Episodes
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EP021 - CEO and Founder of Your Location Lubrication (YLL), Zach Zeller
http://www.vehicle2.getspiffy.com
Episode 21 is an interview with Zach Zeller, CEO and Founder of Your Location Lubrication (YLL); recorded on Thursday, November 7th, 2019. Scot and Zach discuss a variety of topics, including...
How Zach got his start in the industry with YLL YLL’s last 10 years of growth, driven by their fleet-focused approach The creation of YLL’s proprietary high volume oil change system Spiffy and YLL joining forces for Fleet Management as a Service Zach transitioning into his new position as SVP of Fleet Business Development at Spiffy Zach’s thoughts on the Vehicle 2.0 framework from a fleet maintenance perspectiveIf you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot: Welcome to the vehicle 2.0 Podcast. This is episode 21 and it's being recorded November 7th, 2019 welcome back to vehicle 2.0 listeners. We took a little bit of a fall break there on the podcast and are excited to be back with you here today. It's 50 we recently announced that we are merging with your location lubrication, also known as YLL. So we took this opportunity to have the CEO and founder Zack Zeller on the podcast. Zach has been working in the industry for over 10 years, so we're really excited to get his insights about the automotive industry and his experience. Welcome on the show, Zach.
Zach: Thanks Scot.
Scot: And I think this is your first podcast ever.
Zach: So it is.
Scot: So we're excited to land the big first interview here on vehicle 2.0 let's start off by you and I have had the opportunity to spend a lot of time together and I've got to hear your story, but listeners haven't. So tell us how you got into the automotive space.
Zach: Yeah, so, you know, I got into automotive, the mobile onsite oil change space by having a bad experience at a, at a brick and mortar business. So, you know, had to go get the oil changed, you know, trying to upsell and, and do all these services that I didn't think were necessary. You know, it was cold, snowy, and so, you know, after my experience, bad experience yeah, I needed to, the thought there had to be a better way to do oil changes, right. There had to be somebody that could come to my house and provide this service, you know, while I'm at, at that, at home or at work. And so I started looking around and this was about 10 years ago and couldn't find, couldn't find that service. So, you know, with some research and idea, I thought, you know, I'm, I'm going to go out there and do this myself.
Zach: So jumped on Craigslist, went out and bought an old 2000, two 40 Econoline van and it put some oil in it and filters and started going door to door and knocking on people's doors to, you know, offer this service. Quickly realized that doing it one at a time, I wasn't making any money. Right? It's pretty quick. So, you know, I determine that, you know, for, for, for a while L that you know, our opportunity was in, in the fleet business and where could I go to find large fleets? And that led me to Orlando, one of the largest rental car company locations in the U S so moved down to Orlando and start knocking on the door of the rental car companies. And that was kind of my first end. So, you know, start off by doing four, five, six, 10 oil changes a day. And you know, I could start seeing the opportunities there and seeing that there was at the airports, right. Large fleets, large concentration of cars. And that's kinda how I got started. So, you know, by, by doing the one and two a day to five to 10 a day to, you know, now we're doing, you know, several hundred a day at the, at large airport locations.
Scot: Yeah. Awesome. and then one of the things that's pretty interesting is, so first of all, congratulations. Most businesses don't make it like five years. You've made it 10 years. I'm very successful. That's awesome. One of the things that we got excited about is you guys can handle, you know, something like four to six oil changes somewhat simultaneously. Talk a little bit about, so you've developed some proprietary technology, we don't want to go too far into that, but you know, how did, how did you realize you needed to be able to do that? You know, that many oil changes simultaneously did to really capture the high volumes.
Zach: Yeah. So, you know, it started you know, I w the day I got a phone call that there was about 200 oil changes at, at the airport location there in Orlando. And I went out there by myself. It was just me and one van. And, and you know, I had thought I had developed a system that to work, to be able to handle that. And what I realized was about after 10 cars that the system I had developed couldn't handle high volume. You know, I mean it was good for the five, 10 cars and, and it just wasn't working right. So it was really that I, I realized that, you know, to service 200 cars to do it efficiently, to do it. So the rental car companies could put those cars back on rent that we need to develop a system that could be high volume, right. That that could do four, six, 10 cars an hour. You know, so those cars can get back on the road. And so that's where we, we started trying all these different systems. We went to different manufacturers and trying different ideas and you know, over the last 10 years, we think that we finally found the right system that allows us to, to do what we consider high volume oil changes.
Scot: Yeah, yeah. If you're doing 200 oil changes and it takes 30 minutes per, that's a hundred hours separate.
Zach: Right? Yeah. Just doesn't work. Yeah.
Scot: So there, you know, that's weeks and weeks of time, which, which doesn't work. Cool. So what locations are you guys in? So you started in Orlando and have expanded quite a bit. What are some of the locations where you're in now?
Zach: Yeah, so we start in Orlando and then you know, through, through word of mouth. You know, we expanded into Tampa. We went down to Miami, Fort Lauderdale, West Palm beach. So we kinda cornered the Florida markets, Fort Myers, and we worked our way up to Atlanta and then kind of out to out the West coast. So then we, San Francisco, Los Angeles, Seattle, Denver. So kind of the, the major, what we consider major airport locations is kind of what our target market's been.
Scot: Hmm. Okay. And then talk a little bit about, so you spend a lot of time with rental, large rental car fleets. How do they think about the life cycle? Like how often are they buying vehicles selling them and, and how, what does that life cycle like for those kinds of really large fleet owners?
Zach: So, you know, I think what we've learned in the businesses, you know, the rental car companies are in the business of buying and selling cars, right? And making money off those you know, they're, they're keeping them in fleet and renting them out to really for the depreciation. So they're an asset to the rental car companies, right? And so providing the service and maintaining the vehicles is in the best interest of them. Right? They want to maintain that value of that vehicle so they can turn around and sell for the most money. So what we found is, you know, they're going out there and they're, they're buying cars there, pain to maintain them. Right? And that's part of the, you know, it's part of the service we offered the preventive maintenance service, right? They want them to, first of all, they want him to be safe on the roads.
Zach: So, you know, they care about the tires, they care about making sure the cars are rentable and ready to go. And then, you know, again, trying to get the most value out of them at the end of their life cycle. And you know, they're only keeping them for six months a year, right? They're putting 30,000 miles on these cars. You know, and they've got a lot smarter people than me that can figure out, you know, the life cycle of these vehicles and, you know, when's the right time to send them to auction and when to sell them and, you know, so we're there to support them and to help maintain those vehicles to the highest standards.
Scot: Right. And then you started in preventative maintenance. And then if they go out and buy a bunch, you know, I think today you're actually dealing with a situation where they went out and bought a bunch and you have to help them on that and they and then when they get rid of them, do you guys do anything there?
Zach: So currently, no. Yeah, you know, we help them, you know, there's, there's times that they have an increase of business and they need to go out and buy cars quickly so they'll go out to the auction. Right. And the goal is to get those cars on the road as quickly as possible. So, you know, doing a safety inspection, and getting the oil changed and helping them there. But as far as, we haven't been able to get in that market of the D fleeting of the vehicles a lot of opportunity there.
Scot: Awesome. anything else kind of on the YLL history or, you know, so you've, you guys maybe give us, give us an idea of the scale of the company today.
Zach: Yeah. So, you know, 10 years ago, start off with, with one person, one van. And you know, now whileL he's just,just over a hundred employees, we've got just about 70 vehicles on the road. You know, and more in 12 cities.
Scot: So it depends on how you count cities. Yeah. Yeah. We get that a lot. Awesome. Well, we're really excited to, well, let's talk about you know, so you, so you approached us a while ago and talked about how do we combine forces with what was your thinking there?
Zach: Yeah. You know, I started to see spiffy and learn, learn a lot about what spiffy was trying to do. You know, what I saw is, you know, we've, we've got, you know, while Al had this niche, right, the high volume oil change at airport locations soft, spiffy, had a lot of other interesting, you know, you guys rolled out your fleet management of services, which is really what caught my eye of, you know, you guys saw the need of fleets from the beginning of the inflating through the whole cycle to the D fleeting. And that's really where I thought that there could be, you can see the benefit to the rental car companies, the one stop shop, right? And so instead of sort of, you know, spiffy and while L kinda going at it against each other and being the competition, let's, let's join forces and let's, let's be the, to be the leader in the industry for the entire life cycle, those vehicles for the fleets.
Scot: Awesome. Well, we're real excited here at spiffy to join forces with Weill L a we feel like this is going to be, you know, put jet fuel behind the fleet management as a service division. And my favorite part is we can kind of go through the numbers combined. We'll be in over 20 locations. Our goal is to get to 50, so we're almost at that halfway Mark now. So that's good. Well together we'll have over 200 vans out there with all the equipment to do the variety of services we offer. And then the high volume capabilities you have. And then, you know, driving and servicing the vehicles. We'll have together over 300 technicians that are trained. They're W2 technicians versus kind of random 10, 99 kinds of folks. So we, we share a vision in that. We, we, you know, to make the consumer or the B2B consumer customer happy, you really have to have a trained technician there.
Scot: It can't be just kind of a random consult contractor. And then I think together we're servicing about 1500 vehicles a day. So that's a little scary as a software guy to get my head around. But that's a, that's kind of a, a good size of the scale over 40,000 services a month. And for all the people that are excited about oil I did some math and I think we're we're changing over 50,000 gallons of oil every month is combined company. So if there's anyone in the oil industry on the podcast would love to work with you. Cool. So you know, the topic of the podcast is vehicle 2.0 where we talk about the cars are going to change more in the next 10 years than they have in the last 110 years since the introduction of the model T. And we use the, the vehicle 2.0 framework where we talk about the four big waves that are changing vehicles connected car changing ownership, Evie and AB. So, so you guys are really you're kind of, I would say in that ownership side. So you've, you've been deepened the rental car model for a very long time. So we can spend the bulk of our time there. And if you wanna talk about anything else, that's fine too. But do you see any interesting trends with the future of car ownership?
Zach: Yeah. You know, I mean if we're looking at car ownership and, you know, for the rental car companies, you know, we're seeing a lot more shared services. So, you know, riddled car companies are, are working with, you know, the big ride share services, you know, they're trying to try to get them to use their rental cars, provide, you know, new cars that are, you know, safer and, you know, provide a better experience for the riders. You know, we're also seeing a lot more the car shared, I guess when I say car shared services, but you know, commutes, the
Scot: Kind of pulling and yeah, those are all the areas one out there. Yeah.
Zach: Yeah. And we're seeing a lot more of that to where, you know, especially on the West coast, that's becoming a big part of the fleet business. You know, the Facebooks and Goggles and all that are trying to provide ways for their employees to get to work instead of bringing individual cars. Let's, let's start doing this car pooling and they're going to turn into the rental car companies task for the help. Yeah. So we've started to see that quite a bit.
Scot: Yeah. I was I was listening to one of the conference calls with the Hertz CEO. And they got a question from one analyst, which was essentially you, you would think the Uber's and lifts of the world would start eating into the rental car companies. I know I consciously, a lot of business trips all, all kind of just use ride sharing instead of renting a car if I'm only going to one or two locations. And they, it was interesting, they, they actually said they have lost kind of like 5%, but it's like they're real short kind of, you know, kind of half a day kind of rentals but actually lose money on those. So it's actually been okay to lose that because then what have been able to do to your point earlier about keeping the cars they're keeping the cars longer and they're using that, they're adding a little tail period of three or four months there where they're now running them into the rideshare networks and that's, that's actually increasing their profitability because they get rid of the less profitable stuff and now they're keeping the cars longer and they're, they're getting a little bit of a longer life cycle out of the vehicles.
Scot: So it's pretty interesting how it's to predict the unintended consequences of how some of these things will, will, will be impacted out there. I know a question I get a lot when we talk about you know, that we're doing preventative maintenance including oil changes is, and you know, I drive an electric car, so I get this question a lot is, you know, why, you know, why would you guys be investing in this oil change thing when electric cars are clearly going to be here tomorrow? What do you think about that?
Zach: Yeah. You know, it's funny cause you drive an electric car. And I owned one for a while too. And you know, I got the same question of you on an oil change company and you're driving an electric car. And you know, what we realized is, is, you know, [inaudible] our main objective is to make sure the cars on the road that are safe, right? And so electric car or you know, a gas powered car, you know, they still need preventative maintenance if that's, you know, tire rotations, brake checks, you know, down to windshield washer fluid, right? They still have fluids in them. The key fobs still needs batteries. You know, there's a lot more than just changing oil. And so, you know, I think that electric cars, there's still the opportunity there and you know, we're getting asked to, to provide preventative maintenance services.
Zach: You know, as the car industries are starting, you know, rental car companies are starting to purchase electric cars, right? I mean, we're, and we've seen it now for the last couple of years and you know, still providing those services. You know, we've, we've gotten calls of, you know, electric cars on the side of the road that are dead. Right. And can you guys go provide, you know, can you guys take a generator out there and try to figure out how to, you know, get these cars back on the road or, you know, maybe they're stuck in the bottom of a parking garage deck and they can't get a tow truck in there to get them out because they're dead. You know, so I, I think that they're, even though they don't have oil right there, still need preventative maintenance and I think the possibility for services is still there.
Scot: Yeah, absolutely. It's funny, we work with some auction clients and one of the auctions had a bunch of Teslas come through and they didn't realize that, you know, they lose a little bit of charge everyday. So they let them sit there for 30 days and then they got bricked and you know, they, they, they didn't have any charging infrastructure. So we got that same kind of a call, you know, do you guys have any capability to come charge 20 Tesla's tomorrow in five hours kind of a thing. We didn't at the point, but it's something we're, we're always thinking about how can we, Oh well, you know, when that happens, how can we be ready for it and provide those types of services as well. How about connected car? We do a fair amount of that here at 50 because of the consumer. Maybe you guys ever kind of run into connecting car.
Zach: Yeah. You know, I think it's something that we're starting to see. Yeah, I think that for the, the rental car companies, you know, having the ability to, you know, connect to the cars remotely, right? To track mileage, to track service history, things like, you know, you always a car check engine lights, right? Can the car give all that data, push that data, the rental car companies instead of, you know, physically having to go out there and pull that information from the car. I think it's going to be a game changer.
Scot: Yeah. It seems like they'd have enough pull though Em's that they would be able to ask for those kind of capabilities in a, in a fleet management kind of way.
Zach: Yeah. I think it's, I think it's common for, I mean, I think that's kind of the next, the next round.
Scot: Cool. And then the last one, and this one's kind of out there, is autonomy. Any, any thoughts around autonomous vehicles?
Zach: Yeah, I mean, I think it's coming, right? I mean, we're starting to see a lot more of it, a lot more testing, you know, with, with, I had a Tesla and, and you know, it was supposed to be, you know, I mean, getting towards the autonomy. Right. I mean, it always amazed me. And you, I think that as, as, as we get closer and closer to fully autonomous cars, you know, we we see LIDAR, right? And all the camera systems. And, you know, I, I think it's going to actually provide more of an opportunity for us to provide the, the proven preventative maintenance, right. Preventative maintenance to me is more than just an oil change, right. It's, it can be LIDAR, you know, calibration. It could be, you know, camera calibrations, you know, whatever that's gonna be, you know, I think that there's going to be the opportunity there.
Scot: Yeah. And the, you know, these autonomous cars are racking up because they don't have a human in there that gets tired. They're racking up a lot of miles. You one of the examples of autonomy it used to be that, you know, it's coming tomorrow and now that they've scaled it back, one of the things that they're doing in Europe that I think will happen here is certain interstates having kind of autonomous truck lanes where, you know, there's, there's a human that kind of gets you to that point and then that's Honami takes over with a human backup. And then so, so it gives like truck drivers more hours. They can drive essentially by, by having the autonomy there. And you guys do some commercial stuff as well, so I could see that being interesting there where you would, you would want a mobile capability instead of, you don't want the autonomous thing to have to kick in and, and you know, drive someone 10 miles out of their way to get a preventative maintenance. Yeah, absolutely. Yeah. Okay. Cool. Well, Zach, thanks for coming on the podcast. We're excited to be your first venue. Hopefully this is the start of a very long podcasting career. And we're real excited to combine both spiffy and while L and look forward to working with you and your new role as our senior vice president of fleet business development.
Zach: Yeah, thanks for having me. Appreciate it.
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EP020 - CEO of MuvMe, Inc., Steven Messino, and Senior Carsharing Consultant, Dave Brook
http://www.vehicle2.getspiffy.com
Episode 20 is an interview with Steven Messino, CEO of MuvMe, Inc., and Dave Brook, Senior Carsharing Consultant for Carsharing.US; recorded on Thursday, September 12th, 2019. Scot, Steven, and Dave discuss a variety of topics, including...
Steven and Dave’s individual career paths in the automotive industry, and how they first met each other The seven primary ownership models, such as leasing, financing, ridesharing, carsharing, and subscriptions A present-day look at the carsharing space and the potential for a tipping point for more car-sharing miles driven than owned vehicles The key differences between gated and ungated carsharing Steven and Dave’s thoughts on the potential for autonomy, both in the carsharing space and the industry as a wholeBe sure to follow Steven Messino and Dave Brook on LinkedIn. If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot: Welcome to the Vehicle 2.0 Podcast! This is episode 20 and it's being recorded, September 12th, 2019. In this episode, we are excited to have two guests from the car sharing industry. First we have Steve Messino CEO of move me and he's joined by Dave Brook senior car sharing consultant. Welcome to the show guys.
Dave: Thank you!
Steven: Thank you for inviting us.
Scot: Oh, Steve let's start off with you. Let's we, we like to take listeners through a everyone's career path. So, so how did you get into the exciting world of automotive and car sharing?
Steven: Okay. Basically I was consulting in Silicon Valley for various companies, so I came across a car share that started around the same time around 2011, 2012 as get around and what you now know is zero. And they were in a very similar business. They were all doing peer to peer car sharing. Ended up working with them for awhile. Them I went and did a project with probably at the time was the biggest car sharing software provider in the world, which was not a vera out of Toronto. And during that episode, Oh, we need to be create demand. So he thought of doing webinars because lots of people had an interest in car sharing but did not know a lot about the business or the market. So I went and did research and found out who were the leading experts in the industry of which Dave Brook was one of them.
Steven: And the person who originally started the industry in the United States. So we, Dave and I ran a series of webinars. Oh, format, Avera. And then after, and we ended up finding a large number of people who wanted to get into the business. But it's very similar to a large number of people who want to start a laundry or a restaurant. Most of them didn't know a lot about it. And this got tied with Metta. Vera sold to enterprise, so there was no longer a major provider in North America. My phone rang constantly and I started talking to Dave and I said, we have all these people who want to do this. Why don't we offer them a package of, we'll teach them how to run once you've successfully run one days and we'll put together the technology and get them operational. And from that point on, David has been doing this or probably every major car share car company insurance company in the world, but I'm sure you'll be a little more humble. Dave, you want to give your additional background?
Dave: Sure. Thanks. I guess I'm a serial entrepreneur and in the mid nineties, I started reading about this a wacky idea called car sharing that was starting in Europe at the time. And it seemed like a, a, an interesting idea that would have some application here in the United States. So I talked to people in Switzerland that had been involved in their very earliest car shares 10 years before in the late eighties. And it was sort of realize that, well, this wasn't rocket science. It was pretty, you know, straight forward to moving parts. So I stepped off the cliff a couple of years ahead of anyone else and started car share in Portland, Oregon. I was financing it out on my own pocket to, it was kind of before the VC and angel investor world sort of got to interested in mobility and transportation things.
Dave: And after starting my company I was approached by another group of people from Seattle who wanted to do the same thing, only they wanted to do it on a much better finance scale than what I was doing. So I help them get going and after not to, after a couple of years it made sense for me to merge my company with what was flex car which had not only national aspirations, but did expand the in a 10 or 12 different cities all over the country. And they were going head to head with another company out of Boston that started two years after mine called Zipcar. And eventually the two merged and you know, under the Zipcar banner. And so that was the birth of you know, commercial car sharing in the United States. It, after a couple of years working for Flexcar, I decided that the corporate life was not, not for me.
Dave: So kind of weighted out my noncompete agreement and then started consulting and I had been approached by a fellow Shelby Clark who had this idea of using private cars, privately owned cars, your, your car, my car, and being a platform to rent out those cars to other people. The same car sharing concept. And so the big challenge for any car share starting is finding insurance. Cause most people don't understand. Most insurance companies don't understand the special requirements of, of car sharing. But so get around Shelby's company was a relay rides, which is now called we're o, t,U , R, o. And m. Again, almost at the same time another company was starting, which is get around know, which is the other peer to peer company. And they've grown. And so for the last 10 plus years I've been working with they're startups. I've been working with auto manufacturers, insurance companies, helping them understand the, the, the car sharing space where it fits into overall mobility and okay. And having a good time at it. And then it's, that's how I met Steve as he, as he said.
Scot: Very cool. So we definitely wanna dig more into that d what I find interesting is you guys were so early with the zipcars flex car you know, and then the f the iPhone came along, which really seems to have enabled these models to, to be a lot easier or at least more consumer friendly, right? Because with Zipcar, you'd have to Kinda go to your desktop, see what cars are there, run over there and hope that no one rented them out. Whereas with the phone now you have it all in your pocket and you can get more real time from a consumer's perspective, you know, know where the cars are.
Steven: Yeah. Right. That technology shift actually happened about June, 2012 if you watch that, nobody really bought applications on iPhones and android and all of a sudden in that period it just jumped. And then everybody wanted an app on their mobile phone.
Dave: Yeah, yeah. It it really did change things quite a bit. It, you know, the better, the more convenient you can make access to a shared car, the easier it will be for an individual to decide, well, this is so easy. I don't really need to own the car, spend all that money owning a car just to have it waiting for me out front. So it's a challenge for the operator to make it as convenient as possible. And you know, there's kind of multiple levels of convenience. One is finding the car and being able to reserve it. The next challenges, being able to kind of unlocked the car, you know, without having to go through a big a lot of steps and then taking the trip, returning the car and locking it up. And you know, that, so conveniences is what it's all about. And of course, keeping the car clean is the challenge for the for the car sharing operator.
Scot: Yeah, we're, we're learning a lot about that here, here on our side. So that's super helpful. Thanks for given the backgrounds. I feel like you guys are elder statesman of, of the industry. So it's going to be a fun discussion. And here on our podcast we call it the vehicle 2.0 podcast cause we've come up with this framework where we talk about the four of innovation that are just kinda crashing through the automotive industry. We talk about connected car electrification, autonomy, and then changing ownership models. Since you guys are really steeped in that, that, you know, car sharing side, we want to spend the bulk of our time there today. So, so let's start, you know, kind of the history is really good to know. And here we are, 2019. Steve, we'll start with you.
Scot: How do you feel, how do you think about the car sharing space? I'll look into it a little bit. There's you know, dug into this, there's some data points out there that say by 20, 30, maybe 10% of cars will be kind of, you know shared or not individually owned ownership. If that's a word and then a, I've seen another one that's the exact opposite where they'll say, you know, some kind of amazing thing, like 80% of cars will, will be you know, outside of the ownership as we know it today. Do you have a point of view on where we're going to be in kind of the next 10 years or so?
Steven: Well, this is actually a great question because I spend a lot of time, usually in the summertime thinking about where the market's going since I build technologies for it. And you always have to anticipate three to five years in advance of what's going to be coming. Dave and I, when we speak, we frequently get asked this question, the big mover and shaker here, we'll be the autonomous car as it comes along. But it's going to take awhile. Everyone likes to say it's going to be here next year, but it's only in trial. Car sharing is going to be here for quite awhile easily and now 20 years and it just gets convenient if you spend much time talking to millennials, they are not really fans of cars as the previous generation, so they're, they're more inclined to do car sharing, which has already proven out in all the demographics and still approves out today.
Steven: The, yeah, as they, as they get older they are gonna start buying cars because they're going to end up having families and that's going to be in cars so, but if they could get away with not having a second car, I think they'll do it in a nanosecond and it's easy to just spiral a second car to take kids to soccer practice on Tuesdays and Thursdays. If that's the only time you need the car or you needed a third time on Saturday to go shut up. I see this business being solid for 20 years. The primary technology change is as of 2018, 25% of all cars now have their telematics devices, which is what the smartphone shock to built into the cars. So probably in four or five years I'll, those of us who build technologies, well we'll be using the car is built in devices in order to talk to them.
Dave: I I would, I'm not sure how much or they are going to be the car's built-in devices because I think the manufacturers are going to keep that information to themselves in case their, to start their own business. So I think that the, this is the market for you should third party after market type telematics devices is going to continue for quite a while. Okay. As Steve and I differ slightly about the, how quickly autonomous vehicles are going to be a major factor, I think that they will start happening quite soon. I mean without, without 'em a driver without a, whatever you call it, the person sitting in the driver's seat. But I think there are going to be specialized applications. You know, Tesla's clearly shown there's a lot of that a possibility, but there may be autonomous taxis going in, you know, 10 years on a, on a fairly large scale and you know, some, something really basic to to sort of keep in mind.
Dave: There's no difference between autonomous Uber and autonomous Zipcar. There is just who, you know, what's the origin of the company?
Scot: Yeah, yeah. I think Travis a the founder of Uber, Travis Kalanick is famous for saying that they have a good business today, but they'll have a great business once they can get rid of the drivers. But you know, I mean, just because, you know, at that point he had like 2 million drivers. He's kind of a PR oopsies there that he was famous for. So cool. So that's good. Let's, let's kind of dive in a little bit. In peel that onion, there's, I kind kinda track, I call it seven different ways that people own cars. You've got your traditional ownership. You can obviously finance, most people do. You can lease a, and then we start to get into the newer models. You can rent a car.
Scot: So we've got the traditional rental car models out there. And then you've got ride sharing, which is kind of what Uber and Lyft represent today. And then car sharing when you've got peer-to-peer and then you've got, I call it B to c, but you guys probably have another name and then their subscriptions. First of all, I know you guys probably have what I've found in this industry. Everyone's got a little bit of a different vocabulary. So does that jive with what you car stop you guys call stuff or would you dispute and say no, there's different words.
Dave: This is Dave. I would I agree. I mean traditional ownership leasing or financing, you know, strategies for traditional ownership. Then you got rentals. There's daily, I mean we think of daily rentals, but a car sharing is, shall we say, hourly rentals and subscriptions is basically monthly or, or six months. You could call it a rental or lease and it really depends on how it's structured. But all of those are, are where you're doing the driving. When you get into taxis and when you get into what you're calling ride sharing you've got somebody else doing the driving and arguably autonomous vehicles are the machine is doing the driving. So the just basic, when when car sharing started in Europe, they started calling it self-drive taxi which is not quite accurate but a sort of make it captures that distinction. And you Scot alluded to the, to the distinctions of different ownership models of car sharing. The ease of the business owns the car sharing business owns the vehicles or leases, the vehicles. That's most common or it's the what in the industry we call peer-to-peer where it's private, it's a privately owned car that is being, you know, rent it out covered by the insurance of the platform that handles the rental.
Scot: Steve, any other input on the, on the models that we're talking about?
Steven: Yeah, I think w the up and comer that everyone's been talking to mine for the last year has been the subscriptions and that was, that was actually heavily driven by Uber and Lyft drivers and eating vehicles. All right. Actually it's existed for over about 15 years. It just became popular. We have a customer in Long Beach who's been doing it and provides cars under a subscription model. So if you want to drive a Ferrari, you can have a Ferrari for a week. If you want to afford C-max, you can have that for, and he just basically allows everybody who participates to have access to any kind of vehicle they want as long as they pay the fees.
Scot: Yeah. Interesting to talk about the newer models. It seems like we kind of had Uber and Lyft had their, their day and now they've gone public and those are really big billion dollar businesses. And then it feels like the peer to peer car sharing is where there's a lot of action at least. You know, I think Touro between Turo and get around, they've each traced about 500 million. So there's, you know, the big guys are playing, they're like the, the soft banks and the interactive corpse. The subscription one seems to be less popular with consumers. Especially, you know, the OEMs have these subscription programs and they look good. Like the BMW one's interesting. I think it's called access. And you look at it and you're like, this is pretty cool. I could just kind of, you know, switch out the car based on my needs. And then you look at the price and I think it goes 900, 1,520 500 a month and you're like, whoa. You know, that's, they, they feel like they're 2x the cost of a lease of that, that type of a car, which, which seems to be the initial reaction or when I talked to you is like, holy cow, they're way too expensive right now. Is that, is that what you guys see?
Dave: Yeah, it's a, I mean, you think of it from it. This is all kind of being done through dealerships. You know, the, the, the, the OEM might be trying to, to sort of test the market with these, with these subscription programs. Volvo has one as well. Oh, her has tried it, has tried it. But sort of what are you going to do with all these cars? If, if, you know, if you have your, your BMW, you know, seven series and you get tired of it. Now this dealer has this used BMW seven that so you can put on the lot or he can try to lease to somebody else. I think that's where, that's where they, the difficulty of that is coming from. Okay. Keeping the price so high.
Scot: Yeah, absolutely. Steve, do you agree subscriptions are facing some challenges at the, at least at the OEM level?
Steven: Yes. I, this was when subscription started with the OEMs. This to them was a great way of try out our BMWs, try our Mercedes, try out our general motors cars and see which one you like, drive it for a week and get them out there. But I agree with Dave the price that, because would you try to do when you're making cars available is maximize your usage in subscription. If they're sitting on the lot, they're not making money and then you have to charge a premium, you cover your costs. So I believe that's probably the challenge until they can get activity up. But I don't see activity going up just to Uber and Lyft drivers and people who are testing them. That's not going to drive it either. So subscription is going to be that. I don't think it's going to be a big player. I think it's definitely going to be there and there'll, there'll be competitors out there trying to win part of the business.
Scot: Cool. Let's talk about the peer-to-peer side and it sounds like you guys were there, the birth of it, and I'm coming in kind of here in 2018. It feels like a two horse race, Touro and get around get around, started really a little slower start, but a better user experience because they require, like they, they use this airbnb style English where you have the host and the guests kind of a thing so that they require their hosts, which is the car owner to have that device that allows you to remote your kind of remote control the vehicle or at least road access. And then and then so get around was really focused in the U S in a couple cities and then Touro didn't have that device and it allowed them to get a lot of cars on faster and more cities. But in the, now they've gone and they have a similar device where they can optionally have that you know, phone controlled access. Everyday to I point I see shows Troy at 80% market share get around at percent is. Does all that jive with how you guys think about the peer-to-peer space?
Dave: Yeah, I think, I think that's right. A get around has, you know, has focused attention on, you know, kind of don shall we say, dominating our getting good market share in a limited number of cities. As you say, Touro made a decision early on not to do technical a in car technology, that telematics device, but did what, what you know, we call key exchange. And I think that they are serving somewhat different markets. The, because of the lack of technology, a Toros rental periods tend to be longer. More like car rental, you know, daily day and a half, couple of days at a time. Okay. And get around because it has the technology, it is able to two, not only have the longer term rentals but can support the more urban car sharing type of, of access to the car for a couple of hours at a time.
Dave: So there they're going slightly differently. Both both, I want to say both of them have now expanded into Europe or European companies. It may only be one of them. And a, like you said, a Touro now does have a, a in car technology, which would allow this more spontaneous use of the vehicle without having to meet the the owner. But it's not a requirement and a, the people who are going to be most interested in it are people who I really anticipating, you know, renting their vehicles a lot rather than somebody who, you know, just wants to make a couple hundred extra dollars a month. So, you know I think it's a kind of a different strategy there. There clearly are people like airbnb. There are people who have simply gone out and bought used cars and put them on the, the P2P platforms. And you know, if they're in the right location and they price it right, they can make pretty decent money.
Dave: Yeah. We see that a lot. They call it a, they call it their side hustle out there and it's really big in la where people, they'll experiment on one of the networks with their daily driver and then they'll, they'll like the extra income, but they don't like having other people in their cars than they'll, they'll either, they're, they'll buy a new car and then they're daily at their first car, becomes the, the rental car and then they become power hosts pretty quick. Where, you know, we found these guys that have 10, 20, 30 up to hundreds of these cars that are just kind of have built this little side business doing this is pretty fascinating. Yeah.
Steven: Three or four years ago when these guys were growing we found a bunch of people in San Francisco who g who would get pests lists because there were so hard to get and they would post Teslas and they would charge one to $2,000 a day just to get access. Yeah.
Scot: At that level, it almost becomes like a a payday pay, the test drive kind of a model or something.
Steven: Yeah, exactly. What is the market? People would take it for the weekend, drive it and then decide if they wanted one.
Scot: Yeah, I see.
Dave: I think that people, one of the things that was surprising when, when relay rides with now Touro started was we expected that it would be cars would be a couple of years old before people would sit or be comfortable letting strangers drive them, you know, drive them when they, when like you said, when they first got them, they really wanted to [inaudible] kind of keep it special. But almost immediately cars less than a year old were showing up on the, on the system. So it part of it is just a, shall we say the younger generation has a different relationship to their cars then? Well maybe it's not only younger generation. Some people have a different relation to ship to their cars than others. You know, the people look at more functionally or they look at it as more of a personal, a personal statement, personal expression.
Scot: Cool. so now that we've laid some good groundwork for car sharing in the, in the and both your experience and everything let's dig in to move me. So Steve, tell us about you started talking a little bit about how you guys came up with the idea but give us kind of the overview of the company and, and what you guys do.
Steven: Well, good. So we're not, when we started it and I recruited Dave to give me some help, it was because people wanted to get into car shares and they needed to learn how to actually run a car, share what's involved in it. How do you start it with your business plan? How do you think through being profitable? David Woods does an expert at it. So, so when somebody's would come to us a look, we need the technology for some reason, first time people are interested, first thing they want is a technology and I'd say no, what you really needed to do was talk to David first and help you think through this business. Oh for the territory. It's in the your constituency that you want to serve. What their demands are going to be, what the population density is. These are all things David is an expert at.
Steven: Once they get past that part, then we get them to what kind of cars, where they need to be. And one of the decisions they get too is what kind of car shirt and they actually want to operate. Most ones, if there's small start out stations station or round trip, they, they operate very similar to the rental car. In other words, you get it here driving anywhere you want, return it. Once they start to get larger and more mature, then they moved to free floating because the capital costs of free floating are much higher. Instead of buying 10 the 50 cars, you're now buying 50 to 200 cars. And that requires investors to go make happen. And it's a, it's a more sophisticated approach and as time goes on, most of these companies, they tend, when one, these companies tend to do both. They tend to do both free floating and they do round shrimp or station to station.
Steven: So the effect on us was how do you build software that has to do all this and anticipate technologies. So let's even go look where things are going. From that point once you're starting to do a car share, some cars shares actually want to rent seats in the car, especially senior citizens. Hey, I'm thinking for other people, I want to charge them all. So, so now you have a car share turning into a ride share. So you have to adapt your software to go the ride sharing. Once you do that, then you have, okay for example, you can take a car that's not heavily rested, rented it and car share in the evenings, give it to Uber and Lyft drivers. Well, there's not just Uber and Lyft drivers. You can give it to doordash drivers. People are now delivering cargo, they can rent the car. And so you have to account for that in your, in your design so you're not just renting a car, your Hesta account for riders, cargo types of cargo and you can see it. And then of course the world went to suitors, bicycles and the technologies. Basically the same technologies that started in car share really take care of all of this. And so those of us in this industry, all we're trying to do is anticipate what the next move, what the next move is to make sure it's already prebuilt and ready for the operators when they're ready to go.
Scot: Got It. So your software, it seems like it's super flexible and it can provide all these different options and probably even an intermingling of the options. Is that a good characterization?
Steven: That is a great characterization and we had to do a complete redesign once we realize this industry is moving so fast and people are so creative that you have to adopt, adapt for them as quickly as you can.
Scot: Got It. Give us an idea of how many customers,
Dave: Yeah, Scot, it's a, it's kind of worth noting that there's a big overlap here between, you know, what we think of as classic car sharing, commercial neighborhood car sharing in a, in a city and fleet fleets use or can use similar software. Traditionally, you know, a fleet, a corporate fleet or a government fleet, you know, has a whole bunch of keys hanging on a wall or in a, in a lockbox and you, you check out the [inaudible] and pick up the key and take it back. But increasingly fleets are installing the same telematics that you know, Steve and I have been talking about here. And so they're able to shrink the size of their fleet a buy and getting much higher utilization because somebody could check out a car for a half a day. Somebody else could check it out that afternoon, whereas before you basically could only do a daily rental out of, out of that car.
Dave: So it saves money to the company or the agency. It allows them to manage it much more efficiently. It's the same technology and in particular with fleets you might want to you know, that company might want to offer the option of, you know, of somebody going across town to a meeting. They could take other people from the company with them. And so they need to not only rent the Co, you know, sort of access to car, but then assigned seats to two people. So it's in Europe they call it a corporate car sharing, but it's really just a fleet, a fleet system.
Steven: I think if you allow me to elaborate, what I think Dave is hit on is what was car sharing? One. Dot. Oh, and car sharing, one, two. Dot. O is kindly as is transmuting extremely fast.
Scot: Interesting.
Steven: And because of it, when little challenges start to come up. And one of the things we look at, believe it or not, as the technology is going to be autonomous cars, because these are ones we need to bring backwards into car sharing. So we, so we can know what's going on with people, cars, locations, making sure that cars get things that are futuristic. We're already addressing like making sure cars talk to each other so they know the state of what's going on or the vacant talk to the passengers so they know the state of the passengers. This is, you're going to see this world move as fast as a smartphone business.
Scot: Hm. Cool. give us an idea for a, the size of move me. Do you guys think about, about the number of cars in your network or the number of, of car sharing companies? How, how, how big of an impact are you guys having right now?
Steven: Okay. There's two ways to look at it, number of operators and number of cars. The fact of the matter is if you have an operator with a thousand cars, you actually put in almost the same amount of effort as somebody with 10 cars because everybody likes it their way.
Scot: Yeah.
Steven: No matter what you think to use your experiences, they think it should be different. Yeah. So, so you, it doesn't matter who you choose, they all want a better in what they perceive to be a better user experience. And so you have to meet
Dave: And in a way to differentiate themselves from the other guy. You know, it may not be better, it's just gotta be different.
Steven: And so that's what ends up which we end up doing is making it, you look unique for them. Yeah. So they look special in the market.
Scot: Cool. So how many cars does that equate to? Or operators, I guess. Correct.
Steven: Well, W with the average number on opera. Oh my God, it's all over the place. Dave, why don't you answer that better than me?
Dave: Sure. Well, I mean, the typical car sharing company is in a, in a, in an individual city is going to have a, probably a couple of hundred cars so they won't get there all at once. In the peer to peer, I'm sorry, in the this a one way free floating car sharing that we've, we've mentioned a couple times. The cars don't have a fixed location, but they can park in any legal, they can be parked in any legal parking place within a big zone, you know, kind of the inner part of the city and the people find where the car is located by, like you were saying at the beginning of the broadcast, you know, with, with a smart phone and they don't have a fixed reservation period. You don't schedule it. You just find the nearest car and keep it for as long as you want.
Dave: And if you're just driving across town, you might pay for that by the minute. And if you want to keep it longer than it ratchets up to by the hour and even longer by the day. Daimler and BMW have both have services that are now in the code process of merging right now, and it's going to be under the share now franchise. But these, you can't do this free floating with fewer than a couple of hundred cars because you, you've got to have them reasonably close to where people live or they're not going to use them. But, but there are car share co-ops all over the world and, and a bunch of them in Canada, you know, that they might have 40 or 50 cars. 50 is about the smallest you can do profitably. Otherwise you're, you're running it as a kind of a, a social, a social service, you know, probably a nonprofit.
Scot: Okay. And do you feel like, so you know, having experiment with these, it feels like the free floating as a much user experience than kinda like what'd you guys call Zipcars station to station? Or is that, I've heard some people use gated. Station to station?
Dave: Yeah, station to station. It's, we call it round trip because it's not, you can't take them between stations. You have to bring it back to the same station. With the, with the free floating there are no stations. You, you can just return them anywhere. It's, yeah, it's a, it's a different user experience in the sense free-floating is a different user experience in the sense of that you don't have to plan ahead. You don't have to make a reservation and you don't have to specify when you think you're going to bring the car back. Which is what you have to do in the, in the zip car model. But by the same token, because it's so flexible, the company has to charge a lot more of the per hour price of the, a free floating almost double what, what a, a station to station would be.
Dave: And in some cases it's even more than double. I just so the user, so I think functionally what happens is you, you satisfy a different type of trip. W the, the free floating membership typically is a lot bigger than the same a membership, the membership in the same town of the, of the round trip type car share. And I think the reason is is that you're able to do a type of trip with free floating that you can't do with round trip. And that's this one way trip where you can take it across town or you can take it out of town and bring it back, but you don't have to return it to the same place you started from. And so even car owners are interested in this free floating because it lets them take a kind of a trip that they can't do with their own car. So it's a different user experience and consequently it's a satisfying, a different mobility need than, you know, the classic, a round trip
Steven: To make it simple, free floating is really a great convenience factor. So you pay a premium probably as much as 49 cents a minute, but what you use car sharing, you're down to maybe 7 cents per minute. And if you're starting to rent those by the day, it gets down there one or 2 cents in there.
Scot: Yeah.
Steven: So it's really just a matter of convenience and, and that's the premium you pay for.
Scot: Yeah. Cause it's the operator free floating is probably a nightmare, right? Cause you had cars kind of watering all over the place. You got to go find them. You mentioned scooters earlier and I see these people trying to find these scooters that worked our way in all kinds of crazy places. And, and not only
Dave: That to, to sort of maximize the returns on the scooter, the companies have to spend a certain amount of time relocating the scooters because in the morning people, many people want to take the scooters and go to work. And then there might not be that much demand for the scooter during the day until the evening. And so they will relocate a certain number of scooters constantly. You see it in the bike share and you see it in the free floating car sharing as well. Usually in the free floating car sharing, it's a, they're relocating a car that is perhaps quite near the perimeter of the service area and there isn't much demand out there. And so they're going to move that car back into more of the heart of the service area.
Scot: Cool. I do want to spend a couple minutes on some of the other areas here that we talk about on the podcast that I think does a really good deep dive in the car sharing side. How about Steve, you mentioned autonomy a little bit that you think it's coming. It feels like for a long time it was like right around the corner and then this year it seems like it got pushed out a little bit. There was an incident with the one of the Uber vehicles hitting somebody and you know, even even the Waymo guys, the Waymo CEO said something like, I don't think we'll ever be at full a hundred percent autonomy. So there seems to be kind of, we're in that, you know, that that coming, the expectations are coming down a bit. Where, where do you put that? We'll have some pretty good ab penetration.
Steven: Well, in fact, Dave and I were talking about this before this, cause we, we get asked this all the time as the last numbers I thought that were reasonable is that you would see them as a norm in major cities about 2030
Scot: Yeah.
Steven: That, that would be the norm. I mean, are you going to use it to tow your boat in the suburbs now? But so for major cities, endless slowly grow outwards. Probably from that I was mentioning the days, when would we get to say 70% penetration? And it was purely my guests that maybe around 2075 you know, but that's a long way out. And part of it isn't, is because when you buy a car, it's got an 11 year life. Yeah. So you buy an asset like that, you're not going to dump it right away unless something's really unbelievably convenient and it's less expensive. So autonomy has to be there in your neighborhood all the time. And then whatever neighborhood you're going to, and that's gonna take a while.
Scot: Yeah.
Steven: Dave, your opinion?
Dave: I think that 70% number is is a, an important one to keep in mind because you know, there's lots of discussion about the the safety benefits that autonomous cars you know, are going to bring because they won't be acting irrationally like drivers do. And those benefits don't, don't you know, start showing up in insurance rates and, and a lower hospital admissions and things like that until you get to 70, 80% penetration, the 70 to 80% of the vehicles on the road are smart, are smarter than humans. And you know, if you look at the accident statistics of autonomous cars to date a very high percentage of them are, were caused by a, you know, kind of erratic behavior by somebody else on the road that the autonomous vehicle couldn't anticipate.
Scot: Darn humans.
Steven: If you run a show, what I found fascinating is when they were designing these in silicon valley about six years ago, I would attend all the sessions and listened to the PhDs talk about how do you deal with these human problems?
Scot: Yeah.
Steven: Such as if four cars are all hit a stop sign at the same time, who moves first? Well, the way humans do it is people start to nudge until somebody asserts themselves.
Dave: It's the guy in the test. It's the guy in the Tesla who goes first.
Steven: So much what I've been doing is you have, you have to teach the car to do the same thing, move a little bit, look around, see what everyone else does, move a little bit. And then if it's free, you move. So well, a lot of it is teaching them the cars to deal with humans.
Scot: Yeah. Where do you, I'm often when I kind of play this forward, the one group, I kind of think, I don't know what happens to them is the dealerships, you know, so, so it feels like a lot of the OEMs are viewing some of these models as an interesting way to almost go direct to the consumer. And then, you know, in than if by default people aren't gonna be buying as many cars, the dealership may become a service center. But then I always, you know, you know, the, you ask people, you know, when's the last great service experience? You had a dealership and you, you don't get a lot of grave responses except maybe Lexus or something like that. Do you see those guys being the kind of the, you know, where, where do they fit into this kind of, you know, world of 2030 where, you know, the, we've, we've got pretty good penetration of these new models.
Steven: Well, part of this, you look at the statistics right now, there's about one point $2 billion billion cars in the world. And if you, and you can look at any of the major research sites that is expected within a few years to drop down the 1 billion. And the largest effect on this is the sharing community car sharing, ride sharing. It's just, it, it's expected by about 2030 that it'll be 16 to 20% of the car market will be in the sharing industry.
Scot: Yup. What happens to that, do you think dealers are, that's a, that's a lot of hit for the dealers because presumably that's a 20% reduction, but it's going to be even heavier on new car sales. Right?
Steven: Yes. And, and also you're getting efficiency. If you start thinking on the autonomous car, could run 22 hours a day continuously as opposed to most Dave probably knows the most recent numbers. What's the average amount of hours of car shirt is used per day, Dave?
Dave: Well, typically a eight to 10 hours per day average.
Steven: So as you get more efficiency, you drive down meeting that number of assets in the world. Yeah.
Dave: See the, you know, I mean I think the car dealers can see the handwriting on the wall. Yeah. They have these longterm contracts with the manufacturers and they're struggling too to sort of figure, retain their role in the distribution a process.
Scot: Yeah. Interesting.
Dave: I wouldn't want to be a car dealer.
Scot: Okay. Yeah. I kind of come to the same conclusion.
Steven: Well, and as consumers go less to them you can, you can understand the challenge. Yup. Yup. You don't need as many in town. I mean, I'm Ford announced a reduction in the number of vehicles they're going to be producing. What is, what does the market really need? And I think we're going, not only are we going to see less dealerships, I think Ford made the right move. You're going to see less, less car types. Yeah. Cause you're not gonna need all these people competing. If you need a sedan, it's a sedan. As long as it runs relatively well, you're happy.
Scot: Cool. Well guys, we're this has been awesome. I could go a whole nother hour, but I know, I want to be conscious of your time. So one last question. If folks want to find follow, tweet, retweet, like whatever you guys online, where can they find your, your, how you're writing and thinking about the industry?
Steven: Dave, want to go first?
Dave: Sure. I have a industry blog that I've been writing since 2005 called car sharing. Dot. U S is the, is the web address, car sharing. Dot. U S
Steven: In my case, where at? MuvMe Inc Dot com Muv m e I n c.com and we're going to be doing a lot of promotion about the new technologies in the next few months that we're coming out with, and so we'll look forward to getting feedback from your audience.
Dave: Yeah, Definitely.
Scot: Awesome. Yeah, maybe we can have you back on and talk about that in a, but that's going to do it for today. We really appreciate you guys taking time out of your busy schedules, changing car ownership to come on the vehicle 2.0 podcast.
Steven: Thank you.
Dave: Thank you, Scot.
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Missing episodes?
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EP019 - Future of Ownership Deep Dive
http://www.vehicle2.getspiffy.com
Episode 19 is a deep dive into changing ownership models, recorded on Wednesday, September 4th, 2019. Scot breaks down the past, present, and future states of car ownership, including:
The three phases of auto ownership; from birth, through the lease and financing adolescence, and into the digital present. Who will claim the largest share of the $1.2 trillion transportation industry in the US? A look at where car ownership stands today and identifying the largest shifts from traditional dealerships. Breaking down the pros and cons of every rising trend in ownership, such as ride-sharing, car-sharing, and subscription models. Conservative and radical projections for the impending shift in vehicle sales, expected over the next decade. The hopeful future, where you can turn your car into an autonomous taxi.We recommend following along with Scot’s presentation from the Auto Intel Summit, which you can download here. If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot: Welcome to the Vehicle 2.0 Podcast. I'm your host, Scot Wingo. This is episode 19, being recorded on September 4th, 2019. We hope you've enjoyed the last six episodes, which we recorded live at the Auto Intel Summit. And today we are going to do our first in a series of deep dives. A deep dive episode is where we spend the entire episode. It's going to be a little bit longer, so that may take you a couple listens to get through, but we're going to do a deep dive into one of the vehicle 2.0 concepts as a refresher. The Vehicle 2.0 framework has four components. We talk about the electrification of vehicles, autonomous vehicles, connected car, and then last but not least, ownership. And that's what we're going to spend today on. This is actually a version of a presentation I presented at the Auto Intel Summit. This is going to be a unique podcast because it actually does have a pdf that goes along with it that will enhance the podcast.
Scot: So if you're listening in your car or while you're exercising, the audio will be fine alone. But if you are at a computer, you may want to pull up the PDF. If you go to our show notes, you'll find the link to that pdf there. And I do recommend you pull that up now. So we'll assume that you guys have found that and jump right into this. So one of the, I come from the ecommerce world and one of the things I found interesting about the auto world is in the ecommerce retail world, everyone is squarely on board with the fact that the pace of change is logarithmic now. So for example, Sears was started like 150 years ago and then now is almost bankrupt because that company did not keep up with the pace of change that's happening coming into the auto industry. You're looking at another industry that's kind of over right around a hundred years old.
Scot: And it's really interesting. I don't think I'm, as I've talked to folks from the various constituents of dealers and OEMs and whatnot I don't think that the industry has really caught up to that pace. So one of the things that I like to show is a chart which is for those of you falling along is essentially slide two, page two. And this shows the rate of adoption of different technologies. So what's happening is we as humans, you know, we wake up every day and we kind of work our work our eight hours and, and our awake for 12 to 16 hours and we go to sleep. And every day is very linear. A lot of the change we're dealing with is logarithmic. So logarithmic change happens in a, you know, powers of 10 effectively. So what used to take a hundred years can now take 10 years.
Scot: So I'll give you a real world example of that. So for example microwaves I remember I'm from a small town in South Carolina. I remember our first microwave was like $900 is a huge investment. And we were one of the first people in, you know, not only my neighborhood, but probably our city to have a microwave. Microwave's took a good 50 years to get to the adoption rate where they're at over 90%. Now. You'd go to Walmart, you know, now they're essentially a, and everyone has one. If you look at the adoption rate of this kind of technologies, what's happened in the last 10 years and this is because we've got all these platforms now, like smartphones and digital payments and whatnot, it's taking a lot less time for things to get to 100%. So if you look at social media, Facebook went from zero to over a billion users in about five years.
Scot: Uber went from zero to, you know, near a billion users very, very rapidly. So, so what we're dealing with is a rate of change that we as humans, and especially if you're in an industry that has been slower moving is frenetic. And I think that's a good backdrop as we think about these different ownership models. You know, will, how fast will these things happen and what should, should you do if you're in one of the, the industry and you're going to be impacted by that. So let's dig into ownership. So what we're going to talk about today is a little history about car ownership. I think it's always helpful to make sure we're all on the same page about where we're coming from. And then also in that vein, what's at stake, why, why should we even think about this, these new ownership models.
Scot: Where are we today with these models and then what's the future hold? So I think of the US ownership and kind of a model of three phases. The first phase we'll call that the birth of car ownership. And that's from 1908 with introduction of the model t by Henry Ford to 1945. So kind of post World War II. Then we go from 1945 to 2006. That's the ownership adolescence phase. And then last, what we're in now is what I call the digital phase, which is 2007 to 2019 let's dig into the birth phase. So in the birth phase, we had kind of the first cars coming out in 1908, as I mentioned. And those were essentially, you had to buy them outright. So there was no purchase plan or anything like that. But a an interesting company started called the Ford Delivery Company and they were the first rental car company and they did this per mile, so you would pay, you know, something like 10 cents per mile.
Scot: So cars were very novel. They wanted to get people in them. And they came up with this interesting kind of rental car model. So real cars didn't really become super popular until later, but that was the first introduction of that model of car ownership essentially is a, almost like a, a, a test drive, an extended test drive. Then in 1919 GMHC came out and introduced financing. So you used to have to pay for cars upfront and then they actually introduced financing so you could pay for them over a year. So that's kind of fun to think through, you know, all right. Now you know, let's say one of these cars was the equivalent of I don't know, $30,000. Essentially the financing back in those days was essentially in a, it was almost more like a Stallman plan to pay for it over a year.
Scot: Obviously a financing has changed dramatically over the years, but that was, those were kind of the ownership models in the early phases. So buying outright a financing was introduced. And then rental car, then we go into the adolescence. And so an after 1945 in the fifties, leasing was introduced, leasing was before then before the fifties, leasing was popular for commercial vehicles, but it had not been applied to, to non-commercial or individual ownership type models. A company called U s leasing came out and, and essentially brought that in. Did we had a really long period of time where there wasn't a lot of innovation and car ownership. So we go literally from 50 years, from 1950 to 1999. And the big innovation in 1999 is Zipcar. So Zipcar was founded by two folks that went on a European vacation. And they were really surprised and pleased that in, I believe they were in Germany where they found this car sharing model.
Scot: We're in Germany. They could go and find a, a car in a dock area rent that car and drive it around for the day and then return it. They thought that model would do well in the United States. So they founded the companies of car. So now we have the introduction of car sharing here in the very early days in 1999 now that brings us to where we're gonna spend the bulk of our time, which is the digital phase, which started 2007. I anchor this on 2007 because that's when the iPhone was introduced iPhone one. And if you remember, remember iPhone one, it was very controversial, a Nokia and Microsoft laughed at it and said you know, not only is it a terrible phone for making calls, but it's pretty much useless. No one's going to own these things. Boy, were they wrong? So the, the genius of the iPhone, and this didn't come along until iPhone two was the app store. So that's, that's where the iPhone became this open platform that exposed you know, caused the creation of a lot of these new models that we're going to dig into. So it's really important. And, and that's why I anchor the digital phase on the birth of the iPhone.
Scot: So what, what the iPhone has allowed to be created is a whole new model called ride sharing and ride sharing. Has an interesting history. In 2008 Uber Cab launched, which was essentially going to put an app overlay on top of the existing taxi infrastructure. That didn't work out very well. And then Uber moved to more of a model around black cars sort of limousine type vehicles. And then they had a competitor in San Francisco called lift that launched in 2012. And Lyft was really person to person ride sharing. So, so trying to figure out you have all these folks out there that are willing to drive other people around. They don't know each other. But could we use our phones as a way to not only connect those people but get to a destination safely? In response to lift, I'm kind of going to the person to person ride sharing model.
Scot: Uber launched, which was well into the ride sharing world on the taxi side or the, the limo side Uber came out with Uber X, which is the person to person writing platform. So from there we were off to the races and here we are in 2019 and obviously both those companies are, are quite large and public. Now the other interesting model that has been introduced a couple of years ago is it kind of person to person car sharing. So, so you know, when I think of Uber and Lyft, that's ride sharing. So someone owns a vehicle and they're going to drive you. That's ride sharing. Car Sharing is where you're essentially you know getting a vehicle in, from someone in, it's either a, B to c kind of model like Zipcar. So that business is car sharing with you or a person is car sharing with you.
Scot: These, these businesses were kind of born out of the airbnb ethos of all right. People have a second home or a vacation home or a room in their house or a guest house or something like that. And they want to rent it out to folks you know, person to person. That's how airbnb was born. So a lot of these care show, car sharing, person to person, car sharing, companies use that. A lot of the same language and a lot of the same thinking in their businesses. The, the two big guys here are Toro and get around. So this is where you're seeing a lot of innovation right now. It's kind of the next wave behind the ride sharing companies. Uber and Lyft is in the person to person car sharing segment. So we have Toro Toro has raised 438 million obviously a, I think that puts it into what they would call a unicorn status in silicon valley.
Scot: So over a billion dollar evaluation. And their competitors get around who hasn't raised 443 million. So you know five, 5 million more than Toro. So these companies are raising significant capital, which indicates that they're kind of in their hyper-growth phases and making a run at, at, you know, becoming large companies, possibly ips. In the B to B side of car sharing, you have maven and cargo, which we'll talk about later. Another area that's really popular from a press standpoint but less popular consumers is vehicle subscriptions. So there's a soccer company called clutch, which is now owned by Cox Automotive and they they essentially power a lot of the car sharing subscription programs out there. And then some of the companies have actually done their own. So a lot of the OEMs are expanding, experimented with this. So Volvo has care by Volvo.
Scot: Cadillac had, they actually closed us down book by Cadillac. BMW has accessed by BMW, Mercedes bins has the Mercedes Benz collection and Porsche has Porsche passport. There's also some individual dealers that are experimenting with this model. And a lot of other kind of startups in this area like drive, black tie and prime flip. So in conclusion, if we kinda think about these three phases, what we end up with is seven different ownership models for cars that are out there today. If we go back to the birth, we have number one, which is outright ownership, and then number two, finance in three rent. Then as we go into the adolescence phase, we have leasing. So that's our fourth car sharing and I kinda count car sharing as one. But there's two flavors of car sharing. There's the B2B side and the person to person side.
Scot: And then we have ride sharing and subscriptions. So those are our seven ownership models that we're going to dig into. Before we do that, let's look at what's at stake. Why are people investing 500 million, you know, over $1 billion just in one of these segments? Well, the u s consumers spend over $1 trillion a year on transportation and they drive over one and a half trillion miles just in the u s alone in passenger vehicles. There's 280 million vehicles on the road today. So, you know, this is a really big addressable market. If you could just get, you know, 10% of that, that's $120 billion market. Essentially. And if you can get 5% of that you know, just 5% of the market, it's $60 billion. So while we see these companies all have very, very small market shares, we have such a big number that spent on transportation every year that you can build really big companies here.
Scot: Even if they're going to be having a one, 2% type impact. So that's very attractive to both entrepreneurs and investors. Also, you know, I mentioned earlier, you have an industry that's been around for over a hundred years and the car ownership experience, you know, I remember going with my dad when I was like 10 and buying a car and then now when I buy a car, it's almost exactly the same experience. You know, you, you go, you meet that sales guy, no one really loves that process. Then you have to negotiate with his manager. Then you sit down and you go through a very long kind of you know, process to, to end up buying the vehicle with all these financial options and things thrown at you. So, so you're looking at an industry that, that I think has, you know, hasn't really changed in a hundred years, has pretty low customer satisfaction.
Scot: You know, the, the whole car buying and owning process is not amazing. Compared to kind of compare that to like an Amazon prime type experience. There's a lot of room to go there. Another factor here is the cost to buy a new vehicle has gone up substantially. So if you look back kind of 10 years, a new vehicle on average was $28,000. Well, with all the new you know, the, the user consumer preferences towards SUV type vehicles, all the new electronics and all the new features and functionality, the average vehicle cost has gone up to 35,000. So that, that's pretty material, right? That's a 7,000 you know, almost like a 30% increase over 10 years and the price of a new vehicle and some of that is self inflicted by consumers by, by what they're choosing. But that, that's Kinda the, the essentially owning a car has gotten way more expensive in just 10 years.
Scot: The, the cost of owning and operating a car. So you would think a lot of this new technology, you would reduce that. Actually it's gone up pretty substantially. So the cost of owning and operating a car is about $9,000 a year right now. So, so that, that's pretty substantial. And that's those two things create demand at the consumer level for new models. Okay. So let's dig into each of these models. So we have outright ownership, financing, leasing, renting, ride share, car share with the two flavors of B2B and p to p, a person to person. And then subscriptions. So for those of you following along, I'm going on to page 21 in the, the presentation. So if we look at ownership finance, lease together as kind of a subsection of those ownership models. Last year in the United States, 17.2 million cars were sold.
Scot: 11.8 million of those were truck SUV. So you can see that a, you know, substantially large percent of these are now are in that truck SUV category. Many, many manufacturers have stopped making sedans. So, so the consumer demand for sedans is way down. The, the average alone on these vehicles. If we, if we look at how many people buy outright, only 14% of consumers buy a vehicle outright, which makes sense. This is, this is a pretty expensive, you know, this is kind of pretty much you know, a year's worth of income that you would have to accumulate to buy a car outright. So because of that, 86% of people finance their vehicles within that finance bucket, 30% are leased and 70% are traditional car loans. That always surprises people. I think a lot of people I talked to lease vehicles and they are surprised.
Scot: Other people aren't leasing, but again, 70% are doing the finance kind of model where they're gonna own it out right after four or five years. And then more you know, I would say a more fluent segment is leasing the vehicle at 30%. And then that leasing segment it's interesting as we think about ownership, a lot of people kind of think, all right, I'm going to pay, you know, two, three, four or $500 a month for, for a car. And that's kind of going to be a steady state. And this is Kinda like a gateway into the subscriptions that we'll talk about the average loan for those folks that are financing the vehicle, the average loan is over 30,000, $800. And today you're looking at a 68 month term. So what is that? Five and half years. So, so five to six years.
Scot: So, so folks are really you know, the financing vehicles have grown up to have a pretty low monthly payment, but what they're doing is they're just pushing out the terms. Compared to that first kind of installment plan I talked about, which was paid a year, the rental car market is fascinating. And, and here at Spiffy, we, we work a lot with rental car companies. When you talk about this for folks outside the industry, you know, what your intuition would say is, wow, ride sharing. The, the rise of ride sharing miles from Uber and Lyft must really be hammering these rental car companies. And what you actually find out is there's a little bit of truth in there, but then there's also a side to that and unintended consequence you may not be aware of. So let's look at that. So there's over 2 million vehicles in the United States active today.
Scot: It's a $28 billion a year industry. And that industry grows right in line with GDP. So it's growing three to 5%. Just like GDP, the, the impact. What's interesting about rental cars is yes so they think about trip duration. So, you know, they have a segment of users that will do kind of day trips. So that same, same day rental, same day return. Then you have one, one, two, three, four, five day, and then greater than five day increments. What's interesting is, so some of the public companies, so, so hertz for example, listening to their conference calls, what they're seeing is ride sharing is hurting the super small trips. So as most impacting day trips and then one day, but then two day plus have not been impacted by ride sharing. So, so they're seeing, I think they've taken about a, a 7% hit on these shorter trips due to ride sharing.
Scot: So then you would think, you know, all right, maybe that's 10% of what they're doing. So, so you, you would expect them to be shrinking, not growing three to 5%, but where they're making up for that actually is on the tail end. So prior to ride sharing these companies would hold vehicles up until about 50,000 miles, then they would wholesale them out at auction. What they're doing now they have so much demand for longterm rentals from Uber and Lyft drivers that they're now keeping the vehicles from 50,000 miles to 80,000 miles. And in that, those 30,000 miles they're renting them out on 30 day periods into the Uber and Lyft networks. And that's actually more profitable for them because the short trips are very expensive and not super profitable for, for the car rental companies because they, they, you know, if it costs $30 to turn around a car and it comes in and out every day, then you haven't made enough revenue to cover the turnaround.
Scot: So what's happening is they're actually, they've lost, let's call it 7% on the short trips, but they're making up that plus a lot because it's more profitable on the back end of the life of the vehicle by putting them into the car networks. So you may not realize it, but the, you know, especially in big Metros, the, the car, your Uber or Lyft driver is driving, could very well be a rental that they've done a 30 day rental from Hertz, Avis enterprise or of their imprints. So, so that's really interesting and that's a, is fascinating to see the unintended you know, the, the counterintuitive reaction that's happening in these things. It also shows, I like to talk about these ownerships models as if they're separate things, but they actually are really starting to overlap and interesting and fascinating ways that we'll look at. Now let's look at ride sharing.
Scot: So that's the rental cars and now we're into ride sharing. So again, in my, my, my vocabulary ride sharing is you know, you have a driver that comes and gets you. You're usually using an app to hail that driver. And Uber and Lyft are the big players in the United States. So there's a lot of buzz around this obviously, and you've got two large public companies that have been created, multibillion dollar companies. But really when you, when you look at it if you look at 2018 and this is, this is government data that essentially from the Department of Transportation and if we look at 2018 really one and a half a million miles have been from ride share which is 0.9%. So we're not even like 1% of of transportation miles yet from rideshare. So, so very, very small overall and it's forecasted to stay about the same.
Scot: But you know increased by 2028 be about 3% of overall miles. So it'll be growing really rapidly, but still it won't even be kind of 5% of miles for the next 20 or 10 years based on the modeling that's out there. So it's still very early days for this and this because the transportation industry is so large, you know, we're, we're, if we're traveling one and a half trillion miles, it takes a lot of, of ride share miles to make it den on them. What I find fascinating is, you know, why are people using ride sharing. You hear in the press beats the drum on this that, you know, people are giving up their cars for ride sharing, but when you actually look at the use cases, I think it's fascinating and it's certainly that's going on in some of the larger Metros like New York, Boston, Chicago, San Francisco.
Scot: But I think once you step outside of those areas, it's really interesting to see why are people using ride shares. So this is from a Wall Street firm called JMP securities. They did a pretty large survey of thousands of ride shares to kind of say, why are you using a ride share? The number one use case at 46% is a trip to the airport. So, you know, this is fascinating. You know, I, I think, I think the, the people that are actually the companies that are impacted the most by ride sharing is airport parking. So folks are doing the math. You know, fortunately here in the Raleigh Durham area parking is like maybe 20 or $30. But in large cities, you know, you can easily pay $100 a day to park your car. If you're at Boston. So you know, the math doesn't make, it doesn't make sense to park your car there.
Scot: So everyone's taking a, a ride share to the airport is the number one use case. The next couple of use cases are a, we're familiar with here at Spiffy because it creates a lot of problems for Uber and Lyft drivers and that is leaving a clar a club or a bar at night. So 33% of consumers that use rideshare are using it when they're out drinking and partying. 16% is at a party. So you add those together and you get what? 49%. and then there's going to a dinner, going to a concert and going to a sporting event. When you roll all those up, it's like 70%. So actually the biggest use case I think of ride sharing is I want to go out, have a good time, and not worry about having a designated driver or getting a DUI when I come out.
Scot: I haven't seen any stats on this, but I, I think there's this probably this interesting freakonomics like study we could look at where I think the rise of ride sharing is probably plummeted DUIs. So, so I think that's, that's great too because we have less people out on the road driving intoxicated. So, so there's this, you know, there's really interesting use case. I don't, when I talk to people in the industry, they don't think about the reason we see this a lot is spiffy is unfortunately when you do transport, a lot of people that mount drinking accidents happen and we call those biohazards. And we, we do a lot of help with those situations here at spiffy way down at 10%. Sub 10% is the use case of my daily commute. So most people are not using Uber and Lyft for their, their daily commute.
Scot: So as we peel the onion on ride share and look at Uber, Uber has all the stats we gave you or as of the reported first quarter of 2019. So these now these companies are public. We have a lot of really good data here. Uber has 6 million active drivers and a 62 million active riders. That's a global number. They don't break that out by the u s but half their businesses. U S so I would say probably 3 million active drivers in the U S and about 30 million active riders in the United States. So, so a lot of, lot of people really using these services. If you think about the u s we have 300 million folks with us. So anything, you know, 30 million active riders would be about 10%.
