Jim: Mold.

Horace: … the same mold that exists.  And I talk about this last time.  It was about the fact that from my point of view the production methods that are put to use

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Horace (cont): are actually…  They’ve argued well, we’re going to have a different power train.  We’re going to have a different dealer network.  We’re going to have a different charging system or fuel link system.  But we’re going to make cars exactly the same way as every other car.  In fact, we’re going to buy, in fact, a plant that used to make cars Fremont, California.  We’re going to build them using the same tooling, the same machines, the same sheet metal, the same unibody, the same technology as far as welding it together, and so on.  Paint.  Everything is more or less copy/paste or forklift technology, right?  You pick it up and you drop ship it.  And that’s…  You’ve got yourself a car factory.  And there are people who suggest that the problem is not the things that Tesla is solving.  The problem is actually the very thing of the production system.  The production system is one that forces you to be heavy, big,

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Horace (cont): and…

Jim:  Sure.  It’s huge capital.  Absolutely.

Horace: …inefficient.  And especially because the capital required also forces you into a scale mentality.  That means that…  So the real asymmetry and, I think, also the question of what’s overserving…  What’s overserving the market today is not the current cars.  Because actually they vary all across the spectrum.  You can get yourself from the cheapest car to the most expensive – prices for cars vary from…  I don’t even know what the bottom is, but maybe fifteen thousand up to hundreds of thousands or millions even.  So there is no gap in the price band.  Really.  Maybe you can go below fifteen.  But there’s issues with that simply in terms of getting regulation and all that.  so the problem I think is that overservice is in the production systems which are in use today.  That they’re more than good enough.  That you need to think about

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Horace (cont): how can you make a production system that costs ten percent of what exists, what is in use today.  And it produces one tenth the volume.  So you have this sort of threshold beyond which your project will not get approved.  You better sell three hundred thousand a year or something like that before you build the plant.

Jim:  I thought about that.  And that’s an excellent point.  Dan Neil who I read every now and then in the Wall Street Journal reviewed a class of these new off-road vehicles called side-by-side a couple of weeks ago.  And he mentioned that they are mutating and up to seventy-five miles an hour.  And Kawasaki makes them.  Yamaha, Polaris, here at least in the states.  And I thought they looked like the original Daimler motor carriage and, obviously, earlier Model T and some of their earlier cars.  Obviously much more sophisticated, obviously.  The interesting part of the article was the fact that the Consumer Product Safety Commission

27

Jim (cont): in the US has gone after some of them for different safety issues One can imagine how different the car industry would be if you had to start today…

Horace: Mmm hmm.  Mmm hmm.

Jim: …with all of those regulations and requirements.  And so it is…

Horace:  One of the curious things about safety – and this always is a great gem of a story – is that if you think about motorcycles…  Motorcycles are horribly unsafe.  I mean, they are lethal.  They are vehicles, basically, to turn operators into organ donors.

Jim: [laughter]

Horace: You can sort of think of them as that, as a…  Sort of a positive way of looking at it.

Jim: Very efficient.  Absolutely.

Horace:  Right.  It’s an organ donor creation product.

Jim: Right.

Horace: But the funny thing is that if you imagine if they didn’t exist. If someone were to say, hey I invented a two-wheeled vehicle that you just kinda hang onto it and it’ll go a hundred and fifty

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Horace (cont): miles an hour.  And it’s protecting you with, in some places, with a thin sheet of plastic over your head.  And that’s the… If someone put that out there they would just not be…  It would be laughed out of existence.  But motorcycles are grandfathered, right? So in that sense you have car makers being put to increasingly onerous safety requirements.  But motorcycles aren’t.  Nor, for example, are trucks.  But the point is that the…  We as consumers don’t value the safety ?  It’s a purely artificial construct in the sense that most buyers are not conscious of all of the subtlety as far as safety.  We have to simply entrust

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Horace (cont): authorities who supposedly know what they’re doing to certify these products.  And they’re given very vague ratings.  One to five on some scale.  And yet…

Jim: It’s interesting, though, to consider the safety question.  Just to back up a minute.  One of my favorite writers – now deceased – in Car Magazine in the UK was L. J. K. Setright. and he wrote an article some years ago and said that if people had worn seatbelts for many years we would never have had the explosion in all the… around vehicles safety requirements. The bumpers and the airbags and all these other things.  And I wonder about that.