Scot: I'm looking at Lyft. Lyft has 2 million active drivers, so about the same size as Uber when you compare apples to apples for the u s market. But because Uber invested very heavily in going international. They're about twice the size of Lyft or, or more. They also have Uber eats. Lyft doesn't have that. So Lyft, Lyft has 2 million active drivers, 20 million active riders and delivered over 205 million rides in the first quarter of 2019. When you look at these companies, if you're really interested in this, I strongly recommended recommend when you go public yet to file a document with sec called an s one. So if you googled, for example, Uber s one or Lyft s one, you'll get a really nice you know, this is going to be like a 300 page document that these businesses put together detailing every aspect of their business. I recommend pulling those down, looking through them.
Scot: And then I always the, the way the SEC requires you to draft this it's kind of like all the good stuff's in the middle. So you have to kind of like talk as if your business is terrible. And then you'd talk about some of the good stuff and you have to end with why it could be terrible. A lot of people misread that. And you know, as wow, y w this business is terrible. So the section you want to go to is the management discussion. So the, it's called the management discussion and analysis or the MDA section. It's usually literally about a third of the way through the document. That's, that's really where you get in the heads of the CEO and the team running the company and understand how they think about the business. And that's where you can really get, get really deep understanding of these businesses.
Scot: So, so if we look at in the U S if we look at if we compare where they are Uber versus Lyft effectively in 2016, Lyft had 22% share an Uber pretty dominant at 78%. But Lyft has made a really big push and is gaining share. So as we, as, as we left 2018, which was kinda the last time data was available Lyft had 40% market share, an Uber 60%. So, you know, what lets doing is competing on price and really trying to differentiate. And have happier drivers. They share a little bit more revenue with drivers. Lyft was the first out that let you tip the driver. So really kind of trying to have a different brand kind of model than Uber. Uber had some challenges with their previous CEO and some of the things he said did. And then now they're kind of on the mend with a new CEO, a new, a new kind of trend in the industry.
Scot: And I, I'll kind of put this kind of still inside the ride sharing bucket is we have these new suppliers that are being born that, that will try to supply into the transportation network companies. So a lot of the industry publications will call Uber and Lyft transportation network companies. So there's all these new companies that are supplying in there. Previously I mentioned the rental car companies. So the rental car companies, I would hazard to guess, and there's not a lot of data on this, but just because of their scale are probably the largest suppliers into the TNCs. So what that means is again, Hertz, Hertz, Avis and enterprise essentially taking tail end cars, cars that have a fair amount of miles on them, usually 50,000 up and supplying them into Uber and Lyft drivers. There's also several other companies doing this, such as Hyrecar. And for those falling along, I'm on slide 28.
Scot: You know, so higher car a is really a, a smaller company. I'm thinking about a hundred million in revenue, then went public and they really just provide short term 30 day ish rentals for Uber and Lyft drivers. Lyft is actually, Uber didn't experiment where they would actually lease cars into their own. Drivers. They, they exited that business before they went public and that merged into f a I r so fair is a very large supplier for the TNCs. Lyft is doing it's own program called Lyft express drive. And then another company that's really interesting is in New York called Buggy where, you know, they're, they're essentially doing these short term rentals where you can go in and sign up online and within hours you can have a vehicle. And they've, they've done the math on, I think they have like two or three models that work really well in New York City.
Scot: So I think one is like a Prius and one is a newer Toyota Corolla and they, they're so tied into the networks. They will say, all right, if you want, one of the ways paths you can go through is they'll say, do you want an Uber select vehicle, an Uber XL vehicle or an Uber x vehicle or a vehicle that would be available for Uberpool. And they know those requirements and they have vehicles that meet those requirements. So as a driver you can say, you know, wow, my, my daily driver, I can only do Uber X. And I've heard Uber select is where all the money is in New York. So you can go rent a car that gets you into that Uber select tier from one of these suppliers. So a lot of really interesting kind of innovation happening as a feeder into Uber and Lyft that, that you wouldn't know about, but it's right there under the surface.
Scot: Now let's talk about car sharing networks. So I talked a little bit about Zipcar before. Let's do a little bit of a deeper dive to kind of understand how this was born. So Zipcar, as I mentioned, was started in two, in 1999 and you know, you can imagine before you had a smartphone, it wasn't super useful. So you know what, these are gated. So what the user experience was largely around college campuses and, and areas like that. So you would know, hey, in my college, I'm a student in, at my college campus, I've seen these d zip cars parked and two or three locations, you sign up, you pay a monthly subscription, they could use certain number of miles. If you go over those miles, you pay a per mile fee. But if your student, you know, you could go and say, all right, I really need to run errands.
Scot: So you would go to the grocery store, go to the mall, and then you use the car for four hours and put it back in one of the gated areas. And then you would go, you'd use your desktop essentially to log your, your miles in and out and whatnot. 2009 once the app store is open this, this really took off a lot more because the phone is a much better use case where you can say, now, all right, I am in location X. I press a button and I can, I'm pleased to see there's a zip car three blocks away from me that I can go use. And I can see that there's one there. So you get, so the phone added Geo location, kind of hyper geo knowledge of what's going on. And then availability of inventory, which is really critical to this model because what really stink is if you're a college kid, you walk all the way across campus and then the two zip cars are gone.
Scot: So really bad user case there not having visibility. So the phone has really solved that. So that really took off. They did have some controversy around the founders that got kicked out. New new team was bought in and the company went public in 2011 after kind of two years of hypergrowth after the introduction of the smartphone app they ended up getting acquired by Avis in 2013 for about $500 million. So, so definitely a big success story in, in, in the transportation space. Unfortunately, once they're acquired, Avis hasn't really provided a lot of information. What I can tell you is they're available in 500 cities globally, over 12,000 vehicles out there. The average trip is 47 miles. And then within car sharing, one of the innovations is Zipcar is kind of the earlier model where they're, what were called docked.
Scot: So again, there's these branded parking spaces you have to go to this parking spaces. It can be relatively inconvenient both on the pickup and the return part of this transaction. Especially if, you know, let's say you did all your grocery shopping in the doc for the Zipcar is a fair distance away from your dorm and you're a college student. Now you got to lug all that stuff. You bought a across campus back to your dorm. So a lot of the you know, a lot of the innovation in car sharing has been in the undocked category, but over in the docked category, we do have Maven which I believe is supported by GM. And then that's, that's out there as, as an option as well. The undocked companies. So you have cargo share now reach now, drive now enterprise car share.
Scot: And a lot of the OEMs are testing this. So Toyota has a test in Hawaii called Hui. I don't know how to pronounce that. We'll, we'll call it hooey. So, so a lot of really interesting things going on there that we'll explore. So one of the challenges is the reach. So because there's a business that's owning these, it's got to someone's to pay for the car. Right? so if you look at Maven for example, it's available in like seven us cities. And you know, so Ann Arbor, so a lot of these start in Michigan and, and the Detroit and our Arbor areas are always possible. Chicago, a lot of them kind of start in the Midwest and then go out to the edges. And then another challenge with these car sharing networks is security. There's a high profile Cartago I believe, or may have was maven.
Scot: They had you, it was the Mercedes one, which is car to go. They had 75 vehicles stolen. So, so people you know went to the dark web, they got some, you know, American Express credentials. So they stole credit cards, use those stolen credit cards to get access to the vehicles and then stole the vehicles. And well all of these vehicles have tracking whatnot before the local authorities could track them down. The vehicles were stripped down to the skeleton and all the parts were gone. So a lot of these companies have actually exited the Chicago market because they, they there's a very efficient car theft capability there that, that I don't think you can, you can get around. Well the big news and the car sharing networks is consolidation. So BMW and Daimler both had separate programs and they got into kind of realize, you know, hey let's go in this together.
Scot: If we each kind of, you know, are going to spend tons of money looking at this type of a program that's inefficient. We're all developing the same models. Let's, let's pool our interest. So they reached a joint venture recently here in 2019 that brings Cartago and reach now under one roof. The brands here are a little confusing. So I think they all have this now things, so they have share now, reach now and Parkville all within this, this whole conglomerate. And the share now is the car sharing program that we're talking about. Park now is their acquisition of park mobile. So you know, you, you have some, the jury I think is still out on car sharing, both in the doctrine undocked if it's going to take off, it's going to be the undock. It's also you know, what's interesting is in the ecommerce world, we see brands going direct very aggressively.
Scot: And I think we're gonna see that in the, in the auto world which will obviously disrupt the dealer networks. So most of the experiments in car sharing or from the OEMs here, it's 50, we're under NDA with many in it, you know, OEMs that are doing experiments around car sharing largely in the San Francisco and La areas. So there's a lot going on, even more than than I can report here. And it's mostly the OEMs kind of directly figuring out, you know, is this going to be a whole new model that they should be involved in? And because they're making the cars it kind of is viewed as a verticalization of supply chain in an interesting way. So the jury is still out on that one, not really up to scale. And I would argue subscriptions are kind of in that program where we are seeing a lot of scaling up is the car sharing.
Scot: From a P2P perspective. So I mentioned earlier we're got this kind of very similar Uber versus Lyft battle forming between Toro and getaround. So Toro decided to go wide very quickly. In the, in the early days trows decision was to get an in many cities as quickly as possible. Get around said no, the user experience is more important. We want to have a limited rollout and we're going to ask every one of our car owners, what they do is they use this airbnb language. So a car owner as a host and then a car renter is a guest. They don't use rental language at all because they, they're trying to stay out of all the regulations around rental cars for the consumer. It feels like a short term rental. This a lot cheaper than, than a normal rule. But the companies themselves use airbnb type language.
Scot: So I will, I will adopt that as I talk about them. So get around, requires their, their host, which are essentially the people that own cars. So we'll call this host to have a device installed that gives the guests the iPhone, the smartphone ability to lock in and lock the car and have access to the car. That's really a nice user experience because now you don't have to mess with getting the keys. So, so get around. That device is called Getaround connect. And for the longest, a very long time, it was a required part of it. They've since loosened that up. So if you look at them today, Toro has a 5,000 cities, over 5,000 cities, thousands of cars. They're running this really interesting Porsche host program where Porsche goes in and they say certain hosts that have one or two Porsches available are almost like ambassadors for the brand.
Scot: So you can get a, essentially an extended test drive. So you can go rent at nine 11 for a day from a Porsche host. And that host is going to be able to tell you all about the features and functionality that car and really you know, highlight what's great about a Porsche. So that's an interesting kind of another intersection of the OEMs promoting this, this kind of short term rental model. I'm in the car sharing world. Toro came out with its own device you can install called Toro go. And on the consumer side you can say, all right, I want a Toro in San Francisco that I want a Tesla and I want it to have this device installed. Most recently Toro raised $250 million from interactive court. So you see a lot of the biggest investors in this space are Interactive Corp, Cox automotive car are automotive Kar.
Scot: And then you also have Softbank, Softbank in the world of startups. Softbank is the, the, you know the Mac daddy of the gangster, of investing in, in large companies scaling up and that's who's invested in getting room get arounds in 300 cities. They just acquired a competitor called Drivvy; d, r. I, v, v. Y. Um, and over in Europe which gave them an international presence. They say the average car on their network owns, earns $500 a month. And then they recently raised 300 million from Softbank and they have a partnership with Uber where, you know, again, all these companies are kind of becoming suppliers into the the ride sharing companies, which I know it gets confusing. But you know, you can say let's say you have a second car, you can rent it on, you know, for 30 days to an Uber, Lyft driver through get around.
Scot: So, so a lot of really interesting things going on there. Only compare these two guys according to some of the folks that measure the data here. This is sourced to second measure on, on slide 34, if you're following around, Toro has about 80% market share in the u s and get around 20%. So it looks like it looks like kind of Toro is going to be the Uber and get around. It's going to be the lift, but we'll still see us very early days. Again, these companies have all raised hundreds of millions dollars recently. So, you know, I am, I'm actually starting to see TV ads and things from all these different models out there. The thing that we see as 50 that's interesting is we see this lifecycle with get around in Toro. So, so here's how it works. So let's say you, you you hear about one of these things and you're like, wow, I would love to make some, you know, some extra money from my vehicle.
Scot: So you start, you start putting it on with these networks and you really, the extra capital that you're getting, let's say, you know, a week out of a month you rent a car and you get $150, you know, that's nice and helps you maybe cover your car payment and pay for gas or anything. But then what you start to realize is having someone in your daily driver is Kinda Weird, right? Because it was just kind of strange sharing your car with someone. But then what a lot of people do is they'll buy a second car and that's Kinda like their investment car. And they'll say, or they'll buy a new car and they'll take their primary driver and turn it into their, their car sharing car. So they'll effectively have two cars, a daily one that they live in, and then a second one.
Scot: And they'll, they'll put that out there and they'll reel, they'll start to make $500 a month, they'll pay off that car very quickly and they'll realize that, that that's a really good way to earn, you know, effectively own a vehicle. Pay It off and then start generating cash. So once you pay off that vehicle becomes a cash cow then they'll buy another one, another one, another one. So, so what we find is these power hosts have developed where there's folks that own five to hundreds of vehicles and they're, they're using this you know, they're using these networks to build pretty interesting micro fleet businesses. So, so then they start parking them around airport parking. So this is interesting because now you know, now we're back to airport parking, which is suffering from ride sharing. But if you do want to do a longer term lease from a truck, get around and you're going to lax or SFO what you'll find is most of the parking now is occupied by these types of vehicles.
Scot: So it's Kinda funny how these things all intersect. I do expect this model will have an impact on their rental car company. I don't think the scale is there quite yet. But I think in three or four years you're going to start to hear them have to react to these things. And maybe they'll, they'll actually participate. Or you know, if I'm, if I'm hurt, I start to say, well, why is it fair? These guys can essentially run out cars and not pay all the rental car fees I have to pay and all the regulatory things. And it's gonna be interesting to watch. Just like the taxi industry fought up against Uber and Lyft. I think we're going to see the real car industry start to really kind of come at these car sharing companies. Okay. The last model to look at before we start looking at the future is subscriptions.
Scot: So, so these, these sound good, you know, you're kind of like, all right, I'm already leasing a car. And what if I paid a little bit more and everything's included. So the insurance is included. Everything I think you pay for the gas, but all the maintenance and everything is included in what they offer. That's pretty cool is they all have a different degree of being able to switch cars. So some of the programs, usually you have a different kind of a good, better, best program in these things. So, for example like the let's say the BMW one, you have three tiers icon, the legend and BMW m. So that's where you're going in the m class, which is their highest end. So the icon you have, you know, kind of the three and four series BMWs and the legend, you get the five and six series and then the m you can get kind of like the convertibles and the fancier cars.
Scot: As a consumer, it's an interesting use case because you could say, you know, I have three kids, so during the week I want a, you know, an SUV type car. But on the weekends my wife and I are going to the beach or we're going up to the mountains, we'd like to have a convertible or a different type of vehicle or maybe you need a four wheel drive. So, so there is an interesting use case there. The challenges, the costs. So that BMW when I was telling you about the lowest end is $1,000 a month and then it gets up to about $3,000 a month for the high end. So you know, just feels like it's priced itself way outside of even luxury consumers when you're competing with, you know, that would be nice, but if, you know, I could have one of these BMWs for five or $600 a month, I'm not sure consumers willing to pay 10 x then.
Scot: So, so I'm just not really sure where this is going to go and what we'll have kind of, you know, seems like there's something there, but they've got to figure out how to get the cost way down. It needs to be, you know, the killer app is if we were designing this is it would be lower than my lease payment or, or equivalent and I could do peak vehicle flips and you know and have access to, you know, some vehicles I probably wouldn't normally have access to. So I think we're a long way from there. All right. So those are the seven models and a deep dive into where we are on all of them and what's going on. Where is the future taking us? So we want to conclude here by, by kind of looking forward and I'm on slide 36 for you home gamers.
Scot: So where are we today? Vehicles are only used 5% of the time. So you have, you know, it's largely people's. If you rent as prior, your your biggest asset and if you own a house, it's your second biggest asset. So you're actually using your, one of your biggest assets 5% of the time. And it just feels wasteful. You know, think of all the cars just sitting there parked right now while I'm talking to you. So think of all that real estate that you know, could be green space or bike lanes or parks or whatnot. 89% of trips are single writer. So again, as we think about the environment that's really inefficient. And then again, the average cost of the vehicle is $33,000. So, so where the, the metric I have found that drives a lot of these models about where the future's going is cost per mile.
Scot: Right now we're at a cost per mile and the term kind of ownership model of, you know, again, a finance own outright our lease and about $3 per mile. So, so that's the real key driver. How do we drive that cost down? So electric vehicles are one of the ways, you know, so with electrical vehicles, you're obviously not consuming gas. You know, the cost has come down like on the model threes and some of the other models coming out where you're not having, it's not a luxury kind of a, a vehicle anymore. It's in that you can get vehicles are getting closer to that $33,000 number. The, the key driver though is autonomy. So there's a couple of models here. I'm sorry. So I went out and kind of looked at all the different models about when is Carner ship really gonna Change.
Scot: The first model is from BCG analysis and it's onside 38 for those of you falling along. And what it shows is kind of a, what I call a slow boil. So here we are in 2019 and they really don't show much of an impact until 2030. And a lot of that is from autonomous vehicles, so, so they're kind of saying by 20, 30, 70% of cars will still be you know, individual ownership kind of conventional models. And then 30% will be these, you know, Robo taxis and car sharing is all the models I've talked about outside of individual ownership. So so that, that, that feels right to me because I come from the ecommerce space and you know, we're only about 15% of of sales are e-commerce and we've been at this 20 years and it's obviously a better model, but there's still just a bunch of people that don't trust the security.
Scot: They like going to the store, they love parking, and you know, waiting in line for hours to get stuff. I don't, I don't a hundred percent understand it, but you know but you do see pockets where it's as high as 50, 60, 70%. So, you know, that's one model and I call that kind of the slow Boyle. Then there's the a model that shows crazy fast. And this is from some guys out of Stanford that, that have a model. And they have a company called rethink x that published this and their model, we, the new, they kind of use a miles kind of a metaphor, but it's about the same. And this model, 80%, by 2030, 80% of the cars will not be owned by individuals and 20% will be these new models. And when you, when you dig into how is it possible that, that a smart people are forecasting such different things?
Scot: What you find is it's the autonomy piece. So to get that, to get down from $3 a mile to sub a dollar a mile, which is where as consumer, you will logically then according to these economists, you'll logically choose to not own a car anymore. Because owning a car will be $3 a mile and using one of these other things that will be a dollar a mile, it takes autonomous vehicles to be pretty prevalent in Robo taxis. So that's the real crux of this is when are we going to have, you know, large numbers of miles driven being able to be done by autonomous vehicles.
Scot: A good example of that is on slide 41, where, you know, when we're at $3 a mile, then the addressable market for these new modes of transportation is about $20 billion. So, so large. But once autonomous vehicles get you to a dollar, then it mushrooms up to 750 billion about 150 times the market today. And then once you can get a below a dollar, then it will be 300 times today. So that, that's the real dry or the model. Let's see if you're interested in this. On slide 43 Tesla did a effectively a, a full day on autonomy. And then there you know, there's a lot of really interesting discussion around the technology behind autonomous vehicles, like lidar versus cameras and whatnot. But then at, towards the tail end when Ilan was wrapping up, he talked about Tesla's overall plan to have robo taxis out there.
Scot: So these vehicles will be under $38,000. So call it a Tesla Robo Tock taxi, which is effectively a model, a model three or a model y with kind of a base configuration. And you know with full autonomy, he thinks they can get the cost down to 18 cents a mile. You could charge less than a dollar a mile for a profit of 65 cents. And then this, this vehicle could be out there generating 30 k a year for you in profit. So, so really interesting. The application of electric and autonomy you know, they, I think they can get the miles down to, you know, way below a dollar a mile. But again, you know and of course in typical Elon fashion, he said, we're going to have a million of these in a year. So I, I think that's very aggressive. I think the regulatory environment is not gonna allow that to happen.
Scot: But it is interesting to think through, here's a real car maker thinking through these economics and you know, putting, putting off flagged down at six, 18 cents a mile. The other big trend that's driving the future of transportation is multimodality. So multi-modality is that the kind of the holy grail for transportation is imagine you have an app. This app says OK you tell the app, I want to go from point a to point B, and that may be I'm in New York and I want to go from, you know, Tribeca up to I don't know central park. And that app will tell you here's the optimal, do an optimize on time or, or money or, you know, maybe there's a slider in between there. And depending on what you do, that app is fully dialed into all modes of transportation.
Scot: So that app may say to you, all right, for time, you're gonna take a scooter to the subway stop. And here's, here's, here's 12 scooter companies and you're going to, there's a lime that's close to you and we're going to go ahead and light that up. And you get to the line, you take it to the subway stop, you park it, now you get on the subway and the app has timed it to where you're there two minutes before the trainer eyes. Now that train takes you somewhere and then it puts you on a, you know, now you take a ride, share to the next leg of your journey, et Cetera. So kind of intermingling all these transportation modes from micro mobility on bikes and scooters. Two medium distance from ride, ride sharing and maybe down the road, Robo taxis. And then also intermingle mingling, car sharing.
Scot: So another use case could be, alright, I'm in New York and I want to go to Maine on vacation. So this app says, all right, here's how we're going to connect to this. You know, you're going to take a let's see a bird from here to the subway, that subway is going to take you out to LGA. And you're now going to go to this long distance LGA parking area where there's a Toro waiting for you and we've rented it for the two days you need, and that you're going to take that Toro, do your trip and come back, and now you're gonna have to, you know, the, you know, for whatever reason Toro wants you to return that to a different location. And here's how I'm going to get you home. So that's, that's, that's kind of the big driver of the future of multimodality.
Scot: So everyone's gunning for this. So it's gonna be interesting to see who, who gets there first. You know, you, you obviously, so Uber and Lyft are trying to get there very aggressively. So you have some multi-modality there between, you know, the different ride sharing all the way from, you know, the XL, the black cars to select to scooters. Some of them are starting to pull in there. You had the map companies. So you know, I use, when I go to New York, I use Google maps for this. It does a really good job of telling me, you know, walk here, do this. It doesn't really have the scooter thing in there. And the bike thing I'm not really big on those models, so I'm fine walking to the subway stops and it tells me where to go. The other thing I'll depart with is there's always a lot of interesting unintended consequences.
Scot: So with availability of ride sharing, for example, this is slide 47 you know, what they're finding is over half of the, the ride sharing trips are new miles. So a lot of lot of folks thought, okay, Uber and Lyft are going to really increase utilization. But what's happening is because they've made it so easy for people to go to from point a to point B, people are actually increasing the number of miles they travel. So, so a lot of these are new trips and so you know, one of the surprises is ride sharing is actually increased congestion in big cities like New York, Boston, Chicago, San Francisco. That's, you know, what suffering from that a little bit is public transportation. So if you're in New York, it's actually, you know, a much better user experience to ride a ride hailing vehicle than get a taxi, which would be too expensive.
Scot: So cheaper than a taxi and it's more expensive than public transportation, but it's a better experience. So, so a lot of incremental new miles coming out of unintended consequences. So what's this mean for you? So you're obviously listening to this podcast because you're somehow connected to the transportation industry. You may be an ecommerce person that thinks about package delivery and you know, if we do have these robotaxis that that's going to be a game changer. But, but essentially think who's going to own the vehicles and when are we going to see this? This flip happen largely driven by autonomy. Who's going to maintain all these vehicles once you have more, you know, if we're, if we're kind of currently at a 5% utilization and we take these vehicles up to a hundred, that's a lot more miles per vehicle, a lot more drivers, a lot more maintenance.
Scot: Who's going to do that? What happens to car dealers and these new models where, where do they sit? Are they the guys that are the parking lots and the maintenance for these vehicles? What happens to the OEMs? Do they essentially go direct and cut out dealers or do, does everyone still have a role if you're, if you're not autonomy does, does that mean, you know, that has consumer, you don't really care. The difference between a Volkswagen and Mercedes is no longer a status symbol because you're just using this thing for five miles and you don't really care. What, what's that mean? You know, what happens to the ride share and car share companies when autonomy comes along, they're obviously investing heavily to make sure they, they kind of put themselves out of business in that model. And then, you know, there, there's always a scary side to this kind of stuff.
Scot: But what I found is these kind of really big changes create opportunities that are bigger than the downsides. So, so what does it mean for your business and how can you innovate and be a part of this and capture some of these, you know, hundreds of billions of dollars that are going to spill out when, when this happens. And last, you know, we, we have kind of seven, seven big groups that are really fighting over this. So we have the car sharing networks both docked and undocked we've got the P to p companies, we've got the subscription companies, we've got the traditional rental rental car companies, the ride sharing companies, and then all these companies investing along with, so you've got the OEMs and other companies you know, investing heavily in autonomy. They're all in a collision course trying to fight for this one and a half trillion dollar market.
Scot: And it's gonna be really interesting to watch that. And if you find this topic interesting, you're in the right place. Cause we are going to keep you up to date on everything going on with these ownership models on the vehicle. Two Point Oh podcast. Thanks for joining us. We hope you've enjoyed this deep dive. And if you have any questions. So first of all, we would love a five star rating over in your favorite podcast listener. And if you have any questions you'd go to our Facebook page over at spiffy a or I think through our vehicle 2.0 page. You can ask some questions, be happy to answer those. Thanks. And happy driving.
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EP018 - Managing Director at Maryann Keller & Associates, Jeremy Alicandri
http://www.vehicle2.getspiffy.com
Episode 18 is an interview with Jeremy Alicandri, Managing Director at Maryann Keller & Associates; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Scot and Jeremy discuss a variety of topics, including:
Jeremy’s journey through the automotive industry; from an e-commerce startup to automotive strategy with Maryann Keller & Associates. Dealerships combating margin compression following the first operating loss in over a decade. The current and rising impacts of carsharing and ride-hailing on new car sales. The acceleration of digital retailing as a solution for new and used car dealerships, including services like Carvana. Fair as a leader in subscription-based digital retailingIf you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot: Welcome to the Vehicle 2.0 Podcast! We are live podcasting from the 2019 automotive intelligence summit here from sunny Raleigh, North Carolina. It's Wednesday, July 24th, and we are excited to have on the show. Jeremy Alicandri. He is the, oh, we'll have to find out your title. You're with Maryann Keller and Associates. And what's your official title?
Jeremy: Managing Director.
Scot: Managing Director. Wow. The MD. Not a medical doctor. Thanks for coming on the show.
Jeremy: Great. Thanks for having me,
Scot: Yeah, I know you, I this shows your, you're crazy busy. So let's start by giving listeners an idea about your career path. We were chatting before the show about you and I share e-commerce. So that's kind of fun. And then I would love to learn more about how you got into your role.
Jeremy: Sure. I just want to issue one clarification. You called it sunny Raleigh. It's hot, humid and sunny. So I do have a background in e-commerce. Actually before automotive, I started a company when I was 16 was a retailer. E Taylor ran that for about eight years moved into doing consulting services for a number of different companies both inside and outside of the automotive space. And one of those consulting opportunities led to a full time opportunity within automotive group where I was an executive for I guess about seven years. And then after that I went into consulting at a price Waterhouse coopers and then now where I am now at Marian Keller and associates. So we are in automotive strategy consultancy and what we do is we help clients both inside and outside of the automotive industry get a better sense of where it's going help them answer some of their strategic questions, do a ton of research topics and write papers and, and offered a detailed analysis to, to help them with whatever it is that they're thinking about. So that's kind of a little short summary of my background.
Scot: Awesome. Are Most of your clients like dealers or are they the OEMs or are they the parts manufacturers or which part of the ecosystem do you touch?
Jeremy: I'd say most of them are large companies. I touched the automotive space, so, so it could be a, a, it could be a large publicly traded dealership group. It could be a large part supplier and auto maker or lender. Even in short, so we're seeing all different types of companies come to us with with common concerns about where the industry's headed and they want to run some scenarios, bias. And that's what we, that's what we do.
Scot: Very cool. Do you guys, are you kind of, I'm the type of firm that will actually publish a bunch of stuff or is it more we do publish thought leadership and be published
Jeremy: A few papers, a in connection with the Auto Intel Council which is actually a, I guess a sub division if you will, to the auto intel summit. So the council and the summit kind of hand in hand. And then we also issue study. So earlier this year we issued a, a study on franchise dealer advertising where we interviewed nearly 400 dealerships and published where we think a dealership advertising is headed and where it is now and what's working and what's not working and kind of give a very granular level understanding to those that may be interested in that space.
Scot: Very cool. And then here at the show you're a talk is tomorrow and you are talking about the the Costco car buying program, right.
Jeremy: I'm going to Mc, I'm going to be interviewing the person that runs that program. Very successful program sold over 650,000 cars last year, which is really amazing. And yeah, we're going to be talking with Rick Borg of of Costco. Should be fun. Cool. Fun. 30 minutes.
Scot: Yeah. So they don't give you a ton of time to do this thing, so it's hard to get it off all the data in there. This in the, if you don't know the answer to this, that's fine. But this is the Costco program is an individual dealers that are in there or is it powered by some other company?
Jeremy: It's a, so it's individual dealers that are the ones that are actually providing the cars to consumers. But the types of dealers that participate those are some of the questions that I hope to find out tomorrow, the answer to because I don't know 100%
Scot: On the show to report what we learned. So here on the vehicle 2.0 podcast, we have a framework where we talk about the four waves of change kind of coming to the auto industry. You are in the ecommerce industry as I was and you know, we've seen trillion dollar companies created out of the changes that have happened there in retail. But we use it, the framework that has essentially four components to it. So we've got the change in car ownership, connected car, electric suffocation, and then autonomy. You're out there talking to dealers or these kinds of things on their mind or it sounds like, you know, some of the reports you're putting out are more tactical, you know, like how do you do advertising in the franchise level and that kind of thing.
Jeremy: Yeah. So you certainly touched on a lot there. Some of those what I would call very let's say high level trends, but essentially that's what they are probably still very far away, not, you know, on the, on the top of mind issues for dealers. I think dealers right now are more concerned about things like margin compression. Where for the first time since the great recession, the operating profit of the average dealer in 2018 was a net loss. Dealers are concerned about vehicle affordability. Vehicle prices are an all time high today, making them financially out of reach for many consumers. In fact, the average new car buyer is age 54 and has an income of $122,000 a year. Compare that to the rest of the U S and it's easy to see a tremendous delta in income. And NH dealers are also concerned about the effect of consolidation.
Jeremy: Consolidation means that there's less and owner's going to be in the automotive retail space between now and 2025 and more dealerships are getting gobbled up into larger groups. So whereas we have an estimated 8,500 owners right now, within the next five, six years, we're probably gonna see about 6,500 and that's going to give a further economies of scale to some of the larger groups some of the publicly traded and also some of the privately owned dealership groups that may further jeopardize the small mom and pop mom and pop independent store and doesn't have access to the scale economies that would be associated with the larger group. So these are some of the issues that our dealers are really concerned about. And, and I would add that the, the biggest is the fact that more so now than ever before, automakers control the profitability of dealerships via incentives.
Jeremy: So what we've seen here is that while the operating profit of dealerships in 2018 went into the red, again, this is the first time it has since a great recession dealerships are still profitable for as a net profit. Okay. And the reason for that is because of automaker incentives that favor dealerships to engage in certain types of activities that the manufacturer incentivizes. So that can mean investing in, in a project to improve the look and feel of the dealership. That can mean, and most most common, it means meeting certain sales quotas. So dealership may sell a cars for loss. Actually, it's quite common now, net profit. In fact, most new car price departments in the u s or dealers are not profitable. So dealerships will sell cars for a loss and then make up the money at the end of the year or maybe every quarter, every month through income incentives that come from the auto maker.
Jeremy: And so when you have a dealership that loses money that that will be unprofitable without making sure that it does what the automaker wants. It's kind of a kind of a major concern, frankly for dealers. And another term for this would be stair step programs. It's kind of all similar, all group together where dealerships are concerned about how these these trends are going to ultimately affect their ability to, to grow and, and make money and, and, and survive just over the next five, six, seven years. I don't think anything cataclysmic is going to happen, but these issues are, you know, really what's on the top of mind for, for dealers as far as what you're talking about with I mentioned earlier rather autonomy and electrification. Maybe we can dig into each one. Depending, depending how, you know, like a brush on, yeah, I'm a, I'm a, you know, total newbie when it comes to dealers. So I imagine dealers have essentially three lines of business. They've got new cars, used cars, and then kind of the service area. I guess finance kind of fits in there. And, you know, that's Kinda like maybe maybe it's kind of, I kind
Scot: Of imagined it being this horizontal between the new and used car sales. How, so if they're not making money on new car, do they make enough on the service and the used car to make up for that?
Jeremy: Trying to, yeah, they're, they're definitely trying to, so what we've seen over the past few years is that dealerships continuing to invest more of an emphasis on service and parts. There's been nearly a 49% growth and sales between, I believe it's 2010 and 2018 in dealership service departments and parts department. So really a tremendous amount of growth there. There's been tremendous amount of growth in FNI where dealerships are making more money on selling things like protection products vehicle service contracts, in fact, penetration for theoretical service contracts, et Cetera, and your all time high. And they're also looking at used cars. So one of the the topics that's come up over the past over the past couple of years at these used car summits that Cherokee has the same organization that runs ais is that dealerships continue to figure out how they can be more competitive in use cars, how they can more quickly turn inventory because they see that as a profit center. So dealerships definitely are looking at other profit centers to make up for the fact that they're not making it in new cars. And then also they're looking for ways to cut back on expenses. Expense reductions always been a big area. Frankly, sometimes it's difficult for dealers to be able to master it, but you know, it's always always a way to, to cut back if needed.
Scot: Hmm. If if there's a pie chart at a dealer between those three lines, how much is new cars used? Cars and services it pretty equal or service like a small slice and yeah, so,
Jeremy: So it varies. The absorption rate, which is basically looking at the service department's profit as a percentage of, of the dealership's overall profit can vary significantly. And so rather than give any general stats cause it can vary by franchise and also size of, of groups. I would say that the service and parts is probably the number one area that, that dealerships are looking for in terms of profitability in terms of a department. And then, and then, you know, it's depending on what the penetration is with used cars and depending on what FNI looks like those could be other priority areas. But I would add that the new car incentives or the incentive income that comes from selling new cars is technically considered below the line. So it's not actually being put into the new car department, but the new car department is what generates that incentive income. So you could say, you know, you can make the argument that the new car department is, is, is the most important department because it's what's, what's keeping the dealership afloat, right? And now that, that negative operating profit, but the way dealerships look at it in terms of where they compartmentalize what's happening in each department, they'll say, well
Scot: Incentive income is something else interesting. I hope that makes sense. That's very helping by a, I've been dying to ask someone that and you're the only person that's been able to answer it. So kudos. So then it seems like the, the one that's most on the horizon, I get the, you know, avs you can kind of push off and say, ah, yeah, who cares? That's like 20, 30 kind of thing. But it does seem like these changing ownership models, you know, with Uber and Lyft going public and really kind of ride sharing is a thing now. And then now there's more and more car sharing out there. You've got Toro and get around really kind of strange or mixed the million dollars days. There's some real dollars there. Is that starting to weigh on, on the minds of, of dealers? So, so the short answer to that is, is
Jeremy: No in the u s okay. Car sharing in the u s right now in terms of taking ownership away, personal vehicle ownership a is very, very insignificant. We don't, not that we, we and as well as many other professional organizations have reached consensus like car sharing in the u s it's probably not going to affect personal car ownership in a significant way in, in either now or in the next five years or 10 years. In other markets maybe like the UK and in other markets where public transportation is more readily available, where car ownership is not as, as affordable as it is in the u s as well as just also the desire of the population to own vehicles. You may see a rise of car sharing. Of course, there's a funny story about how the Japanese are adopting cars, Sha sharing to sleep in the cars.
Jeremy: More often than not, they're not even using the cars. They're just sleeping in the cars. It's actually funny that their apartments are so, yeah. So they still like a way to get out in the middle of the day and take a nap. But I mean that car sharing is one issue or one trend at that won't have an effect on ownership based off of what we've seen. Ride sharing, you know, using the Uber's and the lifts that May 1st for some people who live in the city. But the actual result is, is, is that it's increased vehicle ownership because now you have these drivers that are going around buying vehicles so they can drive and, you know, for whatever ride sharing fleet it is that they drive for. So it's actually resulted in a, an benefit. I think most people that the economics work for ride sharing generally it's, it's, you would have to be driving under 3,500, 3000, 500 miles per year in order for ride sharing to be more cost effective than vehicle ownership. And for most for most drivers they're driving way past 3,500 miles. So, so the, you know, the investment banker that lives in Manhattan that had the Mercedes s five 50 in the, maybe for him ride sharing works, he doesn't need that big expense anymore. But for most drivers in the u s they still need, they still need a vehicle.
Scot: Cool. How about so one of the big topics of the show seems to be, and this is probably in our both of our wheelhouses giving, giving the auto buyer more of that e-commerce type experience. So you've had Carvana come in and really kind of disrupt the used car market and then a lot of the topics here at the show are, how do you give that e-commerce like experience at the dealer? Is that, that is that more top of mind with, with folks?
Jeremy: Yeah, it's, this is something a that we covered in our advertising study that we published earlier this year, which I'll add is on our website if anybody wants to download it. And what we found is that pretty much every dealership group is experimenting or fully entrenched in what we call digital retailing where they'd actually sell a vehicle online. There are different flavors of digital retailing. There are different vendors involved. There are different things that some dealerships are willing to do as it relates to selling online that other dealers aren't. There's different regulations and teach in each state as well that that sometimes prohibit online retailing and, and sometimes they don't. So it's a, it's definitely still an evolving space from talking with dealerships that are successful with digital retail. And what we found is, is that the only way it really works is if you fully embrace it.
Jeremy: And so what I should add that when I'm talking about digital retailing right now for the purpose of this conversation, I'm talking about a dealership fully selling a car online. So someone goes to the dealership's website, they see the price that they're going to pay for the car, they put their credit information in, they upload their driver's license, their insurance card, and the car's delivered to them. That's to me is 100%. That's digital online, you know, digital retailing or however you, you are comfortable in defining it, but kind of the true Amazon like experience. And that's very, very, very, very insignificant amount of cars that are being sold that way. But for the dealerships that are doing it, that one of the things that they've had to do is really change the culture in the dealership to be able to have their model adapt to a customer coming into the showroom and seeing a price online that is going to be the same price that they're going to pay for it.
Jeremy: So there's no conflict there as well as being more transparent and being comfortable with that transparency. For example, giving away or rather than actually giving away, but being more upfront about different rates for, for FNI or for packages or any type of options being way more upfront where in the past some dealerships don't want to do that. They would prefer to embrace more of, you know, come to the showroom and we're going to, you know start at one price and we'll end up at another price and negotiate with you the dealership set that want to be successful. Digital retailing, have to go with the model of, we're going to put, just put it all out there and be total transparent. And not all dealerships are ready for that cultural shift. I mean that's a major shift. You know, you have pay plans involved where you have a staff of dealerships that are incentivized to to increase or maximize the gross.
Jeremy: So if you have a model that just puts it all out there and doesn't really allow room for negotiation, you have now these, these people that may work for a dealership for 20 years that have a totally different pay plan. And so how do you account for that? So these are some of the challenges. It is very interesting. I think that a lot of consumers, especially new car buyers you know what I mentioned the average age being 54 still want a test drive. They're still not ready to buy a car solely online. Some are, but not all of them. They still have, they also have high credit scores and high income. You know, Carvana is a different business. Carvana just sells used cars. Carvana has a great brand proposition. And that proposition basically tells consumers that are going to get an upfront and easy experience.
Jeremy: And so they in Carvana facilitates that online. But again, most franchise dealers are selling new cars, they're selling cars especially for new cars to a higher generally a higher fico segment of, of the car buying population as well as offering things like leases and things like that. So it's just, it is different, but dealerships again, are adapting based off of what consumers want and the technology is there. Now again, as I mentioned earlier, in some states, there may be regulations that may prohibit a dealer from fully selling your car online, but there's a lot, a large percentage of the transaction that can be done online. And, and that's probably where most of the benefit right now is for consumers. So instead of having to come to the showroom to let's say find out what the price could be on a specific a unit or even the consumer can do that remotely via the dealership's website.
Jeremy: They can review FNI options remotely and they can also upload maybe their credit application or driver's license. So when they come to the showroom, what would have been maybe a four hour, five hour experience can be maybe an hour. And so that's again, that's where the big benefits have been and we'll continue to see this space evolve. Yeah, I bought a car was with no financing. It took three hours. It was crazy. Yeah, I told him all he had like an hour and there's still drug it out three hours and this area, and frankly it's, it's a lot of times it's just, it's just, there's just so many documents that need to be signed. This the, I bought a car via a fair.com which is a subscription service. I did a trial earlier this year. I bought the car from fair via my phone, not from the dealership when I got to the dealership.
Jeremy: This is in, this is in New York, I should emphasize and we have a lot of regulations in New York. I had a sign at least seven or eight different pieces of government mandated paperwork and you know, it was, you know, sign the environmental form and use car warranty for and all these different forums and things. I frankly never, not even related to, to really having a practical purpose for me being a subscriber with fair, but we're still required. So, so dealerships are doing their best to, to get around some of these issues and evolve. Cool. well I know you're super busy. Last question if folks want to find you online, do you obviously they can go to the website and find the research, but do you, are you active on Linkedin and Twitter? Yeah, so I, I'm, I'm on a, I'm on Twitter, I'm on Linkedin.
Jeremy: It's, it's my name. There's only one Jeremy Alicandri. So I assume, I assume when you publish a description for this, you'll spell my name and shine shyness and they can also go to Marianne keller.com and on that website they'll be able to download our thought leadership, including our dealership advertising study, which goes into more details on digital retailing as well as some of the other trends occurring in that dealership advertising space.
Scot: Cool. Thanks for joining us today, Jeremy. This has been super insightful. I learned a ton about the dealer space and look forward to seeing your talk tomorrow with Costco.
Jeremy: Great. Thank you. Thanks for having me.
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EP017 - Founder/CEO and VP of Sales & Business Development at Rodo, Nathan Hecht and Patrick McKeever
http://www.vehicle2.getspiffy.com
The founding of Rodo as “the cheapest and easiest way to lease a car on the planet” How the Rodo app connects customers with the vehicle and lease price they want The challenges of Rodo expanding their dealership network and customer base How the current digital shift impacts car dealerships and who will survive the impending drop in new car sales Subscription services as a fusion of leasing and carsharing, and their potential for growth moving forward
Episode 17 is an interview with Nathan Hecht and Patrick McKeever, Founder/CEO and VP of Sales & Business Development at Rodo, respectively; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Scot and his guests discuss a variety of topics, including:If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot: Welcome to the Vehicle 2.0 podcast. We are at the 2019 automotive intelligence summit here in Sunny Raleigh, North Carolina. It was rainy yesterday. So you guys are getting to experience the, the real Raleigh. It's July 24th. And we're really excited to have on the show. A couple of folks from Honcker. They're from Manhattan, so excited to have folks from the big city down here and in Mayberry of North Carolina. So we have Nathan Hecht. He is the founder and CEO. Welcome.
Nathan: Thank you. Thanks for having me.
Scot: And he brought along his partner in crime, Pat McKeever, who is VP of Sales and BD.
Patrick: That's well said, Scott. That's correct. Thank you.
Scot: Also in our pre discussion in charge of keeping Nathan out of trouble. So it's good to have a,.
Patrick: That's my main job actually.
Scot: You go with, come with security.
Nathan: He's not kidding.
Scot: Uh so Nathan, tell us about you know, the founding, I'm a fellow entrepreneur, so I'd love to hear the founding story and all the background on yourself and how you got into this.
Nathan: Sure. Thank you. So the founding of the company is actually real interesting. It was actually from a personal experience in trying to lease a car in New York. I went into a local car dealership and basically went through the runaround of trying to choose and price of vehicle for a monthly lease. It took about five hours to ultimately realize that I don't, I don't even think I'm going to take this car after, after this whole experience and during, during the five or six hours that I was in the dealership I was searching for a way to do the same thing online and quickly realized that there was no way to do a new vehicle transaction on the Internet. And in my case specifically at least. So at the end of that day did a little more research and I I committed to trying to do this and that's how the company started and as they say, the rest is history. Cool. How long ago was that? That was about two and a half years ago. Half years ago. Cool.
Scot: Awesome. And then Pat, how do you intersect into the story?
Patrick: Oh I had met Nathan from a previous my previous place of work where we played in the, in the automotive data dms data space and actually had approached Nathan had learned about the company in today. If you have a need for dms data, we can help you. He said, no thanks. But we kept in touch and at that point kind of kept an eye on him and he was starting to get some, some traction, a real traction and I immediately saw sort of the need or the hole if you will.
Patrick: There had been other services out there that could present a savings to the consumer, but at the end of the day, and I'm a huge leasing fan, both of my cars are currently leased and have been leased for the last 10, 12 plus years. I saw kind of the fit immediately. So we met in Brooklyn about a year and a half ago and I think I made an offer at that first meeting. I'll pretty much maybe the next day. I think it was the next day. We, we had a really good sort of connection where similar but very different at the same time. And we work well together. So it's been a, it's been a blast. It's all, it's been about a year and a half. It feels like 10 years, but but it's been an awesome ride so far.
Scot: Awesome. So I, I also have a lot of co-founders and partners. Usually I'm described as the arsonist and they're the firefighters that kind of what you guys have going on here, probably like the fires you get to put them out.
Patrick: That's pretty well said. Yeah. Yeah.
Scot: So Nathan, you had the idea you wanted to solve this. So give us kind of some highlights. Over the last two years,
Nathan: I knew nothing about car leasing, car financing almost zero about the overall industry. I actually was an investor in a, in a solar panel integration business right around 2008. After I sold my previous company and one of the companies that we did this solar panel array for was a very large Mercedes Benz, Mercedes Benz dealership in Queens. And the owner Michael Cohen was just a really friendly guy and as I started to think about this business, I said, who do I know in auto? And I knew nobody. And I said, okay, well I'll reach out to this Guy Michael Cohen. I went to one of the operators of that business that I was in investor and I said, can you make this introduction? He said, sure. I met Michael and I told him about what we were doing and I'll never forget it.
Nathan: I think this is the first time I'm actually saying this publicly. We were sitting around his board table and he goes, you sure you want to do this? And I was like, no. He goes, I'm warning you. This is really, really hard. And I don't, I don't even know if anybody can solve it. And by that he meant providing an accurate monthly lease payment for a consumer in real time on an app and then actually giving the consumer the Amazon experience of completing the transaction. And that just fired me up and I was like, Yup, I'm going to do this. I had already spoken to my team that was working on me with something else and I said, we're going to sort of pivot into this. And again, most of the team were actually based in Israel engineers, developers and so on.
Nathan: And they were like, Carly seeing what there is no car leasing there. They had no idea what I was talking about. And we just dove into the deep end of the pool from day one and started to figure it out. And Michael made some introductions and very quickly learned how this works. We understood, but we, we started to focus on, on the, on the technology side of it and we then focused on the brick and mortar side of it and then the consumer side of it and so on and so forth. And slowly over time things started to come together. And finally we needed to sign up a few dealers because we're a marketplace. And I was like, okay, so this is like an entirely new beast. How am I going to do this? I'd never come in, you know, face to face with a, with trying to sell something to a, to an owner, principal at a dealership.
Nathan: And myself and my creative director said, you know what, let's do this. We took screenshots of the app, we put them onto a big whiteboard type of placard and we printed them. And I walked into these car dealerships in Brooklyn, New York, a a fine Jewish kid with the Omnicon has had into these car dealerships. And I said, can I speak to the owner please holding up this big placard of screenshots of an app? And they was like, you need a car, can I help you with a Honda? And I was like, no, no, no. I want to show them something. And believe it or not. Some first general managers came out and they looked at it for a mint and they said, what are you selling? And then I eventually got to own our principals. They looked at it, they immediately saw the value prop and what we were doing and how different it was. It was available on the Internet at the time. And some of the largest regional dealer groups in New York and New Jersey and Connecticut signed up very, very quickly once they saw the value prop. And then we slowly grew from there to where we are today over a thousand dealerships and approximately 15 markets and hundreds of thousands of consumers using the app. And it's still really, really early days. So there's a, there's a long road ahead.
Scot: Awesome. So so I'm gonna ask a bunch of Newbie questions to make sure I understand. So you guys go into the dealers are you competing with their alternative leasing thing or are you partnering with that? We're part, we're completely partnering with them. So, if I'm a Mercedes and I have a Daimler finance thing that's doing the lease, you guys partner with those guys to make it easier for the consumer. You're not, you're not competing with example.
Nathan: So we’re a marketplace where there’s the dealership on one side offering their vehicles and their consumers on the other and our technology right in the middle that sort of makes this an incredibly fast, seamless lease transaction without ever talking to a dealer without ever walking into the dealer. So we're really the first company to take what is normally such an arduous brick and mortar process and, and turn it into a seamless online experience.
Scot: Do I have to be kind of like outside of the dealership to do this or can I be in the dealer using the app?
Nathan: You can be anywhere is when, as long as you've got Internet you know, and you can download the app or go to the website. You can be anywhere you want.
Scot: So I go to the dealer and I say, I want that car. And then they say how do you want to finance it? And then if I choose lease, then I have to download your app.
Nathan: No very different. So we're like imagine you wanted to buy an airline ticket and you went to Expedia. So you'd see basically an aggregation of all of the airlines and flights. If you were flying from let's say JFK to Raleigh and you'd see a list of flights and prices next to it, it's essentially a marketplace for airlines and for hotels and what have you. So we do the same thing. You don't need to go into the dealership, you download the app or go to our website, you type in the vehicle that you're looking for or the vehicle type. And you will see actual vehicles from dealers near you with pre-calculated monthly payments that are probably unbeatable as far as price goes.
Scot: I gather enough information about me that you're using that as an input into the underlying credit scores and all that kind of jazz. Exactly. So when you register,
Nathan: We gather some personal information on you. And then behind the scenes were taking all of the necessary industry data about the vehicle from the dealership. You know, from the manufacturer, so you know, you know, rebates and incentives that may reduce your monthly payments and reduce the selling price of the vehicle or what have you. And in real time in the background, we're calculating all of that to show you a monthly payment with an actual due at signing and you shop the way you would shop on a regular ecommerce site. You choose what you like, you put it into your cart, you place the order, you upload your driver's license and answer some credit questions. The dealer then gets that transaction, that order, and they process the order for you and deliver the vehicle to you the next day.
Patrick: Oh, so I don't have to sit there for 12 hours telling them a million times. I don't need this.
Scot: Exactly. Exactly.
Patrick: Wow. That's awesome. So you've kind of taken that Carvana level experience, applied it to leasing. Okay. I got it. I didn't, I didn't realize this direct to consumer on the front end. That makes a lot more sense now. Yeah. Cool. And then the so, so padded, it sounds like dealers are gobbling this up. Is it, you're just essentially an order takers? Am I understanding that?
Scot: I wouldn't, I wouldn't call it order just yet. We've got a, it's my favorite thing to say. It's got a lot. Hilary entailed interests, great dealer in that interest.
Patrick: We've got, we have built a good sales team that is, is literally boots on the ground knocking on doors, you know, very similar to what Nate did in the very early days. But yet to your point, we've got five of the 10 largest national auto auto dealer groups on the platform today, including Lithia and Asbury. So there the dealers are seeing the value pretty quickly when we, you know, have 10 minutes to sit with a dealer, principal and owner GM. Because really for, for them it's a similar experience to a consumer where by the time we pull a dealership into the fold or alert them on a, on an order, it's a VIN-specific structured lease with a driver's license and a credit app. So it's essentially here, Mr Julia, here's a silver platter, confirm inventory, get the credit approved and we're off and running. So it's a really pretty hyper efficient process for both consumer and dealer. Yeah. Awesome. So I looked at crunchbase. Looks like you've raised according to crunchbase, they're not always right at about $30 million. Yup. Tell us a little bit about the, had you raised venture capital before? Is this your first venture back to business?
Nathan: I had raised early stage venture capital in the past in two previous startups that I founded. And in this specific instance we've raised just under $30 million to date in a friends and family seed round and then a series a and
Patrick: Do series a series a in North Carolina was like $1 million.
Scot: Okay. It's a bay area. Susan.
Nathan: We did a, our series a was 23 million. And actually it was interesting because we had a lot of interests a lot of inbound interest. And then one company took the entire series a IAC, which is the a, which is a, a media and, and a technology conglomerate out of New York City. We're very lucky to have them as investors. At this early stage, they just invested a big chunk. And Toro I saw that. Yes, they just invested about a quarter of $1 billion in Touro.
Scot: Nice. Good. You can get get series being wind up. The so it seems like you're at the sweet spot, so you're kind of like, you're in this, you're you're, you know exactly what investors are looking for. So you're, you know, don't have a lot of employees or marketplace. You're a Fintech, you kinda check and then you're in the auto category. So you're, you check a lot of boxes there. Congratulations on figuring that out.
Nathan: Thank you. I, I can't take all the credit for that. And I also would say investors will never tell you you're exactly what they're looking for. We were lucky enough that, that things sort of clicked for the, for the right investor group at the time that we were looking for capital.
Scot: Cool. So, so I get the supply side and the dealers are there. Do they help you bring consumers into the app or do you have to promote the app yourself?
Nathan: We have to promote the app ourselves. And that's not an easy task. As you know, customer acquisition is is difficult, especially when they're bombarded with, with so many ads and so many people, so many companies trying to get their attention at the same time. So we're out there, you know, grinding every day for recognition.
Scot: So you're doing the traditional Google and all those kinds of aspects. Yep. But I'm an internet marketer at heart and so while you may have a high CAC LTV of Elisa's, like pretty substantial, which was helps on the front end of that, right?
Nathan: Yeah, that's exactly, that's exactly correct. There is a very large LTV, even if, whether it's one lease or the lifetime value of that consumer, if they start leasing in their mid twenties and they listen to their seventies yes. While the CAC is hefty right up front, there's some fantastic payback over the long term.
Scot: Awesome. Cool. So I think that's super helpful to kind of frame the rest of the discussion of kind of going up to 30,000 feet and you're, you're in the thick of it. In the vehicle 2.0 podcast, we talk about connected car changing ownership, Evie Nav. I'm going to spend the bulk of our time on changing ownership cause you guys are Kinda like, you know, sitting right there and in the sweet spot of that. Do you the big trend right in your space is this subscription kind of model. It seems like that would be a natural kind of element for, you know, so you have some people looking at subscriptions, kind of almost like a rental model and then others kind of extending a lease and kind of providing some flexibility inside of Elise w you have any kind of point of view of where we're going to go as far as ownership.
Nathan: I think subscription as a category is a very interesting category. And there's a ton of opportunity there and there are some significant players already that are getting customers and traction and funding and so on. But the economics behind that are still a bit foggy, if you will. A lot of it is around used car vehicles. A lot of this credit, credit risk there. There's inventory risk. You know, there's, there's a, there's a tech risk there is how do we value the residual value of a vehicle if a consumer uses it for a month and then returns it and then I need to release it or resell it and so on and so forth. So it's an interesting category. It has a future, no doubt. But I, I would, I would compare it to, you know, web 1.0 mid nineties when sort of e-commerce was just trying to find traction.
Nathan: Travel was fine trying to find traction. There were a lot of companies that fell out and failed in trying to, you know, figure this stuff out until ultimately it was figured out and you have the you know, those that have succeeded. So that's possible that, that will happen here as well. But it's certainly a category that we keep a close eye on. And in what we're doing in particular we're thinking about these things as well and we're trying to make the, the, we look at ourselves as sort of an ecosystem for if you're going to have a car in your driveway, where did you get it? How did you insure it? How are you how are you servicing it? What are you doing with it when you're not using it? You know, can you capitalize on that? Can you make money on it? How are you paying for it and so on and so forth. So what be it, subscription or modernizing the transaction slash ownership you know, s [inaudible] and everything else that goes around it. It's really interesting and it just needs, it needs hard work, execution capital and time to prove it.
Scot: Does two goods, consumer to kind of download your app and they're active in there. You know, you don't want them to just kind of come back four years after the lease is over. So. Exactly. So I can imagine you guys have a lot of ideas around how to extend that. Precisely. Yep. Interesting. So, so pat, you're out there calling on dealerships. Are they, are they so distracted by these changes going on that they don't have time to think about something tactical like, hey, how do I make leases better? Or, or is this really, they're so transactional driven that you can get their attention?
Patrick: Yeah, it's a bit of both. So they're certainly transactional, right? Where they're still, depending on the audience, also still a bit shortsighted where they're worried about today, this week, what does my month look like? I gotta I gotta move units. Which is good. They're also, they're also aware of what's going on in the space, but I think a lot of them just are a bit I don't want to say confused, but there's so much, they hear so much and they have so much stuff thrown at them that they don't, many cases they just don't know what to do and what, how to do it and how to change the process in the store. This, some of the stores that we're working with, they're really super successful with us. It honestly just comes back down to the people in the store, right? So there's a great store outside of Philadelphia that we use sort of as our poster child. There's two people in this store that take honker orders all day having, I mean every day long and they're moving 20 plus units a month through us. And that's been consistent for the last year and a half. It's at Chrysler Dodge jeep store and it really comes down to their process and the
Scot: And they, they, they were very progressive and came on board very early on. So I think some dealers are still sort of catching up. Some are ahead of the curve. It really comes down to the ownership. And how kind of plugged in, they are really cool. One thing that we've seen in the ecommerce world as a marketplace, we'll come out and do some really innovative stuff and then the rest of the world it'll, it'll kinda raise the bar and then the rest of the world has to kind of react. Yet if you guys felt that where the traditional dealer is now feeling, you know, because you've created this seamless experience I kinda liken it to the Starbucks app. Like would you use the Starbucks app and then you forget to use it and you're in line buying two people and you're like sticking a needle in your eye. You're like, well, I forgot the Starbucks app. So then I imagine you're going to cause the whole leasing thing to get easier at dealers over time. Are you starting to feel that happening?
Nathan: Absolutely. I, I'd say from the consumer side for sure. I think it's it's fair to say that once a consumer has leased the car through our app, they will never do it the old way. So that's for certain, once they experienced this, this this digital experience on the dealership side as well. I think to Pat's point, the dealers that are embracing this and putting resources behind that and realize that this is the future, just love it. You know, and they, they, they rave about knockout deals in, in, in a few minutes and, and, and so on. And so forth. So yes, but again, to be clear, it's still very early and there's a lot that we have to prove and still a lot of adoption necessary.
Scot: Cool. I know you guys are busy out there conquering the world. So final question. If folks really want to learn more, obviously they can download the app and look at some leases that, that seems to be like an obvious one. But then maybe online. Do you guys, other than the honker website, do you guys publish any thought leadership or active on Linkedin or Twitter, any of that kind of stuff?
Nathan: Very active on linkedin and Twitter. And other social media platforms. The Honcker.com is now Sim similar to the app. You can do a transaction, you don't need to download the app if you don't want to. Most of our customers prefer to, to transact through the app. And yes, there is some thought leadership. There is a blog where we're posting stuff too on okr.com/blog. So there's a, there's a lot out there and we encourage engagement. Feedback and other communication. We've learned more from, from listening and being attentive to our customer base and our dealer base and the broader industry than we could ever have possibly figured out on our own. So we encourage our consumers, whether they've done a transaction or not, or just browsing or otherwise have thoughts to reach out and, you know, tell us what you think.
Scot: Awesome. Nathan, Pat, thanks for joining us.
Nathan: Thanks so much. Appreciate it.
-
EP016 - Automotive Research Leader at Deloitte, Ryan Robinson
http://www.vehicle2.getspiffy.com
Episode 16 is an interview with Ryan Robinson, Automotive Research Leader at Deloitte; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Ryan and Scot discuss a variety of topics, including:
The digital transformation of the car buying experience How declining consumer confidence in autonomy has created a cooling trend Common use cases for AVs, such as geo-fencing in cities The electric vehicle battery of the future: is it lithium ion? Measured impacts and projections of ride hailing and carsharing The potential for connected car as a revenue streamIf you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot: Welcome to the vehicle 2.0 podcast. Today we are recording live from the automotive intelligence summit. And we have a real special treat for listeners. We have here live on the show, Ryan Robinson, and he is from Deloitte where he is the automotive research leader. Welcome to the show, Ryan.
Ryan: Thanks Scott. Yeah, glad to be here.
Scot: Cool. Well, let's start off. I would love to hear, you're obviously deep in the auto space. Would love to hear a little bit about your career path and how you ended up in this space.
Ryan: Well, it's, it's a, it's a bit of a long story. So I started off with a kind of a boutique consultancy in the automotive sector in Toronto, in Canada where I'm from. And from there I moved on to a pwc where I did some vehicle forecasting work on the sales and production side in Detroit. And then I got a chance to move back to Toronto with JD power and I was with them for eight and a half years before I got an opportunity to join Deloitte. So that was three and a half years ago. So it's a, been a bit of a whirlwind.
Scot: Awesome. So we've you know, we've, we've read a lot of your, your research and it's been really helpful for us. Kinda, I'm relatively new to the auto industry, have obviously had a car for a long time, but my, my previous life is e-commerce. So I'll also, it's interesting that Deloitte cuts across both. I can kind of like feel the, the influence there of kind of, you know, understanding digital, you know, coming from like the retail world that I like. I do. Then you guys are pile out of that to your research on, on the auto side, which actually helpful. It's helpful for me, at least audience of one at least.
Ryan: So I sit inside a a thought leadership center here in the U S and I've got a counterparts that that, that cover off on the retail space consumer products and and also the travel and hospitality sector. So, you know, we get together on a, on a very regular basis and we're always looking for kind of synergies to kind of crossover our research. And and I think that's, it's actually a good a segue to get into, you know, what I think is happening in the auto space particularly with where the consumer is concerned. Cause I think there's, there's a lot of crossover and convergence when we talk about how consumer expectations are being taken from one sector over into another. So, and I think it's having a, a pretty dramatic effect on how vehicles are, are a retailed going forward.
Scot: Yeah, let's jump into that. So a, I'm a big fan of the research that talks about the value oriented consumer into convenience oriented consumer. My e-commerce buddy Casey Luba over at Deloitte talks a lot about that. The cost, the bifurcation and then as it is, are you seeing that, you know, we've, you know, so Carvana for example, has made it insanely easy to buy a car. It kind of applying that e-commerce level of experience to, to that.
Ryan: Yeah, I mean certainly there's, there's a level of of digital transformation that's impacting the, the car buying experience. In terms of the, the retail bifurcation analysis. It's, it's a little more difficult to, to think about it in the automotive context. Cause for a number of reasons, one, over the years there's been a, a real a real significant shift down market from some of the luxury brands to, to try to attract and, and discover new customers, if you will and get them on their, their product ladders. There's also a lot of a lot of segmentation or sub segmentation of the consumer basis caught on. So to try to identify you know, what, what would be a a pure kind of budget brand versus a luxury brand. It's not so clear cut anymore in in, in order to apply to, to, to that kind of analysis. So I'm a bit different.
Scot: Okay, cool. Well, here on the vehicle 2.0 podcast, we have a framework where we talk about the four big changes coming to vehicles. So we have changing ownership, connected car, EV and AV. I'll, I'll give you kind of, you know, spin the wheel and pick your favorite topic amongst those are you know, we'd love to hear your thoughts on, on those. Yeah, for sure. Sure.
Ryan: So so we should, we can dig into say the autonomous space first. And we, we do a a global consumer survey. Every year we talked to, last year we talked to this are they, I should say this past year we talked to about 25,000 consumers covering off on 20 different countries. And we asked them a variety of questions around some of these, what you might call the case technologies, right? And in terms of the autumn the autonomous space, something very strange is happening. I think on the one hand, when you, when you see technologies coming into view for the consumer, as they get more information about them as the as they get more comfortable with them you tend to see consumers really gravitate towards them. And our data is telling us something quite different. And we think it's got a lot to do with the, the small number of of accidents involving autonomous vehicles in the last 18 months to two years.
Ryan: Considering that we're in a space now where the ubiquity of of social media and the echo chambers that get created around some of these topics it doesn't take very many of these you know, sometimes very tragic incidents to, to really have a, a negative impact on the consumer psyche overall relative to that technology. So as far as the percentage of consumers that don't think the technology is going to be safe it's it's actually flattened off, actually leveled off a year over year from where we were last year. So I think it's a, it, it's indicative of a bit of a cooling trend. The consumers are really taken a second thought on this, on this technology and whether or not they're really bought in going forward.
Scot: Yeah. So That's interesting on the consumer side, when, when do you think the technology will be ready? Do you have a point of view on that?
Ryan: Yeah, it's, it, you know, for as many people that that talk about this, this technology in the space, that's probably how many opinions you're getting to yet. It's interesting though, if you're, if you've been going to the consumer electronics show like I have for a number of years, it's fascinating to me how that conversation has changed, or at least the tone of that conversation has changed. So two years ago, for example, even as, as recently as two years ago the, the, the messaging was, you know, this is, technology is right around the corner. You better get ready for it because, you know, it's almost here kind of thing. And now I think we're starting to get just this past January a lot more maybe realism being injected into that conversation. So you know, I've, I've been hearing you know, thoughts around 20, 30, 20, 35, even 20, 40 before we start to see, you know, any kind of a real penetration for that technology.
Scot: Interesting. Yeah. And I saw at ces this year, a lot of the, it went from a kind of a general use case to very specific, you know, this could be on a corporate campus, this could, you know, there's a lot of talk about long haul trucking. So, so it seems like they've pruned the tree down from, you know, any point a to point B to very specific use cases as well.
Ryan: Yeah. On the one hand you, you, you have those kind of very specific geo-fence kinds of applications which I think are fine. I mean if the, if the, if the location that we're talking about is very well mapped it doesn't, it doesn't change very much. In terms of the in terms of the, the routing and things like that sure. I think that makes it a lot easier to, to find a use case for it. The thing about long haul trucking I've always been of the opinion that that would be a very good use case because it, it really does cut down on the number of variables involved. I mean everybody is going in the same direction. Everybody is, you know, going at it at relatively the same speed. All you really have to do is figure out kind of the last mile when they get off the, the highway itself.
Ryan: But when you ask consumers whether or not they're comfortable sharing the highway at, you know, 65, 70 miles an hour with, you know, a multi ton vehicle that's driving itself, you know, they're, they're actually quite skittish about that reality. Yeah. It's hard to ask that question in a positive way. Yeah. Yeah. Interesting. Cool. So how about electric vehicles? Do you see that kind of being closer on the horizon? Yeah, I mean, on the other side of the, of the technology coin I guess is, is electrification. And, and you know, we, we look at it as a bit of a spectrum. So, you know, electrification could mean, you know, anything from hybrid to kind of full battery electric. But the, and I think it's a lot closer in, in terms of you know, when, when we're going to start to see you know, a lot of that critical mass getting achieved, but it's not going to be a rising tide lifts all, all boats kind of scenario where, you know if you talk about it from a geographic standpoint certainly markets like China are are very aggressively following a a path that will take them to, to critical mass of electrified or electrified vehicles a lot faster than say, we're going to see here in North America.
Ryan: And that's got a lot to do with the fact that, you know, they're very concerned about things like urban pollution. And beyond that, you know, it's it's, it's it's a very distinct decision that's being made to, to be a a global leader on, on, you know, the next generation of, of mobility. And I think that you know, Europe's gonna is, is starting to follow pretty quickly in the wake of the diesel gate scandal. There was there was a desire on the automaker front to kind of rebrand yourself away from, from diesel technology. And, and the the only forward-looking kind of propulsion technology that was in view at the time was, was electric vehicles. So I think that we're seeing a lot of, a lot of that in North America here.
Ryan: We're still we're still lagging behind for a number of reasons that range from, you know, not quite as as strict a policy on environmental regulations to you know, what, what amounts to be still a relatively low fuel price environment. And also the type of vehicles that that we, we like to drive here are keeping us in that kind of combustion engine. A story for a little bit longer. Yeah. Do you think lithium ion, is the technology going forward or do we need some breakthrough new battery technology? They keep talking about some, some new battery technology and in terms of the kind of, the kind of materials that are being used, a solid state batteries are also, you know, obviously still being talked about. I think, you know, it really comes down while a lot of the discussion is around the, the dollars per kilowatt hour and trying to get that down into a range where consumers don't really have to compromise on costs to be able to get access to that technology.
Ryan: I think that a lot of companies are taken and battery producers are, you know, hard at work trying to find that next step in the, in the development of the technology itself. You know, solid state is, is a great technology to think about in terms of the increased charge discharge time that would go a long way to consumers fears around or their concerns, I should say around the, at the time it takes still to refueler that electric vehicle. And if, even if it's 20 minutes to half an hour you know, that's still too long, you know, and there's also, you know, some safety concerns still with the lithium ion technology. If the batteries can puncture and you know, can start I think it's a terminal cascade failures or whatever they call it. And Elon Musk phase for splinting and, you know, solid state technology would help on that front too.
Ryan: Or at least that's the that's what's being talked about. So I think there is another step in battery technology that we're going to get to. Very cool. How about different ownership models? Do you guys see, does ab kind of have to happen for that to change or do you see that happening before we get to full AAV? The ownership models, I think that there's, there's a couple of ways we can we can attack that topic. If we're talking about things like, you know, ride hailing models and things like that. I think that's how, I mean it's, it's been happening for, for a few years now. And, and I think that our data will, our data shows us just in the last couple of years that you know, there it was a very disruptive technology ride hailing itself. And I think it was, it was really born on the back of the, the, the digital interface that allowed people to, you know you know, call a ride and and see the ride getting to them.
Ryan: And probably most importantly, being able to, to utilize an integrated payment system, digital payment system for that and that, and that really was very disruptive. But now, you know, the, the price of, of getting a very slick act cap out the door is coming way down. It's almost, you know, at a, at a commodity type level now. So that's not the barrier to, to entry that it once was in a lot of the disrupted, you know, traditional players like taxi fleets are reasserting themselves and getting their own app at the door. So I think that the the, the competitive landscape is, is, is changing quite dramatically on that front. If we talk about things like subscription models as a way to, you know, offer the consumer more flexibility or more choice. I, it's a great idea. I think it's a very, it's very promising. The, the only issue is, is around pricing I think. And I think that's, I think there's still a little ways to go in terms of finding the sweet spot to attract a lot of people to that model.
Scot: Yeah. It all sounds good. And then you look at the prices and it's like, you know, $1,500 a month and you're like, so it's two to three x kind of like what you're currently paying. Right?
Ryan: And it's, you know, there, we have to remember that there is there, there's, there's the specter of an affordability issue that's, that's growing I think in, in, in the marketplace. And particularly when it comes to younger consumers that might not have the, the kind of economic wherewithal that, that some previous generations had. There's also a lot more there's a, there's a lot more pull on from different sources on their wallets these days. I'm talking about subscription models. You know, it's not out of the realm of possibility that you have maybe upwards of seven or eight subscriptions for an everything from, you know, Netflix to, you know, your, your dry cleaning. And when you add it all up, people still have to kind of balance, you know, how they're going to get things done at the end of the day. So they have a budget for transportation and if they can, if they can fill that need with a, a bit more of a flexible arrangement, whether that's ride hailing or car sharing or, or whatever that is. And it keeps them out of having to, to get into car ownership, you know, I think that's attractive to, to a growing number of people.
Scot: Yup. Cool. So then the last topic is connected car. That one can, you know, the, there's the tactical, I wanna use my phone, tax us to my car and, and you know, kind of get data from my car, but then there's kind of also taking that to the next level where that data starts to feed into city planning and those kinds of things. What do you think about connected cars impact the, the connection
Ryan: Or is coming? And you know, I think it's a, it, it's a really interesting topic because on the one hand it's, it's a question of trust, right? So you have consumers that are, that are telling us they're very concerned with things like data privacy, data security even things to do with personal safety around connected vehicles is is a large topic for consumers right now. And on the other hand, you know, you have, you know, manufacturers and other types of, of industry stakeholders that are looking for different ways to monetize the mobility experience. So if we think that we are at some point and we can debate the timelines I guess, but at some point we're moving we're moving into a new business model where we're not necessarily just, you know, bolting cars together and selling them to end consumers.
Ryan: You have to figure out what's, what's the next revenue stream, you know, connected cars and the data being generated off those cars. That can be very valuable for companies to in terms of, you know, just trying to, to take waste out of their own production system. There's applications for, you know, predictive maintenance and all of the things that come along with that. You know, there's also what you talked about in terms of how it can feed into a a smart connected urban environment or a smart city. We've still got consumer concern. We've still got, you know the traditional stakeholders that really are coming to the realization that it may not be in their set of core competencies to figure out how to do this going forward. So where that's I think one of the reasons why we're seeing a lot of the a lot of the partnerships, a lot of strategic alliances that are, that are cropping up in the industry. Some of the M and a activity and some of the investments that are being made in startups cause these are, it's a different skill set I think to be able to, to figure out what to do with this data.
Scot: Yeah. Just kind of how many data scientists you have on staff. Right, right. Not many of the traditional car oriented companies have, have a lot of focus on that. Cool. So if, you know, so we've got these kind of big changes all colliding. We've got a lot of constituents out there. We've got the manufacturers, we've got the whole finance infrastructure, we've got the dealer kind of network, we've got rental car companies and we have all these new kind of digital disruptors. You think there's a winner in this or you have any predictions on, you know, w what happens to these various large constituents in this whole kind of changing world?
Ryan: Well, I think, you know, that the, the answer to that question in my mind, it starts with the amount of financial pressure that's being applied to a lot of these traditional stakeholders that are, that are trying to find, you know, their way or their place in the next evolution of, of mobility. So, you know, when we talk about these, these case technologies is forward-looking vehicle technologies. The space that we're in right now. It's not as though, you know, OEM manufacturers can pick and choose what they want to be involved in. They kind of have to to figure out how they can be involved in all of it all at once. It's a very difficult position to be in and it requires a, a massive, a hideous amount of investment to that or be at this being piled into to all these things. So when you think about that pressure, you couple that with the, with the realization that there may not actually be an ROI for them at the end of the day.
Ryan: So for example you know, the, the connected space you know, the, in our survey we asked consumers, you know, what, what they're willing to pay extra to, to be able to gain access to a technology that would improve road safety, right? So cars can talk to each other, they can talk to infrastructure, so on and you know, it's it's upwards of 30, 40% of consumers in the u s at least that tell us that they're not prepared to pay anything extra to gain access to that. So the question of ROI on the tens of billions of dollars is being piled in to the sector at the moment is a, is a huge question. So to answer your question though specifically, I think that preamble is important because what it sets up is a situation where we might actually see a lot more convergence happening in the market.
Ryan: So you know, strategic alliances that are within sector, the automotive sector start to bleed out into a strategic alliances that crossover different sectors. So you know, Telekom, financial services, those sorts of things. And whenever you see a, a large number of, of strategic alliances and tie ups happening to me, in my mind at least, it's a, it's a precursor to some m and a activity. So we might actually be looking at some point in the future for the rise of the consumer company, if you will. Right. So it's not necessarily an automotive company anymore. And a lot of the automotive companies are re are trying to rebrand themselves as, you know, more mobility providers. I don't think we're quite there yet because there's a lot of pieces that still need to get plugged into to that equation. And I think there's a role to play for you know, financial providers who are a lot further down the road on, you know, mobile payment and things like that.
Ryan: To, you know to, to really round out that equation for the consumer. And like I said, off the top, you know, as consumers start to, to take their experiences from one sector and, and apply that to their expectations in another sector. You know, we, that also might be feeding into this convergence of, of companies and and sectors going forward. Yeah. So, so you think there's going to be like a big, Monolithic Amazon like company that provides this whole slew of things? Is that Kinda, am I reading what you're talking about having a big consumer company? Is that kind of the not Amazon, obviously. Yeah. Not to, not to put too fine a point on it. I mean, there's, there, there is examples out there of companies that are, you know, rolling up their own sector and then figuring out how to off and start to own other sectors. And so, you know, big companies get bigger and I, and I think that's, that's something that we've got to keep in mind.
Scot: Very cool. So I know we really appreciate you taking time out of a busy conference schedule. And any last points. The one I always like to ask folks is you know, where, where can they follow you online? Are you more on Linkedin, Twitter, or are over on the Deloitte website?
Ryan: I think the best thing to do is to, to check out our Deloitte insights website portal. So that's, that's really where we put all of our, all of the best thought leadership and insights that, that we're delivering to the market. And and I think it's it's been a great been a great interview. Thank you for having me on. Look forward to keeping this conversation going. -
EP015 - Director of Automotive Analysis at IHS Markit, Mike Wall
http://www.vehicle2.getspiffy.com
Episode 15 is an interview with Mike Wall, Director of Automotive Analysis at IHS Markit; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Mike and Scot discuss a variety of topics, including:
His 16+ years of experience in automotive industry forecasting and trend analysis with IHS Markit. The role of IHS Markit as a leader in automotive research and insights. A realistic breakdown of EV adoption, from the US to China. Cities where AVs will likely compete with mass transit in the 2020s The true impact of changing ownership models on new car sales The rise of AV and EV partnerships between automakers in the industryIf you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
Welcome to the vehicle 2.0 podcast. We are live podcasting here from the 2019 automotive intelligence summit from Sunny Raleigh, North Carolina is Sunday today. Yesterday was rainy, so it's good to deliver that to the attendees is Tuesday the 24th and we're excited to have on the show. Mike Wall. Mike is Executive Director of automotive analysis at IHS market. Welcome to show.
Mike:
Thank you Scott. Appreciate it.
Scot:
Cool. Well uh I have I come from the ecommerce world and I wasn't really familiar with you guys, but now I've been in the auto world. You can't kind of swing a cat without hitting your research, so it was really excited to have you on the show. But for folks that haven't had a chance to check that out, maybe give us a little bit of background about yourself and then IHS and, yeah, absolutely. We'll jump in.
Mike:
Yeah. So I've been covering the auto industry for IHS over 20 years now and spent some time in the supply chain. So working with an auto supplier, large tier one supplier, but over the last really 18 years or so, really working in them more consulted consultative phase, you know, working with in forecasting realm, forecasting, late vehicle sales, light vehicle production working with suppliers, automakers, financial firms, pretty much anybody with an interest in stake in the industry. And I just market, we are a broad and diverse business intelligence from coming, covering a wide variety of, of really business verticals, energy chemical financial markets. And in one of our larger verticals is automotive as well. So we've been steeped in research and analysis and covering this industry.
Scot:
Very cool. And then you have a certain cadence that you publish for things? How does that work?
Mike:
We do! It does vary depending on the, the discipline and the are the, the forecast itself. But our production forecast is an example, is updated every month as well as our powertrain forecast. We do have very wide and deep powertrain forecasts and we forecast vehicle sales down to the model level. All this is very granular and it's also global so you can see it both globally and regionally all the way down to some very minute levels of detail including model level detail call. Is your role kind of North America or do you remind goal is, I work very much with, with all of our various diverse groups around the world, but my primary background has been in North America, certainly is where I cut my teeth in the forecasting space as it were. But we have folks on the ground all around the world that do the forecast themselves and then we globally coordinate it.
Mike:
So just a great group of colleagues that are really trying to cover this ever-changing industry. And where are you based out of? I'm based out of Michigan. I'm, I'm actually on the west side of Michigan. Grand rapids. Our automotive headquarters is our, one of our major offices out of Southfield to suburb of Detroit. We have several hundred folks working out of that location. IHS market as a broad group is actually over 14,000 employees. But our automotive practices is quite large in and of itself.
Scot:
Cool. so what are you speaking about here at the show?
Mike:
So I'm basically going to kind of give everybody hopefully like a 10,000 foot view of the industry as a whole, particularly focusing on the u s market. What's the sales outlook touching on some of the mega trends that, that we've been hearing about a lot. So electrification, mobility as a service, autonomous driving where we see the market playing out for that. We'll also sprinkle in some global trends as well in some, some global dynamics because it's hard to talk just about us without having a broader context of how the market's behaving or how the industry is behaving in other markets as well. So this is a, a, it is a very interesting industry in that there are a lot of different drivers impacting it and some of them are very tactically focused. Like, you know, we've got to sell pickup trucks if we want to pay for everything we want to do in, in the next 10, 15, 20 years. So there's very tactical side of it. And then there's a very strategic megatrend side to it too. Yeah. Intersect.
Scot:
So in the vehicle 2.0 framework, we talk about four topics. We talk about changing ownership connected car and then electrification and autonomy. I'll give you kind of a toss up. Which of those do you, would you like to jump into first?
Mike:
I think electrification would be an interesting one to jump right into. Yeah. Because, that is where we're seeing the amount of, there's, there's activity in all of those categories. So I don't want to, I'm not trying to diminish any of them, but boy, in terms of electrification, if you were to ask me three or four years ago, I would say, yeah, there's a lot of talk around electrification, but you know, we still haven't necessarily seen as much of the rubber hitting the road as it were. The capital being spent. Well that's changed mightily over the last few years. And we are seeing the capital being deployed and in fact we're on the cusp of seeing a multitude of new electrified vehicles being launched.
Mike:
Now that begs the question, will there be consumers are you know, ready to buy right now? Last year, I think the market was about 1.3% was true fully electric vehicles. Now the devil's in the details there as to when that inflection really starts, but for sure there won't be a lack of offerings. And that's the interesting thing. You look at a Tesla who has really just done a fantastic job kind of assuming leadership in that, in that space. Now we'll start to see some and other initial a competitors starting to enter in.
Scot:
Yeah. And then I, I know it's a small percent, but if you start, you know, I've seen some reports where if you look at a certain slice starting to be material like you know, there's like this 50 to $60,000 where has that disrupted some of the German makers? And there's this kind of reaction.
Mike:
No, absolutely. So when you look at, when you look at that space, and again, tussle is a great example with that. They've come in and entered that in really started to disrupt the luxury category as an example. And it's not, you know, shouldn't be as a surprise that we see new players coming out, whether it be Jaguar, I pace Adi, each run new sort of existing luxury players saying we're getting into that, we're jumping into that space. We, you know, we need to have compelling offerings and they're coming to market some very, very solid offerings in their own right. But it is very material in those, I don't want to, I don't want to diminish that either by saying those was 1.2 1.3% when you start sliced slicing and dicing it down the vehicle segments. Yeah. Boy, it's, it's important in the automakers see the need for it as well, frankly, because a lot of times we can sometimes think of the u s almost in a vacuum and maybe get constrained by, Oh, you know, it's not a huge percentage rate just yet. Um too. There's growth certainly. But then when you look at Europe and you look at China, we're really other Asia, a lot of growth coming down the pike. So it behooves the automakers to have that sort of broader strategy to be thinking about it.
Scot:
Okay. And then within EV, do you guys project when will it like a 10% or number or anything like that?
Mike:
That's a good question. It depends on the market. That would be my first, my first caveat. But when we look at the u s market, the North American market as an example, we see that as probably closer to 2028, 2030 timeframe. Whereas if you look at China in and Europe, it's going to be, it'll be sooner than that. It'll be an advance of that. And part of that is we've got a government and regulatory decrees and, and rules and regs coming down the pike in Europe and in China as an example that are really helping to foster that acceleration as it worked. It's not that we're not focused on it here. We sure are. When you look at the California resources board and Carb, but at the same time we're a little bit at loggerheads between that and cafe and, and there's still that is yet to be fully vetted yet or fully decided and once we get some more resolution to that, we could see some additional acceleration on that front as well.
Scot:
Cool. Awesome. What do you want to talk about next?
Mike:
Yeah, you know, autonomous is another hot topic. Obviously when we see all of the, the, the executions out there in terms of different deployments in, in, out west and well almost anywhere really. You've got a lot of different deployments. So it's really stoking a lot of interests and frankly, the technology development going on within that space has been nothing short of phenomenal.
Mike:
I sometimes I do worry that maybe we missed the forest through the trees in that whenever we talk about autonomous, it's oftentimes as anchored by l four and l five and for any listeners in, we'll have your l four l five means that the vehicle can essentially drive itself. L four, it can drive itself, but it's still a steering wheel and pedals, l five no steering wheel, no pedals. And to be sure if you look at our forecast, we see that true call it mass deployment further down the line, 2030, 20, 35 really when we start to see mass volumes on that end, because of a lot of hurdles we still need to really surmount. Probably the least of which is technology. The more focused right now is regulatory, legislative in liability and insurance. There are a lot of things that we're going over and we will overcome those.
Mike:
But in the meantime, I don't mean to diminish that either, to say that it's not happening because it is, we're seeing it than being deployed in certainly fleets scenarios. We're seeing them deployed in, you know, obviously geo-fenced areas, controlled environments even to this day. And there is a lot of opportunity out there within that space. But the other side of that coin, which I do think sometimes gets forgotten, is what would be considered sort of the classic l two l three, you know, autopilots the, the driver assist the advanced driver assist systems. And we're seeing just a lot of development in capital, in investment in that space and technology deployment in that space. So I kind of view both, both, both sides of that coin and you'd look at automakers, automakers themselves as well are, are thinking very dynamically about that. Yes, we have to invest in think about all four oh five, but at the same time they're also looking very strategically at that l two and l three and having solutions out there for consumers to help maybe with more of that consumer pull rather than a push. Um I, and I do think we're going to see maybe a little bit of bifurcation where you see 'em, you know, a fleet environment around mobility as a service that is supported and enabled by autonomous as that technology develops further.
Scot:
And then so just make sure I understand that. You mean? So like long haul transportation maybe or?
Mike:
That's a great example too. I D I even, yeah, I wasn't even referring to that, but you're absolutely right. But yes, elements of that long haul transportation can even bridge between sort of that l two l three into l four l five and in on that medium and heavy space. So when we were thinking about that, so class eight vehicles, the big rigs, semi trucks and trailers, As they're moving freight, there are opportunities around there as well at talk to folks out in the sort of the central us when they're thinking about some of the the, the legislative bodies in some of these states are actually contemplating creating highways that are autonomous zones, autonomous lanes in being able to, so maybe it's not autonomous on the city streets, but once you hit the highway, you can enter into more of an autonomous mode. Maybe you need a safety driver for certainly a period of time, but there are those activities going on on right now as well within this, within this space that even kind of transcend sort of the consumer quote unquote consumer market or the light vehicle market.
Scot:
Do you, so in electrical it was interesting because you have China, we'll probably get there before the u s do you see other countries ahead of us in AV, maybe it's the, if the technology's there and I'm a Waymo maybe I just kind of bail on u s and go to a children's thing or another country.
Mike:
AV can enable it can enable mobility differently in different markets. I would say that that's how we're kind of envisioning that as well and sort of that disruption. So it's a fair point. I think the, the, the interest in the of intensity and investment is certainly significant here in the u s so I'm not downplaying that. But at the same time when you look at a China in, in the congested areas and it's, it's definitely an emerging market for sure. And there is a high where it's going through a bit of a rough patch. We saw a sales contraction last year. We've gotten a little more forecasted this year, but at the same time there is, we do expect there to be growth in that market, but I do think that that growth in that market will, it will resemble maybe less of a developed market as we traditionally think about it less than the sort of the u s profile and more of a mixed profile that's going to be enabled and aided by autonomous and sort of that mobility as a service. So there's no doubt we are seeing investment going on in China too in the autonomous space as well. But I, I don't see it necessarily as a zero sum game yet where we lose in China winds necessarily on this.
Mike:
It's, it's kind of going where the money is in terms of where there's the potential to move people. You look at the u s in maybe the Midwest where you've got maybe a little bit more of a suburban sprawl if you will. In rural, maybe it's a little bit more challenging, but I'll tell you, we've got a lot of very large cities and don't even have, they don't even have to be the large metropolises talking today in an area that can be very conducive to moving people like that. And so there can, there definitely can be some very profitable business cases around that.
Scot:
Well and then I was talking about changing ownership and then one of the, one of the, as I've dug into those models that the key driver is AV. So, you know, once you take that driver out, you can get from kind of $3 a mile down to dollar mile. We had a robust discussion on that. Where do you fall on the changing ownership models? Do you see us going to mobility as a service kind of a model?
Mike:
You know, I think it's, it, it is interesting because I, and I still wrestle with some of, and this even came up I think in, in, in, in your conversation yesterday as well as I've been thinking about it in terms of carrying that capital asset. You know, if we're, if we're shifting that burden, if you will, to another entity, how do we get 'em, how do we get approved, you know, the requisite cost to capital paid for return on investment. And at the end of the day we as, until we get to the point where we're kind of all writing in these moving pods that are sort of nondescript. And I'm not saying we'll necessarily ever truly get there because I'm not sure I maybe in certain, again, megaplexes larger cities, metropolises where where it's all about moving people. And I would dare I say more of a disrupter to mass transit than traditional car ownership. When you, especially when you think about the u s it's still pretty ingrained outside of those larger cities, that personal car ownership experience. But you start going into, again going back to China or in India and you think about truly the business of moving people ability as a service I think is going to play a very sizable role in that, in that discussion, in executing that strategy.
Scot:
So, so you guys have an Evie forecast Nav forecast. Do you kind of do a, you know, an ownership, do you see new car sales kind of tapering off in 2030, 2035 as those drivers.
Mike:
You had a great slide yesterday that showed countable precipitous fall off. And then there was another one that was a little bit more of a, a feathered approach. And I'll describe that and I would say we're more than that feathered approach. And what do I mean by that? I mean we're going to see very much right now, especially if we, if we look at the u s market and break it down, it's very much a, a retail based with a layer of fleet in that fleet might be daily rental, it might be commercial fleets, things like that. But clearly the preponderance is, is retail as we go forward and we start bringing in mobility as a service to a greater extent as we bring in autonomous mobility as a service. What we're going to see is we're going to see that fleet model growing and we're gonna see that retail model contracting somewhat. But net net were there is a, I would say there's an a a net maybe low single digit headwind to vehicle sales.
Mike:
All things held equal due to autonomous and mobility as service. But at the same time we don't see a cataclysmic fall off you because of other things at play. And you could say the classic cases, well we're not using vehicles as efficiently right now because they're sitting in our garage, you know, 2021 out of 24 hours a day or 23 out of 24 hours a day. So if we're using them at even 18 hours a day more efficiently, haha you know, we, we won't need as many vehicles and I would submit a couple things. I do believe we may not need as many vehicles in operation. So if you think about that 278 million vehicles on the u s roads right now, we may not need that. We definitely see there being maybe a bit more disruption in terms of vehicles on the road because we will be using them more efficiently, but they're, by using them at such a rapid clip, suddenly when we're talking about driving a vehicle 12,000 miles a year, that could go up to 90,000 miles a year, a hundred thousand miles a year.
Mike:
So we start getting into duty cycles and replacement now that the sort of the converse to that is yes, but if they're electrified, they should be able to go longer to and absolutely. That's, that's definitely, that's definitely true too. We'll see that average vehicle age stretch, we'll be able to see that, that again, duty cycle stretch as well. But we do see some pros and cons of that where we don't necessarily see it as a death of the car, if you will. From that perspective or, or to the extent we start to see more disruption, it's gonna be further on down the line as you do start to see mobility as a service. Maybe take up even or, or go on the uptake even more.
Scot:
Yeah. And then there's always unintended consequences. Like I showed a chart where ride sharing Uber and Lyft have caused people to take more trips. So it's actually cause congestions in cities.
Mike:
That is a great point though. And it was very interesting to see that because I remember, I think it was last year, maybe late last year, maybe summer of last year, that came to a head in New York. I was in New York presenting at a banking conference and it was around that time, I think mayor de Blasio had been starting to pass down some decrees about, look, we've got to reign in all of this, you know, all the Uber and Lyft and mobility as a service and taxi because it has, it's blown up congestion. But you scratched on the surface of another. And even in your talk yesterday too, when we talk about total miles traveled, that, that concept of vehicle miles travel, you know, it's over well over a trillion or what have you. In the US as an example, what we are, what we, I would expect us to be able to do is really be pushing that curve out further.
Mike:
Suddenly we're going to be introducing mobility to more of the masses. Think about you know, folks that are, you know, have some sort of impairment, maybe blow a blind person who obviously can't drive right now, but suddenly he or she can, you know, push a button and someone who card come pick them up. Whereas before they may not get out as much or maybe they're using mass, like it's gonna Force to, a lot of times this discussion around mobility as a service and autonomous gets, gets wrapped around what's the auto industry gonna do with rightfully so. It's one of the ones that could be disrupted and you know, in the process of, you know, adjusting to it. Mass transit is another one in, I don't know how we necessarily navigate that. I don't know that that story has been fully written yet because you bring up New York is that great example. We've got subways, we've got buses, we've got cabs, and already some elements of those have been disrupted somewhat. You'd look at car rental and hold that whole concept there. Those folks in the car rental business are trying to adjust and adapt accordingly. Rightfully so. And there they're doing some really interesting work in their own end. So nobody's sitting still in this. But I don't think the story's fully, fully written yet.
Scot:
Yeah. To your capital and who's gonna, who's gonna pay for all these vehicles? That's the one segment that already is comfortable buying a lot of vehicles taking on the cap x load.
Mike:
That's right. That's right though.
Scot:
OEM's aren't and you know the, the dealers aren't and you know Lyft and Uber Aren't, but, the rental car companies, they have no problem saying Y'all put a thousand, I'll drop a thousand cars and LGA.
Mike:
And that's exactly it. And in the built that expertise up over decades, you think about that in terms of being able to adjust for that risk and, and shift on the fly as it were to, to, to, you know, make sure that that load, that vehicle load is balanced out where whatever region they may be looking at. So I do think they're gonna have a role in this. I think dealers, we mentioned, I think dealers are going to have a role if you think about fleet management, fleet maintenance. We were talking in an earlier session about subscription services. A really interesting concept, particularly in the used vehicle space because if you can create a sort of a cost effective solution for a buyer, maybe it's a, maybe it's a subprime buyer or you know, somebody in that, in that sort of category where they would be paying an exorbitant interest rate. But now through through interest rate arbitrage some sort of capital provider could base and maybe it's the, maybe it's a dealer, maybe it's a buy here, pay here, date dealer that can offer a true subscription service where that buyer now is going to be almost more quasi renter or they're going to be a customer that will drive that vehicle, pay a monthly fee and that will wrap up insurance. It'll wrap up the vehicle usage itself may be maintenance and repair and all that at a cost effective basis for the, for the consumer.
Scot:
Okay. And then we're up against time. But the last, last kind of kind of wave of innovation is the connected car. And there's kind of two elements out of, there's kind of like the in-dash and improving the customer experience, but then there's also an interesting, you know, a lot of people project that that data will then be used improved infrastructure and talk to cities and that kind of thing.
Mike:
Yes. And that's what we've seen, we, we see a lot of development in that space. We've already seen, you know, some certainly, but we expect to see even more. And frankly we have to things like vehicle to vehicle communication, vehicle to infrastructure, communication. In order to make this autonomous concept really work, we've got to get these vehicles talking to each other, we've gotta get these vehicles talking to the infrastructure. The true concept around connected car on that sense needs to happen in order to enable all of this. And so automakers themselves are, are obviously working feverishly on that, on those categories as well. You know, it used to be automaker just had to design and build a vehicle, you know, and didn't break hopefully and start to form a brand around it. Now they are moving into propulsion, alternative propulsion systems, autonomous technology, connected car technology.
Mike:
And then eventually we can start talking about, and you talk about data, data usage, data ownership. If we're in a true l five self driving vehicle and you're not having to drive, can Google start running ads? You know, we'll, we'll, we'll other buyers or other ad creators if you will, by space on your dashboard, by space on your windshield. Just to, you know, sell you something or you know, if you think of the Amazon model, you know, I know you bought this last week, you might be interested in this. And, and suddenly you've got a whole other business model where that data that's being generated maybe worth a lot more than people are thinking. Absolutely.
Scot:
Cool. So where do you think happens to these different constituents are that will lay all find a home? Is someone going to be kind of the future Brontosaurus in this world?
Mike:
That's the, that's the billion dollar probably trillion dollar question right now because there is so much investment going on in this space. And like I alluded to earlier, you know, at the end of the day, if I'm an automaker, I still gotta sell pickup trucks and utility vehicles because that's paying the bills right now. And yet you've got a lot of venture capital on of Capitol in general, just flooding into this market. I guess that would be though, and it's not uncommon, don't get me wrong, but it's one of those things that I, I do look at it and I, I worry a little bit is we haven't had that, it's been 10 years really since the big recession. We're bound to cyclical industry. So capital patients has been actually pretty patient I think in the overall scheme of things. But how does that patients test it?
Mike:
If do have a downturn, does this proliferation of players, do we start to see some consolidation? I think we will. I think from an automaker perspective we're seeing a lot of collaboration and I think it makes a lot of sense. You look at Ford with Volkswagen, you look at GM with Honda as an example with autonomous, I think we're going to see more and more of that because at the end of the day, these automakers have limited buckets of money and they have to deploy that capital strategically. And I think it's a, it's, it's a much more sound solution is to partner where you can to help to spread some of those costs out. And I think the more we do that and we're doing, we're, we're executing on that strategy, I think the better. And I think inevitably you will start to see some consolidation in some of these different disciplines, whether it be, again, the subscription services and those players are connected car space and you know, even the downstream suppliers that are feeding into all of this.
Mike:
That's the thing we've seen on just speaking from the supplier perspective, we saw that we're seeing suppliers actually carving out some business where it's not strategic anymore and bringing on new business to Bolt-on to broaden the new strategy that they have. Very healthy. So all of that I think is actually very healthy, but I think we're going to see more of that too.
Scot:
Very cool. So last question if a, so really enjoyed the conversation. If folks want to learn more and follow your research.
Mike:
Yeah.
Scot:
Do you publish that out on Linkedin or Twitter or where do they
Mike:
So yeah, I'm on Linkedin under Mike Wall, IHS market. Www.Ihsmarket.Com and that's m a R K I t.com. We have a load of research on there, particularly looking at our, in our automotive practice, and certainly folks can reach out to me directly. Happy to chat on the industry anytime.
Scot:
Awesome. Thanks Mike. We appreciate you taking time out of busy day to speak with us.
Mike:
You Bet. Thank you!
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EP014 - Co-founder and CTO of ACV Auctions, Dan Magnuszewski
http://www.vehicle2.getspiffy.com
Episode 14 is an interview with Dan Magnuszewski, Co-founder and CTO of ACV Auctions; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Dan and Scot discuss a variety of topics, including:
The road from Dan’s upbringing to establishing a startup community in Buffalo, NY How ACV Auctions serves dealerships with real-time, 20-minute auctions The technology behind the scenes at ACV Auctions, from condition reports to payments & titles His experience with blockchain and co-founding the Blockchain Buffalo group His role as an investor and advisor for Drone Energy, an industrial IoT and smart grid solutionBe sure to follow Dan on Twitter and LinkedIn. If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:51] Welcome to the Vehicle 2.0 podcast. We are live at the 2019 automotive intelligence summit here in big beautiful Raleigh, North Carolina. It's Tuesday, July 24th, and we are really excited to have a special guest on the show. We have Dan Magnuszewski,and he is the co founder and CTO of ACV auctions. Welcome to the show, Dan. Thanks for adding me. So appreciate you. We're doing this at lunchtime, so appreciate you kind of skipping lunch a little bit so I know sacrificing the lunch and, you know, pretending the fast. Yeah. Awesome. Uso let's start with your background. We'd love to know, you know, as a fellow technology guy, you know, did you do comp sire engineering and then take us to how you ended up, at ACV auctions?
Dan:
[01:42] Sure. So born in in really raised in Buffalo, New York as I was going through school always had an interest in computers. I initially wanted to be an astronaut, but it was, wasn't good at math, so I said, okay, well I can work on, you know, you know, computers and stuff. That's cool. And then, you know, that, that, that's my contribution. So I got really interested in computers. In high school we had a Cisco Network Academy course and this is kind of like 97 through 2001 took some web design classes. And then like I said, this is go network academy. And so I got into networking graduated high school and was going to University of Buffalo for computer science. The summer leading up to it, I was fortunate to get an internship with a a regional bank and I was working in their network operations center and writing software that was helping monitor the network and you know, the systems and things like that.
Dan:
[02:46] So worked, worked there throughout college. And a couple of years after I left there, went to a kind of a growing startup in buffalo called Synacor. I was there from, you know, there was about a hundred people and when I left a little under, four years later, there were about 350 people prep and we're preparing for IPO and all this other good stuff. They tried the first time, it was 2008 when they're attempting that. So yeah, not, not quite the timing. So I left there. They, they IPO a couple years after I left, but so I left there and to go do a startup with a buddy of mine. We did that six months in, went to south by southwest, didn't necessarily launch. So kind of went around and started becoming a technical cofounder for hire worked with people out of the west coast, New York City, Chicago who had an idea and had some money and were looking for someone to kind of make this into a real thing.
Dan:
[03:50] So I would, I'd really take it, take the product idea, like work through it, figure out what the MVP is, really try to focus it and then would go and build it. So I was doing that for a while and kind of along the same time, I was doing a lot of things in the in the local community around how are we building, you know, startups and coworking and a whole bunch of other stuff. So, so I was doing that and we were opening, well, a couple of people were opening a an incubator in buffalo in five point $2 million seed fund and you know, so that was really the first of what a first of the incubators and things like that in Buffalo. So a kind of career shifted a little bit and went into venture capital and how do you build businesses?
Dan:
[04:38] And studied under a couple of guys who had a Jordan lovey around triber who had built a couple very successful companies and with Softbank capital in New York. So I was working with them and kind of understanding how do you build a business, how to vcs, look at investing in companies how do you pitch your company? How do you do all these different things that just building how do you build a great business, but then also how do you then go and pitch it and raise capital and things like that. Did that. And so after a while it felt like it was kind of sitting on the sidelines a little bit, you know, trying to help mentor companies and things like that. But I wasn't really fully getting my hands dirty at the end of the day. So I had an itch to kind of get back into it.
Dan:
[05:24] I was working on some things on the side. And then somebody applied to the incubator they, they had just moved to buffalo from Albany and basically say, I have this idea and I, you know, I was a used car dealer. I went and I was selling 50 cars a month and it was a nice little business, but I'm running around all these auctions all the time. And so he moved to Buffalo, worked at a, at a decent sized new car dealership and saw a lot of inefficiencies in their wholesale process. And he's like, you know, I, as a, as a used car dealer, I would love to get access to this inventory where they're taking a couple of photos and just putting it in their dms. I would love to have, I would love to have access to this. So it's like, I have this idea and you can get a push notification and you know, you can buy this inventory ahead of time.
Dan:
[06:14] And it was really, you know, so it was really the initial, a seed of ACV auctions. How do you take mobile phones and mobile adoption, smartphone adoption in the industry was, you know, starting to really pick up, you know, my, my dad's a used car dealer and as I was building it he still had his flip phone, so it was like just around as we launched that he ended up getting a smartphone. I think I kind of forced them a little bit into it. So so, so the timing seemed right. So I talked to him. I said that, yeah, this, this makes sense. I could build it. Let's start working on it. So this was about five years ago, so it was a summer of 2014. We just started kind of nights and weekends, started talking to dealers started talking to some investors as well.
Dan:
[07:07] And but really it seemed like, you know, we had something there. So by the end of 2014 we left our jobs and sold our houses, downsized, and we were all in a building the product. And so kind of that first half of 2015 we were building the product, going around trying to sell it just in the buffalo market. That was going to be our initial launch market. And we had 250 dealers signed up and January 1st of 2015 we were sitting around one day we were like, okay, let's just, let's just launch it. You know, the app was an app was out there, people are asking for it and we're like, you know, Shit, let's go do it. So, so we did and a sold our first car and you know, we were kind of off to the races from there.
Scot:
[07:56] Yep. So, so for listeners that don't know, I've learned a lot about this coming from the ecommerce world, it seems crazy, but most auto auctions you, you bring the vehicles with you, like physically you put them on a car carrier. So I'm a dealer and I have 50 cars that have been sitting on the lot for a long time and I want to wholesale them. So I put them on a travel trailer and I go to usually a location that's out in the middle of nowhere because these places take a lot of land. So I'm near a city, but usually like 50 miles outside of the city. And then I, I, you know, I unload my cars and they go into these lanes. And then there's you know, there's this kind of phase set up time. So there's like a day or two where you set up and then the auction starts and then you have literally other dealers, kind of a big group of dealers walking down a lane and they're kind of like, all right, now I'm at car number 84, and it's a red, you know, Toyota Camry.
Scot:
[08:44] And then you have a little auction right there. And then someone went quote unquote wins it and then you're onto the next vehicle. And then, you know, the winners take all their cars back with them. You know, they'd load them up onto a travel trailer and they'd take them back. Yeah, yeah. And that's, you know, really there, you know, you're, you're kind of moving the car twice. You've got the super inefficient, you know, walking down a lane, it could be raining and you know you don't have, you know, an old nurse, there's almost no technology in these things, right? There's no alert that kind of says I've been looking for a 19, you know, a low mileage BMW or anything like that.
Dan:
[09:18] Yeah. And you know, that's really the core of the inefficiencies. So my co founder, Joe he was on the road three, four days a week, a hundreds of miles in different directions nobody at, at his, his lot doing what he needs to do to make money, which is selling vehicles.
Dan:
[09:36] And even when you get to the auctions, you know, multiple lanes, there could be five cars you want to buy and they're all running in five different lanes at the same time. Murphy's law kicks in, well, what, what are you going to do? So, so there's that efficiency. You know, a lot of times, you know, kind of the industry standards, 50% of the time the vehicles aren't selling at those physical auctions. So, you know, you go and you wait a week, it runs, it doesn't sell. Now as the seller, you're saying, okay, do I send this to a different auction and kind of Plinko it all the way through the system or do I let it sit there for another week and see what happens again? So, so there was just a ton of inefficiencies. And with mobile, mobile smartphones at the stage, they were at the adoption.
Dan:
[10:21] It's like, why, why are we not? Why, you know, why is no one done this? Why is nobody doing this? And why are they traveling all over the place, moving vehicles multiple times, just super inefficient and, and as time goes on and that vehicle's sitting on a lawn or you're moving at place to place the vehicles depreciating, things could happen to it. So our, our concept was this never has to leave the lot. It can stay on your lot. No one's moving it. No one's, you know, you don't have to worry about someone stealing a mirror off of it or denting it. It's, it's, it's there and we can, we can have it sold in 20 minutes.
Scot:
[10:57] Cool. and then so, so it's always smart to go try to disrupt something where you can kind of do a 10 x better user experience, it seems like. Yeah. Uber was genius or going after taxis because the tax experience was so bad and it still hasn't caught up, you know, so it definitely much better. It was so easy to provide a 10 x better experience.
Dan:
[11:12] And, you know, what, what Uber did a taxis we felt we could do to the auction industry, which, you know, really the, you know, the Internet era and Silicon Valley in New York City, you know, the wholesale market specifically, it was just very much a pass by, and it was, it was a lot of the big incumbents and not a lot of you know, it really wasn't that sexy silicon valley, a problem that people were trying to solve. You know, it was, it was a perfect Buffalo Tech you know, startup idea for us to go after.
Scot:
[11:49] Yeah. Yeah. We get the same thing. They're like, you know, the traditional vcs were like, you have employees, oh my God. But we don't invest in those types of businesses. Like, okay so less flash forward. It's five years later. You guys have had crazy success. You raised 150 million. That's not always the bar of being successful. Correct. But you've had a lot of success on the revenue growth and I don't know what you've give us an idea for the scale of the business, like how many cars are auctioned or, or anything like that.
Dan:
[12:15] Yeah. So, and we had some stuff out in the previous months selling over 20,000 vehicles a month. We have, you know, we're in, you know, about 115 hundred and 20 territories. We're well over 700 people total. And that's across from, from sales, through engineering, technology, things like that.
Scot:
[12:38] And you've so, so walk us through the, the kind of the new digital user experience. So I'm a dealer and I have the same 50 vehicles now. Do I list them? I think you guys have an option where you can even have a team come in and do the whole thing, right. Kind of a full service operation.
Dan:
[12:53] Yeah. And really iterating initially what we did was allowed the dealers to do with themselves. And you know, there was a lot of issues with that and created, you know, there, there wasn't really all that trust and transparency, which is what we really pride ourselves on. So kind of, you know, normal startup thing. People were, certain dealers were, oh I was too busy to list the cars or the kid I had hired to do it, he quit or he left or whatever. So were like unite. All right, great. So we're in, we're going to remove all excuses. We're going to hire someone and all they're going to do is show up on certain days and do condition reports. And, and it was really to keep the supply of inventory going in and the benefit of it was people are like, Oh, I love that you guys are doing the condition reports. Yeah.
Scot:
[13:40] So buyer's side, there's consistency too, right? Right. So, you know, your definition of good, better, best or fine, very fine or a bad scratch, a good scratch, any of that stuff is going to be much more consistent than, than the actual seller.
Dan:
[13:52] Yeah. We, we try to be super, you know, very objective condition reports. We're not trying to make it look better or worse, we're just trying to call it for what it is. So we've built out, you know, a huge network of, of, of these inspectors now. And really it's, it's, it's the main way that we're doing a inspections and people just really like that they can trust in us and we can be that, that trusted source. And for anyone who knows the automotive industry, dealers rarely ever trust each other. Right? So that was a really huge benefit to that having those inspectors and having people with their, you know that are trained by us, that are using our software that's custom built to build the best condition reports in the industry. That's, that's really what we've done and it's, it's worked out really well.
Dan:
[14:43] It's not the pure software play that a silicon valley type company would want, but at the end of the day we're going to end up with the largest inspection network in the country. So so there are some real benefits that when you're dealing with these tangible physical assets.
Scot:
[15:00] Yeah, yeah. I think it gives I don't think the venture industry is woken up to it, but as a, as a software option or cloud computing is like lowered all barriers of entry, right? Two people can create almost anything. So the fact that you have these inspectors makes it that much less appealing to, to Stanford grads. You know, right now in comp side wanting to replicate your model, that's going to be like, Ooh, that's Achy at all. I don't want him, I don't want 700 inspectors or whatever the number is.
Dan:
[15:25] Right, right. Yeah. And you know, there's definitely, there's definitely cost to it and there's definitely the training and the onboarding and hiring and, you know, so it does, it does add a little bit of a hurdle for just a pure software play. Uh and we've, we've kind of gone, you know, we've done that already and we understand, you know, we understand where the benefits and where the issues are going one way versus the other. So but we've been really happy with it. Our dealers love it. So yeah, it's worked out really well.
Scot:
[15:53] Cool. So I've got my 50 vehicles, I've got your guys coming every week to Kinda like help me wholesale. I fly, I got the chalk mark on him or something, or I give them the vins, they do the inspections. Then I think they would imagine, you know, list, you know, I'm a, I'm an ecommerce guy, so I'm easy commerce vernacular that may not be right. But in the Ebay, Amazon world, we would list the product out there. And then the buyers probably are, you know, there's probably some cadence or the buyers kind of come in. The buyers I imagine would have alerts and that kind of deal. So they buy the vehicles or, yeah, yeah.
Dan:
[16:25] And I can walk through there real quickly. So we, we have scheduled set up with our, with our dealers who are selling our condition. Inspectors go in, they get the keys, they get the price, they go out, they do full condition report takes, you know, 10, 15 minutes. And once they have that, there's different options where they can let it run live. They can save it to run later. And so, but if they say, hey, I'm going to run this auction, now that auction instantly gets, gets created based on buyers filters. The buyers will be notified saying, hey, here's a new auction. It's this vehicle. They go in 20 minute long auction and they can bid right through the app. In 20 minutes we have a high bidder.
Dan:
[17:09] And based on what the sellers reserve prices, that vehicle can be sold in 20 minutes. And and we can, so, you know, a whole bunch of them within that time period. So, so that's really the, the process and, you know, post-sale, we also handle everything from titles and payments and we have integrations in the floor plan financing. So we have those options. We have transport that we do as well. So we've really gone from just being a marketplace to adding all of these different components to be a true end to end solution for these, for these dealers.
Scot:
[17:46] That's the big trend in market places now is Opendoor has changed the real estate industry by, you know, going in and replaced Zillow would introduce, you know, the buyer and the seller. And then now open doors actually going in, you know, essentially even acquiring like part of the this stuff. Yeah, the managed is, yeah. Cool. I could talk for hours about this, but that's a really good overview. I want to make sure we have time. I noticed on your linkedin you do a lot of other cool tech techie stuff. So I saw you're involved with some blockchain and then there's something called drone energy, which kind of caught my, my attention would explain some of those, those things that you're doing on the side.
Dan:
[18:18] Yeah. So you know, in the local startup community I've been involved for for a real long time and I always like helping people who have ideas and they may not notice start, they may need, need introductions of I've been doing that, you know, probably almost the last 10 years, just really trying to help connect people. So, so I, I tend to have people come to me pretty often with ideas and I try to help them out where I can. So you know, a couple of years ago really started looking at there's a great book called the master switch and it's about information information technologies over time have been very centralized and then get de-centralized and then research, centralize and decentralize. And you know, you, you look at a lot of this stuff going on with Facebook and others in terms of privacy and data and, and things like that.
Dan:
[19:11] And we're in a very centralized, where a couple of really a couple of companies own all the data and all the power. And I think we're kind of now going, you know, the next step is to get into more decentralized. So as I learned about a theory and blockchain and a whole bunch of other stuff, it really clicked that hey, there's to be some new model where people can own their own data, they can monetize their own data, they have that control over it. How do we look at money on the Internet? And so there's a lot of really interesting things that getting into blockchain and cryptocurrencies really got excited about it. And so within Buffalo, we started this blockchain group where we were meeting every week and giving talks on, on different aspects of it. So I got really involved in that.
Dan:
[20:01] Drone energy is a mining company where they've shipping containers and they have this patented shipping container style where they can build, you know, there's, especially in northeast, there's a lot of these either cogeneration plans or you know, even just old factories that can't maintain their base load because manufacturing is demand has gone down in those areas. So there's a lot of excess power is one thing I learned a lot of power that exists just can't be used. And so this is a way where you can, by having a whole bunch of bitcoin miners and cryptocurrency miners running miners being very highly intensive computers that, that are computing at, at you know, for that very one specific task. So, but it requires a lot of power and so they can go and help maintain a base load so that a factory can run and doesn't have to batch up work or a cogeneration plant can turn on and maintain a base load.
Dan:
[21:01] And so, so that's really what drone is doing. And so I got involved with them and you know, made a little investment in them and I've kinda been mentoring them along with there's a couple other marketplaces as well since since I've been involved in marketplaces people who have kind of reached out, whether it's selling used manufacturing materials or whether it's produce that's you know, going to be thrown in the dumpster, that there's brokers that are just literally, they get this, you know, what's called number two and number three produce that they just have to throw out. So how do you build a marketplace around that for restaurants and others who don't need the most perfectly looking tomato if you're going to be making sauce? Right. so I've been helping these types of companies you know, through just kind of the idea and, and getting, helping to get the business going and help them think about a lot of the things that I've a lot of the mistakes I've made through ACV and the things that we did wrong that, you know, I can kind of impart some of that, that wisdom to show him some of the scar tissue and hopefully they, they make different mistakes and not the same mistakes.
Scot:
[22:15] Yeah. Or You, you tell them all the mistakes and they just go do them again or they just say, yeah, don't do that.
Dan:
[22:21] Yeah, I told you, I told you, I told you the stove is hot. Don't touch it.
Scot:
[22:26] Cool. one question I've been dying to ask is what does the ACV and ACV auctions stand for?
Dan:
[22:31] No, that stands for actual cash value. So it's an industry term. And when we initially started our, our main goal was live appraisals. And so it was going to be you know, someone comes in, they want to trade in their vehicle and there's not a lot of trust in that process of, okay, let me go talk to the manager behind the glass. Okay, here's what we can give it, give you for your car. And they're like, well, Kelly Blue Book says this. And they say, well, Kelly blue book doesn't write a check.
Dan:
[23:01] We do. So it was just this very non transparent process that a lot of people didn't like. So we, we looked at it and said, hey, we can solve this problem of vehicles going to auctions and dealers having to go to all these different options to get their inventory. But at the same time we could also help the, the franchise dealer by saying, Hey, you can provide this transparency at this stage. What you can do as they're going to test drive their next vehicle. You'd take some photos, you do a condition report, and you can send that to auction. So by the time they get back from their test drive, you can say, Hey, I know you wanted $10,000 for this vehicle, but we had 12 bitters and we got you 9,500. That's the market value and it's a much easier conversation to have.
Dan:
[23:46] So that's initially how we you know, kind of we're starting and that number that they have is the ACV that that's their actual cash value for when they're going to go wholesale it or sell it at auction. That's the number that they think they can cash out for. So we were kind of the guaranteed EQ actual cash value for, yeah.
Scot:
[24:10] Yeah. The so a lot of marketplaces, one of the ancillary business models is the data they throw off. Do you guys have you guys close the loop on that? Where if I'm about to list a vehicle, I'm a dealer and I'm going to list a vehicle and I've got a crazy reserve on it. You probably have enough data now where you can say, hey, that, yeah, we're happy to list this for a $20,000 reserve. But we, you know, vehicles like this on our platform have sold for 12, five or, yeah.
Dan:
[24:33] And we, and we've, we've built out pricing in understanding what a vehicle is going to be priced at or should it be priced at. And it's, it's a really delicate conversation to, you have to have a, because you're telling someone they're wrong and you don't really know how to price your vehicles and dealers feel that they're really good at pricing their vehicles. So you know, so a lot of times, so we try to take, you know, part of an approach where it's, you know, we're providing them you know, what we believe in is more of a recommendation, a and not necessarily a heavy handed approach. And so we use that with our people in the field to help show them, hey, if you, if you price it in this way and you price it appropriately, you'll actually do more than if you price it aggressively.
Dan:
[25:20] And everyone says, oh, this person's nuts. I'm not even gonna pay attention to this option. So, so there's a lot of those different dynamics that, that we work through. So it's currently, it's kind of a blend of the, you know, machine learning and intelligence from that perspective. And you partner that up with you know, a person that's having a conversation and explaining it and not just, you know, hey, this is what the machine says, so that this is what you have to do because that, that doesn't work in this, in this industry.
Scot:
[25:48] Very cool. I could go on for another hour or so. So it's been good. We'll have to have you back on. Well, we didn't even get to talk about where you stand on the future of vehicles or any of that and that good stuff. So we'll, we'll leave folks waiting for that.
Dan:
[25:59] Awesome.
Scot:
[26:00] Last question, if folks want to follow you online, do you, are you a linkedin person, Twitter, Facebook publisher, where, where should folks go?
Dan:
[26:07] Yeah, so I'm a, I'm on Linkedin, but I'm also more active on Twitter. I'm not really on Facebook. So magnus chef, m, a, G, N, a. C. H, e. F, a, is my Twitter handle and that's where I'm, I'm most active on, on social.
Scot:
[26:22] Cool. Thanks for coming on the show, Dan. We really appreciate it and really enjoyed the conversation.
Dan:
[26:25] Great. Thanks for having me.
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EP013 - Auto Intel Summit Recap with Joe Overby
http://www.vehicle2.getspiffy.com
Episode 13 is an interview with Joe Overby, Senior Editor of Auto Remarketing & Auto Remarketing Canada; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019.
Joe makes his return to the podcast to talk with Scot about all of the happenings at AIS; from their favorite sessions and what was covered to the diversity of this year’s show.
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:56] Welcome to the vehicle 2.0 podcast. We are live recording here at the 2019 Automotive Intelligence Summit from sunny Raleigh, North Carolina. It's Wednesday, July 24th. It's been a long day. We're here at the end of the day, end of day two. So two thirds are a little bit more than that through the show. And excited to have Joe over beyond Joe is as a reminder to listeners as senior editor of auto remarketing. Also, you're the first guest we've had on the show twice. So, so you're famous.
Joe:
[01:24] That's awesome. That's a come back, man. I feel special.
Scot:
[01:29] So in addition to your role there, you guys put on this show. So you've been kind of, you know helping with a lot of the content and everything. So we thought we'd check in now that we're through the bulk of the show can get a read from you. What's been kind of the topical top of mind with it?
Joe:
[01:45] Yeah, I, I think I think yesterday some of what stood out to me kind of in the, in the general sessions at least was the cybersecurity. It was, I, I don't know if scary is the right word, but the the ability of, of hackers to be able to generate, to get into you know, dealership systems and automaker systems and, you know, even even you, our personal data or personal credit card information, I think it was really eye opening, especially that, that last panel a with or that last a fireside chat with Ryan Bachman. GM financial. I thought I thought, you know, I, I got to sit in on your session yesterday, Scott. And I thought it was a couple of things really came up in that session that was interesting to me that just the I think it was one of the first charts you showed with how fast the rate of change and digital automotive has been compared to what I would the last 50 years prior. That the retail model is just you know, changed so quickly. And then you know, I think look
Scot:
[02:52] At how fast Carvana came out of nowhere. Like I've never heard of them two years ago, maybe 18 months ago. And you know, you've got the
Joe:
[02:59] Vending machines everywhere and, and you know, everyone here is talking about their experience. I, I'm new to this digital retailing that's kind of, it has been a big topic that I've picked up on. Yeah, absolutely. And I thought, I thought today, you know, really was a big kind of digital, digital retail day. The particularly that dealer panel where we, we had four, four dealers and the, the president of the North Carolina auto dealers association talk about for a good bit of their time, you know, on the panel they talked about the digital retail experience and how, you know, I believe it. Okay. I think it might've been the, the gentleman from, from flo who talked about how dealers have the infrastructure and an inventory to do digital routes, the best of that to do their best position that guests to do digital retailing.
Joe:
[03:52] And you know, they had some, some interesting thoughts on Carvana as well. And you know, as part of that panel and then also a couple other, you know, just discussions was the fact that I guess the key to digital retailing, you know, whether you're a dealer or whether you're, you know, Nordstrom's or whomever is offering kind of a blended experience between the online and in store based on what the customer wants. And I'm sure you've seen some of the same things with any commerce's. We, there was a long phase where we called it Omni channel and now they call it harmonized. So omnichannel was kind of trying to just like make your inventory counts work across online in the store, just kind of the basics x's and o's. And then harmonized is things like I add something to my cart on a tablet and then I go into the store and the sales associate can like know what's in my cart.
Joe:
[04:47] So it's interesting to see the same conversations going on here. The dealer network makes it more complicated. It's almost as if every store was its own little business. Yeah. So imaginary Nordstrom's was independently owned and operated in a way, you know, a, or a franchise. I bet that's gonna make it really hard because you may have one dealer that's kind of, you know, within a, an OEMs world, far along the spectrum. But then another one's not. If the consumer starts at the OEM site, they're gonna have very different experiences. They go into different dealers. So it feels like a lot of it's going to have to come down from the OEMs. And I haven't heard a lot of talk about them. And it's interesting too, because a lot of these digital retail, you know, providers that work with dealers, you know, if a dealer wants to do digital retailing and you know, they work with one of these tech providers, you know, to do so, you know, you have these companies that are providing it on a dealer level, kind of a dealer group level, and then also the OEM level.
Joe:
[05:46] So it's, it's Kinda, it can be, you can imagine where the messaging kind of gets mixed up in that process. Yeah. Yeah. The consumer wants to look across inventory, right? Yeah. You don't just, you don't, as long as the target, you're looking at it, you know, the target store is within 10 miles and you're looking for a very specific thing. You have some flexibility there. So it's gonna be interesting to see how that Nav, how that evolves. Yeah, absolutely. The another, another thing that jumped out to me today was it was also during that, that dealer panel where the head of the NC auto dealers association, Bob Glazer, he asked the panelists, the, the dealers when they thought, you know, he was using Raleigh as an example when Raleigh would have fully autonomous vehicles on the road. And, and you know, one of them said, Oh, you know, 2020, 23, another one set out, it'll be like 20, 40.
Joe:
[06:41] And then the woman from crossroads automotive, who's there, she's there, court corporate counsel. She said, you know, this is the lawyer speaking to me, but never, you know, she said it's the insurance companies will be playing a bit of a, her term was, you know, having a punting match on who's going to take liability. So I think that that just illustrates some of the, you know, I don't know if I would say never, but it illustrates some of the complicated you know, issues out there with autonomy. But I think you could say the same thing about, to certain degree about subscription and other shared shared usage models. You know, who's gonna take insurance liability, who's going to pay for x, Y, and Z. I think those are, those are issues that are going to be raised for sure. Yeah, it's interesting. I can kind of argue either side.
Joe:
[07:31] I see, I totally see your point. But on the other side, if you believe some of the stats, like even just kind of the level two in three stuff reduces accidents by like 80%. The insurance industry should be happy for autonomy and you know, I think they have a business reason to get around it and say we'll take on more liability because the liability we have today is going down by 80 or 90%. So that's how I talked myself into the other side of that. Again, and they, I think one of the one of the panelists or not panels, one of the sessions talking about the, you know, there's insurance companies now that are working with some of these subscription platform providers to figure out, you know, they, they to write specific policies that, you know kind of all the different usage cases of subscriptions in it and what kind of policy that driver would need and the you know, companies would need to do those types of things.
Joe:
[08:24] So to your point, I think a lot of the companies are seeing it as a business opportunity. Yeah. Okay. Any other big trends? Well, I think that one of the funnel sessions was interesting to me. The the startup portion where they were talking about, you know, just opportunities for collaboration. And Quinn Garcia, who the managing director of, of autotech ventures mentioned that, you know, a lot of times we see startups as, or they're referred to as disrupting, but you know, in a, in in many ways they kind of help solve problems within a traditional industry like automotive because they, they have the ability and willingness to, to innovate and move quickly. The other side of that, he said they're challenged. Scaling can be a challenge, but what they're really good at is innovating and, and, you know, changing you know, being willingness to change and, you know, company we refer to lift, you know, and their their ability to work with some of these more traditional players in automotive. You know, for working with dealerships, for example, to provide loaner fleets or transporting service customers to and from dealerships. I thought that was an interesting point. And as a side note, I thought it was interesting that when he was talking about having two guys live at his house and while they started Lyft, I just immediately thought of the show Silicon Valley
Scot:
[09:57] There Erlich Bachman's house. And started the company there. Yeah. He always says that co that car that's like from like six companies again, he always says it was Bob before its time. Wait, none of us, I don't think we've ever learned what that company did. That's funny. Yeah. And then they lived in his parent's house or something. Yeah. Very silicon valley thing to do. Yeah. I thought that was arresting. We, we see that in the retail world where a lot of retailers have these innovation centers. They kind of go through this cycle where they'll open up the Silicon Valley Innovation Center and they realize how expensive that is to hire engineering talent out there. And then also it creates a weird thing internally, right? So imagine you're not in the innovation center and you're just aligned level executive or developer and you just feel like you're outside of the innovation.
Scot:
[10:40] So then that, that's one cycle they'll go through and then they'll, then they'll, they'll kind of make it more of their overall DNA. And then part of it is being able to partner with startups and, you know, definitely spiffy. We're feeling that from the automotive industry where a lot of these parts manufacturers, so for example, Mon humble is a, an investor in us and they are a filter company, you know, what you'd think is a very boring uninnovative innovative space. But they've realized that, you know, they need to understand what the consumer's behavior is changing. So, so we're seeing a lot of the auto companies you know, really I think very quickly invest in this space much more, you know, the retail industry took kind of 20 years, but it seems like the auto industry is moving very fast.
Joe:
[11:20] Yeah, absolutely. And I would add one of the one of the other points that kind of stood out to me in the past couple days was one that you, you raised yesterday about the car sharing companies, the two largest ones having raised a combined $900 million combined. And it's interesting to see that, that that there's that much interest in car sharing, which I don't, I don't know that car sharing is as talked about as other segments of, of this mobility.
Scot:
[11:53] Yeah. It's kind of under the radar.
Joe:
[11:54] So they, they, those companies go out of their way to kind of call themselves rental car companies, but they're essentially longterm rentals. So they're kind of like, I think their average is three or four day kind of rental kind of things. And so, so the two companies are Touro and get around. What's other, what's also interesting is you kind of see kind of to quote unquote godfathers in the auto space forming. So you've got Interactive Corp IAC. We were talking to the folks at honker and I didn't realize they had, they had led a very significant round for those guys, for example. So I see a, I see bought they have their own Angie's list. They started Expedia. So it's a very Diller's company and they have this whole suite of family home service type businesses and then in travel.
Joe:
[12:41] And then they're also in the dating world. Oddly enough, this kind of smattering of Internet companies seems like they've got a directive to, to get really involved. And then the other big one is Softbank. So Softbank you know, just investing, they have like this $80 billion fund and they're investing a ton in the auto space. I know they're in a bunch of parking companies. They're in they're the ones that are funding get around. So, you know, there, there's two really big anchor investors there that are, seem to be driving a lot of that investment. Yeah. I think there's you know, just moving, moving appetite from Silicon Valley and even Wall Street, you know, towards, towards automotive and, you know, cause it's, you know, it's an industry that has been around for, you know, a hundred years and has only, it's only been in the last you know, five to 10 years. We're seeing this level of disruption. And then, you know, of course, the, the huge part of that is, is the used car market, which is 40 million annual sales. And then you have and that's just retail. Then you have a whole wholesale market that's 20 million each year. So it's, it's a, there's a lot of room for, for such investments in growth and quote unquote disruption.
Scot:
[14:02] Yeah. I think, I think Amazon has shown us that, you know, digital technology can create such a better zero friction experience and then every time you do something in the car world you'd kind of, or you know, you encounter a lot of friction. So I tried to buy a car about a year ago and I had set it up where I was, I only had two hours cause I knew they would try to drag it out and it took like four hours and you know so and then, you know, no one ever gets really excited about, Gee, I'm going to go and get my car, you know, my oil changed or anything like that. So there's, there's a lot of opportunities to really increase the user experience around everything auto, which I think the VCC and they're pouring a bunch of money into that, just like Uber and lifted with taxis effectively Kinda saw that there was a really bad experience there that that could make much more 2019. Absolutely.
Joe:
[14:52] And I think, you know, the, one of the biggest pain points automotive at least in the consumer buying process is that, is that financing process, you know, that it takes hours to get in there and find it to deal. And you know, one of the couple of the panels that we've had particularly the, there's one we had with Alex Mertz Zach with, with Ernst and young and he had three folks from the, the, you know, the, the finance world kind of go in and just speak about how, how they're changing the process. And I think that's probably, you know, the one area that it's pretty ripe for disruption as well.
Scot:
[15:32] Yeah. Insight. Yeah. Yeah. You should. Yeah. It should be a lot faster. I don't know why it's so long. I think that it's a profit center and they, they've turned it into a pain point for the consumer to make profits. There's misalignment there and any company that flips that back the other way is it's going to be really making a lot of money. Yeah, absolutely.
Joe:
[15:51] The another kind of the session that kind of stood out to me that I was able to get in today was the a one on the from Pala skier with the, with Nice Nielsen Auto Cloud. And she had some interesting interesting takes about, you know, she was sharing some data that I think for for Gidic for brand recognition that TV is the best form of advertising, but on the opposite in that axis you know, for actually decisions to buy that something like direct mail, digital retail or rate way higher than TV. So the key is not one or the other. It's kind of, you know, doing that, doing a blend of both. And I think that can be, you know, as she was saying that I kind of related that to what we were talking about with digital retail, that it is an Omnichannel approach, you know, a harmonized approach to, to to blending a lot of different methods based on how the consumer wants to interact with you.
Scot:
17:01] Yeah. The, the challenge with TV is, you know, people that are kind of like 40 and younger, don't watch what they call kind of analog TV anymore. They're on Netflix and they're waiting for the next, you know, they're on, on Hulu and they're going to be on the Disney. It's going to get worse because we have a whole raft of new new subscription programs launching. So, you know, you're, you're almost kind of creating this challenge by just being on TV in that traditional OEM world because that's, that's, that's not the audience they all want. That kind of millennial kind of person are harder to find. And it'd be interesting to see. Yeah,
Joe:
[17:33] Yeah, absolutely. I think you're at on point there. Half the shows. I, I still have a cable subscription, but I, you know, half the shows, I'll watch her either on Netflix or Amazon or I'll watch it on HBO
Scot:
[17:45] Or something. Yeah. The only live TV is sports. Yeah, exactly. Certainly
Joe:
[17:50] Watch, fair, fair. Share that with the, with NC state football starting up in about a month. So I'll be tuning back into the TV for that. Cool. anything else do you want? Huh. Well, you know, what, I, I think the only other other thing that stood out to me was just the diversity of, of companies here and different players in the market. I mean, you know, we're for 20 years we've had some iteration of what we call our, our used car week or in national remarketing conference where it's, it's, you know, for pretty much, you know, dealers, auto auction can signers and banks and, and it's interesting that to have a conference like this because in addition to those folks that they still come to this conference, you know, we get companies that are startups or investors or you know, people like the Nielsen's and Ernst and Young's and, you know, the spiffy is of the world that, you know, maybe are new to us, but they're, you know, getting into automotive and it's, it's really interesting to, to watch all these companies kind of come together.
Joe:
[18:54] I mean comparing this conference to say, our fall event there, there's a lot of people here that haven't yet met each other. And so you get a lot of that. Oh, I met so and so at Auto Intel summit and you know, we're gonna work together. We're, you know, our fall event. It is, it's a lot more people who have, have known each other for years. So it's just, it's an interesting dynamic and it's Kinda fun to watch. Yeah. Yeah. One's more kind of like get business done today and the other one's more forward looking. Yeah, absolutely. It's the, you guys can balance the two of those. It's good to be able to provide two shows with a different flavor. Yup. And I should, I should add that our used car week conference is going to be November 11th through 15th at the Red Rock in Las Vegas. So thanks for the quick plug there allowing me. Yeah. Awesome. Cool. So start saving up those pennies for, for the bandits.
Scot:
[19:50] Cool. And then, so tomorrow the conference wraps and I'm sure you're looking forward to that. You can kinda go and take a couple of personal days. I'm sure these things are stressful. So tomorrow we've got Costco, there's a fireside chat about their car program, which is wildly popular. And then some interesting things around the finance side. And then a bunch of us get to repeat our sh are toxic. And so if, if, if folks missed the ones on Tuesday or had to choose between x and Y, you know, it can go to the other one tomorrow. So I think that's good though. We will be at my previous company, we ran several shows and you always get people to complain. You know, I, I couldn't make it to all the content, so I think it's good you didn't play that. Yeah, yeah. Yeah. Awesome. Well, thanks for joining us. I know you're, you're busy and look forward to seeing how things wrap up tomorrow.
Joe:
[20:34] Well, Scott, thank you so much for being here and doing all these great shows and, and for your presentation the other day. Thanks.
Scot:
[20:40] Thanks for having us.
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EP012 - Electric Vehicle Analyst at EVAdoption, Loren McDonald
http://www.vehicle2.getspiffy.com
Episode 12 is an interview with Loren McDonald, Electric Vehicle Analyst at EVAdoption; recorded on July 1st, 2019. Loren and Scot dive deep into the world of EVs, including such topics as:
The growth of total EV market share in the U.S., broken down by state. Exploring Loren’s CARMA EV adoption framework. Breaking down lithium-ion vs solid-state batteries, as well as their 7-year cost trajectory. Emerging companies like Rivian and Workhorse, who are pushing for EV usage in non-traditional segments. The expansion of EV charging infrastructure, including where charging stations are growing and where they’re still needed. Tracking federal EV tax credits as they begin to phase out.Check out Loren’s work at EVAdoption.com, as well as his book Gas Station Zero! If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling and hosted by Scot Wingo.