Horace:  It’s a good point.

Jim: Obviously there’s a lot of cost.

Horace:  There isn’t a market mechanism at work.  Safety has not been driven by market forces.  It has been driven by…

Jim: Interests.

Horace:  Yeah.  There are simply things that are felt to be the right thing and you simply impose a blanket

30

Horace (cont): requirement.  But you exempt a few things, like we said.  Motorcycles, trucks, certain vehicles which aren’t, quote, cars.  And that’s the interesting thing is that in order for you to innovate now, you have to somehow jump out of the classification of car to make something that actually solves a job that is different.  This is sort of the…  And I don’t argue against safety regulation.  But we have to…  You see, there isn’t room within that to think about where do we go from here.  And also, you can’t think outside of the network effects.  Because we have also roads and service stations and all of the paraphernalia that come along with cars.

Jim:  Right.  Road taxes, tolls and vehicle taxes.

Horace:  Taxes, tolls.

Jim: License fees.  Insurance costs.  All the interests are aligned. Yes.

Horace:  Exactly.  And it’s all an

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Horace (cont): interconnected mesh that prevents anything from really changing it.  There are places in the world that may still be open to innovation.  But most places aren’t.  And that’s…  Even emerging markets are, instead of thinking how can we create an infrastructure for transportation, they simply say, ok we’ll have whatever they’re having.

Jim: Right.

Horace: We’ll just adopt the standard, quote, best practices.  And so we don’t get even experiments that happen.  Or if they do, people immediately say, but this wouldn’t have happened if you adopted the best standards.  In that sense it’s a little bit depressing.  And I’m… Maybe Tesla is simply doing the best it can – the best given the circumstances, given the fact that they are an American company.  But it’s still a struggle to me to think outside this box.  And maybe

32

Horace (cont): pressure builds up over time.  As you noted, the fact is more and more young people are choosing not to own a car.  More and more…  So you’ll have, potentially in the future, less driving.  Which means lower taxes from all of these fuels and cars and roads. Then you have…

Jim:  Unless they raise them, which they’re talking about. [laughter]  And the [crosstalk]

Horace:  Well, they’ll raise them.  So they’re going to squeeze people…

Jim: Right.

Horace: …so that those who remain with cars…

Jim: Yes.

Horace:  And the main thing is that it actually may affect all kinds of things.  I mean, the U.S. has been built – in the last century, last half-century or, I would argue even the whole last century, let’s say – has been built around the automobile.  Meaning that we’ve had urban planning, or lack thereof.  We’ve had the road network itself – which is one of the most impressive networks in the world, electric or not.  And the way homes are built, the way people live,

33

Horace (cont): the way people shop, the retail environment, the mall concept, the…  All that has been build on the premise of a car.  Now I didn’t say internal combustion car.  I simply said car.  So what would enforce, or what would perpetuate the network and make sure people don’t have to abandon their homes and don’t have to change jobs and move from where they live – a lot of that will allow the car to be sustained as it is in terms of a vehicle for a finite number of passengers, etc.  You’re not going to see, suddenly, a new road network that’s friendly to bicycles, a new rail or public transport network that will emerge.  These are not economically viable.  Because even if you can engineer the trains and the vehicles, you can’t rebuild

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Horace (cont): the infrastructure easily enough.  So there are questions about land use.  There are questions about zoning.  There are questions about laws.  There are questions about millions and millions – hundreds of millions of people having been vested in a system.

Jim:  Although the bike people have been thinly successful in certain places in tapping some of the gas tax revenues to build bike lanes or separate bike paths.  But I want to go back even farther, because I think this cultural or political or economic incentive to maintain the current environment we have – the auto environment – it tells us a little bit of the story from Segway.  Remember when Segway was super hyped.

Horace: Mmm hmm.

Jim:  I know one of the first things they ran into was getting political approval to operate these  things in different places.  And that seemed to just stop it.  Among other issues.