Transcript:
Scot:
[00:56] Welcome to the Vehicle 2.0 Podcast. This is episode 12 and it's being recorded July 1st, 2019. Welcome back Vehicle 2.0 listeners. Uh, we're recording this here in early July. Hopefully this has given you some content for your July 4th travels. Uh, in this episode we have a real exciting treat for you. We're excited to welcome on the show, Loren McDonald. He's the author of the book "Gas Station Zero", editor and contributor to EVAdoption.com contributor to Clean Technica and an all around EV expert. Welcome to the Vehicle 2.0 Podcast. Loren!
Loren:
[01:31] Great. Thanks for having me, Scott. Really excited about the conversation today.
Scot:
[01:35] Yeah, me too. We've, uh, I've, I've been a f a Twitter follower and, and read a lot of your content. Um, you know, I think what I've found as I've dug into, I come from the ecommerce world and as I've dug into this world, uh, there's, there's not many people that actually have original content. There's a lot of republishing of the same kind of stuff. And, uh, what I love about your content is, you know, very originally sourced and in a lot of unique thinking there. Before we dig into that though, um, let's talk about your career path. What, what got you into this automotive motive space and writing on this topic?
Loren:
[02:10] Yeah. So I, I'm, you know, complete outsider, if you will, to the, the automotive and in EV world. I started my career in marketing and PR way, way back in 1984. So 35 years into kind of my, my marketing consulting career have been, uh, you know, CML marketing executive consultant at, uh, a variety of companies over the years. Mostly sort of BDB professional services. But the last a sort of 15, 20 years in the marketing technology space, um, and really kind of the last 15 years spend functioning as a, as a marketing evangelists are flying around the world. Uh, speaking at conferences, meeting with clients, doing a lot of writing and research and stuff. And ultimately that's, you know, kind of the transition to what I'm, I'm doing in the electric vehicle space. Uh, about five years ago I started a blog where I was writing about all things green.
Loren:
[03:04] The use the, the name Loren Green. If, uh, you, uh, older people on this, they'll get the, uh, the connection there with Lauren Green, the old a actor from the high chaparral. But, uh, what I was doing was writing about a bit of everything and sort of the green space, everything from how to reduce, uh, you know, packaging and, uh, increase recycling and reduce use of water. This was back in the days of, uh, the drought in California, solar power and electric vehicles. And what I quickly found was as I couldn't sort of be an expert on all of those topics and I decided, uh, to sort of pick electric vehicles and that was the one that I was sort of most intrigued by about how are we going to sort of solve this problem, right? Well, what is going to drive people to actually want to, uh, uh, you know, transition to electric vehicles.
Loren:
[03:58] So that sort of when I started about three years ago, uh, the Evie adoption site and as you mentioned also sort of riding for clean, technical, etc. And so really have, you know, taken my career as sort of a marketer and consultant and strategist and somebody focused on research and data and have tried to focus, uh, on that aspect of them solving the problem, using data of when, you know, when are consumers going to, uh, you know, adopt, uh, electric vehicles, uh, in a, in a really significant way. Well, and is this your first full time gig now or are kind of still a hobby? Wish it was Scott. I'm working towards that. Um, but, uh, it, it is something I do is sort of, uh, on the side, if you will. So a lot of, a lot, a lot of weekends, uh, uh, and, and, and evenings and things like that.
Loren:
[04:55] But, uh, you know, instead of, uh, instead of being out working in the yard or, or riding a bicycle or spending time with my wife on weekends, I'm uh, you know, chained to my laptop, writing articles and doing great research. But I have to ask, uh, do you drive an Evie? I do. At the moment we actually have two Tesla model essence. Uh, so, uh, got our first one, two and a half years ago and actually just picked up or actually it was delivered to our house. Uh, the second one last, last Sunday. And I've gone from the low end model s which had, uh, about, uh, 200 and a little under 210 miles of range to one that now is 335 miles of range. And so I'm really excited to, uh, put that to the test on road trips when we take our daughter back to us college in southern California later this summer. So a show, we'll, we'll, we'll dive into these and road trips a little bit later in this conversation. Yeah. Cool. Yeah, I'm a,
Scot:
[05:58] I had a model s or a pretty early on in 2012 and then a side graded to a model three, so, so also live in that as la UV lifestyle with you.
Loren:
[06:07] Nice, Nice.
Scot:
[06:09] Cool. We're here on the podcast. We have a framework for the Vehicle 2.0 framework where we talk about the four big changes coming to the auto industry. We talk about connected car changing ownership models, uh, autonomy, and then of course, uh, evs. So we want to spend the bulk of our time with you talking about evs. I thought it'd be good to kind of, you know, talk about kind of from a timeframe perspective, uh, where you see things today in the u s and then we can kind of expand from there.
Loren:
[06:36] Yeah. So we're, we're really quite, quite early for any, uh, sort of, uh, techie geeks. I, I refer to this, we're probably in the palm trio phase. I don't know. Scott, did you ever own a palm trio? Uh, I did. Yes, you did. Yes. And you'd know what I'm talking about, right? We're, we're in that phase of, of where primarily sort of early adopters and I, and I use technology and, and I'm a big fan of, of um, uh, the sort of that w what's commonly known as the technology adoption curve. This idea of how consumers, basically, with any sort of new technology product, they start off kind of the innovators, uh, you know, really, uh, only, uh, for geeks people that are willing, uh, and can afford to sort of pay more for products they want to, uh, own or drive, whatever the latest and greatest thing is.
Loren:
[07:29] And then it Kinda goes up ultimately into, um, what's called sort of the, you know, early majority, late majority then, then, then laggards. And in, in most markets in the u s and around the world, we're still in that sort of innovator phase of, you know, kind of under two and a half percent. Um, it obviously varies dramatically by market, but in, in the u s today across the u s worried about 2%, meaning, uh, two out of every 100 a new vehicles that are purchased across the US today are electric vehicles. And when I say electric, um, I'm including in that both what we call PHEV plug in hybrids. Those are things like the, the Chevrolet volts and the um, the Ford fusion energy where it has a small battery pack and you can uh, uh, drive on a what's typically anywhere from sort of 20 to have a little under 50 miles range on electric.
Loren:
[08:30] And then gas engine kicks, kicks in, but you can then recharge that battery, um, by, by plugging it in at home or the workplace or whatever. And then a, what we refer to as be evs, battery electric vehicles. And those are things as you and I talked about, the Tesla model s uh, and three, the Chevrolet Bolt, uh, many, many other factors that, uh, only have electric motors and battery packs is so fully electric. And, um, so again, where we are today in the u s is, uh, is about 2%, but then when you break the country down, it is sort of, we have a fascinating picture, Scott, in that it varies sort of dramatically by sort of state and market. So California finished 2018 at just under 8%, meaning, uh, you know, that almost, and we should hit and we actually hit the 10% in the last few months of, of 2010, we'll probably finish 2019 little under 10%.
Loren:
[09:31] But in essence, in California, across the entire state, one out of 10 of every new vehicles purchased, uh, is an electric car. And, uh, and most of them, in fact, about 40% of them are, are the Tesla model three these days. But then if you go to a state such as, you know, Oklahoma or Louisiana or whatever it is, it's like 0.2, 2%. And so literally what we have is we have this sort of huge dichotomy and chasm in the United States where you have California, where people are literally buying evs at a rate of 40 to 50 times that of people in, in sort of southern states. And so it's, it's sort of really fascinating. And then if you break that down even further in a, in a city like Palo Alto, which is obviously a sort of a wealthy higher income, high tech community, we're approaching 50%, literally one out of every two cars being purchased there are, are electric. Um, and now where I live in, in the bay area, in the suburbs, we're at about 15%, 20%. And so, you know, that's a long answer to your question Scott, but, but fundamentally, no, across the u s we are still really, really early. But if you look at sort of individual markets, we are sort of well down in the path of adoption.
Scot:
[10:53] Yeah. Very cool. Um, and then I've seen, I think I've seen Tesla or I can't remember who talked about it, but there's a certain definition of a car where, where they're one of the top sellers where, you know, I think they put the model three into a, uh, you know, a price range, and then it's like a four door, and then in that category of they're outselling the BMWs and Mercedes, the Honda's and the, you know, so another interesting slice where you're starting to see, you know, the, a fair amount of adoption within a pretty narrow definition.
Loren:
[11:22] Yeah. If you look at sort of the, that sort of luxury sedan market, if you will. So the, the, uh, as you mentioned, sort of, you know, the, the, the BMW three series, Audi a fours, uh, the Mercedes c class, uh, the, the, uh, Lexis, yes. I believes in that market and stuff. The Tesla model three is actually crushing it, right. In sort of that, uh, sort of, you know, 30 to 40, you know, 30 to thousand dollars, depending on what configuration you get of those different vehicles. The, you know, the model three is, uh, uh, is, is, you know, outselling all of those cars by a pretty significant way. And so what's, what's interesting about that, Scott, is that, well, we're seeing the most of the u s and Japanese automakers still sort of laggards on, on launching new models. The German car makers get this right because they're the ones that are actually seeing sort of direct competition from Tesla. I actually start to eat it into either end of the market share and I know we're going to sort of dive into that a little bit more, uh, in a bit. But that's sort of a, a fascinating sort of side effect of, of Tesla success.
Scot:
[12:33] Cool. And then, um, I know you've done a lot of really interesting research kind of putting on your, your consumer marketing hat about, you know, what I guess what's, what's driving adoption in, in areas like California and Palo Alto, and then, you know, what's slowing down adoption, what are, what are some of the consumer insights you've drawn from that?
Loren:
[12:53] Yeah. So, you know, fundamentally, again, what I came up with this framework, uh, about three years ago that I called Karma c a r m a the sort of as a way to kind of think about, um, what are the different factors that that will ultimately drive mass adoption of electric vehicles and, and you know, sort of the, the letter Stanford charging range and speed, affordability, range model availability and awareness and understanding and well, fundamentally that's why the Tesla is sort of, is, is doing so well and that it's, it's pretty much solved most all of these problems, right? So first and foremost, as we all know, consumers that, that are thinking about, uh, potentially. And in Evie you're considering it or just learning about it, there's sort of first, you know, common concern is his range and what we call range anxiety, right? Mo, most cars available in the u s today, especially with sort of the, you know, SUV as larger SUV have north of 400 miles of, of a range and the gas car right and sort of varies anywhere from about three 50 to almost sort of 500.
Loren:
[14:08] And so consumers have been trained that their car should go, you know, roughly three 50 to 400 miles on a, on a tank of gas. And so their expectation is, is that an electric car should sort of match that. Right. And so know that's where sort of, you know, again, Tesla has done really well in sort of reaching that sort of higher income market that has been able to afford their luxury cars with over 300 miles of range or in some cases a little bit under that. But, uh, and they're going to come out, uh, the, the rumor is by the end of this year with a model s that we'll actually have 400 miles of range. So they're sort of getting to that point of you, at least from a range perspective, consumers who can afford the electric cars will, will not be able to sort of use sort of the, the lack of range of an issue, but fundamentally w you know, range is sort of sort of that, that sort of first starting point.
Loren:
[15:06] In other words, if you're, if you're going into a car dealer and considering a car, that is sort of the sort of the first step that, that people have to get over. The second one, uh, is, is, uh, I think, um, you know, just sort of affordability, right? And again, the, the challenge today with, uh, sort of both sort of supply and demand of electric vehicles is, is because of the, the cost of the battery packs is still pretty significant and it tends to be about a 20 to 30% of the cost of the vehicle. And so the, the battery pack prices are coming down significantly, but there's still, you know, too high as a, as a percentage of the vehicle. And so when you're looking at comparable vehicles, so if you're looking at a particular car model that has both the gas, uh, uh, you know, motor and an electric motor, and there are several on on the market like that where you can actually get different sort of powertrains, it's often anywhere between five to $20,000 difference.
Loren:
[16:10] Right. And so in a case like that, it's sort of very apparent to someone that, you know, electric cars sort of cost significantly more. So we've got it, you know, yeah. Get the cost of them down. That's sort of the second, second big thing. And again, we're gonna, we're gonna get there probably in about seven years. That's what McKinsey and, and Bloomberg and many other, uh, research organizations have sort of predicting as that, that sort of cost comparison, that cost parity will come in probably around 2025, you know, plus or minus years that, you know, that's sort of the third piece of this is just making cars that, that people want. And so, as, as you know, Scott pickup trucks are really, really popular in, in, in the u s you know, the Ford, uh, F-150 is the top selling vehicle in the u s the sort of the top six vehicles sold every year in the u s are either SUV slash crossovers or pickups, right?
Loren:
[17:12] And there just aren't a, today there aren't any electric pickups and B, there aren't really any sort of affordable, uh, crossovers that can compete with something like a Toyota Rav four and stuff like that. And those are sort of the hot markets, right? And so, you know, we're just, there's not sort of competitive vehicles, um, uh, available. And then, you know, I would, uh, just sort of talk about kind of awareness and understanding, right? People just still don't even know what evs are and they think there's sort of something, uh, you know, kind of from the future and, and, um, and, and that's really where the neighborhood effect comes in, right? That's why they're doing so well in markets like California where people just like solar. There's been a lot of research around solar, right? You put solar on your house, your neighbor is more likely to go solar.
Loren:
[18:03] And that's what's happening in markets like California where people just see all the Teslas and electric cars running around and they become more comfortable. If it's okay for my, it's okay for me. And so we've just, you know, got to sort of do a better job of, of making them available and, and, and making people aware of them and that, that they actually really are a good fit for them. And then the last piece, um, is, is, is charging speed, right? I've talked to a lot of people, I've talked to everybody I know about, you know, when you will, uh, think you might be willing to go. And a lot of people will say, I will not consider electric car until it, it charges in the same amount of time that it takes me to refill my car. Right. Which is about five minutes. And we're, we're a long ways away from that. And so people are going to have to accept the charging is, is, is sort of very different, uh, than, uh, you know, that sort of refueling. Got It.
Scot:
[19:01] Cool. So the, um, so the main cost difference is the batteries and um, you said about seven years we should get to some kind of parody. Is that because battery production kind of gets to where it needs to be or, or, or what is the driving factor on that?
Loren:
[19:15] Yeah, it's a combination of things. Scott one, as you mentioned, it's just, it's like any sort of product, right? It's sort of volume, right? So right now, you know, there's, there's a last year worldwide, about 4 million evs were sold. And again, that's across both the, you know, the, the, the full battery electric vehicles and plug in hybrids and stuff. And so that's relatively speaking, you know, there was like 80 million vehicles sold last year in the world. That's sort of a small volume. And so the first part of it is, is just like, you know, smart phones or computers or refrigerators. Any other kind of product like that is, is that the price will come down when sort of the battery production sort of scales up. That's the first part of it. The second part of it is, is just um, improving, uh, manufacturing efficiencies, improving the actual, uh, makeup of, of, of the battery packs and selves.
Loren:
[20:10] We probably don't, don't have time to go sort of deep in into today, but there, there continues to be a lot of um, uh, improvements and developments in, in the actual sort of battery cells themselves. We're seeing in the, in the, in the future we're going to have something called solid state batteries, right, which were moved sort of the liquid in the batteries. And Long Story Short, Scott is that's going to probably double or triple in essence, the energy density of those batteries, which will a obviously, uh, mean that you can produce, you know, a three, 400 mile range battery for, you know, let's say half the cost that, that we, that we are today. So part of it is just sort of, it's, it's still a relatively new emerging technology, if you will. And it's just going to take, you know, five, seven, 10 years to kind of to get there.
Scot:
[21:00] Do you think lithium ion is going to be kind of the underlying technology that we bet on or do you think some other technology has a shot?
Loren:
[21:08] Yeah, so lithium ion is obviously the sort of the, the, the goto today, but, but again, I think we're, we're going to see a solid state battery sort of being the, uh, I think sort of the next wave and the next successor. Um, and, and again, it's just a, a sort of a variation if you will, on the lithium ion batteries that it removes that, um, sort of the, the liquid. And so the dendrites don't build up as much. And so basically, uh, you know, you just, you have sort of a higher, higher energy density. There are, there are other sort of technology's out there being, being talked about, but, but I think solid state seems to be the one that most people think is, is ultimately going to kind of be the, be the winner. And again, that's, that's probably, um, seven years, uh, seven to 10 years from being, um, like in electric cars that we would buy. Again from those perspective, it's just, it's a manufacturing and scale perspective that they already have sort of the technology. They just don't have the ability to mass produce those, those batteries yet.
Scot:
[22:17] Well, who's a, where could we learn more about solid state batteries? Is there like a certain company that's doing this or, or is it like out of a university?
Loren:
[22:26] Yeah, there, there's several of them. Uh, I've, I've, I had the, the pleasure to interview, uh, one CEO of one company called uh, uh, solid power out of Colorado. They were sort of spun out out of University of Boulder. Uh, Toyota is, is, is working on solid state battery. Dyson, the vacuum cleaner company for lack of a, a better term is walking on one. There are several other, are the universities and companies working on them as well. But those are some of the kind of the, the leaders, uh, Toyota, you know, is claiming that there are solid state battery next year. But, uh, I'm a little little bit dubious on that and think that, uh, showcasing it and actually putting it in a, in a car is, are two different things.
Scot:
[23:20] Cool. And then a on the lithium ion side. So Tesla built or, or as you know, has built a portion of the gigafactory in, uh, Nevada I believe. Uh, and then aren't they starting a factory in China as well? We'll those two factories kind of, um, you know, give them enough capacity to keep growing and, and kind of, you know, drive up the adoption at least on the Tesla side.
Loren:
[23:42] Yeah. So you're correct. So it's a, the, the, the gigafactory one like they call it, which is up outside of, of, of Reno, Nevada is a joint venture with, with Panasonic. And the challenge they've had there is just as you say, is they have not been able to actually keep up with demand. In fact, if you're familiar with some of the Tesla energy products, they have the, uh, the, the power wall and the power pack, which are sort of the, the backup battery storage, both for residential and commercial. And they basically had to take the production that was planned for those two products. And actually, but, uh, towards the model three and I'm actually, and so, yes. So the sort of the, the supply of battery packs continues to be sort of the, the biggest alums market. Um, and as you mentioned, China has actually completed the building of their, what they're calling gigafactory three in, in China insurance.
Loren:
[24:49] And, um, now they're actually, uh, working on, uh, building out the inside of the factory and installing equipment and stuff. They literally, it was sort of amazing that they built this, this factory in six months from literally a literally buying the property and, and getting up is pretty amazing. But those batteries are going to be battery packs and that factory are from everything we know going to be just for the Tesla model three in the model wise that will be sold in China. So that's probably not going to help solve any problem, uh, for, you know, for other, our other markets you up and, and the u s and stuff. And so that week does not go by when, uh, one of the, the, the OEMs, uh, you know, announces yet another, uh, either partnership or plan building a new battery factory. Several of them, uh, are, are being built down in the, in the south, in the US, uh, as an example. But, uh, yeah, so scaling up those, those battery factories, uh, is today literally the sort of the single biggest challenge to sort of growth of the market. They just can't keep up with supply or with demand. Excuse me.
Scot:
[26:03] Interesting. And then on the models, you talked about a pickup trucks and Teslas working on one. A lot of people are skeptical if, you know, given they're there, they're always announcing things and not delivering on time. Uh, but another one that we've been watching closely as Rivian, um, have you, you think they'll get to market first with their pickup truck?
Loren:
[26:21] They probably will. There was, and the, you know, there's not another company called work horse out of the Midwest that was been working on a, uh, on a, on a, uh, pickup truck. Uh, but they've been having some financial issues and stuff lately, so it's, uh, unclear what's going to happen with them. But yeah, ravion is a, is a really exciting company and Amazon and some other companies invested a $700 million into them. And, uh, as well as Ford has, is, is now invested in them. So they're at a really sort of exciting company to watch, unlike sort of Tesla and, and faraday future and some of the other sort of evs startups. They sort of remained in stealth mode for, for, for many, many years. And then finally came out and showed their sort of, uh, you know, concept, uh, versions of their pickup truck and an SUV and they're actually gorgeous and, and, uh, you know, really sort of amazing looking.
Loren:
[27:23] They've designed them literally from the ground up as evs. So there's like spots where you can put golf clubs through the side of the vehicle, uh, add on camping accessories to tap into the battery power. So they're, they're, they're very exciting. The problem with them is that, you know, they're basically, you know, 70 to a hundred thousand dollars pickup trucks. And, um, and so, well, their sort of dream pickup trucks, they're not gonna take the Midwest by storm, which is ultimately what what we need, right? So these are going to still be a lot of, you know, Silicon Valley and people on the coast who, who might've purchased a, you know, a Tesla or similar sort of electric luxury vehicle. Now getting excited about being the first one on their block to own a, a, a Caribbean electric pickup truck that, you know, that I think is, is actually going to be amazing, you know, three to 400 miles of range and just just, uh, amazing features.
Loren:
[28:22] But I think, you know, it's, it's, it's gonna prove that you can build an amazing pickup truck and that'll, that'll sort of pushed some of the other auto makers to sort of speed up it, but it's only going to take away sales from, you know, the very end highlight Ford Raptors, right, that are in that sort of 70, $80,000 range, thousand dollar range. In other words, it's not, it's not going to directly compete with that $40,000 kind of Ford F-150 or you know, or Chevrolet Silverado or whatever it is. So it's a, it's exciting. I expected to do really well with Amazon and Ford and others behind it. There doesn't seem to be any, uh, uh, you know, issues about will they survive. It's just that, how quickly can, can they scale and ultimately build pickups. An SUV is that maybe reach, you know, kind of below the luxury market.
Scot:
[29:22] Cool one. Um, uh, you talked about costs and for a while there we had a, a national subsidy. And then I think those have gone away, but there's still some state subsidies. We're, where are we on subsidies for, for enticing people to jump into the pond.
Loren:
[29:38] Yeah. So, so actually, no, so the, the federal electric vehicle tax credit is, we sort of commonly commonly refer to it is still, uh, it's still available. The way, the way it works is that, uh, it's based on each, uh, manufactures. So, uh, the, and, and the amount of the federal tax credit varies by the, the, the, the IRS basically has a, uh, a formula for it. But, uh, if the battery pack is of kind of a certain size, so it can be a plugin hybrid or a full electric, um, the maximum tax spread and get a $7,500, um, and then, uh, the, the smallest I think is about 1,750. I forget the exact amount, sort of, uh, for some, some vehicles and sort of everything in between. Again, sort of based on that sort of battery pack size. But once a, an auto maker sells 200,000 electric vehicles beginning from 2010, it starts kind of a, a complicated, uh, phase out, right?
Loren:
[30:49] So that get too into the weeds. But basically, uh, that tax credit phased out over, uh, nine quarters, if you will, and gets cut in half. And Tesla actually as of today, uh, their tax credit was cut, uh, uh, in half. Uh, and so it's down now to, or I think it's been cutting twice, half now. So it's down now to God, I forget the amount, but it's like 1,350 or something like that. Uh, I should know that, but it, but bakes look getting, it's been cut in half twice. And so this is the last, um, two quarters where you can get any kind of tax credit, uh, on Tesla models. Chevrolet also reached the General Motors also reached the $200,000, uh, threshold. Um, but they're, they did it a couple of quarters behind so you could still have several more quarters for their models and there's basically nobody else close. Scott Nissan and Ford are still about, uh, 80, 90,000 vehicles away and they don't have sort of any volume of EBS.
Loren:
[32:00] And so the tax credit in essence for the other 30 manufacturers or whatever is, is still sort of widely available and will be for many years. Um, but, uh, and then at, as you mentioned at the state level, by the way, I should, I should mention there, there's a lot of, uh, momentum to either by a certain people in oil companies that are to get rid of that federal tax credit and then by proponents of it to actually change it in an extended and, and change how it's actually calculated so that there isn't that 2000 sort of threshold. Um, but then as you mentioned, um, a lot of states actually have, uh, either rebates or tax credits. California for example, where I live has one, um, you Lotta utilities, uh, also have them. So like the Pacific gas and electric here in California, in southern California, Edison, et Cetera.
Loren:
[33:04] I'll have different ones, but it's Tenley tends to be about like $500. Uh, many states have tax credits of say, $2,500, or you know, a thousand, something like that. And then there are also many other sort of incentives or benefits such as access to the eight year v Lane, uh, and, and things like that. So there, there's still a lot of opportunities to in essence reduce your, your overall cost of that electric vehicle through, uh, through these various incentives. Very cool. And then, um, I've heard some states are considering actually, uh, you know, the opposite of subsidies, which would be increasing, uh, effectively a targeted tax, I guess, on, on evs. And I think their argument is we're losing all this tax income from the markup and gasoline. Have any states enacted that or are they just kind of chattering about it at this point?
Loren:
[33:56] Uh, it's, it's a little bit of both. There's, there's a lot of chatter. Uh, I think it was Illinois proposed like a thousand dollar registration fee. And then I think just like a week ago, it was, uh, it did not pass. Um, but there are some states that have past ones of like, it's like sort of double the registration of sort of a gas vehicle or they've added additional hundred or $200 and things like that. So yeah, you're, you're absolutely correct. There are, um, uh, some states that, um, are, are an acting anything from sort of small to fairly significant, uh, ways either sort of, typically it's sort of a registration fee. There's sort of increasing that, um, at basically it just as you said, as a way to say how do we recapture sort of the, the gas tax, uh, you know, w uh, gas taxes that we get to fund, uh, infrastructure, roads and bridges and things like that.
Loren:
[34:58] And that's actually a topic that, uh, I'm really gonna sort of dive into pretty significantly over the next couple of months, Scott. Cause it's, it's one that really fascinates me cause there are, there's about a half a dozen different models that people are talking about. Uh, but, but none have sort of emerged and this is not just the US and state issue. This is a global issue, right? Like nobody has actually figured out what is going to be kind of the most equitable, fair way and makes everybody happy to do this. And some of it sort of big brothery like people are talking about, they would track your mileage. Other people talk about you take your car in for an annual checkup and they'd look at the mileage thing, you'd be assessed a fee. Uh, there's electricity taxes, there's just flat registration, there's tire, you know, tire taxes. There's like all these things being floated and um, you know, none have, none have actually sort of emerged yet. And so meanwhile you're seeing just what you talked about Scott, which is states and sort of some states are just saying we don't know what the right answer is, but we're gonna, we're gonna Start, uh, taxing more. It's charging these fees because we know even though it's only a couple percent of, of the new vehicles that it's coming and we need to start, start generating that, that sort of revenue, recapturing that lost revenue in some way. Yeah. It's funny cause it seems so misaligned with, you know,
Scot:
[36:23] they'll try to be green and reduce carbon footprint. Everything did that you would create a disincentive for going EV. It just kind of,
Loren:
[36:30] yeah. And, and that's, yeah, that's a really good point in that, you know, depending on how you view of the world, right. Many people think that, that, that in fact, yes, we should look at sort of the, the actual impact that the internal combustion engine has, that we're actually not charging for it, right. Everything from, you know, sort of air pollution to, uh, carbon emissions and things like that. And so, you know, then that gets to a sort of a whole nother sort of complex, uh, way of sort of thinking about it. But, but you're right. And so you have this sort of like everything in the world, in the u s today, everything is sort of, you know, red and blue or black and white and this sort of, you know, it's hard to sort of bring people into the middle to find a, a, a good common and simple solution.
Scot:
[37:21] Cool. Um, last topic on Kinda like adoption rate. Um, where are we on charging infrastructure and is there, is there some metric we look at like chargers per population or just like the number of charges out there and any trends on that?
Loren:
[37:35] Great question. Yeah, I sorta, you know, to kind of back up for a little bit. Um, you know, the, the thing that, that people who don't have an Evie and, and as, as someone who's, who's on your second Evie, you absolutely understand this, right, is that, you know, when we think about refueling our gas or diesel powered car, we think about, we get in our car and we'd drive to a gas station or we stop off on the highway at a gas station going in, refuel, and then, you know, Kinda get back on the road or whatever it is with, with the electric cars, people have to sort of be re taught how to kind of think about charging. And that in a, for, in, in, in, in most parts of the world, in the u s you're looking at about 60% of people live in some form of a single family homes.
Loren:
[38:27] So they can install an Evie charging station in their house from anywhere from, you know, 500 and $1,500. Uh, which again is not necessarily a small number for a lot of people, but basically you drive in as you know, and you plug in your car at night just like you do your smart phone, you wake up in the morning and it's charged. Uh, maybe you drive to work and you, if you were lucky enough to have a, an employer that has charging stations that work and there are a lot of them out here in Silicon Valley. I know there's a lot down in places like Atlanta and probably where you are in Raleigh and stuff, but that's sort of another source, a target and Walmart have uh, hundreds and hundreds of charging stations that they've, they've built many of them, Tesla superchargers and other ones as well. Uh, Tesla has this what's called destination charging program where literally there are thousands of hotels and resorts around the world that have installed what's called the Tesla Wall charger.
Loren:
[39:27] So you can go stay at their hotel and just sort of plug in while you're sleeping at night there as well. The, the, the two biggest challenges, Scott, to kind of the charging infrastructure is solving the problem for renters, if you will. Or people that live in, you know, condos or, or high rise downtown in New York or something like that. Right? Where you can't just drive home and, and, and, and easily, easily plug in. So that's the first big a charging infrastructure challenge we have to solve. And that part of that's going to be solved by, uh, workplace. Part of it's going to be solved by the sort of, you know, urban charging centers and, and charging it at target and Walmart and places like that. Um, longer term sort of the apartment owners and managers and stuff, we're going to have to step up to the plate.
Loren:
[40:20] Most of them do not want to yet. They don't feel like it's their responsibility to be, to build out the sort of the refueling centers. But, so that's sort of the first part of kind of where we are is, is, you know, if you're a homeowner, it's, this is, this is a piece of cake. Uh, it's, it's those sort of non homeowner homeowners that we would kind of have to sort of focus on, on, on building out. The second piece of it is road trips, right? It's like most of us probably only do a couple of long road trips per year, but that is the biggest fear of most people in an, in, in buying an Evie, I'm going to Disneyland Disney world, going to see grandma two states away. It's a 500 mile trip, where am I going to starch? And, and Tesla understood that early on and so took the, you know, had the foresight to build out their Tesla supercharger, uh, network to sort of solve that problem.
Loren:
[41:19] And if you've ever been to sort of, you know, California and driven from like the bay area down to southern California, literally there's, you know, like where I live to down to la, there's like seven or eight different supercharger stations. You have plenty of options to sort of stop and charge that. So we have to sort of build that out. Electrify America, which is the, uh, the diesel gates, a subsidiary of Volkswagen, uh, that basically they've committed to $2 billion to building out, uh, the charging infrastructure in the u s both those sort of a road trip chargers as well as it apartments and in sort of a, an urban locations and stuff. And they're building out really pretty quickly there several other charging networks that are, uh, uh, ego and, and chargepoint et Cetera, that are sort of, uh, building out and, uh, you know, it, the thing that is sort of, we're, we're still not at that is that I believe is sort of the other, uh, automakers haven't really sort of stepped up to the plate, at least in the u s sort of help build that out.
Loren:
[42:28] And so I think that that's something that, that we need to need to see more of, uh, going forward. But to your question around the metrics, yeah. I, I tend to look at, uh, things like, uh, the number of, uh, uh, charging locations per number of electric vehicles. In other words, if you think about that, like fundamentally we need to scale the number of, of uh, electric charging stations in locations, uh, you know, at the same rate or ahead of the rate of, of people buying them. Um, and, uh, right now we're, you know, in most markets we have sort of a pretty, pretty good ratio. Um, there tends to be anywhere from about 15 to 30 electric vehicles per charging location and that seems to be okay. We probably need to get that down to closer to between 10 to 15. Uh, and then the second metric that I like to look at is the number of charging stations.
Loren:
[43:36] And this is the language we use in this industry is really bad, uh, because it's very different from gas stations, right? We say charging stations, which is actually means those sort of plugs the connections. Um, but a key metric to me in that area is, um, the number of those connections per location, right? And Teslas at almost 10, meaning if you go to their supercharger station, the average one has just under 10 connections. So 10 cars can plug in and charge at the same time. They have some that have as many as 40 connections. A lot of them now are, are 12, 12, 15, 20 et cetera. Um, but most of the other networks are only at two to four. So we've, we've got to build these sort of what I call sort of super centers, right? Where literally as, as the number of electric vehicles scale and they're driving down, you know, the east or mid West or the southern California, whatever it is. And you can have, you know, literally 50 cars stopping in at one location and, and all charging and being able to charge in 15, 20 minutes and get on their way.
Scot:
[44:46] Cool. Um, do you happen to know how many just total plugs there are in the United States?
Loren:
[44:52] There's about 65,000, what we call level two. Uh, that's like the level to sort of like what you plug in for your washing machine, that sort of, you know, two 20 capability and then, uh, what we call DC fast chargers, right? Those sort of superchargers that charge it really high rate. And you sort of combine those two together. We're at about 65,000 today in the u s um, but again, you know, Scott, if you think about that metric, that metric doesn't include the, you know, about 900,000 that are in people's homes. Yeah. Right. And so that's, you know, that's sort of the other, uh, other sort of, you know, key metric that almost everybody that buys an Evy obviously install some sort of a charger in their home and that that basically takes care for most people, uh, about 95% of their charging needs. Right. The only time you kind of, if you have a home that you can plug in the, that you have to go outside that is for those sort of either sort of mid or long road trips.
Scot:
[46:03] All right. So let's, uh, so that's a really good status of kind of where we are today and what's keeping people from adopting evs. Um, when you project forward, when are we going to cross that chasm and see evs become a much more material part of, of vehicles being sold?
Loren:
[46:19] Yep. Yep. Great question. So I use a, and thank you for using that sort of crossing the chasm. That's one of my favorite sort of terms and, and many, many of your listeners would probably feel are familiar with the book from many years ago, but the crossing the chasm refers to that, uh, technology adoption curve. I, I'm, I mentioned at the beginning of the podcast around, uh, when you basically go from early, early adopters and cross into that sort of early majority, which is 16%. So I like to be sort of very specific around, uh, the, the concept of when we will go mainstream. And so I use that 16% and I've, my prediction is that across the u s we will cross that 16% chasm, uh, in 2028. Um, but, um, uh, in California, uh, I believe it will be there in 2022. So just, uh, what three years away, cause we're, we'll probably be, as I mentioned at about 9%, uh, hopefully close to 10% by the end and of this year.
Loren:
[47:27] Uh, but what that also means, Scott, that when we hit that 16% across the US in 20, 28 or thereabout, it means that we might only be at, you know, 8% in Louisiana or something. So again, you know, and by that point, California might be, you know, 30, 35%. So we're still going to have sort of this, this, you know, in the u s and around the world is adoption is, is very, very market specific. And even cities specific, if you will, nursing, well, the, uh, California grid be able to handle that many evs. Yeah, great question. So that's, that's one of the things that a lot of people sort of talk about. One, you know, is the, is the during grid, right? The, with, with, uh, being used coal and natural gas, etc. And, and, and, and be, can grid actually handling. So, you know, a couple of things are happening in, in parallel, right?
Loren:
[48:24] And so the, in fact, the move to renewable energy solar and wind is actually happening at a faster rate than electric vehicle adoption in the u s so in other words, w w the grid is a getting cleaner faster than we're buying electric vehicles. And B, uh, the concept of sort of battery storage and micro grids is, is also sort of taken off. So as the cost of batteries declined for, for electric vehicles, they're also declining for that sort of what, what's called Keke storage demand. Right. And so you have this situation where, uh, you know, take, take a market where it's, you know, it's 100 degrees in the middle of the summer and everybody comes home at six, seven o'clock at night, fires up their air conditioner and stuff. And that's where we, we have, uh, you know, Brian House blackouts, et Cetera. Um, uh, and so the concept of peaker plants, so, uh, in particularly natural gas has been used, used for that in recent years.
Loren:
[49:31] So basically they fire those up to meet that specific, uh, demand rallies with sort of a battery storage. We can store all that excess, uh, solar and wind energy that's being created sort of during the day and throughout the day and those batteries and in literally a Nanosecond, those that battery storage can be tapped into sort of hit that sort of peak demand. So the reality is that at how we charge and when we charge is, is actually going to be monitored by abilities and you will like, I don't know Scott when you charge, but I charged my, my cars like at two o'clock in the morning, I get a lower rate. Nobody's, you know, nobody else's sort of using electricity at the time. And so it, it doesn't have that impact. Right? And so the utilities and software and AI will sort of manage when and how we charged the sort of make sure that not everybody's charging at the same time. And again, we'll have this sort of, uh, battery, uh, backups that are to manage that sort of peaks and stuff. So I'm not concerned at all about, um, the grid handling it. Technology will sort of solve that and sort of the growth of, of, of renewals. And battery storage. We'll, we'll take care of it.
Scot:
[50:52] Cool. Uh, I could go another hour, but I know we're kind of bumping up against time here and want to be, uh, you know, really appreciate you. You've given us a, an hour of your time. Um, any other last thoughts on, so I would love to talk about connected car and some of the ownership models and avs. Um, I kind of view, you know, Evie is kind of a, an underlying kind of platform for the, some of those things. It's just kind of kind of happen along with those. Um, or, or if you'd like to spend our last couple minutes talking about what's going on in other countries around evs. I'm, I'm open to either topic, whatever's interesting to you.
Loren:
[51:25] Yeah. I mean, I could, I could go another nother three hours, but, uh, yeah, I'll, I'll, I'll put quick, quickly on, on both of them. So, you know, globally, uh, you know, China is, uh, has the Chinese government is basically recognized electric vehicles as a business opportunity. So you look at, uh, many, many countries, France, UK, uh, uh, Netherlands, Norway, et Cetera. And they're looking at electric vehicles from kind of the, we need to reduce, uh, carbon emissions and climate change and air pollution and et cetera. And so we need to transition. China's sees that as well, but they also see this as perhaps the single biggest business opportunity potentially in the history of China. In other words, they see that, uh, that they can sort of dominate, like they've done in consumer electronics. And so most of the battery packs, uh, battery factories in the future are going to probably be the majority of them in China.
Loren:
[52:33] They see it as a massive opportunity. And so they're doing a lot of things to sort of take the lead there. And so we could, we could spend an hour on tariffs and all this sort of the politics of this, but, but China, uh, you know, many of our cars that, that you and I will purchase in, you know, seven to 10 years are probably going to be made in China. So that's sort of that, that sort of first part of it. Um, uh, but then sort of back on kind of the, uh, you know, connected and autonomous vehicles. I mean, obviously, uh, autonomous vehicles are primarily going to be powered by electric cars just because if you have, you have these sort of abs sort of, you know, running around the Robo taxis and stuff without a driver and you look at the maintenance costs and everything like that, it's sort of a natural natural with electric vehicles. So those two, uh, things I've obviously go go hand in hand. And so, um, yeah, the, you know, again, the, the uh, the, the intersection there is, is, is sort of a, uh, ideal. And, um, while we, you know, today we're seeing sort of a mix of those in the, in the next couple of years, we're going to see most all of the ads being made on, uh, electric platforms.
Scot:
[53:51] Awesome. Uh, and then, uh, last question, uh, you know, if folks want to find you online, where are the best places
Loren:
[54:00] so they can go check out a, the website and blog Evie, adoption.com just like it sounds. And follow me on Twitter at EVAdoptiontweet. Ah, those are probably the two best ways and they can a sign up for my email newsletter or a on the website as well. Would love to have them opt in.
Scot:
[54:19] Awesome. Well we really appreciate you taking time to be on the podcast. I jotted down 50 things I learned and hopefully everyone else learned a ton as well and uh, we'll have to get you back on. I know you're always doing research and things like that, so I'd love to get you back on the next time you update your models and get an update from you.
Loren:
[54:36] Great. Thanks. I really appreciate it. This was a lot of fun.
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EP011 - Announcements, News, and AB 5
http://www.vehicle2.getspiffy.com
The Vehicle 2.0 Podcast is back for the summer! Episode 11 is a news-focused episode, recorded on June 25th, 2019. We start off with an exciting piece of Spiffy news, which kept us busy during a several-week-long break. From there, Scot rounds up an array of industry news and explores their impact on the Vehicle 2.0 realm, including:
Introducing Spiffy’s Fleet Management as a Service (FMaaS) model. Fiat Chrysler following Ford’s lead with the Uconnect Market, a new in-vehicle commerce platform. California’s AB5 Bill and its impacts for Uber/Lyft employees. Hertz launching their own subscription service, Hertz My Car. Mercedes-Benz expanding their subscription program, amidst brands like Cadillac shutting theirs down. BMW speeds up their electric vehicle rollout schedule, plans for 25 EVs in 2023. GM CEO Mary Barra says the Cruise AV unit is committed to safety, rather than being first on the market.If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling and hosted by Scot Wingo.
Transcript:
Scot:
[00:56] Welcome to the Vehicle 2.0 Podcast! This is episode 11 and it's being recorded Tuesday, June 25th, 2019.
Scot:
[01:04] Welcome back vehicle 2.0 listeners. We had a little gap in episodes there and I apologize for that, but we are ready to get back on at least a biweekly schedule here with our little summer pre-summer break that we took. Um, we have a lot of exciting guests lined up in all of our favorite topics, so look forward to bringing you guys that soon. The main reason we took a gap was something that I want to start off with today. This is gonna be a news episode and we're going to kick it off with Spiffy's big news. So today we are actually announcing that we have raised over $10 million in funding led by Tribeca Ventures.
Scot:
[01:40] And then over the last year we've been stealthily opening fleet-oriented cities, so we're excited to announce that we're now in 11 markets. We have our first five markets, which were Raleigh, Charlotte, Atlanta, LA, and Dallas. And now we've added an additional six: New York City, Washington, DC, Seattle, Phoenix, Denver, and this week we opened Tampa. The last thing we're announcing today is our new service for fleets that we call "Fleet Management as a Service" (FMaaS). Working with fleets for the last couple of years, we realized they are looking for a comprehensive solution to all their challenges that integrates software services and a green orientation. So we'll be covering in fleeting. So services such as pre delivery inspections, re-conditioning and fueling, uh, and then through preventative maintenance, which is obviously wash and oil where we're known for, but adding a lot more capabilities there around tires and other PM activities. And then finally, the last cycle, last part of the lifecycle is d fleeting. So as these vehicles are leaving fleets, we can help there too. Uh, so reconditioning them, listening to them for auctions and defueling are some of the areas where we're helping fleets with. So excited to get that out there. That's been keeping us really busy here at Spiffy and we're glad to have that out in the news today.
Scot:
[02:59] With that, let's pivot away from spiffy and talk about the news in the industry. So as you know, the vehicle 2.0 framework has four components: connected car, changing ownership, electrification, and autonomy. So let's start with connected car, a lot of activities here. Since we last talked to you, Spiffy announced Ford had their announcement about connected car and they were in there with Amazon and Spiffy was included as well. So a lot going on in connected car, a Fiat Chrysler announced a new marketplace called you connect market that's part of their in vehicle marketplace platform.
Scot:
[03:39] Uh, and they talk about how customers can skip lines and save time by ordering food, beverages and reserve tables. They're launch partners are shell, Domino's, Park Whiz and Yelp. So it's gonna be interesting to see how, how some of these things are delivered. Should they be in the dashboards? Should they be in the OEMs APP or should they be separate apps with OEM connectivity? A lot activity, they're going on. A report came out in June, um, from the transparency market research firm, uh, about the connected car and they say that the connected car device market will surpass 20 billion by 2026. Uh, in there, uh, I definitely recommend that report. We're going to link to it in the show notes. A so in there it's pretty nursing. They talk about how by 2023, uh, OBD to dongles will essentially be, you know, uh, slowed down substantially as that's the kind of the point in time when they see the lines crossing where the automakers connected car capabilities will surpass kind of the what's called the retrofit devices that are out there changing ownership.
Scot:
[04:42] A lot of news this week. So, uh, here in 2019 we've enjoyed the IPO of both Lyft and Uber. And now there's just, yeah, there's a daily drumbeat of news coming out of those. Um, the, the one I wanted to talk about that's really interesting and a lot of people in industry are keeping their eye on is we have this larger gig economy. So not only do you have ride sharing like Uber and Lyft, uh, but all the food delivery, um, even like Amazon utilizes 10 99 drivers for delivering a bunch of its packages, uh, et cetera. So, so that, that Gig economy 10 99 is a really interesting part of the economy. Well, California has a law called in in the works called ab five. Uh, and this is actually passed kinda half of where it needs to go. And what it would do is it would dramatically tighten the rules around who can be treated as a 10 99 contractor versus a w two employee.
Scot:
[05:37] Uh, essentially when you read the rules, a Lyft, and Uber drivers would squarely be in the target here and they would move over from 10 99 contractors to w two. So this would subject them to all the normal employee rules, such as a 12 minutes, $12 an hour minimum wage, a daily and weekly over times, et cetera. Uh, what's this mean for Uber and Lyft? Well, one analyst, Ross Sandler at Barclays did a really kind of interesting back of the envelope here. So Uber has around 3.9 drivers globally. Half of those are our domestic and he estimates about six to 7% of those are effectively California trips. Lyft has 2 million drivers, all domestic. Um, so he believes they have about 15% of their businesses, California, so about double the exposure of Uber. Um, and then when you, when you kind of take the math, they're essentially, this would increase Uber's losses by 500 million, uh, annually.
Scot:
[06:33] Uh, 13% increase in Bern, uh, and then lifts 290 million or a 24% increase in Bern. So Wall Street's kind of keeping a very close eye on this and it's gonna be interesting to see how it plays out. Um, at the same time as these, since these guys have gone public there, they're working on their unit economics and trying to show investors that they're improving those. Uh, so for example, Lyft has been increasing. Uh, it's, uh, it's take rate, which means less pay for drivers. Uh, so for example, in the, uh, Xcel and black car segments, which are the larger vehicles and the limousine segment, um, they've decreased the pay out to drivers five to 6%. So there's definitely this showdown happening between the ride sharing companies and drivers, uh, and municipalities like California that we'll be keeping a really close island. Uh, another interesting, uh, segment of, uh, the changing ownership is subscriptions.
Scot:
[07:28] So these have had mixed results. So a lot of the OEMs came out with subscriptions. Um, Mercedes for example, this month announced they're actually expanding their program to add it to Atlanta. I believe that launched a national and now they're, they're adding more cities at the same time. Earlier this year, a Cadillac pulled back their offering. Well a new company threw their hat in the ring this month and that hurts. They launched my car, which is their subscription service. Uh, so if you go to hertz.com/hurts my car, uh, you can read all about it. They have two tiers to have $1,000 a month here and a $1,400 a month here. Uh, that's expensive. But when you read what's included is pretty interesting. So it includes insurance, all maintenance, uh, and there's really just kind of a month to month commitment and you get to swaps per month.
Scot:
[08:15] So the different tiers you have different classes of vehicles. So essentially tier one is kind of like that. Um, the, the one tier below kind of where you can walk up and get any fancy car. Um, and then the 1400 a month, uh, includes a lot of the hurts of select a vehicle choices. Um, this is targeted towards folks that, you know, um, have a lifestyle where, uh, you know, maybe most of the time they want to commute or tech car and then they want to go away for a weekend to the mountains and get an SUV or they want to go to the beach and get a convertible. So folks that are really kind of looking to swap out cars as part of their lifestyle and have everything taken care of them. So kind of that, that super convenience oriented consumer. Um, it's going to be, we'll keep an eye on the subscription programs and, and keep you posted on what's going on there.
Scot:
[09:02] Uh, let's move on to electrification. Uh, our next episode is going to be a heavy focus on electrification. So we want to save a bunch of time, uh, with you for that. Uh, but this week, uh, there was an announcement from BMW. So a BMW CEO essentially made a statement and said, by 2021, we will have doubled our sales and electrified vehicles compared to 2019. Uh, so they are heavily committed to electrification. Um, and by 2023, there'll be offering 25, uh, models there. Um, they announced they've sold 150,000 i3s in the US, which is the hatchback Evy. Uh, and then there are also investing in new plugin hybrid technology. Um, there's, there's a lot of interesting municipalities, uh, in Europe that are looking to have, um, you know, these, these areas that are called green zones where only I, uh, evs are allowed.
Scot:
[10:04] Um, so BMW is working on technology where the vehicle would detect that as entered one of these green zones. And, uh, essentially it'd be a plug in hybrid. It would only run the Evie as when it was in that part of the city. So a lot of really interesting things going on in the world. We're going to do a really big deep dive in the next episode. So that leaves autonomous vehicles where, uh, there's tons and tons of news. Um, so one of the first ones is kind of in the rumor category. So the, the information which is a, a publication focused on tech, um, it, it is reporting that they have heard. Uber is close to buying a company called Mighty Ai. A mighty AI is a Seattle based startup that helps autonomous vehicle developers trained their computer vision algorithms to identify objects better. Um, so you're seeing what I would call consolidation here, where, um, there's a lot of startups that do mapping and uh, you know, here on the show we've had folks that do the takeover driving type technology, et cetera.
Scot:
[11:06] Um, you're going to see, uh, the big guys, uh, Uber Waymo, apple, um, Jim's cruise division, uh, and then forward or kind of the five big a v providers. I think you're going to see them kind of start to grab some of these companies and make that technology proprietary in that genre. One of the biggest investors in this category is Softbank through their vision fund. Um, and they had a really interesting interview, um, where, uh, the managing partner that focuses on autonomy, Michael Ronen, uh, said that he doesn't think this is a really a winners take all, but it's kind of a quote unquote big boy's game. And by that he means the smaller independent companies are going to struggle because you know, the investments to play in this space are getting well north of 500 million to $1 billion would, which is certainly something that not many startups can stomach within, uh, within GMS Cruise Division.
Scot:
[12:04] Kind of some mixed news. In the last month, uh, on the negative side, they had this big demo, um, with uh, uh, one of their partners Honda where the CEO got into one of the prototype cruise vehicles. Um, and then about 20 minutes in, it was supposed to take this like little 30 minute ride around, I believe Las Vegas. Uh, and suddenly the car just kind of, uh, you know, freaked out. The software stopped. Uh, and then the, the backup driver had to take over and they couldn't really get the system restarted. And essentially they had to send a, another vehicle out there to pick them up the CEO and finish the demonstration. Having done many live demos in my life. This is a Murphy's law, always loves to jump in at the most inopportune time on these things. So, um, that was an example of, you know, probably what should have been a very gated experience kind of crashing.
Scot:
[12:54] Um, and obviously you wouldn't be, want to be in a car on the highway when that happened. Um, to that point, um, the, the CEO of GM Mary Barra, uh, talk, uh, to Axios, uh, I think in reaction to this and essentially said, um, that they have a very aggressive timeline to launch a self driving taxi. Uh, but they're not going to deploy the technology until it's safer than a human driver. So, um, they're, they're trying to start in San Francisco, uh, this year. But most folks realize that's probably not going to happen. Uh, another thing that we're starting to see is the OEMs are kind of partnering up with, with various folks if they don't have their own internal initiative. Um, so, uh, we also saw this month, uh, Renault in Nissan signed deals with Waymo where they're essentially going to be using the way mode technology as their Avy partner.
Scot:
[13:46] Uh, and then, uh, one of the, the, the remaining independents out there is called Aurora. That's a bunch of folks from Tesla and Google that got together. Um, that company is backed by sequoia has a, you know, it's kind of well over Unicorn status, so it's got like a $3 billion evaluation. Um, they signed a deal with Hyundai, Kia, and Fiat Chrysler. So you're starting to see the OEMs kind of line up with, with different folks and figure out who their partner is going to be so forward. Um, then, uh, they have their own initiative, uh, called Argo. Um, and they have locked up with Volkswagens. So Volkswagen kind of through their, their hand in with Ford. Um, they didn't really announce how much of the expenses would be shared. Um, but it is viewed that there, you know, the Volkswagen will probably invest in the Argo AI startup that is owning the, the Ford autonomy, um, and that a deal is imminent and should be announced as early as July. So appreciate you listening in this week.
Scot:
[14:55] So that's the quick news coming in from the future of vehicles with vehicle 2.0 next week, we are going to have a guest and do a deep dive into electrification and hope your summer's going well and safe driving!
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EP010 - CEO at TransLoc, Doug Kaufman
http://www.vehicle2.getspiffy.com
Episode 10 is an interview with Doug Kaufman, CEO at TransLoc; recorded at the TransLoc office on Tuesday, May 7th, 2019. Doug and Scot discuss a variety of topics, including:
Doug’s journey from getting a PhD in Psychology to becoming the CEO of TransLoc. How TransLoc went from being a pet project by NC State students to being acquired by Ford Smart Mobility in a 14 year period. Exploring the micro- and macro-level impacts of connectivity in mass transportation. Defining the staggered path towards an all-electric and autonomous industry, as well as the role that TransLoc plays as a part of Ford’s plan for the future of automotive. How transformative 5G technology will be for automakers and software companies alike.Be sure to follow Doug on LinkedIn and Twitter!
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:51] Welcome to the Vehicle 2.0 Podcast. This is episode 10 and it's being recorded Tuesday May 7th. Welcome back Vehicle 2.0 listeners! This week on the show. We are really excited to have Doug Kaufmann. Doug is the CEO of TransLoc, which is a subsidiary of Ford. Welcome to the podcast, Doug.
Doug:
[01:13] Thanks Scot. It's my pleasure to be here.
Scot:
[01:16] Doug, you and I have known each other, but listeners don't have that benefit. Let's start off by going over your career path. How did you end up as CEO of a division inside of Ford?
Doug:
[01:26] Sure. So if I go way back hitting the way back machine here, I actually went to graduate school to get a PhD in psychology. And while I was in graduate school, um, I started making websites for my students. This was before the recourse management systems. And yes, I'm actually that old, uh, and my students really started taking to it and I was getting burnt out with graduate school and I decided when I finished, instead of taking a faculty job, I was going to take what I had made for my students and turn it into a business. I thought this internet thing would be something. So I said, hey, let's make it a business and I can always come back to teaching later. Um, that was very young, naive thinking. Yeah. And so I, I did, uh, I was actually called alley dog.com. It still exists today.
Doug:
[02:11] It's a resource online resource for college level psychology students. And um, while I was doing that, I met folks that had just founded a company called blackboard, which became the dominant player in the learning space. And they said, hey, we're making this move from software to the web and this thing you built for psychology, we want to do the same thing. Um, but for every subject matter that's out there, can you provide content for every subject matter? And it was just me by the way. Yeah. And I said, well, how many subject matters are you covering? And he said, 253. And I said, no problem. Of course I had no ability to do this at all. Yeah. One thing led to another and they said, why don't you forget about that? Why don't you come and join blackboard and let's build this thing together. They were very much a startup at the time.
Doug:
[02:56] And so I did, I went to blackboard and that was a phenomenal experience. That was a rocket ship. Stayed there for a couple of years, right before the IPO I left because the entrepreneurial spirit was calling and I left to start another business. And that put me on a path to starting a series of companies, um, where I would s found them, lead them and exit sometimes good exit. And sometimes not so good exits. Um, when I left the last company I founded, which was called spring metrics, I told a few people that I was going to be leaving soon. And one of them said, hey, you should check out this company called TransLoc. They are small company, but they're doing really interesting things and you might work with them. And so I asked what they did and the person told me they build technology for mass transit. And I said, that really sounds awful.
Doug:
[03:48] I don't know that I could come up with something that was more boring than that and this person assured me just go talk to them. Um, and when I talked to one of the board members and the founder, I really started to see the power of what translate was already doing in the early days and how impactful transportation is to people's lives. This was eyeopening for me. Um, and so I thought, this is definitely something I can do for two years before I go start my next company. And, uh, that's how I ended up at TransLoc. And that was more than seven years ago.
Scot:
[04:17] Cool. And then, so seven years ago you joined TransLoc and then how, how old was the company when you joined?
Doug:
[04:23] Company was founded in 2004 and this was 2012 and I, I did not get hired as the CEO. Um, I got hired. The founder was still the CEO, although he was not operating day to day. So he hired me and one other person to co run the company together. And then two years later I became CEO.
Scot:
[04:44] Very cool. Awesome. Um, and then, uh, what was your Undergrad in? Was it more technical or also
Doug:
[04:51] no, my undergrad was, was also in psychology. It so psychology all the way through.
Scot:
[04:58] Yup. We'll uh, selling one of the core things of being a CEO is selling, right? You're, you're always selling employees or investors or whoever. Yeah. Um, so psychology is good for them.
Doug:
[05:08] Oh, not only is it good for that, but people ask me all the time, I don't understand how you go from being a phd in psychology to being an entrepreneur or a CEO. And I actually think there is no better degree for being a CEO because everything in the company is about people, even the technology comes down to the people, right? If you've got amazing people and they're putting the right situations and you nurture them properly, they're going to build the best technology and they're going to figure out how to sell it best and what have you. So my job really is like chief psychology officer much more than chief executive officer. Yeah. Yeah.
Scot:
[05:41] Very cool. Um, so, uh, let's talk about TransLoc. So my understanding is it started back in ‘04 by some NC state guys to kind of like solve this pretty big problem of we have these buses at NC State called the wolf line and uh, you know, so you know, a lot of times you'd go out there and wait for an hour or so for this bus to come. Wouldn't it be a more awesome if you had an APP for tracking, is that, does that kind of the right startup history story, right?
Doug:
[06:07] Yeah. It really was simply answer the question, where's my bus? Yeah. And at the time, there wasn't even apps, right? 2004, it was can I open a browser on my computer and see where the buses, and so Josh Whitten, who was the founder, um, went to the, went to the wolf line and said, why, why isn't there something like this? And they said, well that technology doesn't exist. And he said, well, that, that can't be because I play online games with people in real time across the world. And so he said, if I build it, will you buy it? And they said yes. So he enlisted the help of Dominic fish off another person at state and they built the first version of what we now call real time, which answers the question, where is my boss?
Scot:
[06:50] Cool. So then, um, so then that seemed to be popular and has expanded to a bunch of other universities and then yeah, then I think it went on into municipalities cause then, you know, it's a logical extension for the city buses to, to have this kind of technology.
Doug:
[07:04] Yeah, it was, it was actually fairly slow going in the beginning. Um, I mean, even when I came in, 2012 company had 38 customers and have customers being transit agencies, not writers. Right? So that's who we sell to. And you know, the way Josh told the stories to me about the early days as he would meet up with a transit agency representative, typically the decision maker, someone that runs the transit agency and even say, look, I have, I've built this technology, you can see it here on my computer. And it allows you to put your entire system online and show writers where the buses are in realtime. Isn't that amazing? And they said, oh my God, no, we don't want that. Why would we want that? Now people can see if we're running late, if the bus is going too fast, too slow, what have you. So there really was a process of educating the market of how valuable this would be for not only writers, but also for the transit agencies. And then it, then it really did take off. Yeah.
Scot:
[07:58] Cool. And then you came on board, um, and then you, um, you know, uh, maybe tell a story, but you saw a lot of value in, you know, a ramping that up would be a lot of value in the data. And then thinking about multimodal transportation and a lot of things like that. So we're, where did you take transload to up into the, the Ford acquisition?
Doug:
[08:16] Absolutely. So interestingly, Josh, when Josh was trying to sell me on joining the company, his pitch really was about sustainability. That if we make transit work really well, people will get out of their cars, get on a transit, and then we'll have, uh, you know, less greenhouse gas, less carbon emission. And that was great, except for me, what resonated more was understanding just how many people were dependent on transit and how bad the service was. Not because transit wasn't trying really hard, but it can only do so much. And so I learned about how many people have literally six hours a days on a bus, right? Three hours each way to potentially a minimum wage job. That would be 30 minutes if they could afford a car. Um, and that resonated with me and I said, yeah, I want to be part of doing something about that.
Doug:
[09:04] And so when I came to the company, um, real time was our only product, the one that answered the question, where's my bus? And then the data started becoming obviously important. And so we went to transit agencies and we said, what if we could actually show you where the riders are, where they start their journey, where they get on transit, what route they take, where they get off transit, and where they end up. And I sort of had a similar experience with Josh where they were like, that's ridiculous. Get out of here kind of an answer. Um, and, and the technology doesn't exist so you can't do it. It was, I forget the technology, we can make it happen. Um, would that be valuable? And they, they, they saw the value in that. So we actually went on a path to creating a product to answer the question for the agencies, where my riders and how well are we serving them.
Doug:
[09:48] And from there we actually created a service, um, to turn transit vehicles into on demand vehicles. Now similar to Uber and Lyft, and we started in the university space because they have safe ride. Many universities have safe ride where the technology was, hey, I'm a student on campus at two in the morning and I need to get back to my dorm. So I pick up the phone and I call and I speak with someone and they come and they send a van to come and pick me up. So what if we could just turn that into push a button and the transit agency vehicle comes and gets them. And so we created that these were actually steps to what we call seamless mobility, which, um, you know, our vision of this is that all of these modes of transportation should be completely interconnected and work seamlessly together to create one mobility network everywhere.
Doug:
[10:37] So that's a fixed route. Buses on demand vehicles, Uber, Lyft, carshare, bikeshare scooters, you name it. These things should just be one connected mobility network. And so we actually, um, in partnership with Uber in 2015 created a prototype at this. Um, this was while we were raising our series a and we showed that we could have walking directions, buses, trains and Uber all work seamlessly together. So as a rider, you can imagine going forward, if you never have to worry about having a car, you can just say, hey, this is where I need to go in the system, learns your preferences, knows what you like, um, is able to say, well, the best way for you to get there is to walk across the street, get on the bus, go to this stop and then take a lift the last three miles. Do you want that? You could just say yes and everything magically happens in the back, right? The ticketing, the payments to tracking, even the hailing of the vehicle happens without you doing anything. Since we track both. Um, so that when your bus arrives, your Lyft arrives and you go from one to the other and off you go. And if we can make it that magical, um, I think we can get a lot of people out of their cars and using transit as sort of the backbone of this seamless mobility network.
Scot:
[11:55] Cool. So then you guys raised a series a in 2015 and then the fort acquisition was, it was the late 17, early 18 a week
Doug:
[12:03] closed our round. Are Our series a in uh, may, I think it was may, it might have been march, I think it was may of 2017, 17 and then we were acquired by Ford, uh, in January of 2018.
Scot:
[12:18] Wow. I bet your, uh, your investors were policemen out. Yes. They always like fast turnarounds. They do have a 10 year timeframe, but they'll take a six months into it. Yeah. And actually,
Doug:
[12:28] sorry, I misspoke. We closed our round in May of 2016. Okay. So it was a, it was under two years, about 18 months from close to being acquired.
Scot:
[12:37] Awesome. Uh, and then I know, you know, um, you're now part of a larger company and very limited in what you can say, but um, you know, so, so for, it obviously gives you a much bigger platform, tore up, roll out of this vision. Um, have you felt a lot of momentum from that? And, and you know, it seems like they're very serious about mobility as well. Oh, there they're definitely serious about it.
Doug:
[12:56] Um, I actually was lucky enough to have conversations with folks like some of the Ford folks actually like Ford family folks. Um, and they right away told me, you know, the days of selling cars to individuals like us is coming to an end. They see it. Yeah, we know the world is becoming a mobility world, but we don't know what that looks like, so why don't we figure, not only figure it out, but why don't we become the leader in mobility going forward? Um, so they're, they're definitely serious about it. What it looks like is the big question. Um, and I often get asked if money was no object would we have still sold to Ford. And for me the answer is yes. And the reason is that our, our ambitions are so big. I mean, if we do what we say we're doing, we have completely transformed transportation forever. That's a pretty big goal for a, you know, 60 person, privately owned company. Yeah. So getting acquired by Ford and becoming part of Ford, which is a iconic global brand, um, really gives us a much better chance of achieving our mission and really changing the world.
Scot:
[14:03] Brickell and post acquisition. It seems like things are going well. You know, it's probably still pretty early, but you could imagine, you know, having your technology and every Ford vehicle, um, we just announced, uh, if he, uh, you know, that we're partnered with Ford on their connected car initiative. So, so although OEMs are really kind of connecting their cars and that kind of thing. Yeah. Um, is that, that part of what got you excited is having access to all that? Oh, absolutely. I mean,
Doug:
[14:29] if you, if you look across the Ford landscape, it's everything from us working with public transit agencies and cities to people working on connected cars to autonomous vehicles are self driving vehicles. Um, so it's, it's really exciting to, to have access to all of that. Um, it's also exciting to, to understand to be a part of 115 year old company redoing itself from the inside out and having a front row seat to that is, is really amazing. Um, and they have you asked earlier about how things have gone since the acquisition. They really have gone, I would say about as well as you can expect when a giant company acquires a, a tiny little company. Um, they've been very supportive of us. They've given us a lot of latitude. They recognize we're going to make a ton of mistakes and we're going to run a lot of experiments and we're going to fail. And that's kind of antithetical to what they may be used to, but they recognize they have to have a different point of view now. So, so that's been great. Yeah.
Scot:
[15:26] I come from, as you know, I come from the eCommerce retail world and it's always interesting to watch this role. Is that very similar to that one and that you had a group of companies that kind of said change is coming, we need to kind of lead it. Then you had a group of companies that kind of put their head in the sand and those companies are like blockbuster and borders and circuit city and you know, kind of going on sales calls across them. You can tell pretty quickly which ones we're going to make it and which ones weren't. And so you know, the early signals of, you know, hey, we realize we've got to get in front of this. Let's go get some innovative blood inside of the company. Sounds seems like Ford's doing all the right things to, to really be aligned with the changes coming.
Doug:
[16:02] Yeah, I think, I think they're doing a lot of the right things. Um, it's going to, we're going to have to see how things go. Right? I mean, this is a long term initiative. And one of the things I always ask is, do companies like Ford that are this big, that make this much money? Do they have the patients to create something from scratch? Right? Because they think in billions, right? I've asked him if we made $100 million tomorrow, would that move the needle for you? And they're like, of course not. Yeah. Right. So are you going to get frustrated that it's going to take us many years before we are $1 billion con contributor? Um, and that we're going to, we're just going to have to see, um, yeah. So that part is scary. Thinking in billions is, is a, is a scary proposition. Yeah.
Scot:
[16:50] Cool. Well, um, appreciate the background there. So, you know, I think the punchline is, um, you've been at this seven years in the mobility space, uh, and you have insights into what Ford's doing a, we won't go into morning any more detail on that. But, um, here on the Vehicle 2.0 Podcast, as our name implies, we have this framework where we look at where vehicles are going. Yeah. We look at, for kind of what I call compounding waves of innovation, we have new ownership models, conductivity, electric, electrification and autonomy. Um, let's start with con activity because you guys were really at the forefront of that, bringing, you know, connecting some of these buses and other things there. Um, so where do you think we are today and where do you think that that goes? I know you and I've talked a lot about, you know, kind of what they call con activity to infrastructure.
Scot:
[17:35] So, so how do you, you know, so, so you guys started tracking buses so the writers would have a better experience and now you can kind of track riders and now the buses can get smarter at some point. Do we like have the infrastructure talking to the cities so the cities get smarter and they can kind of say, wow, you know, a lot of people are going from point a to point B, maybe we should have a road here, or maybe we should do, you know, whatever. Yeah. Um, talk a little bit about what, what you've seen over the arc of your career there.