Horace:  Yeah, and…  That’s a great story.  Segway even sold

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Horace (cont): a utility… what is… not the word… a fleet-type vehicle which was supposedly for mail carriers.

Jim: Right.

Horace: The mail carriers could use this thing to deliver mail.  And the funny thing was the unions were against it.  Because actually it made them more productive.

Jim: More productive, right. [laughter]

Horace:  And so you can see how you introduce something…

Jim: Interests pile up.  Sure.

Horace:  And just… There’s resistance.  And of course the municipalities or local councils or whatever they’re called in different countries said, no, there’s no room for this.  It’s not allowed on the sidewalk, it’s not allowed on the road.  And they tried to lobby.  They lobbied for all kinds of concessions.  But no was the answer to all of them.  And it ended up in some really tiny niches.  And that was a very low-end vehicle.  That, to me, felt very disruptive because it had

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Horace (cont): this idea of mobility at a tiny incremental improvement beyond walking.  And it was…  The only thing it didn’t have – which, again, is a deal killer – was conformability with the current network.  The current transportation and…  Yeah.  Well, that’s all you can call it.  And we go back to the question of if you find countries that have adopted bicycles to a large degree you find that they did build a lot of bike paths.  But they’ve had to do it over decades.

Jim: Yes.

Horace:  They’ve been thinking about it since the seventies.  This is true of Holland.  This is true even of the Nordic countries.  Even though the weather is miserable here in Finland most of the year, we have bike paths everywhere.  You can go from almost any point to any other point.  And you can get a map – an urban map – to tell you exactly how to do that.  And people get on their bikes year-round, even in the snow. And they actually

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Horace (cont): drive around on bikes with studded tires.  So you change to winter tires.  And they’re not even mountain bikes.  These are people driving – even old people – driving or riding their bicycles in the snow.  I’ve seen it.  Speaking of mail carriers, mail carriers also use bicycles here.  And they do it in the winter.  So I should post some pictures I’ve taken over the years of bicycles in knee-deep snow.

Jim: In the winter.  Yes, yes, yes.  We have a few die-hards in Madison as well.

Horace:  In this sense here it’s just some normal person.  It’s not some kind of guy showing off.

Jim:  [laughter] Right. Is Segway an example of first-to-market, first-to-fail?  And I say that because I posted something on the Asymcar River that Toyota announced – and this would not surprise me – that they’ve cut a deal with the City of Tsukuba to begin a public sidewalk demonstration of Winglet, which looks quite similar to the Segway.

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Jim (cont): A “Toyota Personal Transport Assistance Robot”, they’re calling it.

Horace:  Yeah, I’ve seen some concepts of those.

Jim: Yep.

Horace:  So they’ve been looking at this personal transportation question.  These vehicles that can go from being scooters or, essentially, wheeled chairs to somehow more road-friendly.  And these are brilliant people.  And the robotics that…  The technology and robotics and electric motors and battery technologies and the stabilization – all of these have been going through huge leaps which allowed the Segway to be born.  It allows now all of these.  And again, the Japanese are no fools about these things.  They have a very good process and a very good institutionalized engineering culture that allows the refinement of these great ideas.  And so the problem for Japan is the same as the problem for everyone else.  How do you make that conform.  And

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Horace (cont): what they’ve done with the Prius is really impressive – that they’ve actually managed to make that a great product.  But it wouldn’t succeed.  And the reason Prius doesn’t succeed outside of the U.S. and Japan is because it competes with diesel.

Jim: In most markets.  Right.

Horace: In Europe there is… It essentially becomes a very expensive so-so mileage car.  Those mileage figures that it’s able to get are not particularly relative to diesel cars in Europe.  So it’s… In Japan diesel is very rare.  In the U.S. it’s very rare.  But that’s not the case in Europe.  And that’s why we’re seeing… In Europe we have amazing seventy mile-per-gallon cars that run circles around the Prius in terms of efficiency.  These are engines, also, that automatically stop

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Horace (cont): when you’re at a light.

Jim: Right.  More software.