Doug:
[18:01] Yeah, absolutely. Um, and let me, let me add one other thing that we're doing that I think gets to this and then I'll circle back. One of the things that we built is this product called architect. And the point of architect is to help transit agencies create and manage what's called gcfs feeds, right? Um, so this is a feed specification that was created by Google and try man, which is a public transit agency, uh, to try and standardize all of the data for public transit, right? So if you actually want to have your transit agency on Google maps, bing maps, apple maps, et Cetera, you have to convert all of your routes, stops, latitude, longitude, all, all of these things into this feed specification. Then loaded up to Google and this can be a massive project and the tools out there are really awful for it.
Doug:
[18:53] So we created what we think is the most elegant, easy to use tool and we, we give it away to every transit agency that wants it for free. Nice. Now, what's, what's key about this and gets to the connectivity and infrastructure is if we feel like if we become the central repository for all transit data, we can unlock so much power, not only for the transit agencies who can now really do a lot of predictive work and staging and see what's going on. But also, this is the only way you can start giving riders at real time, vehicle location data everywhere, right? So if you go to Google maps right now, there are only a handful of agencies in the world that have provided what's called GTFS realtime to show realtime location on Google maps. All the rest are scheduled. So what we're doing is unlocking that power so that we can give real time locations to transit agencies are to writers everywhere in the world at no cost.
Scot:
[19:50] Yeah. I was recently in New York and it was really handy because I think they must be the one, one of the ones, because it would say, you know, all right, you need to go to the a train on the northbound thing and uh, and then it would say, and it looks like the train's coming in 10 minutes. So yeah. I would say my family, let's, let's go, let's get going here. We've got a train coming in 10 minutes. That's right. You know, and it looked like it was, and then it would start counting down and that gives a real time. That's right. Kind of view of what was going on.
Doug:
[20:11] Absolutely. And you can, I mean, it'll be easy for you to imagine the future where we have the seamless mobility network that it will adjust. So it's going to know you're going to miss your transfer, let's adjust so that we get you to, your destination is still on time, but you're going to have to take a different route. Just like when your gps in your car. Reroutes yeah. Right. Um, okay. So, yeah, going back to the very beginning, uh, the way Josh and Dominic connected the buses was with a Nextel phone that they, Jerry rigged and put in the glove compartment or in this case it was a bulkhead of a bus. And that's what was sending the signals back to the TransLoc system to try and then present on, on a web browser. And then we moved to a Linux box that was, you know, this big that had to be installed and serviced all the time.
Doug:
[20:59] And I'm now, you know, we work with these really pretty incredible, very small about the size of your cell phone if you have like an iPhone, but, but thicker, maybe an inch thick, and they have everything from Wifi to one second updates, geo location, GPS location, cellular connectivity. They can even start tracking all the things that are going on on the vehicle. Um, like how many bikes are in the bike rack, right? How many times has the door open, how many people have walked on and off. All of these things are now possible, um, pulling data off the vehicle itself. Um, and for Ford, you know, certainly as part afford, you know, getting every vehicle connected is key to the vision that we have going forward and for it is absolutely working on that. Um, that, I mean, that's a, that's a big initiative for Ford.
Scot:
[21:51] Cool. Now our cities, so if you're in a transit, let's use New York as an example. Yeah. It's the city able to Kinda like see that data and then like does it, does it get out of the transportation authority and now the city, you can make smart decisions around, Oh gee, you know, if they had a budget for a new train, they could kind of look at, you know, the, there's people that are going way out of their their way and if they build a train a certain line or something like that. Or are you starting to see the awareness of pop up to the city level or is it still kind of just at the transit authority?
Doug:
[22:20] Yeah, no, it's, it's a mix, right? It depends on the city. And I think every day the city is getting more and more interested to this, uh, interested in us. So we actually think that in the future, cities are going to have departments of mobility, whether that replaces department of transportation as a sub set of it, who knows, but we actually think that's going to exist because cities recognize that, how people move around and what's involved in moving people around is central to how the city runs, period. Right? But this is everything from curb space to parking to land use to transit, to roads. The city wants to have that holistic view and the data associated with all of it. So we target transit agencies to sell, but we work with cities as well to try and take that next step, uh, to really broaden the impact that we have.
Scot:
[23:08] Cool. So another trend, we talk a lot about, um, the kind of, yeah, again, I'd call it an intersecting waves cause they, you can't really talk about them in isolation because they kind of overlap. Um, this one's changing ownership model. So you kind of talked about, you know, Ford already realizes that not everyone's going to win a car and, and whatnot. Um, and here on the show we've had a number of guests that have kind of surfaced a lot of really cool models. You have like the traditional ownership model leasing. Um, you know, uh, you know, these kind of micro rentals are coming out, you have car sharing, ride sharing subscriptions, um, and, and it need an infinite number of these kinds of things. So, you know, do you agree kind of individual car ownership will diminish over time and then it will be, have kind of more different models that people use where they're kind of, you know, based on their use case though they'll have access to a vehicle was just kind of what you see things going.
Doug:
[23:56] Yeah. Um, absolutely. Um, which in some ways I, I'm, I'm conflicted about this. Um, I mean we're playing a very small part in making that happen and car ownership and car human driving go away, which is great because we as humans are the reasons all these accidents happen. Yeah. Um, so if you can get the human out that's really great for saving lives, but at the same time I'm like, God, I love driving. Um, so I'm a little conflicted by it, but it's the right thing to do. Yeah. And yeah, I mean it's not, I don't know that it's worth arguing over is this going to happen in 10 years, 40 years, 80, whatever it's going to happen. I feel very, very strongly that that world is happening. So, um, you know, I've said to my daughter who is 14 years old, it's likely that your kids will never drive. They won't even have the option of getting a driver's license. Um, so I think it's going to be happening soon. I guess the question is, will they, uh, well it all just be car sharing, car subscriptions, car ownership. Um, I actually, if I had to place a bet, I don't think individuals will own cars. Yeah. In the near future.
Scot:
[25:02] Yeah. Do you think there'll be, it's interesting to kind of think, so, you know, the use case today is Google maps because that's kind of got our, you know, that's the APP that owns in our heart, you know, how do I get from point a to point B? But then you could see some of the, you know, uh, everyone's trying to take a run at this, right. So, so Uber and lift very much want it to be them when they're kind of like, you know, they're trying to go from car sharing or ride sharing to more of a multimodal transportation. They now want to Kinda like, you know, get you an Uber from point a to point B and then a, a bike or a, you know, so, um, and then, you know, it seems like they could also ingest a lot of this public data.
Scot:
[25:36] I don't know if they are or not, but you know, I bet it's on their roadmap. Yup. Um, and then, you know, um, I don't know if you guys see yourself as just infrastructure and all that, or maybe Ford wants to be on that APP. Maybe you Toyota wants to be that out. So, yeah. And then we also see, you know, the rental car guys, they kind of say, well, wait a minute, we have a role in this future as well. Um, you have any guesses of Kinda like what's going to win in that space? Yeah, yeah. So, so
Doug:
[26:01] we definitely believe that data is the key to this. And so, um, what we're doing now is we have that architect product, which allows agencies to create all these ttfs feeds and we have an API on the other end that other services can connect to and pull that data into their service. So whether it's the transit app or move it, um, that we have a partnership with, they can just connect with us. I mean, right now they're going in there making deals, one transit agency at a time. They're seeing how difficult that is. So we're saying don't ever do that. Will we have all the relationships and we're gonna keep building them. Here's an API, just connect and you get all the data you need to put in your writer facing app. So definitely see it going down that path. I think that's, it's the less sexy part, but it's probably the most powerful to me, it's the most powerful part and it's probably where the biggest opportunity is. Yeah, yeah.
Scot:
[26:56] Yeah. And then, um, as we talk about some other topics, you know, data does become the key linchpin of all this stuff because you can't really solve any problems with basic data and then you can't improve user experience unless you kind of can start to look at the paths. And that's fine as long as though
Doug:
[27:10] that's right. I mean, you know, Uber or Lyft, if it's true that they want to work with transit and that is very questionable right now. I mean, Uber's filing, they made it pretty clear that they are directly competing with transit agencies. Um, so I personally think they all have to work together for this to work. So let's say transit agencies exist in the future for some time. Um, Uber's going to want to connect with those fixed routes, even the on demand, a transit agency vehicles. And so having that data and playing nicely, it's going to be critical for some time. Yeah. Yeah.
Scot:
[27:44] Cool. Um, uh, the third, third leg of the stool there is a electric vehicles. So they've been around the corner for years. Uh, we're starting to see China, you know, I think is it about 7% of their sales are now evs. They're building out their group in a government sponsored way. Some of the Nordics, the evs are starting to out. So a internal combustion engines. You and I both live in electric car lifestyle. Where do you see EBS going?
Doug:
[28:07] I think everything's going to be electric. Everything. I mean if you were doing a bunch of CEO to work right now, just trying to understand what effect is our, you know, our fixed route vehicles having, what effect are on demand vehicles having and what size vehicle is the right size, right? Should we have a 40 passenger vehicle or an eight passenger vehicle? And if we can optimize the routing and the sharing of the seeds in that eight passenger vehicle, does that bring the carbon emission downs? You know, you get all this and then once you can layer in electrification, oh my gosh, you can, you can reduce greenhouse gases so much. Um, I mean we both also know it's, it's a lot more enjoyable of a ride. Um, so I, I don't, I mean, unless there's some new technology that's going to overtake it, um, I don't know that that's on the horizon. I think. I think all vehicles are going to be electric, including transit vehicles. Um, and that's not Ford transit vehicles, which I assume will be electric at some point. But transit agency vehicles will also be electric one day. Yeah. All of them. Got It.
Scot:
[29:10] Yeah. Do you think will have the charging infrastructure for that?
Doug:
[29:14] The charging is going to be really interesting. Um, so they're, they're different companies now that are, that are experimenting with charging that comes from the top, right. So a bus pulls into a stop and a charger comes down on top of the vehicle and charges very quickly. So it's like little bursts of charging and they do that at every stop or every other stop. So the vehicles never run down to zero and then you'd have to go and sit overnight. They're, they're constantly getting quick, uh, quick charges on the ground as well as another way. Um, so I think there's, there are some pretty interesting things happening in just how we go about charging the vehicle. Um, battery swapping is another thing that I know has been tried in some other countries. I think Israel actually had a company that was, you would literally drive up and they had a service that would take your battery out and drop another one in really quickly and off you would go, which is pretty amazing.
Scot:
[30:08] Yeah. Tesla tried that for awhile and a users wouldn't use it because they were kind of worried they would get a, yeah. A battery that wasn't as good as the one they had. Yeah. Yeah. I get it. You know, I've got a 5,000 miles on my battery. Just left it, level it at a 200,000 miles, like at the end of his fine for someone.
Doug:
[30:22] Yeah. Yeah, for sure. So, um, yeah, so electric, everything in the future. There you go. There's my prediction. I don't think
Scot:
[30:29] prediction, everything's electric. Yeah. Um, and then the last trend we talk about is autonomy. You've hit on there. Um, you know, Tesla is kind of flirting with level three right now. Yeah. I don't know if you saw Tesla's Tesla is a day. Um, it was two weeks ago on a Monday. Yeah. But that was really interesting because, you know, in typical elan fashion, he kind of, you know, uh, like drew a couple lines in the sand and one of them was, he talked about cameras versus Lidar, uh, and how he believes cameras and image processing is superior to lidar because you'll be able to get the cost down. And then they introduced a new chipset that kind of blew everyone's mind. Yeah. And then the last one was, he talked about, you know, ultimately with a approval from, from, you know, local bodies. They all eventually have robo taxis where you can kind of like rent a title or for 18 cents a mile.
Scot:
[31:16] Yeah. Cause you've got the combination of an electric vehicle. So allow low maintenance and then, you know, uh, a Tesla owner while they're at work, kind of check their car into the fleet and it would go shuffle people around. And I'll come pick you up at five when you're ready to go. Um, so, uh, where do you see a bee is going, uh, do you believe in Elan's vision into the future or are you kinda like, think more of like the way Mobar guys are doing? Or maybe you have some other view that, that, uh, where it's gone
Doug:
[31:42] well, I'm certainly hopeful the Ford fee was going to, it's going to do well. Um, yeah. You know, there's some things about the, about Alan's vision that I think are amazing and I, I am bullish on. And then there's other parts that to me don't make any sense. Um, of course I'm not as big a thinker as a lawn, but, um, so I'll give you an example. So if I spend $100,000 on a vehicle, I do not want my vehicle driving around and picking up random. People know if they limit that, there's ways I can control it, fine. But that may reduce the viability of the model. Um, but you know, I'm very particular about, uh, let's say smells in my car. So what if someone is a smoker? They just finished a cigarette and they get in my hundred thousand dollars vehicle and then I get in my car when it comes to pick me up after work and it smells like cigarettes, I'm going to freak out and never use that again. Right. Yeah. Yeah. So I think there are some problems and I don't think I'm alone in that. And I talked to a lot of people and that seems to be shared. Yeah. Um, but I do think when car ownership starts to diminish and you just aren't subscribing to vehicles, um, then I think that Robo taxi model, um, that's a different story. Uh, I think we're, another place we don't necessarily line up is I don't see any way that it's happening. As soon as alon is saying it's going to happen.
Scot:
[32:59] Yeah. He kind of, yeah. Controversially said next year that they could have 200,000 Robo taxis on the road if, if it was approved, we'll see
Doug:
[33:06] Okay. So here's the key: if approved. Yeah. So I think the technology is going to be way ahead of where the government will allow things to be. Right. So, I don't know how other people are thinking about this, but to me I think what'll happen is there will be test areas where autonomous vehicles will be allowed to go and then potentially they'll start saying, um, if you don't have an autonomous vehicle, you can't go into that area because as you know, these cars need to all be connected to each other with no human intervention to really reach optimal performance. Yeah. Um, all it takes is one idiotic human to do something irrational that the others can't adjust to. Right. So, um, I think just like you're seeing in London where they have these zones of efficiency where if you don't have a hybrid or an electric or what have you, you can't drive in there and you get a ticket if he tried to. So I would imagine something similar with autonomous and then it just starts expanding further and further out until you have giant regions where no humans are allowed to drive. Yeah.
Scot:
[34:07] Do you think a, an early use case would be long haul? So like, you know, parts of I-40 where you just going for, for miles and miles without, yeah. You know, maybe some of those lanes are designated autonomous or something like that.
Doug:
[34:18] Yeah. I certainly think that would be, um, a reasonable experiment around run like as, as a first step, um, far less complicated than trying to be and you know, city center. Yeah. With people walking all around. Um, so I, yeah, I could see that happening before, you know, commuter cars are, are really, um, that the Robo taxis are really picking us up. Okay.
Scot:
[34:39] Yeah. Cool. What, uh, who has Ford partnered with? Are they part of the, so GM has like chariot, right? Um, no, not sure yet. Uh, so GM has an effort. You have Uber and Lyft.
Doug:
[34:50] So Ford has Argo Ai. Okay. Yup. Well, I wasn't aware of them. Okay. Yup. Yeah. And they're doing some, some amazing things. Nice. Yeah. Cool. Cool.
Scot:
[34:58] We need to bring him to the triangle here. We do. I keep telling all the, I don't deal with government very much, but whenever I do, I tell him, you know, we should be an autonomous vehicle zone and waiting to get in front of that, you would have my support. I'm counting on you to figure that. Right. I'm there. Let's do it. Yep. So speaking of governments, you, you, you know, because of what you guys do, you have a lot more touch points there. Where do you think that those guys are going to go when it comes to some of these topics? Are the going to be pretty aligned with them or does it scare them? Uh, like the Lyft guys, one of the, when you watched their road show, uh, in the lift founders talk about the reason they started Lyft was, if you think about it as cities are designed all wacky, you know, we use a lot of this space for parking and roads and yeah, it can be much more green areas and bike areas and that kind of thing. Uh, you think cities are, are kind of bought into a lot of this changing mobility?
Doug:
[35:46] Yeah, I think it depends where in the hierarchy the politician is. So, um, I think they're all risk averse. Even the ones that are really forward thinking and want to take, um, you know, want to be innovative, they're still scared about someone dying. Right? I mean, I mean, you know, this one person dies and everyone says, all right, we've got to stop. We've got to pull back on this. Even though, you know, one person dies and autonomous vehicle and that same day, you know, a thousand people died in human driven cars. Okay. Yep. So, um, I, I think you get risk aversion. The more risk, the higher up in the chain, you are the more risk averse. I believe you are to this. So you may have people that are at the city level that are saying, this is, we want to be innovative in our city.
Doug:
[36:31] We want to be one of the leaders. And then you get into the federal government and they want to say, Whoa, Whoa, whoa. We need to figure this out for the entire country. Or the way we can deal with this is we're just gonna leave it up to the cities to deal with it. So it's never on me. Right. So I think there are aligned with the long term, I don't think they're aligned with the shorter term and they're just starting to understand all the layers that are, that are involved every, again from parking to like building parking decks. Right. I mean, these things are enormously expensive. They take up a tremendous amount of space. Nobody in the city wants them, but they have to have them. So if you can start testing with areas where you can say, well, we don't have to build these five parking decks so we can save $100 million and these vehicles are more energy efficient, et Cetera, et Cetera, et Cetera, then you might start getting a little traction there. Um, but yeah. Cool. It's going to be like towns, townships, cities, states, federal. Yeah.
Scot:
[37:30] Do you guys actively get involved in advocacy around the stuff? Because it seems like, you know, you're giving away the, you're the, the architect seems like you're, you're touching a lot of the right parts there. Yes. Or, or, or you leave the advocacy up to someone else.
Doug:
[37:45] So we actually have, uh, folks in house that do some advocacy, advocacy work. But Ford's really, I mean, I have a whole, yes, this is, this is another benefit of me being part of them. You can go all over there
Scot:
[37:56] advocacy group and say, Hey, I need you to get me in front of this person, or
Doug:
[38:01] absolutely, let's talk about x, y, and Z. Yeah. And one of the cool things about four it is, it's not just about smart vehicles, it's also smart cities and a smart world. That's, that's really the vision going forward is how do we, how do we make, take the streets back, right? So Jim Hackett did a ces keynote where he talked about getting, uh, our city streets back and getting our cities back and making them more livable and not just designed around cars. Um, and so there's definitely a big initiative inside Ford to make sure that we are talking to cities and we're helping them. The future, one example is there's a city challenge inside a fort, so it's a group that actually works with cities on becoming more innovative and running innovation experiments and they get, they can win prizes from it and grants and things like that. So it's really, um, it's kind of a grassroots effort. Yeah. Yeah.
Scot:
[38:53] I don't go to Detroit much, but you go to Detroit a lot now. I'll be there next weekend, the following week. Um, it seems like, is that a city that's kind of like on the edge of this because they have so many of the automakers there and they're there, the motor city and all that, that kind of thing. Or ironically, I would say, you know, another set of issues because they've got kind of this urban blight thing going on on, on one edge too.
Doug:
[39:13] They definitely have that. But you know, it's really interesting if, if you go up there, what you won't see is massive traffic. They don't have heavy congestion. And so for them it's very easy to be in your, your Ford f one 50 or your Lincoln navigator rolling down the road at 70 at four 30 in the afternoon saying, I don't know what everyone's talking about the cities. Right? So if you're not experiencing it yourself, it's harder to really say, we should put money behind this. We should go lobby the politicians to make sure we're doing this. Plus that's their whole history, right? Building the cars, is there history. So I would imagine if I worked on the factory line and I kept hearing about people no longer buying cars and I didn't really understand what that meant, it would just be terrifying to me. So I think you have a mix of these things going on that don't lend themselves to making Detroit, maybe the leader in innovation when it comes to mobility. Although they do for automobiles. Yup. Yup.
Scot:
[40:18] We start a program where we send them to La and put them on the 4:05 PM and then let him let him enjoy that for a couple of their way to too nice in Dearborn and Detroit to force that upon them. That would, that would just be cool just as an experiment so he could see what real traffic. Oh my gosh. Um, so some 30,000 foot questions. You've been in the mobility space for a long time. Yep. One of the, a lot of articles I read, they talk about the dealer network as sometimes you can kind of view it as an asset and sometimes a liability. Yeah. It kind of reminds me of the commerce world where we're stores for a long time we're essentially became a liability and now they can kind of like shift from the stores and they've kind of swung back over to an asset. Yeah. Um, where do you see that dealer network? Just kind of generally, um, you know, adding value down the road if we do have these changing models. Yeah.
Doug:
[41:07] Um, so definitely out of my wheelhouse. I don't have a lot of experience or knowledge about dealerships. I would imagine there are, there are places for the dealerships in a mobility future. Um, maybe not so much selling cars to individuals because I think that's going away. But all of these vehicles that are going to drive 24, seven, which is one of the benefits of all Thomas Vehicles, they never need to rest and they just need to be charged and maintain is where are they going to be charged and maintained? Where are they going to be staged? Right? So if you know patterns that as well as we hope they will in the future with our products and others you're going to want to do staging and you're going to want to be very smart about how you deploy these vehicles. And so I could see dealerships in the future morphing into something more along the lines of maintenance, staging, um, potentially charging service education to the public, these sorts of things.
Scot:
[42:02] Cool. Um, so, uh, any last thoughts on where we're going to be in kind of five, 10 years?
Doug:
[42:09] Yeah. So, um, as you know, and now your listeners know, because we talked about being a blackboard, um, early on that that space went through a very similar change. So when I joined blackboard, schools were saying this internet thing is not really a real thing, so why do we need to buy this? Right? So they had to go through that education process and then it became, well, if we don't have this for every student, they're going to go to another college and transportation has going through the same thing, but it's actually happening much, much faster. So, um, I do think we are going to start seeing experiments on the roads with autonomous vehicles, transit agency, electrification, um, bringing these modes together. So you're going to have much more seamless mobility probably in let's say two to three years on that front. On the seamless mobility side. It's going to be much easier for you as a rider to go to a city and just use your phone and it'll just magically take you wherever you need to go. Right. So I do see that coming in the next couple of years.
Scot:
[43:12] Do you think? Um, so the, the next big thing in smartphones is going to be 5G does that, it sounds like you've already got the con activity you need to do most of what you want. Um, you know, maybe some of these maps are large enough that 5G is necessary. Do you see 5G changing that at all or just another kind of supporting part of this is kind of seamless mobility?
Doug:
[43:33] Yeah, I I think, um, I don't know how transformative 5G will, it seems like is going to be transformative to everything. So I'm probably an idiot by not saying of course it's going to transform transportation. But I do think if you think about trying to connect all the vehicles until they are all built, you know from the OEMs are with connectivity in them. You may think, you know, it's expensive or inexpensive to get these devices and actually install them on transit vehicles and wire them up. It's time consuming, resource intensive if nothing else. So if we really can get to a point sort of back where TransLoc started, where you can take an inexpensive phone that's running on 5G and use that to connect vehicles around you until everything is built in connectivity that actually might accelerate us getting to a more connected world. Yep.
Scot:
[44:17] Very cool. Awesome. We'll run up against time and really appreciate you taking the, I know you're super busy. My pleasure. Um, and then so one last question. If folks want to follow you, find you tweet you, um, what's the, what's the best location them to learn more about what you're thinking about?
Doug:
[44:32] Yeah, I'm going to be really old school and say email is probably the best way. Um, so my, my email address is just [email protected]. And TransLoc is T R A N S L O C.com.
Scot:
[44:49] Cool. Uh, and I know you are on Linkedin and Twitter, but you're not super active publishing stuff out, but
Doug:
[44:53] I'm not, but I am on linkedin every day. So linkedin is also another really good way if you want to connect with me.
Scot:
[44:59] Got It. And your Dr. Doug Kaufman on there, which is
Doug:
[45:02] Yeah. I don't tell too many people know that people don't. People don't actually believe that I am, but I, I really do have a degree to prove it.
Scot:
[45:07] Yeah. Dr. Doug. I like that. Cool. We really appreciate you coming on the podcast and taking time and sharing your vision of mobility.
Doug:
[45:14] No, I appreciate you asking me. It's, it's a really great to do it.
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EP009 - Partner at McKinsey & Company, Kersten Heineke
http://www.vehicle2.getspiffy.com
Episode 9 is an interview with Kersten Heineke, Partner at McKinsey & Company; recorded on April 26th, 2019. Kersten and Scot discuss a variety of topics, including:
Kersten’s career path at McKinsey and the creation of the McKinsey Center for Future Mobility. Differences in car sharing, ride hailing, and other ownership models between Europe and North America. The future of connectivity, including data sharing with cities/municipalities to improve infrastructure. Latest developments with electric vehicles and predicting the rate of customer adoption. Interesting and realistic use cases for autonomous vehicles, including robotaxis/shuttles and long haul trucking. Exploring the transition from AV geo-fencing and regulatory issues to complete autonomous mobility.Be sure to follow Kersten on LinkedIn and keep up with the latest from the McKinsey Center for Future Mobility!
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:51] Welcome to the vehicle 2.0 podcast. This is episode nine and it's being recorded Friday, April 26 2019. Welcome back vehicle 2.0 listeners this week on the show. We are really excited to have Kersten Heineke on the show. Kersten is a partner at McKinsey where he leads the McKinsey Center for Future Mobility in Europe. Uh, there he focuses on connected cars, autonomous driving, shared mobility, as well as the impact of all these developments on organizations across all industries. Welcome to the show. Kersten.
Kersten:
[01:29] Thank you so much for having me!
Scot:
[01:31] Cool. Let's, let's start off by kind of understanding how did you end up in the world of mobility?
Kersten:
[01:37] Well, I started at McKinsey doing a couple of engagements in, in banking initially and then I said, okay, banking is not really what I want to do. I need a physical product, something you it can be passionate about. And I went into automotive and did a couple of projects in an automotive, mostly traditional stuff and growth plans, expansion plans, material cost optimization, you know, the things that a consultancy is famous for and in some ways, and then we started getting more and more requests about automotive from automotive companies going into the new topics. So be that mobility, shared mobility. Also the question on what the impact of connectivity is and then eventually how you can make money with topics like eight us eventually autonomous driving. And we said as McKinsey, we need to approach this from a different angle because these disruptions, I was so significant that we need to build up our own perspective on this.
Kersten:
[02:32] And we created the McKinsey Center for Future Mobility as a, as a think tank. And I said, yeah, this is what I want to work on. This is much more exciting than trying to find 50 cents and some tiny piece on the car somewhere and trying to optimize the cost. I want to work on the future topics that can change the industry, but also can make our daily lives better. And I got the chance to dedicating 95 to 99%, so almost every, every single minute my day to these future mobility topics, um, started out a bit broader on all of the topics and then eventually when deeper and deeper and concentrated more on autonomous and connected and also shared. Um, and then I was fortunate to be allowed to take over even a leadership role in this McKinsey Center for Future Mobility. And that's sort of been the last couple of years of my career and it's, it's been a great ride so far.
Scot:
[03:23] Awesome. Uh, and then, um, I imagine, you know, when you, when you have a center that means something within the world of McKinsey, is there, is there kind of a whole team dedicated to this? And, and, uh, also, uh, I know you're in Europe, but do you, do you work with your colleagues and in the u s for example on a lot of this or does all the thought leadership come out of your,
Kersten:
[03:42] so as always when the Kinsey had set up a virtual organization, if you will, uh, and we do have colleagues working on future of mobility in, in Europe and the US also in Asia where we do have a team in China. We do have a team in Korea and one in Japan, one in India. And we do have a team for South America. And how we structured it is we usually have a couple of partners leading the charge in each of the continents. Also, we do have a couple of partners leading the charge in each of the topics we cover. So in an autonomous connected, electric and shared. And then there's a huge team of consultants around me to dedicate anything between 50% to a hundred percent of their time on these topics. And the entire group across all the continents, across all the topics within McKinsey has roughly 200 people. So it's grown tremendously over the last couple of years and months and we intend to grow it much further simply because the requests we're getting are now also not only from automotive companies, but increasingly so from outside of the automotive space. And we simply need to grow further to make sure we can keep up with the demand.
Scot:
[04:46] Yeah, that was actually going to be my next question. So, uh, I was going to guess, it's kind of obvious you're probably working directly with the manufacturers and people right in the heart of, of the bullseye there a of mobility. Um, what are some of the other types of customers that are interested in what's going on that or there abouts bid outside of that, that core?
Kersten:
[05:05] So we have, they have a couple of suppliers as well in there. We're interested, so automotive suppliers, um, there's other companies in the financial space. So can we ensure us that, I wondering how the change in car ownership is going to affect their portfolio. There was a lot of telco companies, um, that, I'm wondering what, what is our play there? How does five g maybe positively affect this? What can we do? The cities getting more and more interested in this and also public transport providers where any kind of mobility service provider interested, there's um, uh, tech companies. There is a even startups that got come to us for advice on sort of the market model and how they can, um, how they can optimize their portfolio and what their go to market strategy is going to be. So it's uh, an energy companies obviously interested in how electric vehicles are going to affect their business. Oil and gas companies similarly interested in this future of mobility, how their businesses impacted. So you could almost say it's, it's everybody, um, who, who somehow makes a product that is being transported somewhere or who was dealing with people that need to get to their respective establishment. So it's a broad, a very broad client group interested in this topic or on these topics.
Scot:
[06:24] Very cool. So, uh, here on the vehicle 2.0 podcast, the whole foundation is this framework where, uh, and uh, you know, since we came up with this framework, I've discovered everyone has one but, but in ours there's a, we, we look at kind of these four, I think of them as these ways of innovation and I come from the ecommerce industry and what you find is these waves just like waves in the real world, Dave, they kind of compound. Um, so there they're in in their own right, they're powerful, but when they compound, then it just really accelerates the rate of change. Um, so the four we look at our changing ownership models, connectivity, electrification and autonomy. Um, and I wanted to start with the new ownership models because that's how I found you. I was kind of, you know, really beefing up on all these new ownership models and read some of your, your reports that were excellent. So it's just wanted to start there. What's your point of view of where we're going on ownership?
Kersten:
[07:15] I think that's a, it's an exciting question and it's probably one of the key questions that keep the, some of the OEMs and also us awake at night. The Times I think he'd be honest, I say it depends. So it depends. Are you a, are we talking about people in their 20s or even though any 30th if in major cities while we talking about people in their fifties and sixties that live somewhere in the countryside. And in the end we believe that ownership netnet, um, on the whole is going to go down. At least when you take a look at the developed or the more developed countries, why simply because in cities and even in some use cases you have less and less reason to own a car and owning the car will also become less attractive going forward if you factor in what congestion, if you factor in, uh, probably charge us for production that you're creating.
Kersten:
[08:03] And at the same time also the increasing offer of subscription models of car sharing. And then as you said before, when you then throw an autonomy into the mix and you make car sharing or he hating autonomous and it becomes even, uh, even easier to use these services instead of owning your car. However, if you're now living in a rural area or if you're living in and the part of the work that this may be, you still still growing strongly and the car ownership, um, fingers will still roll for the next couple of years. So even for the next 10 years, we do see car ownership growing in a white chair and a white part of the world simply because it's either under penetrated or because it will take longer for the offers of car sharing. He hailing and then also autonomy to eventually get to these regions for a multitude of reasons.
Scot:
[08:52] Got It. Um, what are the, what are the models you're seeing in Europe? So in the U s we're really just starting to see, um, you know, so we had zipcar for a long time and had some adoption, but it's not a great customer experience cause you kind of have to go and find the car. And zipcar launched before phones, so, so it doesn't, you know, it wasn't 100% matched up to kind of a, a phone, a smart phone, kind of a use case. Um, but now we have, uh, get around and Turo, which are kind of like these micro releases. Uh, obviously we have the ride sharing companies. Um, you mentioned subscriptions. I've seen, it seems like the, the German manufacturers are really, really big on the subscriptions. I get, uh, something from Mercedes all the time from around what they're doing. Um, what are the models that you're seeing in Europe now and, and where do you think, you know, is that, are those going to be the models? Are there more models to come? And then do you have any thought of like, let's pick the city kind of a person? What kind of models they'll use?
Kersten:
[09:50] Europe, we still see a strong growth both in traditional cost sharing. So a couple of, couple of weeks ago it was announced that timeline sort of merging activities and also the other mobility activities. I think this might give another boost to, to Kasha adoption, especially in the major cities where this is already present. Uh, we do see continuous growth and he hailing, uh, there's an exciting discussion now in Germany with uh, Uber will at a certain point B I become, I don't want to say will it be legalized but we'll be more um, uh, allowed or allowed to to run their traditional business model. Also in European cities are in German cities. I think we'll see adoption off or an increasing adoption also in the hailing and ride hailing. Um, we've seen that a lot of adoption also micro mobility. So the e scooters eat kick scooters and bikes mopeds.
Kersten:
[10:44] And I think that's, that's a market that will grow for the next couple of years quite tremendously because for any trip that is below six kilometers, eight kilometers, that is simply a great option to get around quickly. And, and also with, with a lot of fun because you're enjoying the fresh air and it's just exciting to zip through traffic. Um, but eventually we do believe that most of these models, and probably all of the ones that I mentioned except for micro mobility will converge into autonomous shared mobility. And that can be Robo taxis or Robo shackles depending on the individual's price sensitivity, but also depending a bit on how cities who are regulators and, and that's really what in my mind, this is going to take off tremendously, um, simply because the price that you will pay per kilometer or per mile is going to go down so much that it's going to be super, super attractive to, to go from the type of mobility options.
Scot:
[11:36] Cool. Um, so when do you think will, from a macro sense, when do you think we'll get to a point when we see car sales kind of like decline? You know, it's been predicted for a while, but my understanding is that, that it hasn't happened quite yet. That, you know, it's definitely slowing, but we haven't seen kind of a decline of new car sales. It seems like that'll be a little harbinger that that were definitely kind of at the tipping point.
Kersten:
[12:02] It depends a bit on their perspective or if you say, hey, let's take a city like New York or London major city high density there. We do believe that this peak car might happen might already has happened or what happened very quickly because it's increasingly less attractive to own a car. Plus also in the cities there are so many mobility options to get from a to B at this will change. Then the next tier of cities which are a bit smaller, a bit less dense and where you have people commuting still to a certain extent by car. This would probably happen definitely the Twang before 2030 but depending a bit on the timeline for autonomous might happen. People foster and then in the countryside in the more rural areas or in cities that are in the neighborhood of say a hundred to 200,000 people there. It really depends on on how fast these models, these inhaling models and also the autonomous. He headed the models then trickled down to the cities, but eventually, and the can be anywhere between the late 2020s or the early 20, 30 years, it will also happen in these cities. And that's then when Lily, the total number of cars of old cars might be, um, might be impacted much more severely simply because the number of cars in these cities is much higher than if you'd take a look at as a city like New York or London.
Scot:
[13:20] Yeah. Interesting. Um, and just so I'm clear on your pointless like pick 20, 30, kind of the latest part of your prediction there. You think that's just when we're going to hit the tipping point? It's not that we're going to be kind of 100% change of ownership. It's going to be kind of a, you know, a gradual change over time.
Kersten:
[13:38] Exactly. Yeah, exactly. I think it will be a very gradual change also because, um, some people might already today be using shared mobility to a large share of the upper mobility they consume. It does still still, it doesn't mean that people ditch that car or sell that car off or don't replace the car. It might seem to be that people keep on adding this mobility consumption of shared mobility to the mobility they consume. Right. And then until people realize that actually the car that they have owned for quite a while, it's not needed anymore. They either sell it or they don't replace it, it might still take a bit longer. Right. Because there's a lot of people who are very much used to, uh, to owning a car. So I, for example, I own a car. I live in Hamburg. I don't really, to be honest, it doesn't really make economic sense for me to own a car, but I'm a, I'm a car guy, red, so I'm passionate about it. I think this will still keep the car sales up for quite a while. And I do think that's a good thing.
Scot:
[14:30] Very cool. Yeah. So when one thing that's near and dear to our heart here at Spiffy is, uh, there's, what we found is a lot of people are excited about all these models, but they forget some of the basics. Like, like who's going to service these vehicles as they move from, uh, an individual ownership to become more of a fleet or a BTB orientation. You're, you know, the, the utilization goes up, which is good, but that's more miles, more, more, you know, more service needed on these vehicles. Um, and here in the u s at least we have all these factions kind of, you know, starting to square off to, to fight for, you know, kind of the, the, the overall macro management of this. You've got the dealers and OEM's, you've got, um, you know, the new new folks like the Ubers and lifts, you've got car rental companies. Um, and you know, even, uh, other, other kinds of entrepreneurial companies trying to start like a Toro or whatnot. Do you think there's a winner take all in that or, or do you think there's going to be all kinds of different battles going on to figure out who, who operates these fleets of the future?
Kersten:
[15:31] I think it was going to be different ecosystems and the ecosystem. So going to solve this differently, right? So that will obviously be some people going almost exclusively onto let's say Uber or Lyft platform and using that model for a large share of their mobility requirements, others will still get them mobility contract and the can be a subscription from OEMs. And there will be many other ways that we don't know yet had many of the companies coming up and each of these companies within the ecosystem, we're find its own way to solve this problem. I'll be of the operations of the cleaning of the maintenance of repositioning the vehicle before we have autonomy off. Uh, once the vehicles are autonomous, sending the vehicles to the right locations where the demand is going to be. And in my mind that's a very exciting business opportunity because it combines a couple of very classic capabilities that you need.
Kersten:
[16:21] Like the rental car companies have today, uh, with, uh, the requirement to use algorithms and new technology to optimize the system. And, uh, in my mind for the customer, it will, it will become better, right? Because today, if you own a car, you need to think about where do I take my car for service? If you live in a coach, part of the world, you need to think about tire changes twice a year. You need to think about repairs. Uh, you need to think about things like parking and so on. But once you take all this away, somebody else will need to integrate this for the customer. And the customer only consumes mobility through the click of a button on the smartphone probably, or whatever we'll be using in 10 years. But, um, this, this sort of change in the entire value chain will be very exciting, um, for the companies and we'll have great opportunities, but at the same time also make the lives of the consumers much easier.
Scot:
[17:12] Yeah. Yeah. The, uh, you mentioned subscription in your answer there, and I forgot to kind of dig in on that a little bit. Uh, so far the subscription programs have been, they're really interesting and intriguing as a consumer, but they're really expensive, you know. So one of the Mercedes ones for example, um, kind of their premium tier is two or $300 a month, which is, you know, that's, that's, you know, more than two or three x. What, what folks are paying for kind of a lease of a single vehicle. Do you think the, do you think the economics there will eventually work out so that the subscription, uh, is, is cheaper than Elise? Uh, or is it going to take autonomy before we of get to something like that?
Kersten:
[17:50] I think it might, it might happen before autonomy, especially when when you're real at a certain point in time, be able to have different packages and also combine the subscription to a car with other mobility options. So imagine, um, so in my mind the perfect thing would be a package where pay x zero $6 a month depending on the sophistication of that and that can consume whatever mobility I want to. So I can take a taxi when I need one. I can get a car sharing vehicle over the weekend, I might even get a convertible somewhere or during the week when I, when I really needed, because I'm commuting every day. I have a car that I have guaranteed access to. Right. And I think once you combine these different offerings and also make sure that people don't necessarily or don't use a car that they subscribe to the same way as an old car is at least top because they keep it in their garage for, for um, seven days a week.
Kersten:
[18:42] And even on the days where they don't use it all the time when they don't use it, then you can cut down the cost of these models because they simply sharing the vehicle using the vehicle's much more efficiently. And then I think we'll go into something like, like what we had a couple of years ago with cell phones when they were minute packages and, and data packages and you had SMS packages and all that, all that stuff before flat rates it. But you will have different packages that you can buy and you will get access to different types of mobility depending on how sophisticated the package to you by is. And I think that's the way when a, it's going to again, become better for the consumer but also become more affordable. And when also the companies that offer this will have a better chance of making money. And again, it takes somebody to manage all of this right and somebody to service the vehicles and take the vehicles from point a to point B. And that's again where these fleet operators and also where the dealers are going to come in because somebody needs to do that.
Scot:
[19:37] Cool. Um, so let's transition from ownership to connectivity. Um, you know, I always kinda think of connectivity from a consumer perspective because it's a, I own a Tesla model three and it's, you know, it just really enhances the cabin experience to have a live connection to the Internet. The maps get better and you know, you can stream music and just the whole experience is kind of a nice, nice thing. And, um, and then so that's, that's I think when people hear connected car they think about those use cases. What are your thoughts on conductivity and, and you know, is that the right way to think about it or you know, it seems like you think a lot about infrastructure, you know, so municipalities and roads and cities and whatnot, is that really more where it's going to be interesting is the car is sharing their data with the cities. What's your view?
Kersten:
[20:24] as a ton of applications and a ton of use cases. So obviously it's a question, how can you use the data that is generated by the, by the car to make our lives better by making our last bit of this can be safety related, sharing data with other cars about incidents on the road, sharing data with other cars about, for example, a slippery surfaces or heavy rain or whatever it is to make sure that the driver, me other driver, a couple of a half a mile behind me on the highway or on the next round, the next corner already knows that there is a danger and, and can be crossing that dangerous section much more safely. And this is somewhat alluded to that. That's, that's one thing I think same type of data can also be used to inform cities and municipalities about bad spots on the road repairs that they need to make.
Kersten:
[21:11] It can help better guide traffic, not only on the way we doing it today with what we have in Google maps and other services, uh, but also, um, uh, making sure the traffic is actively steered in the morning to make the commuting time or reduced the commuting time for everybody. You could almost see then also do, um, uh, charging for, for city toiling based on that. So the faster route you want to do and want to get into the city, the more you have to pay for city toiling, manipulate, okay. With taking irrelevant, this may be going a bit around or is it a bit more congested in we have to pay more, you have to pay less for that. So these are all the options so that you can do this and there's a lot of stuff how to monetize, um, infotainment, upgrading the car.
Kersten:
[21:52] Anything you can do through over the air updates, what, what Tesla is already be doing quite quite successfully in my mind is a great opportunity to simply improve the user experience in the car because he can make sure that the vehicle that you buy today and you keep for two years or three years is always refresh to a certain extent that you get upgrades and updates to your smartphone. Um, there's a way how you can standardize all the cards that you have and you simply unlock the features by software. So you install the hardware, all of the hardware and the vehicle. You had significantly reduced production complexity and by going, if you will, into an APP store in the day, call you unlock certain functionalities. Is this then also a monetization opportunity for the, for the OEMs. So there's a ton of stuff that can be done in my mind was connectivity, connected cars and these teachers. The question is how do companies need to set up themselves to make sure that they can capitalize on this? And my mind just have a lot of work to be done from this on this end.
Scot:
[22:52] You think we need like an industry standard, you know how there's kind of like Hipaa for healthcare, which obviously is around privacy but it also is kind of like the format of data. Uh, it seems like if every OEM of has different data they're collecting and ways of delivering it, it's not going to be as useful. Um, are there, uh, I'm not aware of any but you, you probably are closer to it. Are there any in the efforts to standardize that kind of thing? There's a couple of efforts. M
Kersten:
[23:18] one one does an ISO norm that's being pushed forward in Europe by a consortium of players where they want to agree to share certain set of data accessible obviously in a, in a sanitized and anonymized fashion to um, a lot of companies and they can create use cases on it and then do safety relevant things with the data. That's a great starting point in my mind. Some of the companies also need to start thinking in a way, how can I create end to end use cases from, from the data that the car is collecting and how can I make money with it? But that's a question of also changing the incentivization structures of the companies because they've never, they haven't been trained to think in a way how I can make money off the data that are trained to send money, especially the other OEMs are trained to think, how can I make money with the car and how can I make money the car platform, but not so much with one specific piece of data that I'm collecting and how can I deliver great value to the customer. So yes, it's a, it's a way of standardizing a couple of the interfaces, but also do believe that the thinking and the organization and the way how they incentivize their people use to change in a couple of companies for this big to become even more a reality.
Scot:
[24:33] Uh, and this is a very tactical kind of connected car thing is I've read a lot of articles around package delivery. I think most of the German OEMs and then a lot of the uh, delivery companies like DHL and Amazon, um, you know, they have a connected car capability where they can deliver packages to your car is I've read this popular in Germany, but I haven't seen any data. Is that, you know, I'll ask since you're right there, have you, have you seen that being used a lot?
Kersten:
[24:59] I've heard it met a couple of, uh, a lot of companies are working on this and I think it's, it's an exciting new use case. Um, but it's, it's one use case, right? So, and it's a through it. It's a great one. But um, when you think about how much work needs to go into that use case and it's how much trust needs to go into you sort of unlocking or having somebody from VHL unlock your, not only the actual, it doesn't matter what company, right? Unlock your trunk so that they can put in a parcel. There's a lot of work that needs to go into that use case. But I think on that same level, there is not only one use case, there's probably a hundred use cases that will create tremendous value if the companies cooperate and make that happen. But yes, that's a, that's one example of a great boost case that can make everybody's daily life easier and save a lot of delivery costs and also save us a lot of hassle. They're not having to go to the post office to pick up a package.
Scot:
[25:48] Yeah. Um, let's, uh, let's move on to evs electric vehicles. Uh, you know, looking at the data, it looks like they're starting to get and make it a little bit of a dent in new car sales. Uh, here in the U S we're, we're kind of in the low percentages, like two, 3%. China. I saw some data that there's somewhere between five and 7%. Um, and then the Nordic countries, uh, you know, I think they're, they're really taken off there. Uh, what are you seeing today for evs and then what's your prediction? Uh, you know, when we had some kind of, uh, uh, material tipping point there.
Kersten:
[26:21] So in our mind, eating isn't, it's all a matter of execution, right? So every, every OEM, every car company is, has either already launched or is it a process of launch, a tremendous amount of electric vehicles over the next couple of months and years. So in our mind, this, this penetration rate of new car sales is going to go up steadily, um, still much more quickly in, in China and in parts of the US like California than in Europe at least in the, in the wider part of Europe. But simply because the OEMs have invested so much money in this vehicle platforms and we'll be launching the vehicles, they will also need to sell them. And I do believe that customer adoption is going up. The question marks that the consumer has around range, around all of the other vehicles around reliability, all these different things, they will, they will go down.
Kersten:
[27:13] These concerns will become less relevant with the number of vehicles and the number of models increasing. Um, it's a notion of customer education that is already happening today. And, um, quite honestly if you, but if everybody thinks about their daily use of, of a car, how many miles you actually drive. And this question of range isn't really a problem. So for me personally, when I think about my car usage behavior, again I live in the city. There are very few trips that would actually require me to have a range larger than the range of any electric vehicle. And the good thing is you can actually charge it at home. So it also saves you the trip to the gas station. So I do really think that this is going to keep increasing when it comes to penetration. Um, China obviously leading the way and the number of, um, of companies that have popped up there, but also due to the fact that the government is pushing strongly in this helping strongly there. So, uh, in our mind, the, the future of the vehicle is definitely, at least in some use cases and some areas increasingly electric.
Scot:
[28:14] Cool. It seems like one of the, one of the linchpins is the charging infrastructure and then China, uh, correct me if I'm wrong. It looks like the governments essentially said, hey, we're going to go kind of, you know, build all this out. Um, how about, uh, what's going on in Europe as far as charging structure and then at a 30,000 foot level, uh, you know, it's interesting in the US you have some commercial ones like a charge point then you Tesla's building out there and kind of proprietary network. Um, there's talks of independent companies building more generic kind of, you know, chargers. Uh, what do you see happening there at the macro and the micro level?
Kersten:
[28:49] Pretty much consistent with how you described it. So we do see a increasing the company is doing that on their own uh, alliances being formed across various OEMs that say, hey, we need to electrify not only in the past cost space, but also in the commercial vehicle space that are um, uh, pushing towards charging infrastructure. Cities are actively promoting it. A retail outlets are putting charging stations in front of the stores and so on. Now in some European cities, I'm always joking about it that I need to get an electric car just because I can then parked directly in front of the store because the charging spots and the parking spots for electric vehicles up closer to the entrance, then the parking spots dedicated to families and to two women with small children. So it's, it's also advantageous to have an electric car from that perspective. Um, but I think we will, we will see that charging infrastructure will remain a certain bottleneck and especially in cities where people don't have the individual parking spots that we remain a problem for the next couple of years, but the penetration of evs is still fairly low, so that that's not the one bottleneck. I think the consumer adoption, especially in some European countries is still the bigger bottleneck then the fact that charging infrastructure isn't available.
Scot:
[30:02] Okay. Interesting. All right, last topic. I know this is probably the one you're most passionate about is autonomy. Um, uh, we're, uh, you know, the timing's really good on this. I don't know if you had a chance to watch it Monday, but Tesla had their, their autonomy day. Um, there's been a ton of news this week just around autonomy and this is kind of obviously the hot topic. Um, I wanted to start it kind of like, it seems to be the, the most interesting question for me is, uh, you know what, it seems like Tesla has bet pretty big that cameras are going to be kind of how to solve this and, and know a family of cameras that can stitch together a three d scene. Uh, but then everyone else has kind of bet on Lidar. Uh, do you think that's going to be there has to be a winner there or are you think either method could possibly work?
Kersten:
[30:47] So I think even ever met that can possibly work if, if Tesla manages to get the cameras and the combination of the cameras to a quality that will get them an image that they, or a perspective on what is happening around the vehicle. It is good enough for them to trust the vehicles to go autonomous then, then that's, that's great. Um, I would always in the discussions with many of my clients be more excited about the lighter opinion, but there might be a certain bias to it because a lot of companies are pursuing it. And it, we are, we do know that this is going to work. Um, in the end, either solution that works, doesn't matter if it's lidar based camera based or if there's a third solution that might even require less sends us in the car because it relies a bit more heavily on infrastructure and we might see that or we'll see that in, in parts of China. Um, uh, either solution that is somewhat working, working well, we'll, we'll be, we'll be winning and we'll will see different, different stacks and different combinations in the next couple of years because it's, it's still a new technology and it will take some years for this all to become a fairly standardized and to become similar across different makes and models of legals.
Scot:
[32:02] Yeah. And then, uh, at, uh, so that was a super micro question. A big macro question is, uh, do you guys have a point of view of wind? We're going to see, you know, real real use of of Avs or, and um, do you think it's going to start in Metros or it's going to be kind of like long haul trucks. Uh, and then what, what's your timeframe? Is this a 2030 thing or is it pushed out past that?
Kersten:
[32:24] So in our mind, the two most interesting use cases, uh, I'm going to be Robo taxis, roadworks huddled. So basically, um, in cities or urban areas, what will it have? Robo Texas, similar to what other are doing today, drive around. And then the long haul trucking thing where at least the part of the, of the ride that is being done on the highway will be fully automated for the driver not being in the cab anymore. And the navy, the truck stops at a, at a rest stop in the last couple of miles to the depot, to the logistic center are being done with a driver. But you will still save a lot of costs because you take out the driver for the majority of the trip. And that's something we expect to see depending a bit on the exact geography, depending a bit on how much the extent the Geo fencing, but definitely in the early 2020 [inaudible].
Kersten:
[33:12] So, uh, this year, next year and the next couple of years with a increasingly more pilots, the geo fencing becoming less rigid, um, more and more cities launching this type or more and more companies launching this type of service in different cities. And I think that by 2025 this will have been, would have become a sizable phenomenon that is recognizable to the naked eye by everybody who was, was driving around in, in, in major cities. And then by 2030 this at least one, when we take a look at our model, there's obviously still a lot of uncertainty at how hot sauce this is going to scale and then how big it is going to be. But we do believe it will be a massive phenomenon anywhere between 2028 and latest 2035. And that will all be possible in all my, we'll go look forward technology because in the end, even if you geo fence, I'm a city and then anything that the geo fence is technically level four, not level five, um, you can still get a majority the lion's share, 80%, 90% of the, of the use cases of the trips. And thus the market size is just tremendous human without being able to drive autonomously into, uh, into the woods somewhere close to a city or, or I'm taking every single trip that is theoretically conceivable in an autonomous fashion.
Scot:
[34:30] Um, and then, uh, but again, you know, you're thinking that they'll, there'll be, by that time, I'll pick the further south 20, 35 it'll, it'll be common to see it happening, but we're not going to be kind of like 100%. It's going to be more of one of these gradual kind of changes that, you know, certain certain use cases.
Kersten:
[34:49] Absolutely. I think when, let's, let's roll it forward and let's say 2030 arrived in 20, 30 years, sort of mass adoption of Ab. Even then if you have 20%, 30% of all passenger miles driven in a city in driven autonomously and be driven by Robo taxis, a robot shovels, they would always already be a huge penetration. And for some cities that would be up all the major cities. That would be a market of anywhere between 15 to 25, $30 billion a year in terms of a revenue generated by the, by the customers, by the mobility users. So a sizable market, even without every single kilometer being done autonomously. And I do thing that we will still see cars being driven by people for the next, um, uh, 50 and 20, even much longer years. Maybe if it's just for recreational purposes or in rural areas or because people still like to drive themselves. Um, but this wasn't ever, at least not in my lifetime. This will not go away.
Scot:
[35:48] Yeah. People still ride horses, not that many minutes. Definitely a hobby. Um, uh, who another intersting. Just kind of like the fleet question. We have a lot of people obviously trying to, this is such a big pie that that they're, they're trying to go after this thing. You have the, the OEMs, you have Google with Waymo, Uber lift, uh, and then a bunch of other kind of players do, do you think there's a certain winner there or uh, do you have a prediction on that?
Kersten:
[36:24] So we do believe it will be ecosystems in the end that will be, we'll be winning this right then the question is who is going to dominate which ecosystem and who's going to only play a minor role. And our mind Waymo has a lot of, a lot of reasons why. There's a lot of reasons why we, why we would believe that Waymo is going to be one of the key players. They are fairly early head off of many competitors, been doing a great job, spending a lot of money and they almost, they have an amazing team. Um, but there's also a couple of other companies, either the Oems, we talked about the rental car companies and companies who need to do the servicing of the feeds. There's the mobility platforms we have today. Companies like Uber and Lyft who have a lot of um, uh, a lot of users already and work generating a lot of traffic and creating a lot of revenue.
Kersten:
[37:13] So I think all of these companies will play a major role in these ecosystems. The question is a bit how much, how profitable are the different steps of the value chain going to be? And in our mind the closer you are to the, to the mobility user, um, how closer you are to this platform game of actually matching supply and demand and sort of owning the business, the more likely you are to create margins that are in excess of 10%, 15%. And that's why these areas are probably more more interesting. Um, CMS when you are one of the first companies to have a functioning ab kit that is going to be super profitable, so sizeable but also profitable. And, and I guess there is, there is going to be a play for all of the companies you mentioned. Some of them will just have a higher profitability and we do believe that this higher profitability is going to be, uh, um, closer to the customer or the closer you are to the customer that are more profitable.
Scot:
[38:08] You know, we, we had, uh, uh, this is a little bit out there, but we had a guest on the show and, and their logic path was if you kind of flash forward to autonomy, um, now, uh, now, you know, we don't, what differentiates a vehicle? You don't really care. It's kind of like, you know, when you summon an Uber, when you do your, you're calling an e hailing, you know, you don't really kind of say, well, I really would prefer a model, you know, a widget a versus widget B. They kind of commoditizes the vehicles. Um, and then since you're, you're not really having to pay attention driving his, his theory was, you know, you could almost see people choosing, um, what, what they take based on the interior experience. So, you know, maybe there's, maybe there's almost like a Netflix or Robo taxi or a, you know, if you're, if you're going to be on, let's say you're going to do a three hour ride and you're really just want to be entertained or another one would be, maybe you're going to work on the way and just having the cabin outfitted for those specific needs is what's going to drive things.
Scot:
[39:09] I thought that was just a, it kind of tilted everything on it said, and I thought that was an interesting perspective. What do you have any gut reaction to that?
Kersten:
[39:17] Agree. I think the, the factors that determine which product to choose would totally changed from today. So power train, uh, as we have today for many, for many cock customers, this is a super relevant thing and brand is a super relevant thing. Interior design, the way that US field and the [inaudible] make you feel and so on. That's important in my mind all going to go away with chef. And the fact that the factors you said are going to be super important, but it's also going to be important to how clean is the car. We're going to be all foster, they're going to come. And then also, especially in the initial years of autonomy and, and when I mean initial deals, I'm talking at least until 20, 30, the way how safe the car makes me feel and the way how confident the system is driving and how much the system feels like a human driver.
Kersten:
[40:00] That is also going to be a major driver on, on what systems will be successful in what systems won't be. And from a perspective of the operator, I want to, if I'm an operator of an ab fleet, I want to make sure that sort of my total cost of, of users or total cost of ownership is, is as good as possible. And that also factors in again how well the system is performing, how many hours a day I can actually drive autonomous. The uh, and then also how fast the vehicle gets from ADB. Because some abs might simply be a bit slower in the beginning. And thus the vehicle that has a higher performance or higher confidence to drive a bit faster to drive, like, like humans would be driving. We'll also get you a better, uh, a better profitability as an ag operator. So depending on, on where you, where you said this will, these factors will change dramatically, but there are still a couple of factors that are close at least to the traditional, if you will, OEM and automotive capabilities.
Scot:
[40:55] Hmm. Um, uh, you know, I'm sure you saw Tesla, they talked about having thousands or tens of thousands of potential robo taxis by next year. I think they're way ahead of the regulatory thing. And I want to talk to you about regulatory stuff, but then, you know, one of the interesting things that I saw was he talked about cost per mile and a current ride share, if you look at the TCO, is somewhere between two and $3. These are their numbers. You probably have your own view. But then he, you know, the thing that I think that was shocking is he said the Robo taxi, uh, because they are an EDI platform and, and, and whatnot, uh, we'll get to kind of 18 cents a mile. So, um, do you, do you think that's, do you agree with some of that math that, that, that we're going to really get the cost per mile or kilometer so low that, that that is one of the big catalysts for driving adoption of this?
Kersten:
[41:48] I'm not sure about 18 cents. Right. But we will get the cost down to something that is very close to what we see today in public transport, especially when you're thinking about pooling rather than taking an, a new autonomous, uh, vehicle. Um, so robo taxis would definitely be cost competitive, a price competitive to owning a car and Robo shuttles will be cost competitive to going on some kinds of public transit, which will a, and that's, that's by the way, one of the reasons that our model, why, um, why we do believe that this market is going to be so massive, right? Because I'm, we always think about what is the best next best alternative. That's a question of convenience, but in the end it's also a question of price. And if you offer to somebody a chance to be driven around from ADB at a cost competitive to taking your own vehicle, you don't have to worry about parking the vehicle, you don't have to worry about actually driving and you consider the back and work or watch a movie or do whatever, then the switching behavior is going to be, it's going to be a fairly intense and we will see a lot of people switching.
Kersten:
[42:53] And that's why we, we do believe that this market is going to be so huge.
Scot:
[42:58] It seems like you guys have put a lot of thought into these different ecosystems. Um, what do you know when you're sitting there in front of these, the, the OEMs? Uh, you know, one of the things here in the u s is they have these big dealer networks and you know, it's pretty easy to see a day where, where you don't really need that most, you know, if you ask a consumer, you know, uh, there, there's these funny TV ads where, you know, someone has to go buy a car and it's Kinda, you know, it's like the last thing they'd rather go get a root canal than it can kind of go buy a new car. Uh, so, so consumers don't love the existing, you know, experience of buying a car. Um, and then the service model for most Oems, you know, there's, there's luxury ones that that seemed to have cracked the code here. Uh, they don't live that either. What's that mean for kind of OEMs and dealers and this, this kind of future where we have robo taxis and different ownership models and all that stuff.
Kersten:
[43:50] So, I mean, we talked earlier about half the ownership structure is going to change, right? And then for sure we are still going to see Carl and this shape is a very relevant thing for the next 20 years, 20 plus years. Right. So the diva, we'll, we'll always stay. We'll always stay relevant. The question is just how does the role of, would you then need to change as in when we think about more online sales or more consumers that are getting all their information online and only having one point something visits per car per purchase rather than four or five in the past or the role of the dealer needs to change and also the retail experience to a certain extent needs to change. Do you think if we, if you figure all that in and if we think about how the ideal car purchasing journey look from a customer perspective and the dealer will still have a role in expanding the car, providing a test drive, delivering the car and obviously also in the whole servicing of the vehicle.
Kersten:
[44:44] Um, it's just a question of how you change this, um, this dealer network structure and also how you change the role of the dealer to accommodate a four. The fact that the whole car purchasing process is changing dramatically. And before the fact that at least in some geographies the number of cars owned will actually go down. But we talked extensively about all the fleet management things and also if we think about a different ownership models where people are using the subscription and so on. And there is definitely different roles for the dealers that need to be or different different activities that need to be done. And the dealers are in my mind, one of the most natural owners to to step in and do this. It would just be a change of the business model to a certain extent, but there will still be a requirement of a strong requirement for a diva like association with a new line of business.
Scot:
[45:31] Yeah. I guess one question is, you know, so, so I come from the ecommerce world and uh, one of the clear losers in this big kind of digitalization that we're seeing, uh, is, is traditional malls. Uh, and I don't, I guess cause you feel it in Europe as well, it's more of the high street retailers is what you guys would say. Um, but you know, that's, that's clearly we'll, we'll see like 30% of the malls in the u s go out of business because they just kind of don't offer a competitive offering. Do you think there'll be a big loser as we look at kind of these trends in the, in the ecosystem of mobility? Is there some are, I guess it's hard to be a consultant and say loser, but uh, let's say what industries most at risk by these changes we're talking about?
Kersten:
[46:14] So I think it's not an entire industry that's most at risk or an entire hypoplasia that's most at risk. I think for every single cause. This is, this is huge one and the whole ecosystem, the whole value chain is different. And at the same time it is still complex because cars are more complex and smartphones, just as an as an example, right? So think there won't be, entire industries are entire archetypes of players that we'll be using. They will simply be a couple of companies within each archetype. It will struggle either because they attack the change too late or because they didn't invest enough money or because they didn't have the right people or whatever. But that's, that's how I, how I would see it. And probably we will see a certain conservation and some parts of the market and we will see a change in the margin structure of the industry and also the revenue structure of the industry. But I don't think that entire industry is, we'll, um, we'll will cease to exist, um, simply because again, the potential is so huge. And Net net this will actually increase the number of miles driven and the mobility consumed because mobility will get easier to access, um, or to be accessed by the consumer and it will also be cheaper for the consumer. So therefore the total consumption is going to go up. And then the total pie if you will, it's going to get larger. It's just a different distribution of the pie.
Scot:
[47:30] Cool. Um, so I know you're super busy and we're getting right up against time. A couple of last questions. Any other thoughts or topics on your mind that we didn't cover about where you, where you see things going in the next five to 10 years?
Kersten:
[47:45] One, one thing that's, that's interesting to discuss. It's a bit what is going to happen to traffic into congestion in cities when you think about this. Because we take a look at the data today and we'll take a look at it, especially ride sharing and e hailing. It actually creates more traffic because it is more convenient for users to access and people are actually substituting trips that they would have otherwise driven by a bus or walked or not have taken by using, by using, for example, Uber or Lyft or something else. Right? And, um, the question is what can be done, especially by cities to make sure that this is, um, this doesn't increase congestion even further. And this doesn't completely stalled traffic. And in my mind, uh, cities have a very important role here and need to play a very active role and making sure that they shape this mobility transition for the respective city and think about what their target function is and how they want to optimize mobility and how would they want to make use of these technologies. Because in our mind, in the end, if you put, uh, autonomous shared electric mobility into the cities and this will make everybody's lives better if it is managed well. And that's for me something where one or the players need to cooperate but to also the cities need to play a very active role to make this happen.
Scot:
[49:00] Do you see a point if we kind of play that out? You know, a lot of folks are talking about, you know, cities just changing their design, getting rid of the parking and the roads become more, you know, maybe you have one lane for Avs and then a lot of more for, for like scooters and bikes. And, uh, do you, do you see a future there where we have these kind of cities that are drastically changed by these trends?
Kersten:
[49:24] Absolutely. I think if you, if you, if you are a city or the mayor or somebody in the transportation planning department and you take a look at the entire traffic pattern in the city and how people who want to get from a to B and how you want people to get from a to B, um, you could, you can redesign the city, you can take entire city, city blocks and areas where you don't a low cost at all, where you basically limit morbidity to either micro mobility or some type of public transport. Um, and yes, I think there's a tremendous opportunity, um, that by reshaping the way how the existing road infrastructure is used, we can accommodate more people and make mobility's cleaner and faster for everybody. Awesome. Two more economical at the same time.
Scot:
[50:10] Yeah. It's gonna be fun to see how all this plays out over the next 10 years. Um, so I, it's a little bit, yeah. One last question. I've really enjoyed reading a bunch of the content that, that you and your group put out there for listeners, where can they go to, uh, to learn more about your, your and McKinsey's thoughts around these topics.
Kersten:
[50:29] So we do have a presence of the McKinsey Center for Future Mobility at mckinsey.com. When you go to mckinsey.com and search for EMCFM, the McKinsey Center for Future Mobility, you will find our publications. You can also obviously stalk me on Linkedin if you want to. Um, I try to post all the new research that we have and if there are any other questions, obviously feel free to reach out to us. Um, we do have a ton of stuff available.
Scot:
[50:54] Awesome. So look forward to seeing, uh, there any, any uh, reports coming out that we should be aware of.
Kersten:
[51:00] We are working on a, on a major piece on autonomy and uh, the potential of Robo taxis from, uh, from, uh, from an adoption standpoint and also what the size of that value pool is going to be. That's something we should be launching in the next couple of weeks. I saw and I think that's going to be sparks. I'm exciting discussions about the market sizing.
Scot:
[51:19] Awesome. I look forward to seeing that. Uh, and we really appreciate you taking time to be on the Vehicle 2.0 Podcast.
Kersten:
[51:25] Again, thanks so much for having me. It's been an amazing experience and all the best for your next podcasts and guests.
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EP008 - ICRS Recap and Industry News
http://www.vehicle2.getspiffy.com
Episode 8 is a news-focused episode, recorded on April 25th, 2019. We start off with a recap of last week’s International Car Rental Show (ICRS) from Karl Murphy, President and Co-Founder at Spiffy. After talking with Karl, Scot dives into a variety of recent news items, including:
Smartcar, who we featured in Episode 3, has accused Otonomo for allegedly stealing from their API documentation. Recent study shows that consumers are ready to make payments via connected car dashboard. Getaround expands outside of US with acquistion of European counterpart Drivy. Ford invests $500 million in EV pickup truck maker Rivian. China is pushing EVs to make up 20% of total auto market by 2025, while the US is expected to hit 7%. Tesla reveals hardware chip for their Full Self-Driving initiative. Uber S-1 discloses $457 million in R&D costs for autonomous vehicles, flying cars, and other “technology programs”.If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:51] Welcome to the Vehicle 2.0 Podcast. This is Episode 8 and it's being recorded Thursday, April 25th, 2019. Welcome back Vehicle 2.0 listeners this week on the show. We are going to take a break from all the guests we've had on. We've really enjoyed and learned a ton in the last arc of gassed. And we're going to cover some news here in the automobile industry related to Vehicle 2.0 in last week's episode seven, we had Chris Brown from Bob Business Media and he is the editor of auto rental news where they think a lot about the changing ownership models out there. And if you recall, he curates the international car rental show, also known as ICRS. First, uh, to kick off this news episode, we have the co-founder of spiffy our very own Karl Murphy and he's gonna give us a trip report, a fresh off the heels of his trip to Las Vegas last week to the show. Welcome to the show, Karl.
Karl:
[01:52] Thanks Scot.
Scot:
[01:53] So you were in Vegas last week at the trade show. It's our first time ever going to this trade show. We were a, uh, we were an exhibitor, um, and uh, you know what? Uh, so it was a great show for spiffy and enjoyed a really exhibiting there. Uh, but that's not what we want to talk about today. What are, I know you were able to peel away and see a bunch of the content. Um, what were some of the trends and topics going on at the show?
Karl:
[02:16] Sure. So it's, uh, an interesting show. It had a mix of both large companies like Avis and Hertz and Ford and Toyota and small entrepreneurs. You know, companies like spiffy that makes software and entrepreneurs that have small fleets, maybe 10 or 20 cars and they're renting to a, uh, small Mitch. So it was interesting to talk to global companies and small folks. Um, it's uh, like three quarters us attendance and maybe 25% international. So we spoke to people from Brazil and Australia, Canada, a couple of Europeans were there. And so it's, it's interesting to get their perspective. It's, it's interesting, you know, um, their, their challenges are the same year. They all sort of a, from a vendor standpoint talk about the same things and want the same things.
Karl:
[03:01] Um, it was well attended. It was at the, you know, it was in Vegas at the Paris hotel in a, from a, from a provider's standpoint or vendor stand standpoint, really high quality attendees. It's like the people who showed up at our decision makers, they were running the fleet or they're the CEO or their, you know, sort of at a, at a corporate, you know, if they're smaller company, if it's a corporate level, it's sort of the, the decision maker or sort of one level away. So there wasn't a lot of um, you know, sort of distracting boost traffic, people looking for chotchkies and that sort of stuff. Nobody, nobody cared about our pens and penguins. They cared about our service and um, and sort of the things that we're doing to help fleet operators provide better preventative maintenance.
Scot:
[03:43] Cool. So, um, uh, so when we had Chris on the show, he talked about a lot of the different trends. Um, it feels to me having come from the ecommerce industry that, that it must feel a lot like a kind of retail shows where everyone, you have kind of the, the, you know, the, the industry stalwarts there kind of a little bit in shell shock and then this whole new group that kind of sees the future. Uh, did you get a vibe that, you know, folks are in denial about what's going on or is everyone kind of onboard with it?
Karl:
[04:12] Uh, there's like two camps, right? So there's the accepting the changes in the industry and the, and the changes in mobility that are going on and that, that Uber and Lyft exist and those companies are gonna be around for awhile and they impact the rental industry. Uh, clearly, um, the large auto companies see those guys as a threat to people taking, you know, taking their business. Um, there was an enormous amount of, uh, small entrepreneurs and small, you know, I mean it could be 2000 cars. It's sort of a small fleet, um, to, you know, maybe 20 or 30, but small entrepreneurs looking to get into, uh, you know, the changing mobility landscape. So they're either subletting, sub leasing cars to Uber drivers on a, on a short term basis. You know, it could be a day or a week or a month depending on sort of their model. They're software companies, they're providing all kinds of software to solve those problems for entrepreneurs.
Karl:
[05:06] Um, you know, some of those were companies that didn't make the comp competitive cut against Uber and Lyft and they repackaged and rebranded and now they're trying to help smaller entrepreneurs who are delivering services. Um, and, but there's clearly like there's some definite old school companies trying to solve old school problems. Um, I attended a, um, for like 10 minutes, there was a presentation on the, the um, sales characteristics and recruiting profile of a high performing counter agent, you know, and, and, and essentially, you know, they just want to sell you insurance, right. Um, and get you in, you know, they want to take you from the, the Toyota Tercel to the Tahoe. And then add, you know, double secret, leave the keys in the road, incentives at grid, coordinate insurance. You don't owe us anything. Um, and, and I, I was here for like 10 minutes. I'm like, you know, it's sort of like you who's selling buggies today, you know, like, I need somebody really good to sell buggies.
Karl:
[06:02] Um, because as a client I don't ever want to have my, my car rental customer experience breaks down when I go see the counter agent. Yeah. It's like the opposite of what the customer experience should be. Yeah. Yeah. It's like, I just want to like get keys and go to the car and drive away. Like you have my Amex and you have my id and my driver's license and I'll give you a retina scan and a fingerprint if you want. I would put a track, I mean, I'm sure you have a tracker on the car already. Right? And there's some of that stuff too. And, and so there's this dichotomy of there's all this connected car data and they talked about being able to shut down cars, you know, because I guess there's some issue where people will, you know, they'll rent in San Antonio and drive to Mexico and strip the car apart.
Karl:
[06:38] And, you know, you never, you never see the vehicle again. They, that's, that's a problem the industry for them. Um, and I was like, you know, this, this is sort of a wasted, you know, this is a 1970s, um, uh, session versus, you know, sort of impact of micro mobility and, and, and, and there's a lot of opportunity for it. I think. Um, you know, as the previous guests said, you know, there's all this data being shared that cities and governments are looking forward to, to reduce traffic problems. Um, and, and that, you know, I think that's a way for the industry to get on the side of, of government, hey, we got all this data. We can, we can better route traffic or we can charge different fees for different access points and when there's rush out and that sort of thing.
Scot:
[07:22] Yeah. Um, I saw a fair amount of Twitter traffic around. Um, there's a lot of pundits that come to these shows and kind of share their vision into the future. A Cox auto's has a, an economist there. Uh, it must be nice to have an economist. We don't, we're not big enough. It's 50 to have our own economist yet.
Karl:
[07:39] That's you, Scot.
Scot:
[07:40] Yeah, I'm a, I'm a couch economist. The uh, uh, what, what were some of the trends he was talking about and they've certainly been really active in this space.
Karl:
[07:48] Yeah. So it's interesting. They, they, uh, so at a, at a high level, they thought, um, GDP was like in the high ones, so like one five to, to sorta depending on, um, trade tensions, Paris and that sort of thing, you know, x, some sort of a dramatic positive or negative impact on the economy, you know, terrorist incident or some crazy tax cut or something. He was outside of things we can't forecast. He thought he was sorta like, here's my bets. Like one, eight, one, nine. Um, and then, uh, at the car level, it was interesting. I just don't, I don't really think about this stuff, but he's like, the average cost of a new car is going to tick over $40,000 in the next year or so. I can 2019, maybe 20, 20. Um, and it's, it's being driven by the desire for consumers, for larger cars, SUVs and trucks.
Karl:
[08:38] Um, and then the dealers just, you know, from a manufacturing standpoint, not making small cars like Fords, like not making sedans minus the Mustang and the mustangs like to get into a Mustang with like, you know, without a radio. It's like 45 grand or something. And so that was interesting. And then dovetails Edo, he talked about some of the trends that we talk about spiffy about millennials and their changing behaviors. And you know, they prefer to live in cities. They prefer to have experiences over owning things like, and in some cases, you know, we have, you know, millennial, you know, you're 17 and you don't have a driver's license. You know, I know you and I talk like that was like the first thing to get your freedom at 16 was to get your driver's license and get out of here, get out of your house.
Karl:
[09:19] And so, um, it's, uh, all those things swirling together, um, make it difficult for dealers. Right. Um, and, and so it was interesting to see that. Um, he had some interesting data and I know we talked about this offline, about the cost of ownership for like, say a baby boomer versus a millennial and it's like 20 cents a mile higher, right? And so they do it in cost per mile. Uh, and like if you're like 50 or 60, it's like 50 cents a mile to own a car. And for a millennial it's like 75 or 77 cents. And it swirls into, you know, higher insurance rates because you're younger, a higher interest rates because you have less credit history or some smaller incomes. And that you live in an urban environment. So then just things like parking fees and that sort of stuff get higher and you're using your ma, your car less if you do own a picture in an urban environment.
Karl:
[10:12] So all of those things come in. And then it, it really pulls people out of buying cars new, which makes the used car market bigger, which is relevant to the car rental agencies piss a bunch of them, have a model where they just make money selling their cars on the secondary market. Um, and so there's a lot of discussion about how do you sell cars? Do you sell them direct? Like enterprise has their own used car sales lots so you can drive up and by car from enterprise today. Um, or do you go through auctions, um, traditional auctions that our dealer to dealer, um, which would then put you into like a, you know, a local used car guy, um, or some of the newer platforms where you're like a Carvana where you're selling it, um, online to someone. And so it was, uh, he had, he had a lot of insights about that.
Karl:
[11:00] He felt like the Oems, we're going to survive. Um, he thought the dealer networks, we're sort of at risk. Um, and he felt like the auctions had to really evolve. Ppas. There's a lot of, a lot of people chipping away at the edges of the traditional auction business. Um, it was interesting. It's interesting to sorta hear the side talk among people depending on who they were. Um, you know, again, we're sort of side participant vendors in that market, but the people were pretty, it was interesting to hear that. Yep. Cool. And then now when we had Chris on the show, one of the big topics he talked about is, so if we have this change in ownership model from individual ownership to more business ownership, uh, and um, you know, who's going to take care of all, all these vehicles, this is obviously near and dear to our heart.
Karl:
[11:43] Um, so he kind of talked about fleet management as a service. A, is that something that was talked about at the show or were there a lot of vendors there for that? Uh, there were couple of vendors. I mean there's us and a, and a couple others. Um, it was absolutely a topic of people that visited us. I would say 75, 80% of the people who came to talk to us, we're looking to do that. Again, it's, it's primarily the new players to the market because the business sounds interesting until you own cars and they're split up all over. You know, I've got, I'm a distributed, you know, mobility network provider in Los Angeles. I own 200 cars in there into 10 lots across La. Oh Wow. I have a lot of things to do all over, uh, you know, an 18 million person city. And so they're looking for people to go out there and deal with the cars.
Karl:
[12:31] I mean, one of the things that was interesting, we've, we saw a, um, a digital, um, key exchange system, right? So it's highly secure, sort of designed to be in, in the most dangerous of locations and, and really, you know, to, to withstand sort of vandalism, that sort of thing. You know, you can show a bar code and it, it's, it's a gps or a cell phone enabled. And so it communicates it. And that was super interesting and they were across the, across the way from us in the trade show area and had, they had a lot of traffic and then people coming to us asking, you know, can you know, what are the services you can do? And, and when they talk, when we, you know, we said, hey, we do, you know, fleet fleet maintenance, we can do preventative maintenance, oil change, tire rotation, um, car washing, all that sort of stuff.
Karl:
[13:17] They, they got pretty excited about it because they're seeing that that's a problem, right? Because as soon as you start moving the vehicles, then they get dirty and the more successful you are, the more maintenance you need and all those sorts of things. So it was, it was, um, it was an exciting validation of our model. Yeah. Um, so there seems to be this lifecycle where people kind of start dabbling with, um, you know, I've, I've even seen people, they'll Turo, they're their own vehicle. Then they'll, they'll realize there's money to be made. Then they'll add a second and then they'll build into these micro fleets and then they're gonna need a fleet services and those kinds of things. Um, a lot of the investors I talk to you, they kind of like build models and they say the economics will never work. But then at the same time, I see these guys scaling up from tens to hundreds to thousands of vehicles.
Karl:
[13:59] So, um, do you get any vibe that this model is working for these guys here? We spoke to someone who own 2000 cars in Metro New York and, you know, and they were not like enterprise, right? They were like, you know, it was like Scott and Karl, but they're in New York. And um, you know, I asked them a little bit about what, you know, you know, we had a good conversation. You know, I was obviously interested in talking about their business and how we can help them. We had a little bit of a conversation about their business model and they were pretty cagey about it. But I mean, I, I find it hard to believe you can get the 2000 cars before, you know, you don't figure out the econ economics don't work. You know, it's like, yeah, I could see you could have 20 cars and you could sort of fun that to a point where like, yeah, something must be working to be able to afford 2000 guards. Yeah. It's probably a utilization thing out. Imagine. And they, um, and they must have figured out like, uh, you also kind of start to wonder like, how do they go and acquire all these drivers? And so
Scot:
[14:52] they almost have to have a marketing, you know, how do they get their utilization up? It'll be a nurse in to, to, to understand how that works as this scales up.
Karl:
[14:59] Yeah. I v V this particular guy was providing cars to the two major, you know, Uber and Lyft. Right? Yeah. And so I think he has some sort of relationship with them where they're feeding them leads. He didn't seem like he had a big marketing push or problem. He had, he had maintenance and operations problems, um, where the, the law, the list of their problems for the most part.
Scot:
[15:20] Cool. Awesome. Any other last thoughts about the show?
Karl:
[15:23] No, it was interesting. I mean there was a whole session on connected car, um, which is cool. Um, they talked about connected car and autonomy and I think they generally felt like, uh, you know, autonomy sort of like five years out plus in connected cars, been here for five years and the, the, the communication and the marketing firm, everybody sorta was disconnected. Um, the rental car agencies think about connected cars. How can we sell more stuff to people renting our cars because of the data we have on them. That was like, hey, that was the major focus of the, of an hour long session. Um, I as a, as a car or rent or on a traveler, I didn't really know what I wanted them to sell me. Like if I want to go to a restaurant, I'm going to use Google or Yelp or open table or something.
Karl:
[16:12] And so I sort of felt like they were trying to duplicate things that exist already. Um, you know, there was some sort of compliance sort of legal stuff. Like, you know, you said you were going to leave the state and then you laughed. But they have those trackers now and I don't know what news from that, you know, they can sorta tell those things before. A lot of connected car stuff. So uh, but it was interesting they were talking about it. It was very, it was very, you know, current model centric, not sort of new model centric. And then they also did talk about sharing data. You know, I guess as business people you always sort of like, you know, run up against the government and everyone sort of like hair on the back or the neck stands up on end when the government shows up. Um, but they were all fairly positive about sharing data with government entities to to improve traffic flow and, and to generally, you know, be a, be a positive player in the transportation communities that they, that they operate in, which is sort of pretty interesting. I know here in Raleigh we have more traffic problems that we had 10 years ago and I'm looking forward to, you know, all that data, making it better personally.
Scot:
[17:11] Yeah. Awesome. Well thanks for that trip report and thanks for being on the podcast.
Karl:
[17:14] Thanks Scot.
Scot:
[17:33] So that's all the news from ICRS. Now let's look at some of the news from around the industry, uh, from other sources. As a reminder here on the Vehicle 2.0 Podcast, we look at the Vehicle 2.0 framework and that's where we look at the four waves of innovation sweeping through the auto industry conductivity, changing ownership models, electrification and autonomy in news, uh, on connectivity. There's been this really interesting public kind of spat between, uh, one of our guests on the show, smart car. Uh, they have a competitor called Otonomo and this erupted into the press has reported a actually this week in tech crunch, uh, these guys are battling out. It looks like there's, um, some, uh, potential copying going on or some kind of intellectual property battle between these two companies. They both provide API for autonomous are, sorry, excuse me, for connectivity in cars and they are definitely battling it out in public.
Scot:
[18:32] If your interested in that we'll put a link in the show notes. Um, there was an interesting study published a here in the last week or so, uh, where they asked 3000 adults, uh, about various things around vehicles. Uh, and this is from Kantar a half the consumers said they would be a, you know, very likely or extremely likely to use their car as a way of pain. Um, so imagine, you know, we, we are in the touchless payment world and ecommerce now where you can just tap your phone to an NFC chip and pay for things. What if your car had payment credentials and as you drove through, uh, you know, it seems like a likely scenario would be drive throughs if you drove through a drive through your, your vehicle kind of talked to the drive through and authenticated payment. Um, uh, so, uh, that's an interesting use of connected car for payments that we haven't really seen.
Scot:
[19:21] But it sounds like consumers are eager to try it out. Moving on to changing ownership models. Uh, the big news there is tech crunch reported yesterday that one of the top, uh, person to person ride sharing companies get around, uh, acquired one of their larger competitors in Europe called Drivy. Uh, so, uh, that was a $300 million acquisition with which is obviously pretty substantial. Uh, get around, has raised 400 million. So it's not clear if they just used all that on this acquisition or if this was funded through some debt or, or maybe even some, maybe that's an equity value. Um, and so get around was valued at 600 million, uh, before the acquisition. So this is surely going to get them close to the Unicorn level, which is the billion dollar evaluation. Um, one of the most active large investors in this overall space is Softbank. Uh, and they are one of the investors in and get around, uh, the investors in Drivy are index ventures and cafe innovation.
Scot:
[20:25] That's a, a pair of spaced, a investor out there. So a, the companies or the CEO's going to stay on and, and effectively run the European business. So now you kind of have this, this first look at a global, a car sharing company on the P to p side. So can be interesting to watch to see how that scales up. Tens of electrification news. Uh, we don't have time to go into all of it. Um, I thought the most interesting things we saw this week, uh, we have Ford invested 500 million, so Ford's very active also in mobility and they announced a $500 million investment in the electric pickup maker. Ravion. Uh, so ravion has a really cool, uh, electric pickup and this investment, uh, looks like it's going to have multi-facets so they're going to work on, um, some new technology for essentially using the rubion platform for a new Ford vehicle.
Scot:
[21:19] At the same time for it said that we're going to continue with their own internal development, um, which, uh, they specifically called out a plugin version of the Ford, the very popular Ford F-150 pickup. Um, I'm excited about this because, uh, you know, the service industry is where a lot of these trucks essentially go trucks and vans. And, uh, here it's 50. We would love to use a evs instead of a internal combustion engine vehicles. So it's gonna be great to see if we can kind of start to get more of the commercial vehicles electrified, uh, in this partnership. Certainly signals that that's on the way. One of the areas I watch really closely for electric vehicle news is China. Um, so, uh, they, they had kind of their annual report out. Um, the for last year, the, there's more triple the manufacturers of evs registered in China now and passenger vehicles sales, uh, for electric vehicles are going to exceed 1.6 million units this year.
Scot:
[22:17] And in 2019. Um, so, uh, so this huge kind of a bubble is forming there. Some people are calling it a bubble. Uh, you know, uh, there's a lot of negative connotations around bubbles, but I, I, you know, I think what we do see is the government of China is very supportive of the consumers are buying these. Uh, and the other interesting data point is, uh, that evs make up 4%, but they're on a track to get to 20% very quickly by 2025. Um, and so that's going to be like 7 million units. When you, when you talk about China, everything's multiplied almost by a factor of 10 from the u s so, so a lot going on there and it's going to be interesting to watch. Uh, one of the consequences of the excitement around electric vehicles in China is sales of traditional cars are really plunging, um, and they've been down substantially for the 10th straight month in a row from March.
Scot:
[23:11] Um, so the economy's slowing, they're a little bit due to trade tensions, uh, so that's causing it. But then, uh, electric vehicles are definitely a surging past the, the normal vehicles. Um, uh, back here in the U S if we look at 2018, um, the number of registrations for electric vehicles doubled in 2018. So that's good news here in the u s uh, so that's, there was 208,000 new electric vehicles registered. Um, and that was more than double those sold in 2017. Uh, another couple of fun facts. Uh, you can't, uh, whenever go out to California, um, you can't kind of drive around without seeing 20 or 30 Tesla's on the road. Uh, so California did account for about 50% or 95,000 of those. Uh, and then, uh, all this data's provided by one of the data trackers in the vehicle space called IHS Markit. They took this data and they projected it forward and they're showing over 350,000 new electric vehicles will be sold in the US in 2020.
Scot:
[24:14] Uh, and then, um, that's 2%, but then they do show it getting to 7%, which is kind of actually where, uh, we s we talked about China around the same timeframe, uh, by 2025. So, so just to recap, by 2025, uh, the pundits are projecting that we'll get to seven to 10% of new cars will be electric in both us and China. Now the, uh, the most exciting area of Vehicle 2.0, that, that you, you find the most news is, uh, autonomy. Uh, and this was a really big week for autonomy. So, uh, Monday Tesla had a full day, um, uh, kind of call it autonomy day where they talked about all the work that's going on in autonomy. And if you're remotely interested in this topic, I I strongly recommend watching it. Um, Elon Musk was there for most of it. He had his top engineers talking about a lot of the topics we talk about on this show.
Scot:
[25:08] If you don't have time. Some of the highlights for me, um, there's this really interesting debate and we've talked about it on the show before, but Tesla went really deep on their, their religion around this one. Uh, and it's the whole, you know, cameras versus Lidar. Um, so the current Tesla implementation, uh, uses four to six cameras. Uh, and their argument is that, you know, humans have two eyes, which are essentially cameras and they're able to plot a three d world without having to see use radar. Um, and then they talk about a lot of the negatives of radar, uh, which is the radar used for autonomy is lidar. Um, so that was really interesting. And then of course the, the Lidar folks came out and kind of said, you know, no, here's why you're wrong. So it's really interesting. It's going to be kind of a race to see who wins this.
Scot:
[25:54] And to me it's the most fascinating part of autonomy right now. His camera versus Lidar and who's going to, will there be a winner? Will they both coexist in this? Could be really interesting to watch that. Um, they spent a lot of time talking about, you know, how do you get this to a five nines reliability because we're dealing with humans and safety. Um, and one of the, one of the things they throw out there is based on their data, they believe their autopilot, which is their level to a implementation is seven times safer than human drivers. Um, so when they, you know, they're able to look at the data because Tesla has so much data, it's pretty fascinating. And they said that, uh, you know, I'm sure they're looking at crashes, incidents that, uh, you know, you're seven times safer using the just where they are today versus a human driver.
Scot:
[26:41] Um, when you, another statement made, and I haven't seen this refuted, is that when you look at all the autonomous vehicle data out there being generated, they have over 90% of it because they have such a large fleet compared to a lot of the smaller trials from the way Mo's and the cruises and the other other folks out there tackling this Uber. Um, so, so that's interesting. And then, you know, their, their argument is because these neural nets and machine learning systems are datadriven, whoever gets the most data of kind of gets to five nines first. So it's gonna be interesting to see if, if that, that bears out as well. Another thing they announced is by next year, and this is a, an Zealand thing, so you always have to take this with a grain of salt. He's usually off, usually nails these things, uh, in the prediction.
Scot:
[27:25] But the timing is usually off. So he said by next year they, they could in theory have, you know, uh, thousands of Robo taxis out there. Um, now one of the interesting metrics there is when they look at this Robo taxi, so a full autonomous taxi and their vision is as a Tesla owner, you can kind of check your car in and out of this fleet. Uh, and then there'll be a consumer APP for, for summoning a Robo Tesla. Um, the interesting stat is if you look at a human driven mile, so that's either you driving your car or ride share like an Uber, Lyft, you're looking at a total cost of ownership between two and $3 per mile, and they're projecting that the Tesla Robo taxis will get as low as 18 cents per mile. Um, so then when you, when you start to get that low, it does really start to change the car ownership model.
Scot:
[28:12] Um, you know, today you can certainly do enough nef if you do enough ride sharing your unit up upside down pretty quickly. But imagine if that was only 18 cents a mile. That really kind of is pretty compelling. Um, another stat he put out there as if you are a Tesla owner, you could make up to 30,000 a year just by putting your car into the, the Robo taxi fleet. Um, and then, so that was all really interesting around autonomy at the macro level. And then they went super micro, uh, and they announced that they have abandoned, uh, commercially available chipsets and they've developed their own custom chip, uh, for, for autonomy. Um, and you know, a lot of lot of, uh, excitement around this saying it's by far the, they're way ahead of everybody. They even started talking about the next generation is going to be three times better.
Scot:
[29:02] Um, and you know, because they're relying on vision, there's a lot of compute this having to happen in the vehicle to, to essentially do what the human brain is doing of creating a three d world from, from looking at images and comparing them. So they've moved a lot of that into hardware with this advanced chipsets. So that's, if you're really Super Geeky, um, there's tons of data out there and some really good articles. Uh, we'll link to some of the highlights in the show notes. Also in autonomy. One of the big players is General Motors and they have a division called cruise. Um, and they, uh, made some announcements on the 20th of April, uh, about, uh, some interesting things there. So first of all, they announced a partnership with Google. Um, and this is where, uh, one of the really interesting things with these autonomy companies is, uh, how they run the simulations.
Scot:
[29:49] So, uh, they talked about, uh, you know, the, they're up 25 x in simulation miles from, from the same time a year ago. Uh, and they've created a there in the world of video gaming. There's this engine called unreal that a lot of the video games are built on. So they actually create a real world version of the world in unreal, um, that they're driving these vehicles through based on all that lidar data. And they internally call it the matrix. So, so movie fans will, will enjoy that reference there. Um, so, so that was interesting. Um, and then all of these guys are really kind of starting to share data around, um, you know, how, how is their autonomous fleet working? Um, so one of the things that's interesting is, uh, they throw a little shade and talked about how they have 0.19 disengagements per thousand miles. Uh, and that's better than most of the other folks out there.
Scot:
[30:42] Um, uh, Waymo is a little bit better at 0.09. So what's happening is all these folks are running these simulations and trying to predict, you know, get, get better and better so that humans don't have to get involved in the autonomous driving today. Um, Tesla back over to Tesla, Tesla talked to, they had some really cool demos of what they call shadow mood. So they can, you know, they can actually, um, on a vehicle, they can put, uh, two versions of the software, the real mood and a shadow mode, and they can watch and say, all right, if we, we, we've seen this, this ab problem out there, let's say, um, when they talked about as, as people drifting into your lane. So they can actually, uh, you know, have a shadow version of the software on out on the fleet and watch for drifts and predict, you know, simulate in the vehicle what would have happened with both the real version.
Scot:
[31:36] Well they know what happened with the real version and then the shadow version and then learn from that without actually having to have the fleet have, you know, maybe more risky software. So it's really interesting things. Uh, when this, when, when, when your vehicle is largely software, uh, it kind of is mind blowing that you can be running effectively, you know, that, you know, who says they couldn't rent 10 versions of the simulation? They're on the vehicle. And it is interesting to think about all these simulated miles that are being driven as we speak. Um, it's a really great time to be an autonomy because, uh, we have the lift a IPO is done and now Uber is working on their IPO. So part of that process is you reveal this S-1, which is a document about everything that your company has been working on.
Scot:
[32:20] Uh, one of the more intriguing areas of the Uber S-1 was around their autonomous vehicle efforts and they also have a flying car effort. Um, so, uh, they're spending over 500 million a year in r and D in these kinds of technology programs, uh, for the future of vehicles. Uh, that's obviously pretty hefty. Um, and to, uh, a lot of folks when they first read this one, we're really concerned about that. Um, so, so kind of on the heels of that S-1 being revealed, Uber announced that they are going to effectively get a independent funding for that, that division. Um, it's not clear to me if it's an a complete spin off or what, uh, I think Uber will still large own, own kind of like 15 to 20% of it, but it's largely going to be funded by outside vendors, not the public markets, the investors.
Scot:
[33:09] There are Toyota, Denso, which is a parts maker, and the Softbank Fund that we've talked about already, and that Avi Division was given a $7 billion valuation through that investment. So, um, so Uber a is working with, you know, public and private funding to find the right balance of investment in, in these future vehicles. Um, the last thing on autonomy, uh, and this was a quick one. Uh, you know, they're the, the other big player is Google's alphabet division, which is called Waymo. Um, they announced a, a fleet of factory in Detroit. So, uh, they are going to, uh, create 400 jobs in Detroit over the next couple of years. And what the way Waymo works is they're not actually building their own vehicle. They're retrofitting existing vehicles. Um, so part of the plan, uh, here is by 2020, 20, 22, excuse me, they're going to have 62,000 Pacificas in 20,000 Jaguars outfitted with their self driving lidar based autonomy system, uh, and that'll get them cranked up to over a million trips per day.
Scot:
[34:18] Um, so it's going to be so, so we're, we're seeing all these efforts to really ramp up billions of dollars being invested in autonomy, uh, lidar versus cameras. So it's a really exciting time to be following this race out there. And we will continue to report, uh, what's going on and will continue to have guests on the show to help shed light on all these different topics and, uh, these kind of different technologies and, and thinking about who is going to win and who's going to lose or will we have multiple winners. And with that, we're out of time and we appreciate you listening. If you enjoyed today's show, be sure to head over to your favorite podcast listening app, uh, and give us five stars. Thanks for joining us and we'll be back next week.
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EP007 - Executive Editor at Bobit Business Media, Chris Brown
http://www.vehicle2.getspiffy.com
Episode 7 is an interview with Chris Brown, Executive Editor at Bobit Business Media; recorded on Friday, April 5th, 2019. Chris and Scot discuss a variety of topics, including:
Chris’ journey to being the editor of three publications and producer of two tradeshows. The impact of car and ridesharing on the car rental industry. Weighing the changing ownership models for an idea of potential winners with consumers. How electric and autonomous vehicles will affect car rentals and auctions alike. What the future holds for the existing dealership and OEM framework. The road for convenient in-app connectivity to simplify the car rental process.Be sure to follow Chris on Twitter and LinkedIn!
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:51] Welcome to the Vehicle 2.0 Podcast! This is episode seven and it's being recorded Friday, April 5th, 2019. Welcome back, Vehicle 2.0 listeners! As I've been personally learning all I can about the changing ownership models for cars and how the real car industry works, I found the content from auto rental news to be really important and awesome. My favorite items are the blog posts from the executive editor, Chris Brown, who we're excited to have on the show. Auto rental news is owned by Bobit Bbusiness Media and they have over 20 publications and trade shows that cover fleets, rentals, dealers, and oddly enough salons. Chris Brown is executive editor of business fleet, auto rental news and fleet forward and he also produces the international car rental show and the fleet forward conference. Chris, welcome to the show.
Chris:
[01:46] Thanks for having me Scott.
Scot:
[01:48] With all those responsibilities that you must be extremely busy, so we really appreciate you taking time to talk to us about your view of the future of your vehicles.
Chris:
[01:59] Sure. Well, my position kind of affords me having my fingers in a whole bunch of different pies and where transportation is going and yeah, we're just a little busy over here.
Scot:
[02:11] I have to ask what's the intersection? Was Salons, I was super curious about that.
Chris:
[02:15] You know, it, it's basically was a diversification strategy. In typical B2B media company fashion, not our eggs are in the transportation basket. And two of our biggest magazines in the company are a modern salon and nails magazine.
Scot:
[02:35] Cool. You get to, you get to learn all about, if you get burned out on cars, you can go learn about a whole other topic.
Chris:
[02:41] There's plenty of nail polish around for us to take advantage of.
Scot:
[02:47] Cool. I definitely want to jump into, you've, you got a lot of really good views on where we're going in the car industry, but before we jump into that, would love to give listeners a little bit of background on how you got to where you are?
Chris:
[02:59] Sure. Well I joined Bobit over 15 years ago, jumped in as the editor of Business Fleet magazine, which is goes out to small commercial fleets. soon after that, I took control editorially of auto rental news and, between the intersection of auto world news and business fleet can kind of triangulate what's going on and different parts of the transportation space. And along with the auto world news comes, you know, managing the international car rental show, which is convening and a week and a half. So that's been a huge part of what I do. And then, as well, we're really getting into how fleets are looking at new mobility solutions and, we have the fleet forward conference in that regard. That's happening in November in San Jose and we will be launching a brand, a website fleetforward.com in May.
Scot:
[04:08] Oh Wow. I look forward to seeing what you, what you guys put on there. Yeah. So, so to give listeners an idea of kind of the, the scope of, of your reach there, how many readers, and if there's anything you don't feel comfortable sharing, obviously that's, that's fine. But, you know, how many readers do you guys have on the publications and how many folks come to the conferences?
Chris:
[04:29] Well, you know, the, the best way to look at Bobit that is that we're the largest fleet publisher and authority and have been for over 50 years. Perhaps in the world actually. We reached over 250,000 commercial and government fleets and small business fleets and work trucks and heavy duty trucks. Heavy duty trucking being, our, our largest publication. And the whole universe, ends up to be 18 million vehicles. And, you know, in typical B2B fashion, we do that through news industry trends, market intelligence, you know, events, great articles and you know, the car rental show is you only show specific to the the auto rental industry in its entirety. And we'll get over 800 people this year, in April, April 14th through 16th in Vegas. And we draw folks from all over the world. Fleet forward is really just kind of a baby right now. We'll get 200 plus in its second year, come, come November in San Jose. And that's really a for the forward looking fleets that is commercial and government fleets that are looking at, you know, new mobility solutions to implement their fleets.
Scot:
[05:47] Very cool. So definitely encourage listeners to check those out. I know a full disclosure, we're going to be exhibiting at the show next week, so we're excited to be first time at that.
Chris:
[05:58] Yeah, well we're attendance is looking great. There's a ton of energy. I'm really glad that we've kind of both a really a great show for for 2019.
Scot:
[06:08] Awesome. So thanks for the background. I think that really helps set the stage for the main discussion. and a here on the podcast we look at a framework that we call vehicle 2.0 where we look at kind of these four ways of innovation that are kind of sloshing through the industry, connectivity, new ownership models, electrification and automation. and you've written a lot of really great content lately around the changing ownership models and I know that's near and dear to your heart. we'd love to start there. so when we look at the rental car industry, when I talked to folks I spend a lot of time talking to venture capitalists and stuff. I think they have this intuition that rental cars would be down like 10, 20, 30%, but they're actually up. why do you think that is? People assume it's down because they think Uber and Lyft are taking pretty serious share from the rental car companies. but apparently, you know, is that happening and why are the rental car sales up?
Chris:
[07:05] Well, I think we have to look at the market and say that Uber and Lyft have definitely taken a bite out of the rental car market, but, it's mostly in certain certain areas that we'll talk about. And, and also, it certain rental lengths, the shorter rental lengths, like the one day rentals is more where it's affected. and those are the least profitable, rentals as you can imagine, just because you have to turn over a car for a one day rental like you do for a five day rental and all the attendant costs there. You know, urban markets have certainly been affected, as well. That being said, I mean we did see, a strong demand that led to a record year for car rental, last year in the USeclipsing 30 billion in total revenues. And that was done on a overall fleet size.
Chris:
[08:10] That is, means that there was more revenue per unit, which is a really good sign for rental to, you know, I mean the, the, the more traditional rentals of, you know, multiple people have family, you know, needing, needing access to, you know, places that are more than 40 miles away, and, and of triplink's that are greater than a day is still very real and still very growing. It's growing with a good economy. So, I think that's really what's keeping the rental industry afloat in terms of the demand side. Now let me add one more thing. certainly, where, you know, if you can't beat them, join them. there is an insatiable need for Uber and Lyft drivers to have reliable transportation and rental has been playing a part there in, in renting cars to Uber and Lyft drivers. and that's, it's a growing segment as well.
Scot:
[09:17] Interesting. Do you know, do you happen to know, so 30 billion is pretty impressive. Do you know the year over year growth rate of that is kind of like GDP and that three to 4% range or is it kind of different?
Chris:
[09:28] So the growth rate, I know that the growth rate is accelerated, believe it or not, over the growth rate from 2017 to 16 and 2017 to 2018 so that's healthy. In other words, I had sort of intuitively a expected a growth rate to, to shrink there and you know, I do know it at what, what percentage? I don't know off the top of my head, but I do know that that was a slight acceleration over previous years. Recently.
Scot:
[10:02] Yeah. Accelerating growth and improved, unit profits is kind of the, that's the sweet spot. So that's good for the industry. Yeah, it certainly is. Cool. So, appreciate your perspective on that. And if we kind of go to the 30,000 foot view around ownership, do you have a point of view where you think ownership around vehicles is going to go in the next five to 10 years?
Chris:
[10:23] Well, really it's, it's really a tale of environments, I think. I mean, you look at major cities compared to suburban, rural ex urban environments. And you know, it's no secret that the changes are coming in in cities a lot quicker. you know, every major us city is having these conversations right now around smart transportation planning. And I think this is really kind of accelerating the change in cities in 10 years from now, in suburban environments. and certainly rural environments. I don't see really much change in terms of ownership. Yeah. We could talk perhaps a growth of a subscription model that, that may change in those areas, but I don't see people giving up their cars. although I do see, I was actually surprised that some reports that have said that car ownership and cities in particular, haven't changed as much as we thought in terms of asset light households, certain in certain cities it has in others like Los Angeles, it really hasn't, not yet.
Scot:
[11:44] Interesting. So if we, if we peel the onion on that, there's all these different flavors of, of some of these new ownership models. There's you kind of mentioned subscription, there's obviously rental. there's the car shares where you have like Zipcar and then, we had a guest on the show that talked about an ungated car share where, you know, you can kind of pick it up and drop it off wherever we've got the Lyft Uber ride sharing. We've got kind of the Airbnb model, like person to person like Toro and get around. Do you think there's kind of a winner in there or do you think it's going to be, you know, a mix of those kind of based on what people want to do and, and the length of rental for example?
Chris:
[12:23] Well, I think we are moving into a mode or a way of thinking where use the acid that's best suited for that type of exactly what you want to do with it. And, I mean, I can see benefits and issues with each one of those models. I mean, we can really look at what's going on in each one. And, I mean, I, I, I, I don't think that we've seen the, end of penetration for ride sharing. I think that is still going to grow. I think that P2P car sharing is on a definite growth curve. I think in terms of, the, the Zipcar model of car sharing it, I would probably say that we're not seeing quite as much of an acceleration and those in the car sharing community would really point to, you know, an ungated, model as being, better for, or easier to access to vehicles and you know, car subscription has issues as well. And one of the main issues is, is coming up with a price point that that works for everyone. And also, how soon you can flip the cars, you know, if you want to get in a car rental, we can certainly get into that too. But I really see there's a lot of growth still happening in ride share, in peer to peer.
Scot:
[13:59] Yeah. And the rental car companies are, are pretty active in all these spaces. Maybe. I'm, I think I have a pretty good handle on it because I've been reading a lot of your content, but maybe for listeners, highlight what hertz and Avis have done kind of around the areas of, you know, or what we know them for their traditional rental car, but they're all very active in some of these other models.
Chris:
[14:21] Well, certainly Avis. but Zipcar, gosh, must be nine years ago at this point. And that's really where the sort of, we'll call it traditional car share has a hold. you know, Hertz, the funny thing about car sharing and the rental traditional rental companies, the large rental companies, they're sort of pulled back. I mean, enterprise car share still exists on college campuses. A in Zipcar is, it's growing incrementally and Avis is growing in incrementally. Works, has pulled back essentially from car share divisions. Let's say if you want to talk Europe, a Europe cars, doing some, some cool things with mobility. and six test, some mobility programs to, you know, one other thing to mention with car sharing and that is should it or real growth potential for car sharing is gated. I mean, I, well let me back up there. a real growth potential for car sharing is in specific programs that would be offered, say as an amenity in, various properties, you know, on various corporate campuses or in, in, residential buildings. that is, that is a growth area, but car rental per se is, you know, zipcars where it's at, in terms of the majors in the u s
Scot:
[15:58] Cool. And then, I think some of the programs, some of the big guys, they, they have relationships with like the Ubers and Lyfts, right? Where they're, they're providing cars into the ride sharing market. that works.
Chris:
[16:11] Hertz in particular is playing a really big part in this market right now. I mean, their growth in that market is, has been substantial year of year. I think they've got 40,000 cars that they're putting into, into the ride share market. And, I know it's driven a 300 million to their, and this is public figures, 300 million to their bottom line revenue and they expect to grow it even further. And you know, we started with trying to understand what the model is to rent to Uber and Lyft drivers. Like what is that, what is a model that is profitable? And I think the market has come to the conclusion that it's not a new car, to rent to these guys. It, it's, I say it's not for the faint of heart because it's high mileage. you know, a lot of scrapes and dings on these cars, but you know, where it really works, at least where it really works for her is you get out of a Toyota Camry at 40,000 miles in the rental fleet and that's flipped to the Uber drivers for 30,000 miles. And then they, they take those cars out at 70,000 miles, hurts does, and they can run them through auctions or even run them through their, their used car lots. And that's a very attractive price point for used car buyer. So they've had success with that and they're kind of leading the charge there.
Scot:
[17:47] Cool. Is it like formal partnership with Uber or they just kind of advertised Uber drivers on their own?
Chris:
[17:54] I believe it's a formal, I mean they do have, you know, I, I, I, I don't know the answer to that question definitively to be honest with you. I want to say, and you know, probably in the editing we can figure this out, but I want to say that they do have an, at least an informal agreement, but they do, I know they definitely rent to both Uber and Lyft drivers.
Scot:
[18:19] Got It. Very cool. So it, one argument, you know, with Lyft going public, this is top of mind because their valuation is so high. It's kind of interesting. You could almost like, you know, invest in some of the rental car companies and as kind of a secondary, you know, if you'd believe in car riding as a cheaper way to almost invest in the trends, oddly enough, I don't, I don't think people connect those two things. But it's interesting to think about that.
Chris:
[18:39] Well, the whole idea of providing wheels to Uber and Lyft drivers has become one of the biggest industry trends and challenges. And Uber certainly saw this challenge with their leasing division that they essentially failed miserably at and lost a lot of money, it per car, an astounding amount per vehicle before they shuttered the their program and sold that off, which really speaks to the core competency of fleet managers of, of basically how to manage an asset. And I think the world is kind of waking up to, how fleet can do that and, and also how it can leverage this advantage and the, the, these environments moving forward on their way to autonomy.
Scot:
[19:31] Very cool. one thing that's near and dear to our heart at spiffy that when everyone gets excited about all these new ownership models, but what they forget about is more, more drivers, more riders, more miles means more services. and I know you've written a fair amount about this kind of fleet management as a service, which is, , you know, Kudos on a cool name there. were, where do you think that's going? It seems like the rental car companies have, they're kind of coming into it. it seems like the dealers may want to come into it and it feels like there's this collision course with a lot of different players, you know, so for example, Cox has an initiative to do this. so who's going to own this fleet management aspect of things?
Chris:
[20:16] Yeah. And you know, I'll, I'll go ahead and just take credit for f Mohs right now. I mean, I know, , you know, we had all had Sarah from Avis budget, at our fleet forward conference talking about fleet management as a service. But, but you, you know, it's, it's a budding, discipline, whatever you want to call it, but it is under the heading of, as assets get utilized more than 5% percent. They're going to have to be serviced in ways that are mobile and, you know, around the clock. And that's why, you know, we've seen spiffy and some really cool new outfits coming in that, you know, also perhaps lead us down this path to autonomy. when, you know, autonomous vehicles are going to have to be serviced at some point at night. Car rental really does see a future here as a service provider.
Chris:
[21:22] And you know, let's make sure, you know, this is separate from being the, the, the, the provider of the service of the vehicle to the end user, but more of the back end servicing of the vehicle. they, they will have competition from the fleet management companies, which are really kind of unknown or the consumers. But fleet management companies know how to, they know depreciation, they know how to manage vehicles, for commercial fleets equally as well as car rental companies. So I see, potential, you know, a potential, a little war here happening about who's going to win there. And then of course, like you said, I mean, you know, Cox Automotive owns Manheim, the largest auction in the US and, and if there's another area of disruption, it's going to be a auctions and, Cox certainly knows how to service vehicles and they're looking to leverage that position and in their fleet management of vehicles as well.
Scot:
[22:33] Cool. so let's pull on that thread a little bit. Why you think so auctions will be disrupted because you think they go online or you think just less cars we're going to turn over in this, this new world or why, why will they get disruptive?
Chris:
[22:46] Yeah, so, you know, the car rental companies right now are making no bones about the fact that they want to sell those vehicles upstream, directs whether it's direct to the consumer directed dealers and, they're enjoying better margins by doing that, and are willing to put together the effort, in terms of the infrastructure. So that's, that's happening now. The auction market is really needing the, the, the, the movement that time to sale is critical. You know, because a car depreciates, you can look at it at a daily depreciation of a car and it takes time to move a car to auction, run it through the auction at a certain day, get it to the end user and be done with it and get paid. auctions know this and they've certainly, they have their hand in, in online auctions, virtual auctions too.
Chris:
[23:51] So, but there are also diversifying. Now if we look at a world that is autonomous world, well that world looks a lot different and it looks a lot different for everyone, obviously including auctions. we expect much fewer vehicles, you know, potential, hopefully more, more, less vehicles on the road than there are today. And, and hopefully there, there'll be shared, but those vehicles, they're not going to get in accidents. I mean, that's the idea. And their, their length of service, they're going to be electric vehicles. Generally. Their length of service is going to be three times as long and with, with cars not turning over as much, that's just a lot less cars through auction lanes. Interesting.
Scot:
[24:43] Cool. so that's been good to get your view on ownership. Let's, let's kind of move into the connectivity side of things. I always come at it from a consumer perspective where there's all this cool stuff. I'm I'm a Tesla driver, so you know, being connected gives me real time maps and traffic and streaming and a lot of things in the cabin for the consumer. but you've done a lot of really interesting, riding around how rental cars are going to leverage the rental car companies are going to leverage connectivity. What are you seeing there?
Chris:
[25:13] Yeah, sure. And that's a huge area of driving efficiencies for a rental car. Companies and commercial fleets have been enjoying the benefits of telematics. that, penetration is, has come sooner for commercial fleets and it has for rental. One of the issues for rental has been, you know, the rental vehicle is turned over a lot quicker. And at this point we are still most, of what this play is right now is telematics and it's an aftermarket install. Oh, of course. That's changing. we're, we're moving into a OEM partnerships with telematics companies at the factories that make this a lot easier and hopefully, and in three years, maybe it'll be standardized, where all we're doing is, is pulling data off cars and we won't need to install black boxes anywhere in the car and we can pull this data off of, vehicles no matter what the manufacturer.
Chris:
[26:23] Now, in terms of the, the benefits of connectivity, at least for a rental companies, simple fleet management, fleet movement, understanding that your a rental vehicle has been impounded for some reason you can't get of the renter if you can get notification at that vehicle is found in an impound yard by locating it, using gps tracking. If you save a day on that, I mean that, that's times how many days of rental vehicles you find an important yards. That's a very tangible example, but just fleet movements in general, you can inform heat maps in terms of, so where am I, where are these rental renters going in aggregate? You know, it turns out that most of them are, are, are going to the shore. in October, we'll, gosh, what's that all about? You know, and these, these answers may not be quite apparent as well.
Chris:
[27:26] There's a festival there, but these, these micro movements and even even looking at, the ability of a rental company to know that the renter who's supposed to have the vehicle backed by five is nowhere near the rental office. So that vehicle won't be available to next renter. They can make arrangements right away at either put that the next renter and another vehicle or make sure another rental office can transfer a vehicle. So those are just some of the efficiencies, but you know, telemetry in the car is going to be big. you know, right now I'm measuring fuel is a thorn in the side of rental companies, but now being able to measure fuel precisely would allow, the rental company to, you know, charge a renter for the exact amount of fuel that's that they don't have in the tank from when they started the rental and, and possibly have an upcharge on it.
Chris:
[28:27] as a convenience. I mean, that's going to be a big one. And then we also have to look at, you know, geo located push notifications around, marketing opportunities. I mean, there's, certainly, you know, off mentioned one where you're driving by a Starbucks and then Starbucks coupon punches up, you know, on your head unit. So those are just some of the things where, connectivity is really going to play a major role on coronal. And this is not even a talking about say V2X like vehicle to infrastructure technology and, and that gets into some that's coming as well. And that gets into some really cool, you know, futuristic stuff where Avis has a pilot program with Kansas City where they're sharing data with, with the city. and the, the city itself is using that data to, you know, plan, you know, events better, to understand movements in and out of different areas of the city. and of course there's a safety aspect to all this too, whether it's telematics, simply understanding that an accident has occurred right away. And is the, is the renters safe to a vehicle to infrastructure play that little bit later out where, you know, vehicles talk to each other and can tell where were an accident this happened and alert other vehicles, that type of thing.
Scot:
[30:03] Cool. You said V2X, is that kind of the slang that you use for vehicle to infrastructure?
Chris:
[30:09] That's good. It certainly, yeah, it is. That is exactly it. You could say V2I or I've heard V2X.
Scot:
[30:17] Okay, cool. I also, whenever I read your stuff, I learned a whole new set of acronyms, so it's always helpful, right? Yeah. Though when you go from industry to industry, you have to learn all the different lingo.
Chris:
[30:29] Oh yeah. Tell me about it. Yeah.
Scot:
[30:31] Yeah. Speaking in acronyms, electric vehicles or EVs, they're starting to make a dent in certain segments of new car sales. Like the model three has kind of taken over it's category a. And then if we look at China and some of the Nordic countries, it's starting to be pretty material percentage of those sales. but yet, you know, when I go run a car, I don't see any electric vehicles there. Do you think we're gonna see EVs kind of available at Reynolds at some point and then, you know, we'll, there it seems like there'd be a huge amount of infrastructure they're going to have to have around charging. And you know, what happens to me if I get beyond my range, all that kind of stuff.
Chris:
[31:06] Yeah, you're absolutely right. The infrastructure issue is the major issue for a car rental when it comes to electric vehicles. where you're seeing the penetration right now is in car sharing schemes. You know, General Motors, a division Maven, has, various schemes that this is a prominent place for, General Motors to, you know, offer a Chevy bolt to potentially new buyers through their maven car sharing scheme. And, you know, we see this certainly offered in, in cities. It's where Maven as is found mostly in cities, would have a greater infrastructure. you know, in along with car sharing, you know, we've got a company here in La called envoy, in envoy is, offering cars as amenities in their electric vehicles. in, in, you know, real estate, situations, whether they're corporate campuses are buildings and they're all electric vehicles and they come back to, you know, they're good to go out for, you know, half a day and then come back to a parking lot where they can charge. I would see, really when the infrastructural rollout is more prevalent in terms of public charging, because obviously Evie renters, you know, right, right now Evie buyers charge mostly at home, but renters wouldn't necessarily have the rental that the infrastructure at their house. so they'd need it essentially solely to either charge it there at the rental place, which they don't want to be at. They're going to be doing some or, or out in the field. so that's probably the major issue for penetration of EVs in traditional rental right now.
Scot:
[33:14] Do you think the range has to increase? So like, you know, the volts, the leafs and those kinds of guys have about a hundred mile range, which is probably way too small for rentals. But the Teslas are getting up kind of around 300, which is about, you know, I would guess that's well within the daily range that rental car companies have.
Chris:
[33:32] Yeah. So the, the bolt, the bolt actually, has over 200 mile range, which is actually pretty good. And, and the leaf, the next generation leaf as well. And I think, it, the coming soon, you know, we do have an onslaught of Evie models and I think the benchmark really at this point is 200 mile range there. There's one other factor which is often overlooked when it comes to, whether it's in commercial fleets or in rental fleets. And that is the x factor when it comes to depreciation and how much that vehicle is going to be worth when you take it out of the fleet. And we're just starting to wrap our heads around some numbers that allow for, what those vehicles are going to be valued and sold that. And the secondary market. And these are, the, the main total cost of ownership is the main issue.
Chris:
[34:32] so we can't discount that at that point. so if a rental company, if ava spies 500 Chevy bolts, they're going to have them in their fleet for, traditionally, like less than 18 months, what can those Chevy bolts be sold for in the aftermarket? Right now? That's enough of a question mark that would, they wouldn't, would they avoid a flooding up in addition to the infrastructure issue? Of course, as in chicken and egg fashion, we build more infrastructure. we get more people buying them and more wholesale values. so more comfort with a total cost of ownership.
Scot:
[35:16] Cool. Yeah. I know like a Prius is, for example, the most of these things, the lithium ion batteries have a defined life, right? And then it has to be replaced and that probably throws the whole, the valuation of the depreciation and to, chaos versus an internal combustion engine.
Chris:
[35:33] Well, you know, and here's the, here's the funny thing about that. And, so there was a company called test loop out here in California, which, you know, great concept that they shuttered. but it was essentially a shuttle service between various points. La in San Diego, in La and in Palm Springs, La and Vegas. And you would essentially rent a seat in a shuttle and it would pick you up at a certain point and it would take you at a certain point. So famously they had a Tesla model last the Hawk or whatever that I actually wrote in and that was high mileage in four years. They put on over 400,000 miles and the battery life held up pretty well. So I think we're getting to a point where we're seeing that these batteries and let's not discount the issue with batteries and the environmental issues of what we do with those batteries after the vehicle is gone. But the batteries hold up a lot better than expected. And you know, battery degradation is being solved, thankfully. So I, I think, I don't think we're looking at like, oh, this electric vehicles is just going to fail on us in, in three years and we're going to have to spend $15,000 on a new battery. I think there's a lot more that, this is probably still an issue, but I think the comfort level is a lot better on that point today than it was.
Scot:
[37:10] Cool. and then, the last kind of leg of the stool we haven't talked about is autonomous vehicles. And you touched on it a little bit. what, what's your prediction on, on AVs is this, a lot of people are pretty aggressive with kind of 10 years away if, you know, I kind of get the feeling you think it's a little bit further out.
Chris:
[37:29] Well, you know, people ask me where, when are we to see autonomous vehicles? In my answer is like, well, where really it's going to be where cause we're going to see penetration in different areas a lot sooner than we'll see. Just sort of general consumer penetration. And, we are starting to see a closed campus, trials. and, that's pretty obvious. You know, like the shuttles, local motors has has a shuttle and closed campus seems like it is certainly a natural deliveries without a passengers in them. They're still like a lot less of a liability issue. And I think you'll see a autonomous delivery shuttles for goods and services being rolled out quicker. and then in Geo fenced areas and cities, a very defined area in Manhattan that allows for autonomous vehicles and we can kind of keep an eye on them, they're a lot easier, and kind of manage them, you know, those that.
Chris:
[38:41] So, so the third leg would be that sort of Geo fence thing. And I could see that coming to pass within five years and then a pretty long tail before the world is autonomous. and we see, you know, just mass adoption of autonomous vehicles say to just to get to work. Now, one other thing we can look at perhaps is dedicated lanes on freeways where we see big trucks that would run a autonomous, where they, what would have been a driver and is now like a load manager in an autonomous truck, running cross country that goes into driver mode when they get off an exit essentially. But that long stretch could even be maybe even be a dedicated lane. I mean, I can see that going to pass within seven or eight years, but you know, full autonomy, it's going to be need based and and, and, and certainly, you know, the, I think that the regulatory environment, that I know is really not formed yet. So outside of these geo fenced areas, I think that that's one barrier. And so 2030 is sort of a boogie man. I mean, I, I, we really don't know. It seems like a signpost, you know, but I think it's anyone's gas.
Scot:
[40:21] Yeah. Let, let's say it's 20 something. 20 X. Oh yeah. And, and we have, you know, a fair number of these autonomous vehicles around. Who Do you think is owning them and news taking care of them?
Chris:
[40:35] Yeah, that's a really good question. Who has the right to win? There are, I mean, obviously the Uber wants to have that right to win. I can tell you that some interesting data and looking at, and, disengagements in California testing of autonomous vehicles is really interesting. First data points that are coming out about who's further along at the very least, who's further along with the technology. and, it's, so disengagements are essentially like in the testing in California, this has to be reported to the Department of motor vehicles, which, which, how many times does the driver have to grab the steering wheel is called a disengagement. And Google's Waymo, and GMS, Cruz, General Motors, autonomous unit crews are way ahead of any other company. Tesla's not even on the map because test is not really doing autonomous vehicle testing.
Chris:
[41:49] I mean they're testing, you know, through there, through consumer use there they're testing sort of level two autonomy and going on a level three autonomy. But I found that really interesting that the amount of miles traveled and the amount of disengagement, the percentages are a Waymo and Cruz are absolutely the best and they have half of all the autonomous miles travel. This is just in California. I mean, but we do have some serious testing here now. So who wins in terms of being the provider? it's going to be partnerships. I mean, I think that the, jury is still out of rental is going to be, if you're going to open up your app and it's going to say Avis and then you're going to get a VUS is going to be the provider, but GM you know, a cruise vehicle is going to show up at your door.
Chris:
[42:47] is it going to be Uber? you know, I think we, we have to consider Uber as a player, but then like, so, you know, Waymo how is Waymo going to rollout there? Their system, you know, how are they going to roll out the retail experience, retail consumer experience? we don't know. Are they going to seek partners? It's still up in the air now. I think General Motors, we have to consider that General Motors is going to be there. they're the producer of the vehicle and they have their maven unit is, essentially their test ground for these types of things only with internal combustion engine. So they're going to be a player for it as well. I mean, I think Ford's behind Waymo in terms of autonomous testing, but they are certainly actively looking at how ecosystems are forming or on autonomous vehicles.
Scot:
[43:50] Yeah. And, I come from the ecommerce world and you know, when I, when it kind of look at the landscape, the, in the ecommerce world, the companies that were the least nimble, we're the ones that kinda couldn't really get it out of what we call the innovator's dilemma. And it sometimes feels like the kind of the dealer framework we have today is so antiquated and, you know, Tesla's showing how quickly they can disrupt it. do you think those guys kind of have a place in the future or do you think though eoms kind of have to start going around them or, or are they essentially the service bureau? How does that shake out?
Chris:
[44:21] Well, there's one thing, powerful thing that we can't really discount when it comes to the world of dealerships. And that is that there, you know, the dealer lobby is a very powerful force in Washington and the OEMs are not ready to say anything except give hugs and kisses to their franchise dealers. and it's been a good relationship and you're right that, a more efficient model ultimately wins out. But the dealerships can change in ways that I think will for sure see more consolidation after 2009 and the, the recession, you know, we've seen a consolidation of dealers to sort of mega dealerships that will continue, but the alerts are sitting on some very valuable real estate within cities. And we are seeing right now that they're becoming hubs in interesting ways, in their, becoming hubs for a ride ride sharing where, it's a place for them to pick up a car for a ride hailing drivers to come and pick up a car for Uber and Lyft and, even a potential sale at this point.
Chris:
[45:49] I know the few dealerships are actually creating hubs for ride share drivers to come and get a car and they're creating almost like, you know, in the showroom carving out a part of a showroom that's the specific to ride hailing. So that's and you know, as as as a hub for servicing, you know, a lot of these, it perhaps even for autonomous vehicles, as a hub for servicing. I think dealers you don't want to play in that. In that world the servicing will be a lot different. Obviously it will be less about repairs and you know, the, the brain gets scrambled trying to think of, you know exactly what that entails. But I think that their dealerships are hubs for market intelligence and vehicle intelligence right now. And the smart ones will be able to hold on to that advantage in the future.
Scot:
[46:52] Cool. Yeah. I think the only thing we can guarantee is there's going to be more changed than, than there ever has been coming up.
Chris:
[46:58] Yeah, absolutely. I mean it certainly car rental, is has faces similar challenges in terms of having to reinvent their, their business model, but I even read reinvented, but make it just make it more efficient to poise itself for the future.
Scot:
[47:15] Yeah. Any, we're running up against time and I want to be cognizant of, of your time. were any other thoughts of where we're going to be, around either rental car ownership or any of these topics in five to 10 years that you want to close on?
Chris:
[47:28] Well, I, that we are finally coming to a spot that we've been talking about for years with car rental and that is a, a, a much more efficient car rental process that is app based, that involves a direct access to a vehicle. the first shoot green shoots of that would be, you know, avoiding a car won't align at the airport. I mean that process as it stands today of getting off a plane, getting on a shuttle, going to a physical location, accessing a car, waiting in line for 20 minutes and then getting your car, it just doesn't work for today's transportation needs. So the first step there is to put the ability to lock and unlock the car, and in access to car essentially through an APP. And that, that is happening now. I think you'll see a completely connected car rental fleet of the major colonel companies, within three years.
Chris:
[48:29] It's sooner for most of the vehicles. The next step from that I think would be, and this is a harder step, frankly, that is to decentralize the fleet, but I think that that is going to happen with strong partnerships that need to be made. And we'll call it kind of like the, the Starbucks Starbucks suffocation of, of transportation modes where there's not one central hub. But you know, we find Starbucks in airports and in city centers and in hotels. so cars will be let's say strategically placed in that way and access through an APP. I think that will finally happen. And you know, like I said, I mean this is what's going to happen in the cities is going to happen a lot quicker than what's going to happen in the suburbs. I think 10 years from now will outside of city centers, I think people will still own their pickup trucks and, and they'll still be internal combustion engines for the most part.
Scot:
[49:34] Cool. One last question for listeners. I follow you closely on auto rental news.com and I recommend everyone subscribed to that. aside from that, are you a frequent Twitter, Instagram or snap chatter link dinner, where, where can people find you?
Chris:
[49:48] Let's put it on Twitter. You can find me @fleetchrisbrown and I am always priding myself. I need a tweet more so, but a fleet, Chris Brown is where you can find me on Twitter and linkedin. Just look up Chris Brown, Bobit business media. And I, I post most of my blogs there and certainly, go to fleetforwardconference.com, for info about our upcoming shell. And as you said, auto weren't all news. You can find us online autoworldnews.com and if you're into this small commercial fleet world businessfleet.com awesome. Pretty much covers it.
Scot:
[50:26] Cool. Well we really appreciate you taking time out of your busy schedule, running all these shows and putting out all these publications, and sometimes tweeting. So really appreciate you coming on the podcast.
Chris:
[50:38] Yeah, not a problem. Thanks a lot. Appreciate it. Scott.
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EP006 - Chief Technology Officer at Designated Driver, Walter Sullivan
http://www.vehicle2.getspiffy.com
Episode 6 is an interview with Walter Sullivan, Chief Technology Officer at Designated Driver; recorded on April 2nd, 2019. Walter and Scot discuss a variety of topics, including:
Walter’s career path from Microsoft to Designated Driver, which launched last October. What Designated Driver offers to the autonomous vehicle space, as well as Walter’s thoughts on the implementation of AVs. How the transition to 5G will positively impact companies and startups moving forward. Realistic expectations for the current shift in car ownership, with reports showing up to 80% of new cars sold in 2030 being owned by fleets or shared services. Regulatory hurdles for Designated Driver, as well as autonomous vehicles at large. Defining the future tipping point for electric vehicles to outperform internal combustion engines.Be sure to follow Walter on LinkedIn!
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:52] Welcome to the vehicle 2.0 Podcast! This is episode 6 and it's being recorded. Tuesday, April 2nd, 2019. Welcome back, Vehicle 2.0 listeners. I am a serial entrepreneur and my first company, which I started way back in 1995, worked really closely with Microsoft. That was called stingray software. And I worked real closely with the Visual C++ team and that is where I met today's guest, Walter Sullivan. So doing the math on that, it's over 20 years. And then my career took me to eCommerce and Walter's took him to the automotive world. And now I am in the automotive world. Walter is now the CTO of Designated Driver and I really look forward to hearing more about what he's done since we last talked to probably 15 years ago. And I'm excited to have him on the Vehicle 2.0 Podcast!
Walter:
[01:49] Awesome. Thanks Scot. You're making me feel old.
Scot:
[01:52] Well, I didn't say we met when we were 12.
Walter:
[01:55] That's true. Okay, good. Good point.
Scot:
[01:56] So, I know your career path and I had a couple of highlights in there, but I'm sure there's a lot more on the journey. Tell listeners about your career path and how you ended up where you are today.
Walter:
[02:11] Yeah. Great. Yeah, so I, as you mentioned, I started my career at Microsoft. I spent really 25 years there in different capacities. Started up building development tools, which was where I was lucky enough to be able to work with you and a number of other really interesting people. So that was a lot of fun, that was sort of my first half of my career at Microsoft. Second half I moved into our embedded operating system group and started leading parts of a emerging team there that was building embedded technologies for vehicles primarily for, you know, navigation systems and infotainment or entertainment systems in those vehicles. And from there, I took an opportunity to move to a German automotive software company called Electro Pads. I opened up a research and development office for them down in California. So until that time I was living in Seattle. Microsoft is in a suburb of Seattle essentially and moved down to California to the San Francisco Bay area, open up a research office, spent a few years running that research office and last November, left that to start a new company, designated driver.
Scot:
[03:29] Very cool. So if anyone listening has Windows Mobility in their car, they can call you for tech support. Is that how it works?
Walter:
[03:40] Yeah, pretty much. Exactly. I'm sure you'll poke, give him my phone number at the end of that. At the end of the podcast here. But yeah, I built a number of systems for Ford or Kia, BMW. quite a number of car makers. That platform, actually, even today is still in quite a number of cars being, probably no longer that helpful from a support standpoint.
Scot:
[04:05] Okay. All right. We'll have to go online and figure it out.
Walter:
[04:11] Probably.
Scot:
[04:12] Cool. Or ask Clippy
Walter:
[04:13] Or ask Clippy. Exactly.
Scot:
[04:15] So let's talk about designated driver to, I know it, I know the name from the, context of, you know, obviously if you're out drinking you need a designated driver. but, but tell me more. That's not what you guys do. Tell me what you guys do, do.
Walter:
[04:33] Yeah, I mean, the name, it comes a little bit from that idea. Designated driver is really about providing, what we call tell operations for autonomous vehicles. And, and let me break that down just a little bit, is we're sort of moving into this world of autonomy. Vehicles that are carrying passengers are good. So, or other, other things, many of them will start to become more and more autonomous. And which is I think great from a shared mobility perspective and a usage perspective. And you know what to think. There's a lot of promise for the technology, but a is we're actually getting closer to the commercialization of that. The realization is that there's still some scenarios where we just haven't been able to train or develop autonomy systems to, to handle correctly. And this is where it designated driver comes in. So we provide the designated driving services. I'm a human foreign to autonomous vehicles that needs that human assistance essentially. and so the, the name is a play a little bit on the, on the concept. Have you been out drinking too long and you're really not safe for you to drive home because there are situations where maybe it isn't safe or just not feasible for an autonomous vehicle to drive itself. So that's the, that's the basic background.
Scot:
[05:58] Cool. Let me, let me give you a kind of a scenario just to see if this is, if I'm, if I understand it. So I saw the CEO of Waymo earlier this year said he doesn't think we'll ever get to 100%, and he cited weather. So for example, when it rains, the rain makes it very hard for the lidar to see the, you know, not only the surroundings but the, the lines in the road, for example. so is that a scenario where you guys would automatically kick in and a human driver somewhere would kind of take over or in some way augment what they view is doing?
Walter:
[06:29] Yeah, I think eventually we do get to something like that. I, I do think that a lot of weather conditions that we struggle with today in autonomy, we'll figure out how to solve. there's, there's new generations of sensors coming that can address some of that. There's better, you know, there's additional training for the, for the machine learning and artificial intelligence systems that we're working on to, to improve that. So, so maybe that specific scenario, we'll eventually get addressed. But conceptually that's exactly it. So things that I think quite a lot about art or when a autonomous vehicle pulls up onto a road that is closed because of construction, you know, maybe there's a path that the construction workers are guiding vehicles around the construction area, but that path may violate road rules that the autonomous vehicle has learned and, and hold sacred so to speak.
Walter:
[07:28] And we might need a human to actually step in and either tell the autonomous vehicle it's okay to break a certain road rule or in fact the human may actually just, step in and drive the vehicle as if they were sitting in the driver's seat of the vehicle and just remotely maneuver through, through the, through, in this case, the construction site. But in addition to that, there are maintenance facilities or, or other kinds of really kind of specialty purpose environments that have vehicle might be to operate that an autonomy system will just never be trained for because it takes quite a bit of effort and money to train an autonomous system to drive through a specific environment. And sometimes the return on that training investment just won't be worth. And then I think the last, the last scenario and the one that, we also picked quite a bit about is these things are still vehicles and they will still be operating on roads with human drivers.
Walter:
[08:28] And there's still the possibility that there will be collisions and accidents and, and, other kinds of failures other than vehicle, a flat tire or something like that. And then the autonomy system just won't really be able to cope with those kinds of circumstances very well and kind of human will, we'll be able to take over a vehicle and maneuver it into a safe location for a tow truck or for whatever the, you know, the action that needs to be taken for that vehicle. So there's quite a number of these scenarios where, where autonomy just would never even be able to, to handle it in any case.
Scot:
[09:03] Cool. And then where are you guys in the development of the solution? Is this kind of Napkin diagram stuff or do you have deployments or you're an in kind of in the middle there?