Horace:  So that part of the problem that Prius solved of saying, we provide motion or energy in those moments when the internal combustion engine is inefficient.  Those have been mitigated by a lot of wizardry with respect to software, as you said.  And also the…  Having stronger batteries and things like that just to start the engine.  And so for example – great example – of super-efficient engine is…  This is from Fiat.  It’s a twin…

Jim: The TwinAir.  Right.

Horace:  It’s called the TwinAir.  It’s about eight hundred CCs.  And yet it delivers about eighty horsepower which is plenty enough for something like a Fiat 500.

Jim: City, urban car. Sure, sure.

Horace:  A tiny little car.  But plenty good for Europe.  And that number of HP is about one hundred HP per liter, which is supercar territory.  And the way it does it is through turbocharging.

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Horace (cont): And the engine is a twin cylinder.  But the cylinders are essentially locked together.  So they are not actually reciprocating.  And so it has a very compact design.  Very lightweight.  And it delivers excellent performance.  The mileage isn’t as good as a diesel.  But it is good enough.  So you can see how the industry is responding, even to the hybrid notion, by cranking up the improvement and the efficiency with…

Jim: Sure.  Doubling down on the current infrastructure.

Horace:  Yeah. So, I still think a diesel with…  And you sent me some links.  For example, Mini.  The next generation Mini will have a three cylinder, one point five liter as the standard engine across both diesels and internal combustion.  And three cylinders is one of these weird configurations.

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Horace (cont): It’s very rare because it’s very unbalanced.

Jim: Right.

Horace: It’s not an engine configuration that lends itself to…

Jim: To symmetry.

Horace: Four cycle.

Jim: But software can solve a lot of it’s problems.

Horace: Right.  The four-cycle problem.  You have a four-cycle engine there’s gonna be a lot of weird forces acting on the engine when it’s only three.

Jim: Right.

Horace: But I think they solved it somehow, either through balance shafts, which unfortunately add weight.

Jim: Right.

Horace:  But you can probably hack in such a way…  It’s not a great configuration.  And the best configuration is an inline six.  But people moved away from that already many years ago.

Jim: Yes.  It’s too inefficient.  Yeah.

Horace: Yeah.  I don’t think there’s any inline sixes.    It’s also a packaging problem.

Jim: Right.

Horace:  An inline six is a horribly big hunk of metal to stick in a car that you want to have as small space as possible for your engine.  So I don’t know who makes them anymore.  I think maybe only BMW still makes an inline six.

Jim: I think you’re right.

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Jim (cont): In mass volume, anyway.  So it sounds like our discussion about the asymmetric aspects of Tesla has concluded that it’s mostly operating within the current structure – maybe pushing the envelope here and there.  But so are others.  With powertrains or software…  The last one I want to mention is – and again, I find this interesting from an Apple perspective – that Ford appears to be one of the few big car makers trying to go their own way on software.  And they have announced a developer program.  You can write apps for their Microsoft-based software in their cars.  I don’t think it’s gotten any traction that I can see.  But I just wondered what that means.  If, since Apple’s been able to cut deals with certain car makers…  Ford trying to go on their own.  And obviously others are thinking…  BMW builds their own.  And where do you see…  Is there a value proposition or a disruption potential in that experience or that space?

Horace:  Yeah.  So this is gonna get… We should get a whole show going only on that.

Jim: Right.  Tease it a bit.  Yeah.

Horace:  Yeah.

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Horace (cont): So let’s just say that a lot of it will depend on what we hear from Apple as far as what they do with iOS in the Car.  I think it’s…  It could be simply a protocol similar to AirPlay where the device can use an internal…

Jim: Display.

Horace:  …an internal display.

Jim: Some interfaces.  Yeah.

Horace: And controls.  And the whole thing may be run over wifi so they don’t even have to have a physical wiring connection.  And the whole thing can be configured in software.  There are two classes of software.  There’s the software which drives your entertainment, your navigation, and your…  maybe some limited degree of car… control over the environment you’re in.  But the other set of software is the embedded stuff that controls the engine, controls the…

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Jim:  The brakes, the suspension, the cooling system, the air conditioning, everything.

Horace:  The brakes, the performance.  Yeah.