Walter:
[09:13] Yeah, we're, so we are beginning our first deployments. It just kind of to maybe give you a bit of the history in the company. We started the company October of last year. As I mentioned, I joined 1st of November, you know, we spent the last four or five months kind of building up the core technology and two weeks ago in San Jose at, invidious what they call their GTC, their GPU technology conference, we'd launched the company kind of formally. So maybe some press that you've seen recently is really sort of the result of that that company launched. But it, in that launch we drove, participants in a car around the convention center in San Jose from our office in Portland. So the driver of the vehicle is basically 700 miles away, remotely operating the car that people in San Jose we're riding. And so that was kind of the launch of the company. And that's, that's really, you know, that the state of our technology where we're pretty confident in it and it's Lisa is mature enough that we were, we were comfortable, you know, driving journalists and customers and other conference participants around, around a conference center from 700 miles away. So, as I said, we're, we're now starting our first deployments, some of the technology.
Scot:
[10:30] Cool. What's, what's the passenger, for that demo, maybe we talk about the passenger experience. Am I, can I talk to you kind of like an Onstar type of scenario or can I see a little video of my operator? How, how, what's the cabin experience?
Walter:
[10:43] Yeah, that's, you know, it's pretty much exactly the passenger experience we developed entails screens and the rear seats of the car. So the passengers essentially would sit in the backseat. I was actually sitting in the front seat talking to them answering questions and the, the screens show, you know, a realtime position of the vehicle. They show the state of the vehicle whether the vehicle is driving autonomously or whether there was a remote operator controlling the vehicle. And, and when a remote operator takes control of the vehicle, there's a kind of series of introductory screen. So the passengers most likely, at least in the scenario we were talking about there, which is the autonomy system encounters some sort of failure, the passenger of the vehicle is most likely going to recognize that there was a failure. So we thought, you know, let's have the remote operator introduce themselves and establish a a video.
Walter:
[11:41] They have a two way video, a link into the car, and they can sort of make the passengers feel comfortable than actually someone is taking control of the vehicle. We're going to move new or the vehicle into a safe location. You know, everything is sort of being taken care of as a passenger. You don't need to worry about the fact that maybe that was a failure in the vehicle and sort of establishing this human connection, would help maybe ease the ease, the anxiety of people who might be in their vehicle. Ultimately, I think the passenger experience will be defined and determined by the, the company who is operating that vehicle. So, if you imagine, maybe it's a writing company, you know, the ones that many of us probably use every day, they might have a specific passenger experience, they want to have it in their cars and we would certainly help them implement that. But but yeah, for us it was a two way video link to the remote operator apartments so passengers could see them, could talk to them, could ask them questions.
Scot:
[12:44] Cool. And is your, is your business model where you could, you could have the remote drivers yourself or you could even just license the whole system and someone else could have their remote drivers?
Walter:
[12:55] Yeah, so we're building the technology and the business so that we're actually licensing the technology. So we do have our own trained a remote drivers that we make available to, some of our early customers really for their sort of trial or pilot fleets, not, not their mass scale commercial fleets. Because we expect the evolution of the, of this tell operations industry to be that larger fleet providers. You know, maybe like a ride hailing service. They would probably operate their own tell operation center. Yeah, I'll call it where they have a group of, of remote operators that are sort of monitoring and managing your speed. And I just want to, I want to live, I'm on a license on the technology that they're using to do and basic. So that's the US the business that we're planning to build.
Scot:
[13:48] Got It. Very cool. Well, congrats on the launch. I didn't, I didn't realize we were this close to when you launched. yeah, yeah, it was very timely actually. Like, yeah, I feel like we've got a scoop and I didn't even know it. so, so the whole idea on this podcast is to really look at, it seems like everyone has one of these frameworks, but ours is the vehicle to oh framework. And we think about conductivity, all these new ownership models, electrification and autonomy. and you know, you're kind of sitting squarely in, in all of those, which is great. So you've, you've thought a lot about autonomy. Obviously, if you guys are already kind of seeing some of these edge cases where you'll, you'll need to tell our operations to be involved and whatnot. yeah. What's your point of view on, on when, when we're going to have autonomy at mass scale and it seems like you guys are going to be, you know, kind of sit between that level three, four or five area. I would love to hear your thoughts around just autonomy in general.
Walter:
[14:44] Yeah. I think I always felt, I always tell friends of mine that I think this is the most exciting time to be working in the automotive industry, especially the technology side because of the really those four points they knew that you raise, I mean connectivity I think is really a foundation to, to enabling sort of the new business models and ownership models and autonomy and, and so I, I think that autonomy, what's clear to me is autonomy has coming. I think where the debate is, is how, how quickly do we start to see it? You mentioned mass scale. No. The question in my mind is what do you think is mass scale? Like we will, I will deploy my technology in on top some autonomous vehicles operating in the public offering rides to the public this year. So we'll will be on the road this summer.
Walter:
[15:36] Other companies, you know, there's a number of companies operating sort of limited service shuttle programs or other kinds of, there's a company here in the bay area called neuro. It's doing kind of a grocery or package delivery, autonomous shuttle and they, they've began testing. There's an Arizona and you know, the, I think we're at the stage where the very first sort of significant test fleets are getting deployed. You know, those tests. Fleets are there to gather data together, training data to improve their autonomy systems, to gather operational data, to understand what are the, you know, the costs and the, and the operations needs of these vehicles. And this is a multi year process probably to gather all of that. I think you are, I will be riding in and autonomous Uber or Lyft or whatever, ride hailing vehicle, you know, by the middle of the next decade by, you know, by mid 2020s. I think it's quite a bit longer before you or I, and we'll buy our own autonomous vehicle if we ever do this. Sort of maybe gets to your other point about the, the ownership models it may be then that private vehicle ownership of autonomous vehicles just never really happens because the business model for them is really better. you know, operated in a ride hailing kind of service, but, but I think it's, it's you know, Mass Dale, it's probably measured in decades rather than years. Cool.
Scot:
[17:00] dude, so it seems like Waymo is kind of out front and then you have Uber and Lyft to all working on things who've got an apple doing something as a long term fan of Microsoft. I've always been surprised they're not really active. Do you think you think they kind of step into this in some way or do you think this isn't really their scene now and they're, they're more into like cloud computing and other stuff?
Walter:
[17:21] Yeah, it's a good question, which probably no longer really know too much information about. I mean, I think just based on what I see, which is the same stuff you see that, that what they're really looking at is how do we enable all kinds of interesting automotive scenarios with their cloud technologies. So, and so it's clear. I mean it seems, it seems every week they're announcing a new partnership with a carmaker or some other automotive related business using their Azure platform in the cloud. Did that. That to me seems clearly what they're, or at least primary focuses, whether they get into the vehicle side of things again or not. It's a good, I really don't have any insight on that. You know, apples a little bit, I would say pretty secretive about what they're doing in this space as well. I'm not really sure what apple intends to do. Waymo is the one who cause Ben most public. Right. And they, they, they really have, they had the most, the most experience, the month, the most mature technology I think out there from.
Scot:
[18:26] Cool. oh, pivoting from ab to conductivity, one kind of question about designated driver. you know, we're in a 4G world heading to 5G is that data connection and the coverage is good enough for you guys to do the, the remote driving solution?
Walter:
[18:42] It, it sort of is I of course connectivity, throughput, latency, these are, you know, these are all things that can always be improved. But let me just maybe describe a little bit one what our technology, what we use for technology today to remotely operate a vehicle. We have to equip the vehicle with some technology that allows us to safely operate it remotely and that rarely includes cameras that give us essentially 360 degree view of the vehicle. We need to be able to get the position of the vehicle so that we can always know where the vehicle is and we can, we use that to identify certain environments that the vehicle might be struggling with. We need a computing module in the vehicle that has a pretty significant amount of computing horsepower that, that we use for processing that video from those cameras. And it handles the communication with the driver's station, essentially both the up and down communication and then, and then the interface with the vehicle control system.
Walter:
[19:43] But when we talk about the connectivities specifically, we use a multi radio cellular modem in the car. So it's, you know, it's traditional 4G LTE cellular radios, but there's four of them that we use in the car to provide the connectivity to the back end. And the four is not necessarily because we need that bandwidth. What we actually use multiple radios for is to try and ensure the robustness and reliability of that connection. So we actually communicate over those four radio simultaneously because each of those radios is provisioned independently. So it could be on each, could be on a different cellular network. we actually, in our development vehicles, we use two on one carrier and two on a second carrier and essentially, but, but, but each could be on, on its own carrier. And that's really to try and ensure robustness of that connection. And then we have some proprietary algorithm about that divide the communication across four radios and send some redundant communication across multiple radios to try and just to ensure that we're successfully communicating with the backend. But we can do that all with, with LTE or 4G today. It's not really too big a problem in our view. Life just gets better when 5G gets here.
Scot:
[21:07] Yeah you could probably go down to two antennas. You still want to have double coverage so you don't have it single point.
Walter:
[21:12] Exactly. Yeah. Yeah. We still need some of the robustness and redundancy, but I mean 5G has the promise of reducing some of the latency that we see. So, so we we try and stay, we have a magic number. We try and stay under about a hundred milliseconds with a hundred and 150. We actually stop remote controlling a vehicle, but we try and stay under a hundred milliseconds for that communication latency it feel. So that's video up and the commands back down into the vehicle. That's pretty fast. But you know, it can always be faster. I think latency is the thing that is really the, the critical aspect of, of remotely operating a vehicle, a vehicle going 30 miles an hour in a hundred milliseconds travels about four and a half feet and in you, so, you know, you can't, you don't want to have significantly more latency than that just for the safety of, of operating the vehicle. And, and in fact, if you could cut that latency in half, you wouldn't, you would certainly love to do. Yeah.
Scot:
[22:12] Interesting. I never thought of it in those terms. That's pretty interesting. How about now that you live in San Francisco? I know you're, you're a car guy. did you have all of your cars? Cause it's, it's unhip to have a car in San Francisco.
Walter:
[22:27] I guess I'm just uncool cause I, I have two cars and two motorcycles down here, which really just means like, I, I have a pretty hefty parking bill every month to park my vehicles. Yeah. It's, it's funny whenever I was just going say, I mean as you said, I'm a car guy so it's hard for me to imagine not owning a car. But that said, when I'm in this, when I'm traveling in the city, I pretty much never drive. So I always either take a ride sharing service or, or public transit because parking in San Francisco and it's kind of just ridiculous both from an availability standpoint and an expense standpoint.
Scot:
[23:06] Yeah. And if I remember right, and this is really stressing my memory, your, your guilty pleasure is Aston Martins. Sorry, Alfa Romeo.
Walter:
[23:15] No, I used to have us, I no longer any Alfa Romeos actually, but yeah, I have, I have two, nine 11 actually. So it's a different kind of guilty pleasure. Those are fun on this San Francisco Hills. Then they, yes, this, the hills don't bother me so much, but the quality of our street pavement here and needs a little bit to be desired. So then the cars are not too far. That perspective being a lot of rims. Yes, exactly. Exactly.
Scot:
[23:50] Cool. Well, where do you see car ownership going? You're, you're kind of living in the heart. There were, you know, most people don't own cars anymore and, and they're using the ride shares and it seems like we get contacted by a new company trying a different type of car sharing pool and there's seems to be like 80 different models under test right now. do you see car ownership kind of leaving from individuals to kind of more of a fleet model, over the, over that same kind of timeline we talked about with AVs?
Walter:
[24:18] I think that there will be, there are certain environments and certain people who, I think car ownership, remains for four decades. You know, you're, you're, you're in a city like San Francisco or Chicago or New York or you know, a densely populated city. The benefit of owning a car is that, I mean, I even asked myself this question and you know, so a little bit questionable, but when you, you know, go to start a family, you move out in the suburbs, suddenly a card becomes much more a utilitary and then then maybe in the city. and certainly if you're even in more rural environments, having access to or or ownership of your own vehicle I think makes a lot more a sense for those people. I see car ownership surviving for actually quite a wild. However, what I think is clear is that people younger than, than you or I are, are much more happy with different kinds of mobility services and, and they're delaying the purchase of their first car or even they're getting a driver's license can. I certainly would expect that to continue. Well, younger people who who at least earlier in their lives or are living in more urban environments and they just, you know, they're probably making a wise decision just not to bother with a car. Especially when you have such convenient, you know, point to point mobility services of animal. When do we reach a tipping point of car ownership? I know, I have no idea. That's a really good question, which I'm, I don't know how to speculate on,
Scot:
[25:53] well a lot of these fleet solutions, so we had a guest on that was talking about, you know, you have kind of station based, which is like the zip car model where you go between station a and B then yeah, more fluff free flowing ones. one of their challenges is, you know, so if I, if I get in a car and an apartment building and then kind of take it to maybe an, an area out in the suburbs, they have to send these valets out to kind of rebalance the fleet. Is that a possible solution for your technology where you could equip these cars with, with the, the tell operations and at night, you know, I remote driver could be driving these things kind of even outside of autonomy?
Walter:
[26:29] Yeah. Actually I think, I think that's a great observation and it's definitely one that we've, we've talking to a couple of companies about the possibility of doing that. They send a fair amount of money repositioning and optimizing the, the location their fleet for, for the next, renter. Essentially that business survives on utilization of those vehicles. You're trying to amortize the cost of that vehicle over as many people as you can. So it doesn't do much good for that thing to be out in the middle of, of a neighborhood where very few people are gonna walk by and rent it. And I think that's definitely a possibility for us to, to offer a service to help reposition those fleets. And there's a couple of car share companies that are interested in and exploring that. So yeah, I think it's a definite possibility. and the benefit for me as you pointed out is I don't necessarily like, you know, and for, for my businesses, I don't necessarily have to wait before autonomy to, to scale my business. I can, I can develop businesses before maybe autonomy. Is that a mass scale?
Scot:
[27:33] Yeah. And then, in the ecommerce world, drone delivery, you know, everyone talks about it, but the regulatory hurdle is so high for autonomous drones, that I think deaf a is doing more, allowing kind of, you know, remote driven drones and I could see the tell operations having a little bit easier kind of, you know, getting through some of the regulatory hurdles, especially you guys seem to have it all dialed in. The of, you know, what happens if there's not conductivity and all in and all that kind of stuff. So it seems like maybe that would be an easier on ramp into things through the regulatory hurdles too.
Walter:
[28:05] Yeah. I mean there, there are some challenges particularly we have to the first, pretty much, there's not a single state that has contemplate at the fact that they driver of a vehicle might be not in the vehicle. Yeah. so they make all kinds of assumptions like law enforcement and can identify who the driver is. They can get their driver's license and insurance information that the operator of the vehicle or has certain control over the vehicle. And, and you know, we can guarantee a lot of that, a lot of the same things to law enforcement. For instance, in fact, that's when we were doing our company launched down in, in San Jose, one of the, I actually contacted the San Jose police department as well as the California highway patrol just to make sure I wasn't crossing any lines I shouldn't cross doing, doing this remote driving essentially.
Walter:
[29:01] And they, they basically told me that, you know, as long as I wasn't doing this for hire, because there's a set of regulations that would apply if I were doing it for hire. But as long as I wasn't doing it for higher, which in this case I wasn't, and I would be able to provide law enforcement with the driving license of whoever was in control of the vehicle when, you know, at the time the police maybe became interested in the vehicle, I'll say then. Then they were okay with, with what I was doing actually. And that was the, that was the first, my first interaction with law enforcement just to see what the, you know, what the feasibility have of doing this might be. And it was, I, I would say, surprisingly positive actually. So, so I am hopeful that we'll be able to cross some of those regulatory hurdles like you said, but okay. But today I would say it's really a vague spot in the loss. It's not contemplated really at all.
Scot:
[29:55] Yeah. It's gonna be interesting to see how all these rules and regulations keep up with, yeah, they've struggled with scooters, let alone, you know, cars that are being driven remittent
Walter:
[30:04] exactly, exactly. But we'll get there. I'm that I'm pretty sure.
Scot:
[30:09] Do, do you have a prediction of which of these different ownership models ends up winning? You know, is it, is it going to be ride shares, subscriptions or, or more kind of shared pools of cars?
Walter:
[30:19] I think there's a viability for all, to be honest. I'm not sure it's one, I don't know that one wins. I think that each, each actually has some interesting applicability under specific scenario. So, so I could see a world in which, you know, they all continue to exist in. Maybe it'll vary a little bit by geography, but I think they, I think, I think we're, you know, all of them, I would say all of them are sort of mature enough now that I think they understand the business model and the operational cost and efficiencies that they need to achieve. And you know, I could easily see them all surviving, you know, sort of in their current form. The question is whether somebody comes up with a new one that's going to kind of displace all of them. I don't let that, I don't know.
Scot:
[31:04] Yeah, you could kind of see the moat multimodal thing that both Lyft and Uber are doing around, you know, car bike, scooter. You can almost see different use cases, which would be, do you need a car for a trip a day, a weekend, a week, a month, and know exactly. Like choose one and there's all, yeah,
Walter:
[31:22] yeah, we're or, or do you, yeah. Or do you just need you know, to get from the bus stop to your office or the train station to your office? Right. I mean, that's, I think what Uber and Lyft are doing with their bike and in scooter acquisitions is really pretty interesting that that's certainly the, there is, you can imagine they're very popular here in San Francisco because we, we have a fair amount of, of public transit here and more or less all forms, whether that's a train and our assembly or or a street car or or a traditional boss. And, and there's a lot of people that use these bikes and scooters as sort of that, you know, the proverbial last mile sort of solution. And I think it works. I think it works pretty well. But I think, you know, a company like such as Lyft or Uber, I mean these, these are, these are mobility providers and I think they're getting, they're gonna look at every model of mobility, you know, that they can offer to their customers. So a multimodal solution makes a lot of sense.
Scot:
[32:20] Yeah. How about that? So the last leg of the stool we haven't talked about is electrification. it seems like your solution works. You, you don't care if it's an internal combustion or electric vehicle. But do you have a point of view on, on when we get to some kind of a tipping point with evs?
Walter:
[32:38] I'm pretty of the power, the propulsion system, so to speak. but you know, electric vehicles, there's a lot of advantages to an electric vehicle in enabling autonomy, both from the power available. So, you know, the, there's a lot of power to run very powerful computing systems that we need an autonomous vehicle. the architectures of electrical vehicles, electric vehicles are more or less, you know, developed new from the, you know, there's very few electric vehicles that carry over historic vehicle architecture. And so that allows us to really build systems that, that an autonomy system can remotely interact with much easier. you know that, I was reading the news the other day actually about the Tesla launching the model three in Norway. And this, I can't remember, it was last the last month or the last or the first quarter of this year here, but Norway now, 58% of the vehicles sold in that month or quarter, whichever it was, our zero emission vehicles, which is, this is really pretty interesting because that's a lot of those Scandinavian countries are pushing for, for these, you know, reusable, recyclable, zero emission technologies.
Walter:
[33:57] And to see that they at least one of those countries has, has, has crossed the majority, you know, market share and to electric vehicles I think is very interesting. I think for, for a country like the U s were probably 30 years away from seeing the majority of vehicles sold in this country being electric. But I think we're on our way. I think, I think it's, it's definitely the future of, of powertrains in my opinion. So if Porsche comes out with an electric nine 11, are you switching over? You just be like that. You're like the home of the, the engine. Well, I, what I do like the hum of the engine. I wish I would not, I would not shy away from an electric non 11 by any means. And they do have an electric sportscar coming my, I'll say my, my personal business model doesn't really support me driving brand new Porsches does. So my, my forces are little older, so until those electric courses become, a few years old, probably I will be switching.
Walter:
[35:05] All right, we'll have you back on in five years and we'll, we'll do a check in. There we go. That sounds good. That sounds good. one thing I would, I mean, electric motors, I was just going to say, I mean the Torque of an electric motor is addictive. Oh yeah. I think, you know, someone, someone who's, who loves internal combustion engines, which I love. I love the smell. I love the sound, I love the feeling of them. But you get in an electric car and you stomp on the gas and you get pin back into your driver's seat and that's that's a feeling that gets, gets addictive really fast.
Scot:
[35:39] Yeah. I'm I'm a tussle guy, so I've lived that many times.
Walter:
[35:42] Yeah. There. You're there. Yeah, exactly.
Scot:
[35:47] And then so as a guy that's been around the mobility space as an ecommerce person, it's interesting because the OEMs would, their dealer network, they feel like they're kind of stuck in their current model. A lot. Like some traditional retailers were once ecommerce came around and they kind of went through these different phases of denial and then like, oh crap. And then kind of like, you know, existential threat. And at that point some of them made the decisions and have survived and others didn't. What do you think happens to kind of the, as we kind of play through these different trends, like maybe out 15, 20 years, what do you think happens to that traditional dealer network and that traditional OEM,
Walter:
[36:26] The traditional OEMs? I think most of these guys really, their product portfolio changes obviously. So when we move into autonomy and electric power train, these guys, you know, the traditional OEMs will definitely be producing those kinds of vehicles. I don't see electrification or autonomy is any kind of doomsday scenario. Okay. That might not, there may be some smaller manufacturer or some manufacturer of it. It just fails to make the transition. But as far as the general industry grows, how it goes, I think the number of vehicles sold in 50 years is not going to have to look that much different than the number of vehicles sold today. Maybe it's even a bit more. And so I think the industry from that perspective, we'll remain pretty healthy for them. From the dealership perspective. That's a good question. I think dealerships, I think, I suspect that their businesses will just evolve. Electric vehicles still have maintenance requirements and they still have, you know, servicing is cleaning and other kinds of, of services. And I can see how traditional dealerships could, I mean they still have to sell the vehicles, you know, from as new to begin with. but I think that their, their businesses evolves a bit whether they are there as many dealers in 30 years as there are now. And I'm not really sure. I think that's a good question.
Scot:
[37:55] Yeah, I think the ownership one's tricky. So if we do move to kind of like, you know, half personal ownership, half more of these shared services, or do the dealers kind of become suppliers into there and service centers or are they kind of left out of the picture? We'll have to see how that goes.
Walter:
[38:09] Yeah, I mean, I would assume that they would become, you know, service centers for fleet operators and they will compete, you know, a fleet operator doesn't necessarily need to to build up their own expertise in cleaning and servicing and maintaining the vehicles of their fleet that can be contracted on and that can be contracted out to a dealership as you know, as well as any other company. So, you know, I could certainly see their business evolving, but I think that's where some guys will evolve and they will, you know, thrive and in sort of an, business climate like that, maybe some guys will, they're still there. There are still places where people board their horses and ride their horses and you know, people will take care of your horses for you. And maybe that's the future of some dealerships. If you, if you believe the analogy then maybe our, our old gas driven cars or you, they're the horses of the future. Where are we? We drive them occasionally and in special environments and whatever. And so they might get dealerships that specialize in that. But yeah, I dunno, I, I wouldn't be if I were a dean, if I owned a dealership, I wouldn't be that concerned about the future of my business. I would just be thinking about how do I evolve my business to, to serve as the, you know, to service this new industry in this new market.
Scot:
[39:32] Yeah. One, a couple last questions here. I know we're, we're going to run up against time in a second. The, so you, you've spent a lot of time kind of at your time at Microsoft thinking about the in dash experience. and no, so Microsoft was kind of early. They're within bedded windows and then now we have kind of apple, Google and Amazon battling it out for that experience. And then the Em's kind of all have their own experience too. How do you think about what's going on in there and is there a winter or do you end up with a lot of different kind of experiences?
Walter:
[40:01] I haven't been thinking about that space in quite a while now actually. I don't know that there's a winner. And then you have companies like Tesla for instance, that have really defined the Tesla experience in the car. Right. And, and I think a lot of the traditional manufacturers, they still prefer to present their own experience in, in the car to, to the passengers and drivers of their car. I don't know that I see that changing that much. I think a lot of companies, whether it's Microsoft or Google or whomever are, are today focused on helping those OEMs present a bespoke experience. But at the same time we see carplay and android auto becoming more and more prevalent for, for basic services and car. But I don't know, I don't know if I have an opinion on whether there's a winner or not. Actually, I haven't thought too much about in recent years.
Scot:
[41:00] Fair enough. You had to, you had your fill of worrying about that back in the day?
Walter:
[41:03] I had my fill of worrying about. Exactly. Indeed.
Scot:
[41:08] Now you're just trying to drive the cars remotely and that's a much beefier problem. I think. I'm just trying to provide your designated driver. Exactly. Cool. Well this has been really awesome to hear. you know, from someone that's been in the industry for awhile where you think we're going. Any last thoughts on the future of vehicles you want to share with listeners?
Walter:
[41:28] Well, I think I would just go back to one of the things that I said for people in the industry, like myself working on technology, it's, it's the most, I think it's the most exciting time to be working in this industry because we're, we're sort of on the brink of, of some pretty interesting a revel evolution or, and maybe even revolution in transportation. I'm, I'm excited for her personally and I think, hopefully your lessons listeners are as well because I think we're going to, the next 10 years is going to be a pretty interesting time for those of us interested in vehicles.
Scot:
[42:04] Awesome. Last question. for listeners that want to learn more a and follow you online, your website is designated driver.ai. do you publish, are you a prolific tweeter or linkedin writer? Where can people find you?
Walter:
[42:18] No, not really. I am on Linkedin so people might, people can certainly look up my profile on linkedin. I'm not much of a Twitter. I do write or contribute to some of the blogs that we've put up on our website, designated driver dot. Ai. That's probably the, the easiest place to see what my thinking is in the industry.
Scot:
[42:36] Awesome. Well we really appreciate you coming on today and excited to keep an eye on what you guys are doing. We'll have to have you back on after you kind of have some deployments out there and hear what you've learned and see if, see if your perspective on the future vehicles has changed.
Walter:
[42:49] Yeah, that'd be great, Scot. Appreciate it. It's been fun to talk to you again.
Scot:
[42:51] Yeah, we have to, you know, catch up more than every 15 years.
Walter:
[42:55] I think so, yeah. That would probably be a good idea. We're on opposite sides of the country though, so it's a little bit challenging.
Scot:
[43:03] Yeah. Yeah. Well next time I'm in San Francisco, I'll swing by and we'll, we'll grab a beer.
Walter:
[43:07] That would be awesome. I look forward to it.
Scot:
[43:09] Thanks for coming on the podcast. We really appreciate it.
Walter:
[43:11] Thanks a lot, Scot. Take care.
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EP005 - VP Marketing & Alliances at Ridecell, Mark Thomas
http://www.vehicle2.getspiffy.com
Episode 5 is an interview with VP Marketing & Alliances at Ridecell, Mark Thomas; recorded on March 29th, 2019. Mark and Scot discuss a variety of topics, including:
His career path through corporate technology companies to the startup world with Ridecell. Defining the history of Ridecell, their mobility platform, and the companies who use their technology. The evolution of station-based and free-floating ride sharing, specifically with companies like GIG and Zipcar. Shifting from private car ownership to public options and how the impact will be felt across the industry. Realistic use cases for autonomous vehicles, such as ride hailing, fleet rebalancing, or nighttime trucking. The importance of software in vehicles that are becoming increasingly connected.Be sure to follow Mark on LinkedIn!
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:51] Welcome to the Vehicle 2.0 Podcast. This is Episode 5 and it's being recorded Friday, March 29th, 2019. About a year ago, someone I knew in the industry was texting me feverishly. He was at the Center for Auto Research trade show in Detroit and he kept saying, “Scot, there's a speaker here and you have got to talk to this guy. He is saying a lot of the same stuff that you are pretty passionate about, and he has great sites.” So here we are, a year later, and I'm really excited to welcome to the show, the VP of Marketing and Alliances at Ridecell, Mark Thomas. Welcome Mark.
Mark:
[01:28] Thanks Scot.
Scot:
[01:29] Cool. So Mark, let's start off by going over your career path. How did you end up in the world of mobility?
Mark:
[01:36] It's a interesting, My career has been pretty much full time in silicon valley and just starting off with the desktop revolution and apple, the Internet revolution with Netscape, and the mobile revolution for many years at Nokia. And my last few years at Nokia I was part of the, the here division, the maps division where automotive was a really big part of it and realized that this is a chance to really connect some of my passions, which are leading edge technology and my love for vehicles. So after some time at Cisco heading up their connected car initiatives within the marketing organization, I joined Ridecell as the head of marketing and alliances.
Scot:
[02:23] Cool. So you're a hardcore consumer electronics guy. I always like to ask, how many CESs have you gone to?
Mark:
[02:30] You know, they do tend to blur, but probably over the course of several decades.
Scot:
[02:35] Cool.
Mark:
[02:35] I love how CES though has become car electronics show. It's great. It has really out there. Yeah. They're having to move the Detroit auto show, from the week after to sometime in the summer because it was just to becoming too competitive.
Scot:
[02:52] Yeah, it is funny. So we've had, you know, I don't think 20 years ago we would have guessed that cs is the one show that would survive all the, you know, we used to have the computer shows and then the software shows and we even had internet shows and a CES is been kind of the, the, the survivor of all. That's pretty amazing.
Mark:
[03:11] Yeah. I've got to say I don't miss COMDEX.
Scot:
[03:14] Yeah. Yeah. Me either. Standing in lines for like eight hours to see Bill Gates give a 10 minute little thing about some, some new gadget.
Mark:
[03:23] Hey, I think I was there.
Scot:
[03:25] Cool. So let's, let's, let's learn more about Ridecell. Obviously it was you saw something really amazing there to come from a lot of these really big brands and do a startup. Tell us a little bit of the history of the company and, and what Ridecell does.
Mark:
[03:40] We were founded in 2009 in the Atlanta area, a great place to find wonderful tech engineers, great talent. Definitely though there was a shortage of capital out there, when the company was looking to raise some VC money, so they uprooted the founding team and moved out here to San Francisco. About two years later started one of the first ride hailing companies called summon. Right up there in the beginning days with, with Uber and Lyft. I think that the company had about 2,500 drivers, working in the San Francisco Bay area. And you know, as the company was looking at, you know, where this market's going to go and think there's the understanding that this is going to be massive race to raise capital and expands. And rather than being, you know, the third company pushing in, ride hailing, the intent was to become the first company to offer a white labeled end to end platform or other companies that needed to get into the ride hailing or in the future car sharing businesses.
Scot:
[04:54] So I've made a career of building companies that sell pickaxes and not, not, you know, doing the digging. So, so I think that's a good strategy. So if we flash forward to the day, I kind of think of you guys as mobility in a box. So, obviously if I wanted to start a ride sharing company, I could use your software but, but I think there's a lot more interesting use cases there. Can you share with us some of the ways people are using the platform that, that maybe you didn't think of it originally?
Mark:
[05:19] Yeah. Let's, let me take the first part of that, which is Ridecell provides. we, we have a full shared mobility cloud. And in the same way that, you know, back in the day since we're reminiscing, people would create their websites by buying sandboxes and getting some rack mount space and screwing them in with load balancers and really have to take control of the entire hosting and domain as a differentiator. Now nobody does that. Everybody just uses AWS or Google cloud or Microsoft Azure. We're the equivalent for that. And the shared mobility space, you know, having the benefit of having been in a pure play software company since 2009, we focused on building a complete share mobility clouds so that if somebody wants to create a ride hailing service or a car sharing service or a dealer based test drive service or you know, a hotel, car rental service, all of those things can be easily started using the Ridecell mobility cloud and then, you know, then the companies can, can focus on building their differentiation on top of what we offer.
Mark:
[06:44] So it's very much all of the underlying bits and pieces that really allow you to create a service which, you know, it's taken us years of expertise to, to form. We've got about 150 people working on the company and over a hundred of them are engineering and QA teams. So it's it's a bit of an undertaking to really make it easy to use and easy to launch a service.
Scot:
[07:11] Awesome. Are there any examples you can share of companies and how they've used the cloud?
Mark:
[07:16] Absolutely. Companies that, that like to work with us are those companies that realize they will need to transform or risk becoming the next Blockbuster Video. And so the, for instance, the Automobile Club. If private vehicle ownership goes away, then do we really need an automobile club? And I think that their view is maybe not. So the AAA of northern California, I came to us and said, look, we'd like to have a product relevant to millennials, people who don't own cars.
Mark:
[07:56] And so they, within six months they were able to launch a new brand called Gig. Sort of stands for, you know, they marketed as "get in and go." It's a car sharing service and it's the modern kind of car sharing service. I think in North America when we think of car share, we think of Zipcar and the little signs behind it. It says Zipcar lives here and you reserve it ahead of time and you walk down to it and then use it for your errands. But you always have to bring it back to the station and you have to bring it back on time or subject to those potential late fees. The modern style of car sharing is one which is called free floating or some time in people call it one way car sharing so that you can walk to the car, get in it, drive to your destination, park it and park it in a residential zone, parking in a meter.
Mark:
[08:51] Typically it doesn't matter because these cars generally have all access parking passes for a city. And so with Gig, they have the ability to you know, walk up to a car, unlock it, get in, drive, park it. They can even park it in a metered spot as long as it's not one of those like, you know, 20 minutes green meter zones and then leave the car and the next person that's downtown shopping and see is it pops in it and takes it and drives it. So it's a much more convenient way to use use car sharing. and you know, it's something that's really allowed them to create a product line that, has become very successful. They started with 250 cars, now they're up to 600 cars in the San Francisco Bay area. Then you know, they've gone from two cities, Berkeley and Oakland to five, now they're alive and Berkeley, Oakland, Alameda, and then San Francisco as well. The first free floating car sharing company to get a permit for San Francisco. So it's, you know, this is really exciting times is the city governments or figuring out the real value of using car share services. Then of course the next horizon is in creating services that aren't for internal combustion engine cars, but for EVs and it's really the electric vehicle may become the real hero use case for carshare fleets.
Scot:
[10:21] Very cool. I'm curious. So if you, you're really good at kind of branding some of these things. So, if what Gig has built is a one way car sharing, what do you kind of think of Zipcar? What does that kind of like traditional or old school ridesharing? How are you, how are you thinking about that?
Mark:
[10:37] So in North America, many of the zip cars are still using a model called station-based car-sharing and that's where it has a station and lives and, and there's definitely some benefits to a station-based. You can reserve a car ahead of time, free floating car sharing where the cars could be anywhere at any time. It's a very hard to reserve a car. Normally it's an on demand. I need a car, find me the nearest one, put a hold on it for up to 30 minutes so I can walk there. The station-based, which we support both station-based and free floating. We believe there's actually, if you have a fleet of vehicles, it's best to have some of each that you know, in apartment buildings where people move in and they see maybe there's eight or 10 cars parked in the garage that permanently or station there.
Mark:
[11:29] People who live in the buildings are able to, you know, check them out or rent them, or use them for their errands and it's natural for them to come back and park it back in the parking garage. So station-based is a great addition to a free floating car sharing base, which is kind of one of the first insights that I think we have four companies that are doing these shared mobility fleets, which is you need to be able to support multiple different kinds of business models to get the most out of your fleet. And you know, one way at the station-based or both in different business models that can be applied to one fleet of vehicles.
Scot:
[12:09] Very cool. so I think that's awesome and it gives us a really good idea of, of what you guys are building at Ridecell and definitely want to hit on more. I'm sure that's just the tip of the iceberg. But here on the podcast we have a framework where, you know, we call it the vehicle 2.0 framework and we talk about connectivity, new ownership models, electrification and autonomous. you're obviously really deep into the ownership world. How do you think, you know, one of the reasons, you know, my friend was texting me a year ago was that you, you have some interesting thoughts around, ownership and how that's going to change. What's your projections for when, you know, we start to feel in the industry, the, this move from the individual owner to kind of more of a fleet kind of ownership model.
Mark:
[12:56] If I could take this slightly off topic from the question for a minute.
Scot:
[12:56] Sure.
Mark:
[13:01] I think it's interesting. So just want to talk about the vehicle 2.0, I mean, the entire intent of your podcast. What's interesting is that this a combination of four things connected, shared, electric and autonomous, is ending up with a whole number of different acronyms. And I think there's, you know, CASE: connected, autonomous, shared, electric is one that's kind of leading the pack, but then you've got another form I think like the folks in Daimler or pushing ACES, which is you know, autonomous, shared, electric, connected. And, and in many ways, when I, when I was giving that speech, last year, traverse city. You know, my commentary on this is that, you know, if we try and label it as an acronym or a name, it almost makes these things, it doesn't do enough justice to what's happening in the industry.
Mark:
[14:09] And right now these, you know, connected is a foregone conclusion. I almost think that, yeah, vehicle connectivity done, we can check that one off the list. So it really comes down to these three major disruptions, any one of which is incredibly powerful. So it's, to me it's the triple disruption of shared mobility as as a massive way and shared mobility is disrupting, certainly. How people get around in cities, the ability for people to not have to own a car and you know, the downside of taking Uber's and lifts exclusively everywhere is that it's expensive because you're paying for the overhead of the driver. You know, electric is this transformational change in how we build a vehicle that will dramatically disrupt the value chain? these vehicles barely need to be maintained. certainly no, you know, lube jobs that go in here, and there are so much better for the environment yet the, you know, the whole difficulty associated with electric vehicles is that you have to have a charger.
Mark:
[15:30] You know, we're either where you live or where you work or where you shop. And that's a whole massive, expensive, difficult infrastructure. You know, my friends who live in apartment buildings are like, there's no, I'd love an E-vehicle, but there's just no charges and how am I going to get the building per person to put it in. The pudding shared E-vehicle fleets is really cuts the whole Gordian knot of having to solve, putting infrastructure where people live and own their vehicles. Because these vehicles can now free float around in the city and when their battery levels get low, they can be taken offsite and can be used, can be cleaned and charge. And with the range of you know, the new leaf or the Chevy bolt or the ring, no Zoe vehicles, these, you know, we're in the 200 plus mile range, which means for a typical car sharing customer, they're able to take the cars out of service probably once every three days.
Mark:
[16:35] I usually in the middle of the night, and you know, bring them to a depot, recharge them and get them back on the streets. And then, you know, when you look at these shared, the fleets having, you know, if to put them to use in ride hailing scenario, it's still means there is a driver in there. And if autonomous without sharing, if we really think about it, it's, you know, primarily a really fancy cruise control for rich people because these cars are going to be very expensive. So the autonomous revolution doesn't actually change many people's lines until the technology becomes adopted and shared, shared mobility. And that's the point at which rather than offering a ride for $2 a mile, when you take the cost of the driver out of the equation, and they're generally about 70% of the total cost of offering a ride, you could get the price per mile down to say 40 cents a mile.
Mark:
[17:42] And that is the point at which it's considerably cheaper than using your own vehicle. Most statistics are that it's between 65 and 70 cents a mile to drive your own car somewhere. And that includes your licensing, your insurance keeping, you know, obviously the fuel, you know, keeping it clean, parking, huge expenses in urban areas, paying for parking. And so, you know, when it's okay if I'm going to spend 75 cents a mile on my own car or 40 cents a mile on, on a ride and I can do something other than drive on my way there, this is, that's the tipping point. That's the inflection point that we'll have people deciding not to renew their leases will have people in urban centers selling their cars going, I can now depend on this. And it's, it's, it's dramatic how, how much this will not just change our lives, but how transformative this will be to the entire value chain of businesses who depend upon private vehicle ownership as their primary source of value in the world.
Scot:
[18:53] Let's put some, so I kind of used the metaphor that it's kind of like four waves that, you know, individually, you know, their waves, but you know, like any wave form, they kind of stack on top of each other, right? So we've got connected car feels like, I think we agreed that's, that's coming. It's kind of here today. these new ownership models are kind of another wave that's rising. and then it feels like EV is kind of, you know, we're starting to see like, like Tesla is the top selling car in its category right now in China. You're starting to see EVs outsell a internal combustion vehicles. and then it feels like AV, that's the one that's harder to kind of know when that's coming because we kind of went through a hype cycle and now we're in like that trough of digital disillusionment a little bit at CES this year, there was a lot more very specific use cases versus the generic kind of use cases. What kind of timeframes do you put on these things kind of coming out and really impacting each other?
Mark:
[19:50] Yeah, great observations. I'm really, the long pole in the tent is is AV. When we, I think when we think about what's necessary in, in an Av, people tend to overstate what required for us to make this transformation. I think level five or the classic the car can do whatever a human driver can do is years and years and years off a level four, which really is within a geo fenced area. You know, some, you know, downtown part of the city. Ah, urban speeds. So the, the, the slower the car drives, the easier it is for the autonomous systems to work within, you know, predefined driving rules. Okay. Don't make any left turns or you're going to go ride all the time to get around that. That can be done and deployed, within probably within four years in cities that have very good clear road markings and, don't have a lot of inclement weather.
Mark:
[21:05] So we've already seen, you know, it's, it's essentially deployed now if you'll look at a Waymo and what they're doing to roll out their, their service, the Waymo one, but in terms of getting, you know, some other vehicles, crews, we have our own autonomous driving initiative called Aro. You know, at that point, once you get autonomous driving, the long pole in the tent won't be getting vehicles that can safely drive around. It will be getting permits from the cities to operate an autonomous ride hailing service. You saw this with the whole a scooter getting here in San Francisco were, you know, Lime and bird and everybody flooded the city with these scooters and there was chaos and the city, you know, this said, you have a week to take them all off the streets. We're going to have a process by which you're gonna, you're going to bid for one of these licenses.
Mark:
[22:04] And we're going to pick the winner. And they'd pick two, one of whom was a company which has already been operating and mopeds sharing in San Francisco. The city knew them. They were like, we want to reward you for being a company that collaborates with us. I mean, you know, the history of excellent cooperation and that that's going to pay off. So the are insight to companies that are looking to capitalize and prepare themselves. Four, the autonomous shared mobility revolution is to get into the business now with car sharing, establish the relationships with the cities, so that you are a great company to work with. And when those licenses come out that are going to be available to a limited number of companies to offer autonomous ride hailing, we think those companies are going to be first in line to be issued the permits to switch from, I'm driven to driverless.
Scot:
[23:04] It's interesting that you're taking kind of a regulatory regulatory approach versus a you can have the best technology, but if you're not going to be permitted, what does it matter? I hadn't thought through that.
Mark:
[23:14] You know. And the other piece that I think, most people haven't thought about is there are applications or autonomous that don't involve driving people around. And in particular, you know, one of the, one of the big expenses of operating a car sharing fleet. These vehicles, you know, don't have a driver like an Uber or Lyft driver that's responsible for them. And so when they're parked and something, you know, the check engine light comes on, they're low on gas, they need to be recharged. Typically what happens is the company has to send out and pay for a driver to go to the car and move it in. Those con those can cost, you know, 20, $25 for each time the car needs to have somebody get in it and move it around. The, the test driving permits, can probably be used for late night operations where there was no passenger inside the cars, you know, driving itself from two to four in the morning, you know, drives itself out through a supercharger, you know, the car gets wiped out.
Mark:
[24:26] Yes, recharge and then, you know, move back onto the streets in a place where the customer demand is likely to be highest. We call that fleet rebalancing. When you've got a car that's parked in a and a zone that we think, wow, there's not a lot of demand there. History will show it's going to be cars. Gonna wait there eight hours until somebody needs it. We can move it right by the train station, right by one of the subway stations. And we find that this car is going to pick it up within the next 45 minutes. So being able to automate, you know, fleet rebalancing, cleaning maintenance runs and use the autonomous technology for that purpose, is a great first step into getting experience with autonomous technology for these fleet owners without having to go straight from a fleet of cars that drivers drive to suddenly now you're using them. Live for eponymous ride sharing.
Mark:
[25:22] We call that autonomous car sharing. And at some point, even if there is no license for autonomous ride hailing, we think that the autonomous technology could be used for per car hailing. You know one of the drawbacks of car sharing is you've got to walk to the car and then when you're done, you've got to find parking. If you were to apply autonomous technology and let the car drive itself to where the customer is, and then that person gets in, gets behind the wheel and drives wherever they're going, then they get out in the car and goes and parks itself or it goes on to the next customer. You're not doing autonomous ride hailing, you're just automating the delivery of the vehicle. So this is a new category of, of service called car hailing. And we think that this is one which is again, probably another interim phase, but you know, life is made by identifying the interim phases and being the, the customer who best adapts to where we are in the cycle.
Scot:
[26:26] It's like when I go to the grocery store now frequently on instacart, people in there or Postmates people. So I'm envisioning I'm driving around at night and all the cars that are driving around, they don't have drivers. It's going to be going to be a fun and exciting world to live in, in the future. so when do you, so do you have a point of view on when we can get, a lot of people think one of the first phases is going to be trucking, right? So, so AVs doing some of these long haul routes that you really don't need a person, therefore, do you agree that's going to be another one of the first uses of AVs. And you think that's also kind of in that three to four year horizon?
Mark:
[27:05] I think companies like telecon and others really focused on a very specialized use case. I don't see that is replacing the driver. I see that as being able to offer, more efficient driving because the platooning and the ability to talk in very closely, you know, behind another truck really allows you to draft and save a considerable amount of fuel expenses. You know, those use cases are things that people have been working on for quite some time. The, you know, the, the use of autonomous, almost like a tram where it has its own protected lanes and it, it's an unattended brain if you were driving and stopping for two minutes at everyone. I think those types of shuttles are also some of the near term, use cases that take away the issues of having to deal with, you know, making decisions on how to reroute itself during, you know, traffic jams and how to avoid pedestrians and the like, because it's a much simpler model where it just runs on a track and it goes around in circles. so we think when we, we see, we hear a may mobility and they've got, you know, deployment and Detroit where it goes, you know, six city blocks, around that, around those are also, I think relatively straight forward. compared to the where we think the end goal is, which is having cars be able to drive, not just on a fixed route but point the point. use it for pooling and really replace a human driver.
Scot:
[28:59] Even kind of more near term. I've seen projections, we saw about 17 million cars a year in the US right now and it's kind of, you know, pretty flat and then a lot of projections are for this year, that we're going to be down for the first time due to some of these changing ownership models is that. Do agree with that or do you think it's going to take the AV innovation to really get to where we see the, the whole thing flip?
Mark:
[29:25] Well, it really depends upon who's a model that you're referencing there. I've seen it anywhere from being flat to a flight growth to, to the diminishing growth. The thing that nobody reports on is not the total projected vehicle sales year by year for the next 10 years. It's the customer mix of the vehicle sales over the next 10 years. And what, when you really inspect who's going to be buying these cars somewhere between 20, 25 and 20, 30 in north American urban areas, more than half of the cars sold. Well we sold to mobility service providers. That is the transformative change. And you know, 10 years from now, it'll be 80% of those vehicles are going to be sold into mobility service providers, which means that those are the companies that are going to have huge buying power. there'll be the ones that'll be ordering the vehicles bespoke for their, their business purpose and, and the brands will start to become much less relevant to customers. In the same way that when you order an Uber or Lyft, you're identifying as an Uber or a Lyft person, not a Prius passenger because you have no control over what that vehicle is. So the, the relevance of, of car brands diminishes greatly once, like customers choosing which a mobility service to youth as opposed to which vehicle brand to buy.
Scot:
[31:20] That's interesting. And I'm sure scary for, for the brands up there. And, and, you know, I've been to this ecommerce change and, it, it's been quite disruptive as I'm sure you've seen there with retailers. you know, now the brands are kind of going around retailers. It's sometimes hard to predict how these things will shake out. But, let's, let's say it is 20, 30, and you know, we've got a majority of people in urban areas now not owning a car directly and they're using these different formats. It's, it seems like a lot of people are, obviously kind of trying to win that battle. You've got the rental car companies, they all kind of feel like they're going to have a role in that. And, and you know, their, their argument is they're already kind of doing it now, which is a fair argument. You've got the, the dealer OEMSs, you've got some of these other mobility players like a Cox in a car. you have some of these innovative new models, like obviously Uber, Lyft, but then there's Turo get around and then some of the subscription guys. W where do you think all this kind of shakes out? Like do all these companies survive and they have a role or, or is it, is it kind of a existential crisis time for some of them?
Mark:
[32:24] I think there is, that is not a mutually exclusive scenario. I think there's roles for companies that proactively work to transform themselves. if you look at like talk thought motive, who, who have a belief that, you know, their primary business is servicing dealers and you know, they, they formed their pivot division, which is now designed to offer services to shared mobility fleet providers and understanding, you know, when companies get into the business, we believe those that have a predisposition to action as opposed to kind of a wait and see approach are those who were going to be getting the most learnings and be able to, to put together the most relevant product. you know, I think that looking at the end state, most of the people I talked to when they think of, of shared mobility and, and these robo taxis kind of feel like, well, okay.
Mark:
[33:29] And in the future, it's going to be like it is today. There's going to be you know, an Uber, kind of the number one player in terms of market share and metal lift, the up and comer, you know, the Hertz and Avis, essentially offering, you know, undifferentiated experiences, which is what they have today. I mean the cars are driven by people in their private owners and you can't really judge one service of the other by the quality of the car. But in the future, once the autonomous vehicles have really become established and there isn't a need for a safety driver and, and the cabin is, is designed for sharing. I think what we'll see is that people, people will start to choose their, their ride based upon the experience that they look to get out of the time that they're in the vehicle.
Mark:
[34:28] If you take people that will be commuting in these cars, you'll first off the, you may want to choose WeWork branded car. You want to seek, that's got essentially a soundproof wall between you and the other passengers. A 5G connection with a video camera, a desk, you know, one 10 power if you're in North America, place to plug in. And so you can essentially turn that commute time. when you're, you know, sitting an hour in a car into a time where you can lead a conference call. do you know, do work at the desk. And then, maybe after a long day at work, you want to take the, the Netflix card home and you just jump in it, it's a comfy or see it, a little more relaxed position. You've got surround sound and you know, best of all the big screen that's in front of you turns itself on and, and starts where you left off.
Mark:
[35:27] When you were watching the Game of Thrones or Ozark, whatever it is you're currently binge watching. And so that, you know, these vehicles, become, a bit more focused on the, the experience that's in the car. I think that people then may choose it based upon a brand that they already know and love. And the idea that it's just the generic brand for getting around, you know, that may end up being the, you know, the people express, you know, the budget airline of, of autonomous travel. And I think, you know, looking at the airline industry is probably not a bad way to go either. There aren't that many airline manufacturers. There's a lot more airline brands and there's, you know, regional airlines and, business airlines have low cost airlines and upscale airlines, entertainment, airlines like virgin. Seeing all of how that's rolled out makes you also understand that the end game here is, is, there's not, one brand isn't going to envelop the world, knows that the world's winner, there's going to need to be some collaboration between the brands so that if one of them isn't available in a city that you traveled to, you can still use, use the APP to get a ride in the same way that when I traveled to Berlin, I'm on a United plane to Frankfurt, but then I'm on a Lufthansa plane to, to Berlin and, you know, but I'm still a United customer that whole way through.
Scot:
[37:05] Yeah. I like to CX view of things as this can be interesting. It reminds me a lot of, you know, so if kind of look at some of the things Amazon's done, they've, they've taken a lot of traditional brands, which the equivalent in this metaphor would be the car brands today. and then they've, they've kind of created a layer between them and the customer, and then they'd commoditize them. That the classic example is batteries. So you get energizer and Duracell, and then Amazon starts, you know, and then now Amazon has Amazon basics, which they went right to China and they make their own batteries. And it's the, now that battery, at least on Amazon, is dramatically outselling Duracell and energizer. So, so if we kind of ticked that metaphor to its conclusion, you could see some of these, these operators manufacturing their own cars because it really doesn't matter. It becomes commodity, right? And it's the interior that matters. So it's seems to all paint a picture that's not great for the current car manufacturers. Is that Kinda where you net out on things? Unless they, you know, and then they also have, they also remind me of the world of retail because they have this innovator's dilemma of this, this network of franchise dealers that, that really limit their dimensions of movement. what do you think happens to the traditional manufacturer?
Mark:
[38:26] Let's say I, I, in my career, I spent 10 years at Nokia. You know, I saw what happens when a company that's known the world's best hardware, gets outflanked by companies that are software driven companies. And, the, the, you know, the strength becomes a weakness that the, you know, working at Nokia, I was always asked, as the software guy to provide a precise roadmap of what I was going to be shipping three years from now because that product managers designing his phone for, for something three years from now and the software teams, like, you know, that's nine generations away. I mean, that's not how software is designed. So the, you know, the vehicle manufacturers I think are coming to understand that there their DNA and what makes them great as they a safe vehicle manufacturer isn't necessarily what would make it great consumer services company. So you see BMW and Daimler spinning off there, their drive now reach now moovel and car goat businesses into a single business unit that has the charter to make this right.
Scot:
[39:46] Yeah. Software software's eating the world and Jason Horowitz has it right. so, you know, Spiffy is the first company I've started, which has its own fleet. We have about a hundred vans out there. and one of the things you talk about that's near and dear to my heart is that, that we've, we've kind of come at the same discovery is when you're operating a fleet of anything, the, at the end of the day to make it work, you have to keep that fleet busy. so at Spiffy, for example, we have three lines of business, and if we only had one of one of them, the whole thing wouldn't work. So we do consumers at home. We do consumers that office parks, and then we do fleet kind of operations. And what's Nice about that is consumers and office parks, they're busiest Tuesday, Wednesday, Thursday residential or weekends, and then fleets kind of our fill in there.
Scot:
[40:38] And I've, you know, the, the slides I've seen you talk about, you know, you have some really interesting insights into if we go to this world where there's all these people operating these fleets, there is a utilization channel challenge. And, you know, I think one of your, I don't want to put words in your mouth, but you talk about kind of operating a lot of different models as a way to optimize that. Share with listeners some of the things you guys are seeing there and your recommendations for fleet operators. Cause I think it's, it also ties into interesting consumer behaviors.
Mark:
[41:08] Absolutely. When you operate a consumer service, each business model or, or for each offering that you have, there's a natural demand curve for it. So we noticed that with, with car sharing, you know, the free floating car sharing those vehicles tend to get used in the middle of the day. People, people will use it to run their errands in the middle of the day. There's less concern about, finding parking, at night. Maybe people are going to restaurants and there's drinking involved in, you don't want to be driving yourself so that if you were just to have a free floating car sharing fleet, you can probably get into the 20 percentile, 25% utilization, which is really good. And you know better than just having a station-based fleet, which had, it gets about 15%. I mean it's meaning it's used about 15% of the time throughout the 24 hour clock.
Mark:
[42:10] If you can start to take those cars that you know, we're going to be sitting and unused in the evenings or early mornings and put, Uber and Lyft drivers in them, you can then start to reach more and you know, stack these demand curves so that the cars are now being used at night. They're being used early in the morning and they're being used in the middle of the day. But for different purposes. BMW's reach now service has, they found that when their fleet of beautiful, you know, pretty new BMW vehicles that they, they could start their own a ride hailing service where they would have one app. They built this app using the Ridecell Sdk. So they were able to create their own look and feel. And it was the first app that I think, that we know of in the world that allows you to raise a reserve, a car share vehicle, or press a different button and request a ride.
Mark:
[43:11] And that, you know, their chauffeurs shows up, with the white gloves and the hat and when they pull up, they, you know, get out and open the door for you. So they're offering a very high level of service, in a beautiful but understated vehicle. that might be priced competitive to say Uber Black, but you know, you're not showing up in a Cadillac Escalade. You're showing up in in a three series vehicle, which in an environmentally correct. A city like Seattle is, is definitely a feature over the, you know, the big gas guzzler. So it's the ability to use the fleets for the best and highest use at any given time is what lets these companies get utilization rates that are well into the, you know, 30 percentile and you know, even those that are stationed and apartment buildings can get into the 40 percentile, meaning that they are used 10 times more than a car gets used from a private vehicle owner.
Mark:
[44:15] You know, a privately owned car on average sits parked 96% of the time and so, and it's being used about 4% of the time. And that's really the power of the shared mobility revolution is that these are used by multiple people throughout the day, not just, you know, dedicated to a single person. When you think about some of these subscription services where you can change the car every month, that's not quite shared mobility because it's still one car, a one person. It's when the cars are able to be used, lots of different times of day is when that vehicle then starts to really get a multiple in terms of how much value it's getting extracted from it.
Scot:
[45:03] Very cool, so this is a really important point. I want to restate it and make sure I understand it. So, so we kind of have personal ownership is where we are today and that's kind of like a 4% utilization or or 96% idle, station-based, you kind of say around 15%. Then you layer in the free flowing, model, which you talked about that gets you to 20%. and then you know, that seems to be kind of weekday kind of utilization and then you can layer in evening and, and other off time with ride hailing. Now you're getting in, you know, maybe even some density on the apartment side and you get into that 30 to 40% layer. Is that kinda how you're thinking about that stacks up.
Mark:
[45:42] Exactly. So having a platform that allows you to do all these different business models is really the key that helps you unlock the maximum value, for any particular vehicle.
Scot:
[45:54] Cool. So if, if that version of the world is true, you guys are in a great spot.
Mark:
[46:00] I think the last piece too is just using today's insights to make sure that the consumer experience is up to par. making sure that these cars were made clean, that they remain and in the best possible spot for people to find discover them, to keep them well maintained with some predictive diagnostics. and then using the power of the crowd to operate and run these experiences more efficiently. Can we talked about, we have a predictive model. It shows for each vehicle how long before it gets rented and if it's, you know, 10, 12 hours then that there's an economic incentive to pay somebody to go there and move the car. But what we found is that we can also, change the color of that vehicles, pin on the map and offer it for 20% off and people will, you know, we can see where they pull the APP open.
Mark:
[47:03] They will, they will happily walk 10 blocks to that car that's probably not going to get used and use it for their trip in order to save money. So rather than paying $20 to move the card, $25, we're now essentially making 10, $12 on that vehicle rental and you know, have a very high likelihood of it ending up in a much better place. So being able to take and use, use these insights from the big data platform and get people, you know, kind of sharing the benefit of, hey, if you're willing to walk a little farther, we'll give you a nice discount that will make it worth your while. And we found that people are, you know, some people love a deal and we'll go happily go a long way to get that car that will really save them some money on their overall ride.
Scot:
[47:53] It's kind of funny cause that's the exact same decisions you make when you're selling a widget on Amazon. It's kind of funny. You can, you can move it faster if you lower the price or you could, you know, layers, some expense through ads or something on top of it. So it's kind of funny how these worlds collide in a lot of different ways. As things go digital, you start to see these patterns over and over again. Cool. Well, I know we're right up against time. Any last thoughts you want to share with listeners about where you see things going in the next five or 10 years?
Mark:
[48:21] Yeah, certainly. I think a lot of people today have a feeling that like, you know what, I'm not getting rid of my car and, and I don't expect very many people will get rid of their car, you know, in advance of the overall revolution. What I think probably it will happen is what's happened with me living here in San Francisco is that I, you know, between writing my electric bike everywhere and ticketing Uber's and lifts, I'm the evening and using, Gig car to get around that, you know, my car is sitting in my garage, you know, on a battery charger. And the other day I realized that I bought a box of CD's sitting right next to my car in the garage that don't get used either. And at some point you realize I'm just not using it and I'm still paying x dollars a year to insure it and licensed it and you know, as much as I would, I love, I'm a car guy.
Mark:
[49:28] I love owning cars. It's, it, it will creep up on you when you realize that it's been weeks since you've used the vehicle, maybe your lease is up. and, let's, let's try this share mobility thing out for real. So it's, you know, I don't think anybody's asking people to, to get rid of their cars and faith, but what will happen is they'll become like that box of cds. You just stopped using it and at some point you realize I should probably sell these or get rid of them before, say the value completely goes out of it.
Scot:
[50:01] It's usually after you've moved him a couple times when you have that very strong incentive to say like, why am I, why am I moving this physical media around? Yeah.
Mark:
[50:08] Exactly.
Scot:
[50:11] Cool.
Mark:
[50:11] All right, well thanks so much Scot, and this has been a good conversation.
Scot:
[50:14] Yeah. And if, you know, I think folks are going to really love your insights if they want to kind of follow your thinking online. do you, are you a big tweeter or on linkedin or where, where do you publish your, your thoughts on where we're going?
Mark:
[50:27] Yeah, just search Mark Thomas, Ridecell on Linkedin and follow me. I do, share quite a bit of news and occasionally write articles about how the future is shaping out.
Scot:
[50:40] Cool. Well thanks for coming on the podcast. you know, my year wait was well worth it and some really great insights and appreciate you coming on.
Mark:
[50:47] Thanks again, Scot.
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EP004 - Senior Director of Special Projects at Carvana, John Hanger
http://www.vehicle2.getspiffy.com
Episode 4 is an interview with John Hanger, Senior Director of Special Projects at Carvana; recorded on March 26th, 2019. John and Scot discuss a variety of topics, including:
John’s career path, including his trek from CEO of Car360 to being acquired by Carvana The origins of Carvana and its impressive performance in the used car retail space Exploring the Carvana customer experience, from buying online to vending machines and vehicle delivery Behind the scenes look at how Carvana continues to evolve for its customers and employees Carvana subverting expectations of buying, selling, or trading a car Growth of car subscription services and the impact on traditional ownership models Where connected cars, EVs, and AVs realistically fit into the near-future of the automotive industryBe sure to follow John on LinkedIn! Those interested in reading more about the topics we cover should check out The Banks Report, an online source for analysis in the automotive industry created by award-winning journalist Cliff Banks.
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[00:51] Welcome to the Vehicle 2.0 Podcast. This is our fourth episode and it is being recorded Tuesday, March 26, 2019. So when we started the podcast, we said, let's put on the whiteboard some of the coolest companies in kind of driving innovation around what's going on around cars and the vehicle 2.0 framework, and one of the top companies on that list was Carvana. So we are very excited to have on the show today, John Hanger. He is the senior director of special projects at Carvana.
John:
[01:25] Yeah. Hey Scot, thanks for having me. It's a pleasure to be here today.
Scot:
[01:29] Absolutely. So you and I have known each other for a while, but the listeners haven't, haven't they don't know you. So I'd love to hear your, your career path. How did you get to be the senior director of special projects at Carvana?
John:
[01:43] Cool. Well I'll keep it short because otherwise I start feeling old if I go over too many details of my career path, but in a nutshell, I have a electrical engineering and a physics background of all things, but decided right out of college, I didn't want to do that. So I went into consulting with what's now Accenture and then just through some happenstance really I got involved with what was then a enterprise software group was at Accenture and I found what I really liked to do. So I helped launch a product within Accenture, both here in the US and in Europe. Got a tremendous amount of experience at a young age, then left to do my first startup back in the early nineties. And have done a sixth sense, either a, as a founder or as a early employee slash executive, the most recent of which was an Atlanta based company here called car 360, which did 3D imaging and augmented reality around automotive retail.
John:
[02:47] So making it easy for people to really go beyond snapshots to interactively explore and understand things about a car before considering a purchase car. Three 60 was in turn acquired roughly a year ago in April of 2018 by Carvana. That brings us to here, today, where I worked for Carvana and special projects role, which, which basically just means I'm working on a number of risk skunkworks projects that, if I can use the term startups within Carvana, that we're building some exciting things as an innovator in the space.
Scot:
[03:29] Cool. As a fellow entrepreneur, I'd love to learn more about the car 360 stories. So did, was this technology you came up with or is it out of one of the, I know you're in Atlanta, is that out of like Georgia tech and then, you know, did you guys go to the venture capital route? Tell us a little bit about that journey.
John:
[03:46] Yeah, so car 360 is actually a very fascinating startup story. I was not the founder. The founder's name is Bruno Francoise. Bruno originally founded the company as Egos ventures. His original product was not what the car 360 product ultimately became. It was instead a mobile app that allowed a person to set their iPhone five on a table, press a button and it would, modulate the vibration of the vibrator within the phone in order to spin the phone in a 360 degree circle and take basically a 360 selfie in the room. They were sitting in and, Bruno appeared on shark tank and his original investor, coming out of that shark tank appearance was Mark Cuban. You know, the company did well for a couple of years, basically 99 cents at a time selling the, the app. but ultimately, like most consumer apps, you know, they saw a huge spike in demand and then an equally large drop in demand and found it was really tough to, to, to make a go of it.
John:
[04:53] So, so smartly they, they took the proceeds from that a burst of success and started building something that was a bit more of a, an enterprise play. What became ultimately car 360, my involvement came when, when the company had had just the first taste of success, but was really struggling to, to build, an enterprise business. Bruno's a, a genius inventor and technologists. But, you know, the company had grown beyond his ability to run it. I was brought in basically to, to help the company acquire financing and continued its growth. We were able to raise an a round, after a period of venture Atlanta, in 2017 we raised that round was led by BIP Capital here out of Atlanta and it was only less than a year later when Carvana acquired car 360. So it was a relatively quick acquisition, which has not been my experience in my previous five companies, but it's worked out great. Ron Is really a fascinating company to be a part of. It's incredibly fast growing and even though it's nearly a $2 billion company in revenue, it's still very much a startup in terms of how it operates.
Scot:
[06:10] Very cool. So I definitely want to talk about Carvana but, but I have to ask the question. Is the technology integrated into the Carvana platform at this point?
John:
[06:18] The immigration is very close actually to launching. Obviously our engineers have been heads down just under a year since the acquisition, working to make that happen. Right now, I think that the current status is that the, the car 360 power pieces of the technology are visible only to a really small percentage of visitors to Carvana.com on the experimental basis. And then, the way that Carvana does things, it's still ramped that up to a hundred percent of users, you know, as we get the kinks worked out. So we're imminently ready to announce that that's visible to everybody, but it's a pretty exciting time as you can imagine for the car through the former car 360 team here to see the technology, you know, fully integrated incorporated into the Carvana website.
Scot:
[07:05] Awesome. I'll look forward to seeing how that, that goes. so let's, let's kind of go back up to 30,000 feet with Carvana. You know, I think I mentioned on the podcast and I can't turn on the TV without seeing an ad now. and so I think a lot of people kind of know what you're doing, but I'd love to hear kind of from the horse's mouth, how you guys think about Carvana and what the company's kind of mission is.
John:
[07:27] So Carvana was only founded in 2012, so it's still a very young company. The company was founded really with the idea to, to change the way that people buy vehicles. in the same way perhaps using the Amazon analogy in the same way that Amazon changed the way that people buy books. Carvana set out to change the way that people buy cars. So rather than a physical dealership where a person goes to a look at and test drive vehicles and then ultimately make the purchase and do the financing, Carvana's model is a hundred percent online. So consumers shop online, they take advantage of the various advanced technologies that Carvana is delivered to, to make that possible. When they find the car they want, they placed the order, the cars typically available as early as the next day, just depending on where that car is in the country and how long it takes to get to the shopper. The car is either deliver on a truck to the customer's driveway or to their place of business or in certain cities where we have them. We have what's called vending machines, car vending machines, and the customer can choose to have the car delivered to have any issue.
Scot:
[08:42] Yeah, we have one of those in Raleigh and it's kind of a genius thing because it's on this highly trafficked area and it's very eye catching because most, most times you're not driving around and seeing a giant car vending machine. So, so I think it's a, it's a genius marketing trick and technique. And then, I haven't had a chance to, to get up close to one. Tell us how that works. So my understanding is you put like a giant coin in there. It's all, some of it's kind of showmanship. I understand, but isn't it essentially like a European parking structure of some kind that you guys have converted to do this?
John:
[09:15] Yeah, it's a really cool idea and, you know, on the face of it, it looks a little gimmicky, but, I've been blown away by how, how much our customers actually enjoy it. The way it works in a nutshell is the vending machine, first of all, is not where you go to shop for cars. It's not like a dealership where you go and look around and test drive various cars. It's where you're taking delivery of the car you've already purchased through the website. And so typically what happens is you have an appointment, the customer shows up at the appointed time. There's a team there that's basically responsible for delivering a tremendous experience for them. You know, taking delivery of a car, is something that doesn't happen every day. It's a big event. It's a fun event.
John:
[10:00] It should be a fun event. We go to great lengths to make it fun. So, you know, when, when they show up there, they're given a token that's like, you know, four inches around. They actually go drop it in to the venue machine. You know, there again, they've already bought their cars so we know where their car is. It's somewhere in this stack, you know, different vending machines or are different heights. Some of them are as high as nine stories, some four or five stories. But somewhere in that glass tower is, is this customer's car. there's a robotic platform that goes up, pulls the car from whatever floor it's on, brings it down, scoots it out in front of them, spins it around so they get a chance to, to see it under the bright lights and then drops it into a, into a glass garage area where the customer can then go inspect it for themselves, take it for a drive and ultimately taking home, the whole thing's recorded video and pictures so that the customer has a chance to post things to social media. And most customers will bring family members and so on just to, make it that much more fun and, it just turns out to be a great experience for everybody involved.