Jim: The entertainment.

Horace:  That is off limits for the time being because we think that you don’t want to have someone hacking.  Just like when you have a mobile phone.  Remember when the mobile phone became an app platform.  A lot of operators said we need to be involved in the decision making as to whether this is allowed or not.

Jim: Right.

Horace:  Because they used to want to be involved even in to the point where we’re not sure if any phone at all that’s switched onto our network is certified. They used to have to certify all kinds of phones. Maybe they still do.  But famously AT&T didn’t even allow you to buy a phone. But the phones – even the old style rotary phones – were their phones that they would lease to you so that you…

Jim: completely closed. Right. Exactly.

Horace: Yeah. It was a completely closed… They were called terminals in the network. And the terminal was something that had to be certified compatible with the network.

Jim: Monthly fee. The whole thing.

Horace: Yeah. So…

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Horace (cont): so to some degree you’re seeing the industry holding onto this idea that we need to certify every piece of software – everything that connects to the grid, which means the car – that we have to ensure safety.  Usually safety is the last…

Jim: The last bastion.

Horace:  The last bastion of the incumbent.  So we’ll see how long it takes them to allow APIs into the depth of the car.  But…

Jim:  Well, a good topic for a future show.

Horace:  Some… I think this will be a gradual discussion.  I think the main thing we’ll see is probably a display with…  which allows you to essentially mirror your iPad or iPhone onto the car’s display and allow a lot of the functionality to be

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Horace (cont): visible and controllable in that way.  We’ll see.  I’m really interested and impressed that Apple has managed to even get this far.  That the car has become, potentially, an accessory to your iPhone which is…

Jim: [laughter]  Cutting deals.  Well, what’s interesting about Ford is – I think I sent you a link a few months ago – Jim Farley, who’s their marketing guy, said at a conference that the auto industry has thought incorrectly about this.  That they need to think about the phone or the device as the center and the car, as you say, as an accessory.  And they have tried to put everything in the car.  Now Ford, as I said, is going their on own with these apps.  So it’s an interesting [crosstalk].

Horace:  And so maybe… BMW…  A lot of these guys are actually invested.

Jim: Right.

Horace:  They have sunk costs.  And they have the same phobia that everyone who has a sunk cost mentality has.  That you can’t let go.  We’ve put too much into it.

Jim: We’ve spent fifty million.  Right.  I can’t write that off.

Horace: I can’t… Right.

Jim:  I can’t loose my job over this.

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Horace:  It’s a sunk cost.  That’s it.  And those who know what that means  It’s not…  It doesn’t help them at all.  I don’t know.  We’ll see.

Jim: Right.

Horace: Some have run down the road with Microsoft and not gotten far.

Jim: Right.

Horace:  And we’ll see.  And it’s very fragmented.  And some divisions of a car company will do something.  And other divisions will do something completely different.  There’s no sort of czar over running the…

Jim: No.

Horace: Talking information systems in the car.  It’s not a… That’s not a sort of position reporting directly to the CEO.  I think that’s an interesting topic.  I think it might be an interesting way of breaking into the whole thing.

Jim: Right.

Horace: But fundamentally I still worry about the ability of the industry to accept an entrant that

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Horace (cont): is predicated on manufacturing things.  I still think of the auto industry as being something that’s production oriented.  As much as people think that it’s about marketing.  It is that.  But it is also…  The cost structure is so driven by the way the infrastructure, manufacturing…

Jim:  Oh, and software has made that even stronger.  It has creating increasing returns to that mentality.  My sister, for example, just bought a new Honda minivan.  And she went to various dealers in the Twin Cities.  And they said if you buy this one – not any of these other ones which have the same configuration – but this one (because it’s been sitting here, of course; the inventory tells them that), they’ll give you an extra thousand off, or whatever.  And certainly they manage their inventory.  They manage their month-end.  Yeah.  The production system is everything.  There’s no doubt about that.

Horace:  Mmm hmm.

Jim:  Wow.  Lots to cover today.  We’ll look forward to chatting again in a few weeks Horace.

Horace:  All right.  Well, thanks again.

Episode 2