Scot:
[11:08] Very cool. So, you know, there's a lot of new car companies out there like TrueCar and car gurus. And I think the thing a lot of people may not understand is you guys aren't just kind of surfacing inventory that dealers have out there. You yourself are the dealer. You're buying these used vehicles and you're selling them direct to consumer, correct?
John:
[11:30] Yeah, that's correct. It's not just, you know, like car gurus and TrueCar and so on are our great partners of ours. They actually, you know, are, are what you would think of as an aggregator. They bring in, inventory from lots of different places, so, so they can, you know, arguably enhance a consumer shopping experience, but on the consumer is ready to actually, you know, really dive in and understand the vehicle that they think they're interested in and ultimately to purchase it, understand the financing around it and so on. They need to either a go through the traditional dealership experience or be a, we now offer them the alternative of doing that fully online through Carvana.com
Scot:
[12:11] Cool. And then just another clarification thing, so that people 100% understand you guys don't sell new cars. So, you know, it's all used cars. and then, so fact check me on that. And then also what is the sweet spot? Are these things like 10 years old or do you kind of go for, is there a certain kind of sweet spot you guys have found in the market?
John:
[12:31] Yeah, so it's correct that Carvana is used cars only. at this time we do not sell new cars in terms of the types of new cars, we focused strictly on high quality used cars. So every car without exception that is listed on Carvana.com will have passed our 150 point Carvana certified inspection list. And it will be, you know, less than, I don't remember all the specifics, honestly, I've thought in my head, but it's less than a certain number of years old. It's less than a certain number of miles. It'll have zero accidents reported. It will have no frame damage. In short, it'll be a super high quality used car. We take trades all the time, obviously when, when we get a trade, it's actually rare that the trades we take in, we'll meet our own criteria to resell them. So we ended up wholesaling out a lot of cars that are taken on trade because they simply don't meet our standards. So, you know, the type of shopper we attract then are people that are looking for a high quality, super dependable, clean used car. And that's our sweet spot.
Scot:
[13:37] Cool. So give listeners an idea of how big is Carvana. So you guys are revolutionizing the used car buying experience. Where are you on that journey?
John:
[13:46] So, we just announced we're a publicly traded company now, so I can, I can talk about the publicly announced results. We just announced the 2018 annual results. We sold just under 100,000 cars in 2018. So that puts us among the top largest used car sellers in the US in terms of revenue. I mentioned earlier, we're just under $2 billion in annual revenue in 2018. But perhaps the most amazing number that I can share is, you know, we, we have grown since 2012 when the company was launched to this size. Obviously by growing at a very rapid rate and a in 2018, we grew well over 100% versus 2017. And there's really no end in sight for, for that level of growth, right? It's a huge market. It's not a zero sum game. So we don't need traditional dealerships to fail in order to be successful. we just need to continue to expand in the new geographies and capture that currently small percentage consumers that want a different experience wanting online shopping experience for buying a vehicle. And we continue to be the leader in that space and hope to continue to capture more and more market share as more and more consumers embrace this online shopping.
Scot:
[15:08] Cool. So that's amazing. You know, I don't know what the record is for getting to $2 billion in sales, but it seems like 2012 to 2018 doing that in six years at a hundred percent growth rate. I'm not sure there's many other companies that have achieved that, so that's awesome.
John:
[15:23] Yeah, I'm not a full historian on that, but, my understanding is there's only a couple companies that have done that. One being Amazon and other being Uber,
Scot:
[15:32] Yeah. Selling cars helps versus books. So you have to sell a lot less cars then books. And then so, you know, it seems like what's causing that growth is you guys have just created a better user experience for buying cars. Right?
John:
[15:46] That's it, yeah.
Scot:
[15:47] So it's kind of seems like what people like is online option for the vending machine. And then, you know, I think another innovation you guys have done that, that we haven't explicitly talked about is the, you know, the traditional model is you would go and you'd have the sales guy and all that whole experience and then you do the test drive and then whatnot. And you guys have gotten rid of the test drive explaining how that works.
John:
[16:11] Yeah, well, we haven't actually. I mean, at the end of the day, we're all consumers and we all wanted to, you know, when we're making a really big purchase, we want to touch it, smell it, and drive it in the case of a car. And I, I don't think that's changed. What has changed is, from a Carvana perspective, we basically just provide a guarantee you that says, you know, you buy a car through Carvana, we're going to deliver it to your door or delivered to a vending machine and let you pick it up there with that great experience. But either way, you're going to have seven days after you take delivery of that car to decide whether you liked it. And if you don't like it for any reason or no reason whatsoever, you can return it with no questions asked and you can either trade it for a different one or you can just get your money back.
John:
[16:58] And, you know, that's a pretty strong statement, but that radically changes how consumers think about car shopping. Instead of having to test drive it and go around the block and then make a, you know, 30 or $50,000 decision about buying the car with no way to reverse course, you can now shop from the convenience of your computer or your mobile phone, make a purchase, and then take delivery and have seven days to just make sure that you pick the one you really want it. And that's everything you thought it would be. You know, that that's a, that's a fundamental shift in the whole purchase experience and really takes a lot of friction out of it and changes the way consumers approach it.
Scot:
[17:35] Yeah, I think that's what I love about the experiences you guys have just made it zero friction, which, which is key for today's consumer. you know, I spend a lot of time in my eCommerce, a job, you know, thinking about the value or the consumer versus the convenience where to consumer. And so it'd be able to buy a car online, have it delivered to me, and I can just drive it for seven days and keep it or return it. I think that's obviously really disrupting things. And have you seen traditional, you know, the other kind of competitors start to wake up to this? It's kind of funny in eCommerce it took, a good analogy would be Zappos, right? So they, they really broke open the shoe category by having free three 65 returns, you know, unlimited returns essentially for shoes because people wanted to try them on and yeah. So, but then it actually took like five or six years for the rest of the industry to wake up and have to offer to that. Have you guys seen other people react to that?
John:
[18:27] Well, we have, and I think we'll continue to see the automotive. Retail is a giant industry, right? And it gets mocked and made fun of a lot, because of some of the sort of stereotypical bad practices of the past. But, but by enlarge, and I've worked in the industry for, for the last 15 years or so. And you know, by and large, it's, it's actually a very innovative industry. It's constantly changing. And so, you know, whenever somebody comes up with a new idea, of course, others are quick to follow, but, you know, what Carvana is doing is a little more challenging for certain companies to follow. If you aren't selling high quality used cars, it's really hard, if not impossible for you to offer a seven day return. It no questions asked guarantee, right?
John:
[19:16] Because that's the financials of that probably aren't going to work too well for you. And there's a lot of other reasons as well that Carvana is uniquely positioned to do this sort of things it's doing. Because we don't have the financial burden of, you know, huge physical dealerships with, with lots of employees and so on, on the side. You know, Carvana doesn't have some things that the traditional dealerships have. And that's why I made the comment earlier that I don't think it's a zero sum game. I think the industry will evolve and change. I think there's absolutely a place for dealerships, the traditional physical dealerships going forward. I truly believe that more and more consumers will be shopping online going forward. I think it's just a matter of, you know, everybody figuring out what their spot is.
John:
[20:02] And on that point I should mention, you know, one of the special projects I'm working on is actually exploring ways that we can partner with traditional dealerships. And, I've done a few presentations and speeches lately. you know, reaching out to dealers. I've got a number of conversations going on with dealers where, you know, we're just exploring. I mean, what are the synergies? What are the ways we can help each other? Yeah. We, you know, we sort of compete on, on one level, but there's absolutely ways that Carvana can work with dealers and vice versa. And I'm currently exploring what some of those may be.
Scot:
[20:32] Yeah. I've seen in the eCommerce world that, you know, when you get to this existential crisis, all the, all the barriers break down and you know, unusual partnerships start to form. So it'll be interesting to see what that turns into.
John:
[20:44] Yeah. And I think, we saw that, to just drive home your point. We see that with Amazon as well, using, using that analogy. You know, Amazon originally was strictly an eCommerce providers selling books and some other things where, you know, they would essentially go to publishers by the books in bulk, put them in the Amazon warehouse and then ship them when a customer came. Right. But today you look at Amazon, it's really something very different. It's more of a marketplace where there's many retailers selling through that Amazon marketplace. Every consumer is buying with the Amazon brand promise. But in terms of on the supplier side, on the retailer side, there's many different people selling through that marketplace. And so, you know, it evolved. And, like you said, very interesting partnerships come out of it and, I think we'll see, I don't know exactly what that's gonna look like, but I think directionally that's what we'll see in automotive retail as well.
Scot:
[21:37] Cool. It seems like, it's a pretty geographical kind of oriented expansion plan. And is that true? So if I'm in, I don't know, Cheyenne, Wyoming, can I still work with Carvana or do you guys have to have a physical presence there?
John:
[21:53] Well, the technical answer to your question is, you know, in any of the 48 contiguous United States, we can facilitate delivery of a car. Now having said that, it's not going to be next day if you're in Cheyenne, Wyoming or my hometown of Missoula, Montana, because we don't have a physical presence area. So that's going to take us a little longer to get a car there. We do offer customers in those areas. The alternative of taking delivery from the nearest any machine they can, we actually reimbursed $200 towards travel expenses for those customers that want to go let's say to Phoenix and take delivery from the Phoenix vending machine or we can deliver it. It's just going to take a little bit longer. But obviously the vast majority of our businesses in markets where we have a presence and where we can offer that as soon as next day delivery promise. I lose track because we had market so frequently. I think we're in well over a hundred markets now. It might be closer to 110 markets and a that continues to grow the business. Automotive, retail has always been geographic. It was a function of where the dealership is or was. In our case, it's less so because we don't have dealerships, but there is still obviously a geographic component. And, and the level of service we can deliver obviously is a, is higher when, when we're in a given market and have the ability to deliver as soon as next day.
Scot:
[23:13] Cool. And then you're a hundred markets are, so what, you know, loosely around a hundred. are you guys primarily just in the US or have you gone into the rest of North America? Are any of them international at all?
John:
[23:24] Yes, strictly US and no, no plans have been announced to go outside the US. The opportunity is so huge here that it's hard to even start thinking about it. Obviously there are other markets in car 360, as an example, had customers in Europe. I'm familiar with many of the international automotive retail markets. There's slight differences to US but at the end of the day, mainly similar and, you know, there could be opportunities there, but right now Carvana is strictly focused on the US and I don't anticipate that changing any time soon just because we're barely scratching the surface here in the US. The hundred plus markets we're in represent something like maybe roughly 60% of the consumers in the US so a long, long way to go.
Scot:
[24:10] Absolutely. So I've seen the kind of the front end location. I imagine there's some kind of a back-end location or maybe those are separate. is there kind of like a supply chain part of what you guys do where, you know, so for example, the product photography you guys do are amazing and obviously car 360's gonna going to be a big part of that. but the things I've seen, it looks like the car is sitting on a giant turntable and like kind of rotating as part of that. And I, you know, I imagine that's not happening at the local dealer level. Is there some other location where that goes on?
John:
[24:43] Yeah. So, I'll, I'll dive into your specific question about the photography in a moment, but, but to answer the first part, you know, Carvana is more than just, any eCommerce company. It's actually a vertically integrated group of companies, one of which, you know, it's not the glamorous part of the company, but it's a critically important to our success. And a big part of our competitive moat, frankly, is the logistics and supply chain business. we operate, and I don't know the exact number, but I'm going to say in the ballpark of 259 car trucks that haul around the cars all over the country. We, they'll, all those drivers work for us. All the trucks are owned by us and a very sophisticated software group that does the optimization of the routes. We really believe in treating our employees right. So for example, with those nine car truck callers, no driver ever spent the night on the road.
John:
[25:37] The software group works really hard to optimize the routes so that drivers can basically meet in the middle of swap keys, take each other's trucks, and always be home at night. which is, which is a big part of a sort of the lifestyle side of Carvana and commitment to employees as well. But you can imagine, you know, we're selling 100,000 cars in 2018. Every one of those cars had to be, had to be mood. Most of them over a long haul from one part of the country to another. So it's a big part of what we do. beyond that, we then have many, many, many hundreds of the single car haulers, which would probably double if you or your listeners live in a market where Carvana operates, you've probably seen our single car haulers. They're small flat beds and those are the, those are the vehicles we use to deliver cars for home delivery or to pick up traits for example.
John:
[26:27] And so, you know, just the sheer investment of capital by all these trucks, single car haulers, nine car haulers, employ all the drivers and so on is, is a big part of Carvana's business in a big enabler for what we're able to do. coming back to the, the photography takes place in what we call our inspection and reconditioning centers or IRC. we have I think five of those now, around the country. And we continue to add more to compare and contrast that the traditional dealership, to the extent that a dealership decided to do any inspection and reconditioning on a used car, they would do so with basically, you know, spare, spare time and spare resources from their service department. But it's not really the focus obviously in the service department that focuses on servicing retail customers cars. As a result, reconditioning in the truthful dealership wasn't, it wasn't a big focus, was inconsistent, had challenges and certainly wasn't the least cost approach to, to accomplish in the reconditioning.
John:
[27:31] What we've done is we think about the IRC is as essentially like a manufacturing plant or a factory and a, we have teams of process engineers that just really focused on how do we make them incredibly efficient and able to deliver an incredibly high level of quality on a consistent basis. And they're really amazing to see. The ones that we have. we've got one in New Jersey, one here in Georgia, one in Texas, one in Arizona and w and, we just recently announced one in Indianapolis and these IRCs are amazing. Each of them employs 500 plus people and you know, they're processing tens of thousands of cars a year, some slightly bigger than others, but all sort of in that order of magnitude. So it's just incredible watching the number of cars that go through there and the incredible job that our associates do and both inspecting and then reconditioning the cars yet.
Scot:
[28:31] It's funny, it's like eCommerce to have a tab, the simple front end experience. It's amazing how much it has to happen on the backend.
John:
[28:36] It's true. And then I almost forgot to talk about the photography, but the very last step that those IRC is the photography. So once a car arrives, it's inspected. They basically determine what needs to be done on any given car, right. To get it up to our standards. And then each car takes a different path through the factory, just dependent upon what, what his needs are. But they all ultimately end up going through a detailed process. And at the end of the detailed process going into the photo domes and we have, we have, made a huge investment in these photo domes that ensure perfect lighting on the car. We know that consumers buying a car online obviously need more than a few snapshots.
John:
[29:18] They want to know interactively explore the car and even before the car 360 acquisition Carvana heads full of the most sophisticated software for, for, for doing this, capture of the photographs and presentation of the photographs with annotation with car 360, where obviously taking it to the next level with 3D. But the bottom line is we invest a tremendous amount of time and effort to, to light and then capture the imagery of the vehicle to annotate it as an example of the type of things we annotate. And you know, just beyond the sort of standard features and capabilities of the car, if there's a, if there's a small rock chip on, you know, the, the front bumper, it wasn't big enough to justify the expense to repair it, it's probably barely noticeable to the eye. But nonetheless, as part of our inspection process, we'll highlight that.
John:
[30:11] We'll take a closeup photo of it. And then when the consumer views the car on Carvana.com we're actually going to bring their attention to it, which, you know, for traditional automotive retail is like counter intuitive. You know, you try to hide things when you're trying to sell somebody a car. You don't try to highlight things. But we take the opposite approach. We want full transparency, we want the consumer to know exactly what is good about the car and conversely exactly what any of the blemishes or nicks and chips are, so that when they take delivery, they will receive what they, what they thought that they had ordered. And that's another big part of our business that I think sets us apart from the traditional industry.
Scot:
[30:53] And we've, so, so far we've talked about how you guys have innovated buying cars. A lot of people I talk to love the selling car experience. Maybe talk a little bit about that.
John:
[31:03] Yeah. So, it's kind of a, a relatively new focus for Carvana. You know, obviously from the beginning we took trades and, and a fair number of people buying a car, we'll, we'll have an old car to trade in. More recently we launched a national campaign. We have a part of the site that's set up where if you have a car you want to sell, we, you know, we'll make a binding offer and we'll do that sight unseen, which is a pretty radical when you think about it, right? Because traditionally you could get a, you can go and get a black book estimate or, or a blue book estimate or any number of other quote unquote estimates out there. But those are just guidelines. They aren't, they aren't binding. And certainly nobody's willing to write you a check for that amount until they seen the car and driven the car and so on.
John:
[31:49] But, but Carvana has a really innovative program where you can go, putting the information about the car, and we'll give a binding offer and, if you accepted it, we'll send a truck out to pick up the car from your driveway. And that has been going extremely well for us. It's strategic. It gives us access to cars so that we don't have to buy at auction or source in any other way. The key to it really is we have a super sophisticated set of technology and, and and a sophisticated database that has what's called build data. For those in the industry, they may be familiar, but for most they probably aren't. But each car has a vehicle identification number or Vin. And from that number there's commonly available data that allows you to do what's called a vin explosion, which he'll tell you, you know, make model what year the car is, that sort of thing.
John:
[32:40] But what it doesn't give you is all the detailed information about what packages and options did that car come with from the factory. Those, those sorts of details are really important before he can put it in, put a value on a car. What we've done is we've, we've built, through a bunch of sophisticated technologies, a database that allows us to know better than better than most, if not better than anybody based on event all the information about that car. Then we have, you know, sort of level of confidence and a lot of sophisticated data technology that allows us to, to put a binding offer on a car and a view it as a, as an overall portfolio. And that part of our business is growing very fast and it couldn't be more convenient, right? If, if you, if you're looking to sell a car, what could be more convenient than getting a binding offer online. and then having somebody come pick it up versus the traditional, you know, listed hope that somebody that isn't a mass killer in response to your ad on craigslist and it gives you a fair offer. And you know, most people that go through that process, thankfully don't have meat, a mass murderer, but they do get frustrated after, you know, four to eight weeks and can't sell their car. And they ended up selling it to a dealer probably for a first, substantially less than they could have sold it to us for.
Scot:
[33:54] Yeah. And some of the other companies that have tried to make the song a car experience better. I always get frustrated because you'll go take your car and then they like take an hour to review it and then then like the dude comes back and says, I'm sorry, you know, your car is great, but we've got five of those on the lot and it's just like you, you couldn't have told me that before I sat here. Now they seem to, you know, they're there. I've never had a great experience on that side of thing. So, so I liked the idea of just like getting an online quote and having you guys come get it. That's amazing.
John:
[34:22] Yeah, that's right. And you know, it's not defending the local dealer that did that to you. But you know, they only, they have to look at what they can sell on that lot, which, you know, hich is a relatively small sample size. Whereas Carvana looks at it as, you know, we know what demand there is for certain vehicles and we have a nationwide footprint. So naturally we have a much more efficient algorithm for determining in what the car is really worth and giving you a fair offer.
Scot:
[34:53] Yeah. Yeah. It's pretty cool to be able to, when data is king, having a wider lenses is really important.
John:
[34:58] Well said.
Scot:
[34:59] So the last part of kind of the existing Carvana before we kind of go into future vehicle stuff, you guys also offer financing. You know, I, I know that that's where a lot of, at least new car dealers, that's where they make their bread and butter said the financing options are kind of hard to navigate. it seems like, yet again, you guys have kind of made it pretty simple. Tell us a little bit about how that came to be and what happens there.
John:
[35:21] So first it'd be clear a while financing is something we offer it as part of a key part of our business, it's not required. So a lot of our customers do bring financing from their local credit union or from, you know, Bank of America or whatever it may be. And that's fine. But the fact is a high percentage, more than half of our customers end up using financing through Carvana. And the reason for that is obviously we're very competitive in terms of the rates and so on, but, but more importantly, I think is we've integrated it into the shopping experience. So it's not, it's, it doesn't have to be a separate thing. A lot of consumers shop for cars based on, you know, how much they can afford in terms of a monthly payment. And we've got tools that allow shoppers of that nature to approach the car shopping from, from that standpoint so that it doesn't become like this long drawn out.
John:
[36:14] I found the car I liked, but now I find out I can't afford it sort of thing. It's more like a streamline where you can, you can solve for both at the same time, solve for what you can afford and what you like simultaneously and reduce the inventory that you're looking at according to those filters all at the same time. So, that technology is, is pretty unique to us. I'm not aware of many others who are able to do that today and, you know, it is an important part of the overall shopping experience above and beyond the delivery in the vending machines and that sort of thing.
Scot:
[36:48] Awesome. Cool. Well that-
John:
[36:50] Sorry Scot I forgot one other thing to add there, you know, one of the interesting things to me is there's trends, as you're well aware and your listeners on this podcast are well aware. You know, when you look at how car ownership is just changing in general, when you look at subscription models and shared car experiences and so on, there's clearly some trends there that, that are happening and that will certainly affect us. We're not playing in that directly. But what we have done, I think, and I've heard several outside folks comment on this is, you know, we, we've sort of blurred the line a little bit. You know, there used to be a really clear delineation between the traditional car buying experience in a subscription model, but if you really radically changed the traditional car buying experience, streamline and bring it online, add the financing tools so that it's an integrated part of the shopping experience. All of a sudden getting a traditional loan as part of that shopping experience looks an awful lot like a subscription model.
John:
[37:52] It's not, but it's a lot less friction than the traditional car buying and loan processing part of it. So, I think that is important and you know, nobody's placing their bets on this, but you know, from my perspective, I would have to venture a guess that, you know, if you can make that experience where the consumer incurs a lot less friction, they're more likely to transact more frequently. And I think that's something that does a really interesting dynamic for the industry, whether it's, whether it's subscription or, or, or just traditional buying experience through financing, but, but it happens more frequently. You know, that's a really interesting thing, right? Like if people instead of owning cars for an average of five years, which I think is sort of the accepted norm today, what if it's four and what does that do to the industry and how does that change how, how consumers think about things. So, I think that's a really interesting trend for us all to watch.
Scot:
[38:46] Yeah. Have you guys seen that where, because you've made it so easy, your Carvana customers are probably I'd guess. And it's fine if you don't want to answer this, but you know, we see this in eCommerce, like once you make something easier than, than people use it a lot more. And it always surprises folks like, you know, 10 years ago, no one thought same day delivery would be a thing. And now because it's offered then it, you know, people realize how convenient is and it's incrementally added. Have you guys seen that where, because you're buying experiences, so easy and then the trade back experiences is so easy, that your Carvana customers are kind of owning cars on a shorter, shorter time frame?
John:
[39:23] Yeah, I think we've seen early signs of that. but you know, we're, we're data people, so we're not ready to say that, you know, we're seeing that definitively or that, you know, we can predict what it means to our business. Again, you know, we sold a handful of cars in 2012 that we sold 100,000 last year. So the historical data that we have as a basis for drawing surfaces is still a relatively limited, but we're definitely seeing encouraging signs and we fundamentally believe that, you know, if we can make the experience that much better, that people are more likely to, to transact more frequently, and we draw that conclusion from some of the same, analogies that you decided, right? It's been a common theme across multiple industries where eCommerce has changed consumer behavior.
Scot:
[40:16] Yeah. And then, you're comment on subscriptions is interesting cause you know, as a consumer, if I could pay, maybe there's a tiered system and you've seen so, so like clutch for example, has worked with a lot of dealers to offer something like this where, you know, for 500 up to maybe a thousand dollars a month, if I could just kind of have subscriptions to a variety of cars, that could be a lot of fun as a consumer, right. Because, you know, maybe you've always wanted to try the convertible, but it's not really practical. And so maybe I could just go get that for a week and then like, you know, now I'm going to the mountains and I need a four runner or whatever. So, so it seems like you guys could be in a position if you chose to do that, because you've made all this stuff so simple and you've got all the inventory and all that. It's easy to say what I just said, but like, you know, the, you're going to need the reconditioning centers, you're going to need the photography, you're going to need the delivery, the singles at the nines, all that stuff. It seems like you guys have actually kind of built all the stuff you would need to do something like that.
John:
[41:13] Yeah. So I personally, just on a personal interest level, I've spent a lot of time thinking about and exploring subscription models and like you, from a consumer experience perspective, I think it's really attractive, right? Like I want a convertible for the weekend, but I need a pickup truck next weekend because I'm doing some yard work or whatever. I think it's very compelling. How have you been in the industry? I also probably have a greater appreciation that most for, for the other side of the equation and, and you know, it's really just a question of fleet utilization. I think that's where there's still a lot of question marks, right? Like if you don't get the fleet utilization really high, then the cost of operating that sort of subscription model is just beyond reason, right? Like you'd have to charge consumers such a premium that it probably isn't viable.
John:
[42:05] And so that's really the key. Right? And there's a lot of really smart people in the industry working on that and trying to figure out, you know, how to, how do you do that utilization? How do you make that work? I think the only examples where it's working today are, you know, fleets for, you know, Uber drivers or similar company-wide fleets. And there's a lot of really smart people in the industry trying to learn from those examples and bring it into just for the general consumer world. I don't think we're there yet. I think it's a really exciting area for us all to keep our eyes on and see what happens. And to your point, to the extent that there is a viable model there, I think Carvana could be well positioned to take advantage of it, but it's not something we're doing today.
Scot:
[42:47] Cool. We'll, let's, let's kick it back up to high level again. So, you know, here on the podcast we talk about this framework, we've come up with a, which is the vehicle to a framework. We've talked a lot about car ownership. So I think we've checked the box there. The other three parts of the framework are connected car, and then electrification or EVs and then autonomy or AVs. Yup. How about connected car and he, and Oh yeah. And for this part of the program, let's kind of, you know, obviously you're at Carvana, but I'd love to, so this is not like a Carvana speculation or anything about what you guys are doing. Just more of your personal, you know, as a guy that's been in the car industry for a long time, we'd love to hear your more personal thoughts on where you think these trends are going.
John:
[43:29] Yeah, sure. Totally. A car guy on a personal level, I have a daily driver and a fun car, but both have, you know, sort of modern connected car type capabilities. And I followed closely shared with you at the beginning of the show, you know, my electrical engineering and physics background probably goes without saying that I just find all three of these things connected car, EV, AV as incredibly fascinating. So, you know, all three are going to happen. First of all, I would just tell you, I personally believe that the question I think is, you know exactly how and exactly how pervasive, right? Like connected car I think, of the three, is just absolutely going to happen because it makes so much sense. The only restraints, I think ours, we, you know, we've got to find the proverbial demarcation zone, when it comes to personally identifying information and data.
John:
[44:26] But, otherwise there's just so many things there that make sense and the technology's so it's, it's just going to happen. EVs, I mean, it's happening, right? Like it's, it's undeniable. I think, the range question is really the last frontier. I myself would probably own a Tesla or something today if, if only the range where greater. but you know, I have four kids in college and then I'm driving anywhere from four to seven hours to go see him on a frequent basis and I can't get there in any of today's EVs. So I think that's, at least from my personal experience, sort of the only thing holding back. But you know, for commuting to work and, and, and for shorter drives, they're awesome. I have so many colleagues and friends who have EVs and are super happy with them.
John:
[45:14] I just personally believe that's, that's a foregone conclusion that a large percentage of the cars that we drive going forward will be EVs. On the AV side, you have to start getting into levels there. Clearly, somewhere of autonomy is going to be common place in every vehicle going forward. The question is how much autonomy, and I'm still not swayed to believe that, maybe in the biggest cities we'll get to some of a five, but I think I just don't see that being as pervasive. I think, I think the, the, the kind of features that, that, you know, I have, on my cars today that are, you know, an intelligent cruise that bring awareness to the cars around me and break some level of autonomy are, are going to become a place that's a little less clear to me whether we'll ever get to where we've got fully autonomous vehicles that are picking this up and driving us around. I, there's a certain part of that that's intriguing to me as, as a, as an engineer, but there's, there's a certain amount of skepticism I think as well, just because I'm a practical guy and I just don't see it as pervasive. I think maybe limited use cases and in certain big cities might be the place to look for that to start.
Scot:
[46:37] Yeah. One tactical kind of curiosity question with the EVs. I've poked around Carvana a lot. And, I'm a Tesla guy and you guys have a really good inventory of Teslas and I've noticed you have a lot of like, you know, the Leafs and the plug in hybrids and stuff. Does that, is that a challenge because you have to have the charging infrastructure internally to be able to charge all those things?
John:
[46:57] No. You know, I mean, I guess the correct answer would be yes, of course it's a challenge, but, but you know, we, we look at inventory, we know demand on inventory, we know there's demand for that inventory. So obviously we want to facilitate, facilitate delivery of that inventory. And that requires some charging infrastructure. But it's, it's not a problem, right? It's when you think about all the other capital investments we've made, those, are, you know, relatively minor piece. And I think it's serving a growing part of, of what we see as the future inventory will be selling.
Scot:
[47:29] Yeah. Here, here's an idea. So since you already have that, you guys could become charging stations and you know, while I'm charging, I could browse the vending machine so you can put that in your special project bucket.
John:
[47:43] Where we're doing the charging, right? It's in those IRCs. You know, like the one here in Georgia for those of your listeners in Georgia that they'll get a kick out of this, but it's in Winder, Georgia, which is, you know, roughly 45 minutes to an hour outside of Atlanta. As you can imagine. I mean, these are giant facility, so you're not going to put him in a metro environment. They're going to be where real estate's a little bit cheaper. So, so it's out in the middle of absolutely nowhere where we're probably, nobody's ever going to be going happened to be going by and needing to charge. But, but those are interesting. it's an interesting point. And, you know, I think that whole, charging center challenges is, is, is really, like I said, the last frontier and part of what's holding back, they even broader adoption of EVs. So maybe we can play a part in it, who knows?
Scot:
[48:27] Yeah. Cool. Well I charge 10% for all my ideas too, so keep that one. Okay.
John:
[48:33] All right. You got a reputation for having a lot of good ideas, so maybe that's not a bad deal.
Scot:
[48:39] Any other thoughts on, on where you see cars just generally going in the next five to 10 years?
John:
[48:44] Nah. We've covered a lot. I would just say, you know, it's very exciting. Automotive retail, like I said, sometimes gets, it gets a black guy because of some of the, some of the experiences people have had in the past. But, it's an incredibly exciting and huge market and, were, from a Carvana perspective, thrilled to be, innovating and bringing about what we think are some really positive changes. We do it in a way that, you know, is great for our employees. It's a great company to work for. And, I think, Carvana has a bright future. I think automotive retail as bright future. And I think, you know, all the sort of trends that you and your listeners are following in terms of changes in car ownership and connected cars and EVs, AVs are just incredibly exciting areas to, keep an eye on and to follow in the coming years because, no doubt they'll just be a lot of, a lot of innovation continuing to come at us.
Scot:
[49:38] Very cool. Well, we really appreciate you being on the show. We're up against time here, so obviously people can go to carvana.com if they want to learn about that. I always love for public companies to go to the investor relations area because that's where you get all the really good juicy stuff. And that's investors.carvana.com. How about you on a personal level? Are you, do you kind of pontificate online about the future of cars? Where can people kind of follow you if that's something you do?
John:
[50:02] Yeah, I'm not a big pontificator except maybe in person, just don't ask my wife. But I do spend a fair bit of time on Linkedin and post a bit there. So anybody interested in following can do that. Also I just point them to the Carvana social media accounts. We do a lot, not just of self promotion but in terms of highlighting industry trends. The last call out I'd have, and Scot you may know Cliff as well, but Cliff Banks has a site called The Banks Report; banksreport.com. And Cliff is one of the smartest guys and most connected guys in the industry who follows all these same trends. So he's another great resource for those interested in the topics that you cover.
Scot:
[50:49] Awesome. Thanks for that. We really appreciate you highlighting that. And thanks for coming on the podcast. We really appreciate you taking the time and this has been super informative. I have learned like a thousand things about Carvana.
John:
[50:59] Thank you Scott. I appreciate the opportunity and keep doing all the great stuff you're doing.
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EP003 - CEO and Founder of Smartcar, Inc., Sahas Katta
http://www.vehicle2.getspiffy.com
Episode 3 is an interview with Sahas Katta, CEO and Founder of Smartcar, Inc.; recorded on Thursday, March 7th, 2019. Sahas and Scot discuss a variety of topics, including:
The origins and purpose of Smartcar Sahas’ experience pitching to investors Smartcar attending hackathons across the country Impact of software developers on the future of connected cars, vs innovations from automotive brands and companies like Google, Apple, and Amazon How Lyft looks to change traditional car ownership in light of their IPO filing Growth of electrification in regards to range and convenient recharging, including Tesla’s V3 Supercharging announcement Realistic expectations for the wide use of autonomous vehiclesBe sure to follow Sahas on Twitter and LinkedIn!
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[01:00] Welcome to the Vehicle 2.0 podcast. This is our third episode and it's being recorded Thursday, March 7th, 2019. Today on the show, we are excited to welcome Sahas Katta, CEO of Smartcar. Welcome to the show, Sahas.
Sahas:
[01:16] Thanks for having me.
Scot:
[01:17] Yeah, so let's start off. Um, you and I have known each other for a little while here about six months. Um, but the listeners don't know you. So let's start off with a little bit of your career path. How did you become the CEO and Founder of Smartcar?
Sahas:
[01:30] Yeah, absolutely. So my background, I grew up in a Silicon Valley, uh, studied computer science and engineering at UC Davis. And as I was growing up, I was someone who'd always be tinkering on my family or parents, cars, not per se on the engine itself, but actually oddly enough, more on the, uh, software and infotainment side of vehicles trying to figure out how to get lossless audio codecs, deploy on my stereo system or create a way to play videos on my infotainment system or things along those lines. I never really thought the world of software engineering would really collide with automobiles or mobility. A few years later after I had left UC Davis, I ended up, uh, on a weekend deciding to try to build an application for a car, uh, just for fun and realize that that was actually very difficult to do and, uh, uh, decided I want to do something about it and started prototyping and trying to build a car platform. And that was kind of the early genesis of a Smartcar coming about and me ending up starting that company.
Scot:
[02:42] Cool. The, uh, so I've met a lot of people in Silicon Valley. You're, I think you're the only person I've ever met that's actually from Silicon Valley. How is that? Is that, uh, is rare for most people as it has been for me?
Sahas:
[02:53] I think so. Um, uh, it's been very exciting being here just because a lot of the founders do know are all Silicon Valley born and bred, but there are people from pretty much every corner of the world who are building really incredible things. So, uh, it, it is pretty exciting to get to work with at least people.
Scot:
[03:12] Yeah. Awesome. Um, so give us a little perspective on Smartcar how, what's your kind of elevator pitch when you're at a cocktail party and people ask you what you're building?
Sahas:
[03:21] Yeah. Smart car is the API for your car. Uh, if you're a software developer, you can write a couple lines of code after reading our Api docs on our website and you can actually do a lot of really incredible stuff to your car. Uh, whether that's, uh, getting the location of the vehicle YLC over the Internet. It's a domino reading or even sending signals to the Karta lock or unlock it stores remotely over the Internet so it could write it literally a couple of lines of code on your computer and the car in your driveway will magically unlock. That was something that was very difficult to do. And we somehow figured out how to turn it into a process where developer can go from start to finish in making that happen. And no matter no more than a few minutes.
Scot:
[04:06] Awesome. And then I should have said it at the top of the show, but full disclosure, we are partners. So over here at Spiffy, we were using Smartcar as part of our connected car initiative and, and you know, by, uh, our developers are using your, your wonderful Api Apis to help us get access to vehicles for surfacing them. So, uh, we, we can vouch that it's real and it works and we've enjoyed working with you guys.
Sahas:
[04:28] Appreciate it. Thank you very much. It's been great working with your team as well.
Scot:
[04:31] Yeah. So, uh, as a, as a fellow startup guy, uh, one of my first questions is, you know, how, how big are you guys? Um, I know I saw that you guys have raised some capital, so the extent, whatever you're comfortable sharing, you know, obviously I don't want to get into, into dicey territory, but, but how, how big are you guys and how big do you think this could be?
Sahas:
[04:49] So taking a step back, um, the company started off, uh, with myself and a female into kind of getting the idea. I started working on convincing my brother who now happens to be the co-founder and CTO of the company to quit his job at Linkedin and join me on this journey to build this company. And that was maybe three months in of me trying to start the company. And he was a little resistant at first. He thought it was a crazy idea. And I've worked on that for probably about six months or something of that sort of trying to join. And finally, by the nine month mark or 10, 10 month mark, he finally said, okay, I'll quit. And let's do this. By that point, even though he was working his full-time job, he was on weekends and evenings, uh, um, helping prototype the first version, very, very early version of the product.
Sahas:
[05:43] And we use that very early prototype, uh, that, uh, he built, um, with me while he was still working another job to take that to investors and pitch idea. So the company at this time, it was just him and me and we were living in a small in South San Jose. And, uh, we went out to pitch a lot of ECS and uh, start off with a lot of angels and incubators. We unfortunately got rejected from a lot of the incubators. Almost everyone said, this is a ridiculous idea. Uh, I don't see, oh, you could actually make this work. But within about a few weeks, um, we ended up meeting, uh, Ben Horowitz and Marc Andreessen and entrepreneur partners at the firm, Andreessen Horowitz. And we pitched to him. We really didn't know who they were at the time. Uh, for those who aren't startup, we're holding, um, it's a really famous from a, they've been early investors in a lot of incredible companies like Airbnb, Lyft, Facebook and uh, octa and a lot of really a well regarded companies today.
Sahas:
[06:44] But we walked in not really knowing who they are. Uh, we should have probably done her homework, but we hadn't, uh, we didn't spend all their time reading about vcs. We were just focused on our product and we give them a genuine pitch of what we do. Uh, we brought a couple of cars so there are parking lot and demoed or tech working. So we were standing in the parking lot and writing a couple lines of code on her command, prompt our terminal on our computer and showing them how we're pulling data out of these cars and unlocking the doors to these vehicles. And they got pretty excited and they ended up up, uh, writing a check to us. It just the two of us, uh, for $2 million. And that's how the company got started and fast track to kind of where we are now. Since then, we've now raised a little over $12 million in venture capital from both Andreessen Horowitz and another firm called NEA I, which is not as new enterprise associates. And, uh, the team is approximately 20 people and this year we're actually on traction doubling the head count. So, uh, we've had a pretty exciting journey and, uh, we're really looking forward to what's coming next.
Scot:
[07:49] Pretty cool. Um, yeah, the, I'm a huge fan of, uh, Ben's book, "The Hard Thing About Hard Things." It's uh, it's one of my go tos so I have not met him. I've met mark a couple times, but I'm, I'm super jealous that you got to meet and pitch him. I bet that was fun.
Sahas:
[08:06] Yeah, no, I love that book. There is just a, I think the first time I read it was before I uh, or right after I started the company. And uh, um, I didn't really understand most of it because I have not really gone through any aspects of building a company. Uh, but I actually re-read it, um, uh, just a few months ago, a second time and it added so much more value. What the context, having tried to build something, uh, with learning how to hire people, manage people, uh, unfortunate circumstances of learning how, what and to let go of people and a tough decisions when it comes to your finances, numbers and scaling the company. So I think it's a really great book for entrepreneurs who are maybe pass their seed stage and maybe at least around the series a stage of their company and uh, figuring out how to get it to scale.
Scot:
[08:56] Yeah. Last time I was in your office, it seemed like half the folks there were coming back or going to a hackathon. And that seems to be a big way you guys get your APIs and the in the hands of folks don't tell us about the hackathons that you guys sponsor.
Sahas:
[09:10] Yeah. Um, so when we think about are the connected car market, when we, when we look at the industry, what we see is the innovation that's happening moving forward is no longer necessarily hardware innovation but really software innovation. The next generation of companies and ideas that are making the world a better place and turning mobility in general into something that's more accessible for more people than ever is really being driven by a software bill. Uh, advancement, suffer advancement. So she'd say or applications. And when you answer the question of who is, uh, uh, built software, it comes down to developers. Most of the innovations until today in the soft or in the automobile or mobility space weren't really being driven by, uh, application developers. And that's because there hadn't been really a platform for them in the space. What we realized is we need to figure out a way to get this in front of all sorts of developers, even if it's a girl in her dorm room, uh, who, uh, as a hobby is building the next killer app without knowing it.
Sahas:
[10:21] So that meant we had to figure out how to get our product in the hands of a lot of really talented students. And what we've been doing for the past year or so is actually going to some of the top universities in the country where they're hosting. These are actually pretty large hackathons where, uh, in some cases over up about a thousand people show up to these and spend 48 hours building an application. And we've been bringing, uh, vehicles to them, uh, to the back. Athens are real Tesla in person and uh, these students are issue, see the passion in their eyes. They get super excited and within 48 hours to have some incredible application actually built that's working and they're able to actually test it on a real car that's parked right in front of the building. And we've seen this as a really great way to get our product into the hands of a lot of innovative early developers and you think a lot, a lot more companies should actually be doing something in that space.
Scot:
[11:15] Cool. Any, um, uh, what are some of the things that you can talk about that people have built it, these hackathons using, using Smartcar?
Sahas:
[11:23] There has been, there's been a lot of uh, really incredible and so maybe I'll tell you one of the sillier are fun ones, but, um, we had someone, actually I want to hurt first hackathons. We had this uh, API endpoint. We were still testing in the early days, uh, to let you actually hook the car. So someone bill actually an alarm clock app that honks your car in the morning to wake you up. And uh, I think everyone got a really good laugh out of that. Um, but, um, and if you actually kind of look some of the more serious things people are building, we've seen people build some really cool things from voice assistance, uh, Alexa integrations or Google home where you can do things like when you're going to bed, say, Hey Alexa, lock my car for me. And it sends a signal to your vehicle and locks, locks the car in your driveway or parking the sidewalk in front of your home. So people are building a lot of really, really neat things that can actually build in a pretty short timeframe. But um, in some way or another actually, uh, could be utilized by a lot of people. Um, if that application, we're a distributed into the marketplace with a little bit of marketing. I do think a lot of these are really incredible valuable ideas.
Scot:
[12:35] Awesome. Yeah, those are, those are good examples. I like the skill. I'm actually have to, uh, hopefully they're release that and I, I can use that myself. Absolutely. So, so here on the Vehicle 2.0 podcast, we have a framework where we talk about kind of what I think of as the four big changes that are rocking the car world. Um, so there's connectivity, uh, there's electrification, autonomy, and then changing ownership models. I wanted it to spin through those with you and kind of get your, your, your thoughts for what's going on there. Uh, let's start with conductivity cause that's obviously near and dear to your heart. Where do you think we are as an industry right now with connectivity? Uh, and then where do you see it going over the coming years?
Sahas:
[13:15] So this is one of those things where when you look at vehicles today, most people who are kind of bystanders or just the average person driving their vehicle may not realize it, but all these new cars that are now shipping our, uh, shipping, uh, right off the factory law or dealership lot. When you, when you pick it up, uh, with a cellular Modem Builtin, that means that the car itself is talking to the Internet, uh, through, uh, one of the Telcos, the same seller carriers you use for your smartphone as the service provider. The number of cars that are actually shipping now, uh, with the seller Modem Builtin is growing very dramatically. Um, I think the last number I heard was, uh, nearly two out of every three cars shipping this year are now shipping with some form of a four g cellular connectivity Builtin. Mm. And the neat thing here is that, uh, within the next few years, uh, essentially 100% of all new cars hitting the streets will be internet connected, almost guaranteed. And this opens the doors to an insane number of possibilities where these cars can now integrate dramatically more easily, uh, with all sorts of applications and services without having to still retrofit on some form of aftermarket hardware or any pain points of that sore. It can, these cars are, are good to go around in the box just like your cell phone is.
Scot:
[14:40] Cool. So, um, so that's sort of kind of foundationally we're going to have 100% of cars connected. Uh, and then what are some of the use cases that you, you had forecast once we have that platform in place?
Sahas:
[14:51] Yeah, there is a lot of fun, but let's go back to the topic you asked me about right before that, which is actually developers, um, water, at least developers, uh, kind of building this platform and what are the use cases that they're coming up with? And, uh, one of those companies, uh, who's developers is using us as you guys, you guys have figured out a way to take advantage of these APIs and enable your customers to not have to be present at a vehicle to be able to unlock their vehicles stores and vacuuming, cleaning the interior. And ideally that hopefully is creating a much more compelling experience for people who want to have an on demand, a carwash, uh, make that happen. Um, but if you kind of continue down that thread, there are a lot of really incredible companies for utilizing this technology. We have companies who have fleets, large fleets of cars, and they didn't really have an easy way to build some sort of a dashboard to know where their cars are at any given time.
Sahas:
[15:53] And they're able to use this technology to build those internal dashboards and uh, or even a tablet applications for themselves so they can keep an eye on, uh, where there vehicles in their fleet are at any given time. Uh, we've also seen companies in the insurance tech space utilizing our tech. Uh, one of the new trends that's really taking off recently is a new models of pricing insurance, uh, specifically models of insurance where you're charged by the number of miles you drive. And, uh, our technology lets developers really use an endpoint to get an abdominal reading from a car or I'll see over the internet. And that actually makes it very, very easy for some of these insurance companies with, of course the customer's consent to be able to get their odometer reading and price them based on the number of miles they drive.
Sahas:
[16:42] And all of these may seem really, really small, but when you kind of put together that whole future picture, uh, you end up in a world where you have all sorts of really incredible applications that kind of makes the whole car ownership experience a lot better than it is today. Very cool. Um, are there use cases as you think out where it makes sense for the cars to talk to each other? Um, so this is something that I think, uh, the industry's been going back and forth on. Um, the term you just mentioned, cars talking to each other is under a label called VTV vehicle to vehicle communication. Uh, that's something that's been under discussions by the industry for probably over a decade now. And it's seen in a lot of ups and downs. And, uh, I think when we end up looking at the world we live in today, um, I personally am starting to lean towards realizing that centralized communications have been for the most part, um, the more successful and mechanism of enabling devices to communicate or vehicles to communicate with one another.
Sahas:
[17:45] Uh, and if you look at anything from file sharing your Dropbox on your computer or your cloud storage or how you send emails, all of these today or even this podcast we're on, uh, it's not happening peer to peer for the most part, but most of our mobile devices or computers and services we use are all reliant on centralized infrastructure. And we do think there is a valid need in some cases to have HIV. Uh, we think if when the latencies come down and you have things like five g and a bandwidth is available at even larger scale instead of being just, you know, megabits, but gigabits of bandwidth and latencies are milliseconds, you may not really need VTV. Um, I think that's going to be, uh, not as big of an opportunity as a lot of people do think it is today.
Scot:
[18:37] Okay. Um, one thing, uh, whenever I start talking about connected car a, I've always been a little surprised. There's a lot of people that the first thing they bring up the security, I guess I've, I've been in it enough, I don't really worry about it, but what's, what's your standard answer when people say, oh my gosh, you know, what, what about security?
Sahas:
[18:54] Yeah, I think first of all, um, that's a great question because there today isn't really much regulatory policies around automotive security. When you look at the financial sector, you have requirements like PCI compliance, uh, what comes to having to store, um, data like a customer's credit card number on file. There were a lot of, uh, regulatory steps that you need to take in terms of being compliant to be able to do that. When you look at the healthcare industry, you have things like Hipaa, which when it comes to storing anything, data about medical records, about a patient or whatever it might be, there's regular regulatory frameworks and, uh, you need to comply with a lot of those, uh, that structure to be able to actually store medical records or anything on a patient. But when it comes to cars, unfortunately there isn't yet something of that sort.
Sahas:
[19:51] Uh, I think that's something that's on the horizon that will come and companies like Smartcar like us are probably going to be on the cusp of helping define that as it happens. Um, but today, uh, it, it's, it's, it's a good, it's a blessing and a curse. The blessing is that, um, we have a lot of freedom to operate. The curse is that there may also be bad actors in the space who don't take consumer interests at heart, who don't take data privacy at heart and are building things that aren't in the best interest of the average person who may not know what's actually happening with their vehicle data or vehicle information. So to Kinda answer that again, like what is it that we're doing a Smartcar, uh, we fundamentally at smart Smartcar believe that data is a fundamental human right. Uh, we believe that people should have control over their information.
Sahas:
[20:39] Uh, we don't believe that people's automotive data should be sold to marketers or advertisers or anyone who is willing to pay a for it. But rather our mission and belief is that we want to really empower the end consumer, the person who drives a car. Uh, we want to empower them to have control over the information and voluntarily be able to opt in to use applications and services of their choice. So if they want to go ahead and say, hey, I want to, uh, install the spiffy app and I want to allow spiffy to be able to locate my car so they can find it, and then they can unlock it during that, uh, surface order delivery window, do that service and leave. Um, and they choose to give, uh, that company access. They should have the tools to be able to do that. But what shouldn't happen is if some insurance company says, Hey, uh, I'm considering selling a policy to this person and I want to go buy this customer's data from them, and I don't want them to know that I'm doing this.
Sahas:
[21:39] That should never happen. Um, if a consumer voluntarily chooses to say, hey, I'm fine sharing it because I choose chose to do so, they should be able to do that. But there should never be a practice in the industry where information about a cut infancy tumor, whether it's worth Victor van, where they're going, where they've been, or any of their telementory like how much they've driven their car, who's driven their car, when they drove their car, anything of that sort that should all be controlled by the user. They should be able to make their decisions as to who gets access to that, why they would give it access to it and actually do the actual final clicking of the button to say, I approve this.
Scot:
[22:17] That seems like a good framework. I like where you're going with that. Yeah. Um, well then connected car, it's been interesting to watch. So it seemed like, you know, so, so we talked about the car itself being connected to, to the Internet. Uh, but then there's also a lot of the in dash experience kinds of things and it seems like the OEMs and kind of the early days, they tried to do stuff there and then, you know, consumers are like, well, I've got this phone in my pocket, I'll just connect to Bluetooth and, and use that. So all this dash stuff was happening and people weren't using it. Um, now we see, uh, all the big players. So, so apple, Google, um, and now you're in the Apple really doing things like CarPlay and um, what's the Google one called to the, was that, yeah, there you go. Android auto. Uh, and then, uh, you know, now Amazon has an Alexa for, for insight. Alexa auto I guess is what they call. Um, how do you view those things as far as the topic of connectivity and is that going to be the winter or are we going to see another cycle where the OEMs now come back and they've done a better job?
Sahas:
[23:17] Yeah, it's, it's, it's hard to tell, but I can kind of give you a couple of examples of, uh, how I think it may play out. Um, so, uh, it's kind of funny because, uh, let's take a platform that's like Google's Android for instance. Uh, it's today worldwide, uh, the predominant market share. It's a very successful platform. Uh, I personally use it on my mobile device as well. I have a android device. Uh, however, if you take a step back and ask the question, uh, where else has android in successful? Google had this vision where android would be running on all form factors, all platforms, all types of devices. And now let's look at where, what's happened with it. Um, they tried bringing into tablets and it had a little bit of success for maybe a few months or a year, about several years ago, but that really faded away. Uh, Google try to bring android two watches and that also never really took off.
Sahas:
[24:20] They also try to bring android to TV's, android TVS. Um, they tried it still kind of around, but it's just hanging in there. It's never been anything. I would call an outright success by any means. Uh, and in fact, Google has competing services to themselves, like Chromecast, which doesn't run on Android, uh, uh, and Google home doesn't run on android or a lot of these products that they now have had successes with to not use android. So now let's talk about the car. Um, Google is undoubtedly putting a dramatic amount of effort into turning, convincing car companies to make android the default operating system, uh, for the maps, navigation, uh, music and, uh, infotainment system as it's called in the vehicle. Uh, but it's still at the end of the day begs a question, we'll android succeed in this ecosystem on this form factor, which is a vehicle when it has repeatedly failed on everything from televisions to watches to tablets.
Sahas:
[25:18] And so that's, that's where I kind of have to say I leave it at, but, um, if I would also look at it from another perspective, Google is hilariously actually at a race with itself and there's, they're working in one group and the organization as part of the sibling company of Waymo, which is under the alphabet parent company. On during self-driving cars to market. And another end of the spectrum, they still have this other group called android under Google that is building an infotainment system for cars. And here's why they're at a race with each other. In my opinion, if the self-driving car ends up winning, uh, you won't need an infotainment system in a vehicle because the moment that you know, the seats turnaround, the front seats are facing the rear seats, there are seats are facing forward. It's kind of like a living room in your car, uh, traveling on the road.
Sahas:
[26:06] Uh, in any of those situations, you're likely gonna end up choosing to pull all the brand new smartphone or maybe a tablet out of your pocket and choosing to use that device over whatever is built into the car. And the reason for that is what our is building in the car by definition is probably already three or four years old because that's the time cycle, product lifetime cycle that it takes a car company to get something into a vehicle. So what that means is that if the autonomous car comes first, any efforts Google has in terms of trying to make their infotainment system, uh, prevalent in the market is going to be relevant. Uh, but if the car doesn't come around and for you know, a decade or something longer, there will be definitely an opportunity for Google's android infotainment system to have some lifespan span before the autonomous vehicle eventually does show up.
Scot:
[26:55] Yeah. Cool. And then, uh, how about Apple and Amazon? Any, any point of view on those guys?
Sahas:
[27:00] Yeah, so apple, apple hasn't yet taken to my knowledge so far, uh, an initiative to bring some form of Ios to run natively in a vehicle itself. And that's going to be, in my opinion, the biggest roadblock for their success. Uh, if, uh, today that depending on a smartphone to project the end of the vehicle, uh, and, but the vehicle can't have nothing in the car if your phone isn't there because your phone might be out of battery or we may break it, which means you can't use infotainment system if your phone's broken or something of that sort, which means that the car companies still needs to have an operating system, uh, that need to be present in the vehicle as you're, everyone's familiar with. Apple's always had a strong stance about having apples upbring systems only running on apple hardware that we'll watch a watch. Ios only runs on an apple watch. A ios only runs on iPads and iPhones and Macintosh only runs on Mac books. Even there are television, the apple TV that they're Tbos only runs on apple TV hardware. So they would need to be breaking something that's culturally been part of their core philosophy to decide to for the first time, bring their operating system to run on a hardware and experienced that is not built. And designed by apple. So if that does happen, it'll be very interesting. But I see it unlikely to happen anytime soon.
Scot:
[28:24] Cool. Um, so stepping outside of connected car, let's talk about car ownership. So you had a, you'd entered that there's some fleets out there using Smartcar to kind of know what's going on. Um, do you see individual ownership, uh, diminishing pretty rapidly and, uh, I was, I'm sure you've read the Lyft S1. This kind of been the most interesting reading in the industry for awhile. Uh, you know, they're, they're projecting a, uh, you know, the end of car ownership here pretty quickly, so, so where do you fall on that?
Sahas:
[28:53] Yeah. Um, so I read that as well, and I think, uh, um, one they need to create an optimal outlook for their own business as their IPO. So, uh, it's a nice for them to ever in that, uh, that outlook. Um, and I've met both John and Logan, who are the founders of Lyft a couple of times are incredible people and I'm very supportive of, uh, uh, an admiration of the incredible company and they built. Um, but, uh, when you actually look at what's happened today, um, yes, there is definitely a decline amongst a certain age demographic of people who are buying vehicles. Uh, but, uh, the, when you look at the end result of it, there's also the fact that the market size itself is just growing. There is also a lot of room for more modes of transport that include private ownership to coexist as well. And I think there is always going to be a pendulum swing. Sometimes people thinking, Hey, we'll uh, uh, use everything as a service and then people go back to us saying, hey, we should run this infrastructure or have ownership of this ourselves. So that shift back and forth I think happens every 10 or 15 years in the industry right now. I think you're correct that there is a trend towards using vehicles as a service. I think it will sway back and forth and I don't think that it's, it's settled anytime soon. I'm just yet.
Scot:
[30:15] Cool. Um, so the next kind of pillar is electrification. You're the only person I know that has an electrical Volkswagen. So you must be a true believer to have taken that plunge. Where do you think we're going? On the eve slope of the curve.
Sahas:
[30:29] Yeah. Um, so definitely a very early adopter of all sorts of technology, not just cars is some, is the way I would kind of describe myself. I actually convinced my father to buy a one of the first hundred or so Tesla model s's as they rolled out. Um, so definitely a very early her on the front end, a huge believer in electrification and electric vehicles. I currently, as you mentioned, uh, drive a Volkswagen Eagle, which is very limited I should say with a 80 mile range. Uh, I am fortunate enough that I live very close to our, my apartment is, um, but there are undoubtedly a lot of challenges that need to be resolved. As an example with myself, um, I used to actually live in a house, um, before moving into my current apartment since I was trying to move closer to work and my home had a, a one to 40 volt outlet in my garage.
Sahas:
[31:26] So I was fully charged, uh, in my, with my vehicle and ready to go every day and never really had to worry about charging my car, waiting somewhere for my car to charge, cause, uh, plugging in at night and I would be ready to go in the morning. Uh, but since moving to my apartment, my apartment complex, which probably has a couple hundred apartments in that block, offers one ed charging style and there's probably a couple dozen people who now how evs in my complex. So there's this problem with infrastructure not being ready. Uh, people who do live in cities who don't have residential homes with the traditional, you know, two car garage may not be able to have a bible to even consider an electric car is an option unless there is infrastructure provided to them by their apartment complex. Or maybe their workplace is willing to provide them a network of chargers so that they can charge while there cars parked your work. So there are undoubtedly significant challenges. Um, but I do think that the future is undoubtedly electric.
Scot:
[32:30] So how do you solve that? And now I'm worried that you're going to get stuck somewhere.
Sahas:
[32:35] Um, well, uh, I think, uh, I don't know if you saw the news, but last night, uh, Tesla actually announced a version 3.0 they're supercharging. And it was very interesting. Uh, and part of why is Tesla is laid out, you know, something like over 10,000 superchargers across the country. And, uh, and they were already starting to, in some certain areas, uh, reached peak, uh, acid. And the reason for that is when they just had the model lesson x, there weren't that many cars on the road. Uh, there wouldn't be too much congestion at any of these charging stations for instance, and mountain view or something in San Jose, California. However, now with model threes in the road and then likely shipping, you know, millions of these cars over the next few years, if there's going to be no way to satisfy a large, and where people with the number of stalls they have to charge these vehicles.
Sahas:
[33:29] So what Tesla actually, well everyone thought they would do would be to simply put twice as many or three times as many charging stalls and every grocery complex or in every supermarket complex or wherever it is, where these charging stalls are, but they actually did something rather interesting. They actually solved the problem in a different way. Uh, what they've done with supercharging 3.0 is they make it now possible to charge your car from zero miles of charges, 75 miles a charge in five minutes. They brought the time it takes to charge your vehicle down by nearly 50%. So what that means is when someone previously had to wait maybe 30 40 minutes to charge their car, you're not finishing that and maybe 10 or 15 minutes tops, meaning that during the same number hours during a day, you can actually satisfy twice as much capacity without even having to go around getting around to add in more stalls. So I think there are a lot of creative, ingenious ways to solve this problem. And if you get to a point where it's even faster than the s version 3.0 they just announced within the next few years, you're practically at the same speed and time it takes to fill up your gas at a gas station, which is no more than a couple minutes. And when you get to that point it, you, you don't need women think about or worry about this being a challenge. So it's actually very exciting to see a trend going in this direction.
Scot:
[34:45] Yeah. The, uh, the other thing they've done, um, I've, I had a model s and now have a model three is they've introduced idle fees. So, uh, because the superchargers usually weren't that full. A lot of times I would just charge and go shopping and the vehicle will be done and I'd still be shopping. Uh, and now they start to hit you with a little fee as, as you kind of sit there idle. So they're creating an economic disincentive for idling at the chargers, which is interesting.
Sahas:
[35:10] Yeah, that makes it a lot of sense. And it's pretty brilliant. Did you say it? You said you just said you had a Model 3.
Scot:
[35:15] Yeah, I do.
Sahas:
[35:16] So your car is actually compatible with this out of the box. So yeah, as they are rolling out this update and announcement, um, within the next few months you'll probably have a supercharger somewhere near your home where you can likely charge up the entire car from empty to nearly full, probably within, you know, 15 minutes or so, which is pretty incredible. Yeah,
Scot:
[35:37] yeah, yeah. I'm looking forward to trying that out. Do you, uh, uh, one thing that always surprises people that come from the e-commerce world is we're really only of fiscal items. We're only at about 15% are bought online. And I think when people look at their individual usage, they would expect it to be more like 20, 30, 40%. Because a lot of times people are on Amazon prime and they're, they're, they're, they're really overindexing on that. When do you think we get to kind of that material amount of, of electric vehicles? Like, like let's call it 15% or 20, somewhere in there?
Sahas:
[36:10] Uh, honestly I haven't been keeping up with the numbers, so I couldn't tell you off the top of my head. Um, but what I do know is, uh, there is one market where there's undoubtedly that level of transformation actually happening in a very short timeframe. And that's China. That's early due to the fact that there are the right garment incentives likely in place too, and courage, um, uh, OEMs to actually make these vehicles, make them available at certain price points and also incentives to enable consumers to actually be able to afford and buy these vehicles. And I think that if, uh, the United States also figures out something similar, if that sort, whether it's on state levels or whether it's on the federal level, that could help drive that transformation sooner than later.
Scot:
[36:59] Pretty cool. Yeah, China's can be fascinating to watch to see, see how that comes up. Um, so the, the last pillar of vehicle 2.0 is autonomous vehicles. And, uh, what are your thoughts on that as a guy that tinkers with cars? Is are, are we going to get there or is it always going to be some kind of a limited use or maybe a public transit kind of a thing?
Sahas:
[37:19] I think we're going to get there. Um, and I think we're going to get there quicker than most people think. Uh, I once again, I have the unique luxury and privilege to live in mountain view California. And uh, if I walk out of my office or out of my home and just watch the street for no more than 10 minutes, I will likely in that short window of time have seen multiple self-driving cars drive by, whether it's Google's Waymo or Apple’s self-driving car or something out of Ford's R&D lab or BMWs or Honda's Nissan's or one of the self-driving car startups like Nero or drive AI or deep map or any of these companies. While you may not see it in most parts of the country, if you are a mountain, you don't even need to be an you downtown are you?
Sahas:
[38:10] I'm not even talking about standing in front of Google's campus, pretty much any street in this town. You probably won't go 10 minutes without seeing more than at least two different types of self-driving cars driving by with all sorts of Berlin, um, engineers and mine's working at working on solving this problem. So I am very optimistic that some modes of transport will become fully autonomous. Whether specific types of routes between, let's say the SFO airport in San Francisco, downtown or some, some farms, some specific paths. At the very least, uh, I'm quite confident will become so well mapped out and so well structured that you can confidently send someone down that road in an autonomous vehicle with almost zero risk. And I think something of that sort is probably no more than months away from actually occurring.
Scot:
[39:04] Okay. So very bullish on autonomous vehicles. It's interesting. Yeah.
Sahas:
[39:08] And to be clear, it's not a, I'm not saying you're going to have the dream that everyone has where you can really get into your car, press a button and it navigates anywhere you want it to go. What I'm saying is you, there are specific routes between, let's say the, uh, UC or Stanford campus and San Francisco airport, specifically that route that's specifically mapped out with almost guaranteed confidence. Something of that sort will be more like be possible in a short timeframe before we get to kind of the all in one purpose, self-driving car that can do anything and everything.
Scot:
[39:42] Yeah. One of the things that kind of blows my mind is a software guy is, you know, so these, these vehicles are gathering so much data, terabytes and terabytes of data at night. They plugged them in and they just download all that into the cloud and then what they're able to do is run the simulated miles. Right. So, uh, so now and then, and then because you can, you know, now that you're in the cloud, you can run parallel simulated miles. So they may go, uh, I dunno, 500 miles a day, but at night, you know, they could virtually take that experience and 10, 20, 30, 40,000 exit if they wanted to too. So kind of very much being in the matrix and it hurts my head to think about it too much. I just sort of, yeah,
Sahas:
[40:19] Funny story where, uh, some of these self-driving car companies that have a test fleet, let's say in Arizona where there's a lot of them are running right now at quarters and Silicon Valley. There's just simply not enough bandwidth, uh, to actually transmit the status between r and d centers and their actual test fleet in a different state. So the way they're actually transporting the data is by briefcase with an engineer flying hard disks, a back and forth on an airplane. And that's apparently faster than uploading it through in fiber networks because just the sheer size of volume of information they're collecting from these cars. So I thought that was pretty interesting to hear about.
Scot:
[40:57] Yeah, we're still living in a sneaker net world sometimes. Cool. Um, last topic, uh, another way to think about what's going on with cars is kind of the, the lifecycle of cars. You talked to a little bit about, you know, some of these innovative insurance models being per mile and, and that kind of thing. Uh, I can't watch TV without the whole set of commercials being, you know, one of these Carvana or room and one of these kind of companies. So all of these new ways of buying and selling and owning cars, um, what are you seeing out there in Silicon Valley from innovation around that?
Sahas:
[41:31] Yeah, I'll give you examples of where we're at at the same time. And you know, 2019 or let's say a year ago in 2018 one, uh, my Volkswagen e golf and then the Tesla model three, uh, I went ahead and leased my Volkswagen. I went to my local dealer. I love this car by the way, but it did take me nearly four and a half or five hours. Maybe I'll spending time at that dealer from when I walked in to actually leaving with that car, just to do the paperwork and get everything done and out the door. And then at the same time, uh, helped, uh, my mother, uh, order her model three. Um, it took maybe two or three minutes, um, through the webpage on tussles website. Uh, it was, no, it took no longer than ordering a new pair of socks off amazon.com and you're living in a world where both of these are happening still in parallel. So when I look at that, I think it's quite clear that one is going to be the future. And I wouldn't be surprised if we see that level of a car purchasing experience emerging, uh, across all brands within the next hopefully year or two.
Scot:
[42:49] Yeah. What, what, um, I often think what's going to happen to the dealers, right? So Tesla doesn't have this, this kind of, you know, dinosaur dealer type model or, or you know, uh, uh, incumbent innovator's dilemma style thing. But the other OEMs would really struggle with that, right? Because they've, they've got all these dealers that kind of hold the inventory and everything like that. But do you have a point of view of what happens to, to car dealers down the road?
Sahas:
[43:14] I think that they will need to go away. Um, if he, you know, they were, the dealership was introduced in a way to protect consumers from the car companies that consumers are buying cars from under the circumstance that they don't, um, uphold some form of contract when it comes to effects and a vehicle or workmanship issues and things along those lines. And that time was very necessary a long time ago when automobiles were introduced. However, let's look at any other industry again. Um, you can buy your iPhone directly from apple or you can buy it through what you may want to call a dealer, whether it's a best buy store or another retailer like target that may sell your an iPhone. It's the same thing for your Dell laptop or you're a Samsung android device. Uh, you always have a way in 2019 across the most technology products to purchase it directly from the manufacturer or through a distributor.
Sahas:
[44:17] The automobile today, aside from Tesla, the only way to get it is through a licensed dealer or distributor. You cannot get it for the most part, uh, directly from the OEM unless it's some sort of exception, uh, fleets or something of that sort. So I think that aired, I'm needs to change. I think there needs to be both options. And I do think that, uh, the R and d capacity for innovation to happen, uh, it's not sitting in the hands are on the laps of dealers who can reinvent the diverse experience. Uh, if someone wants to innovate the direct sales model, uh, OEMs, even though, uh, it may take them some time, they do have the capital and the willingness to actually create an example or an experience that rivals Tesla and they do have the capital to do it. But there are some regulatory stuff that's in the way for them to make that happen. But I do think consumers at the end of the day should have the option to buy it a vehicle that they want in the way they want it, whether it's direct from the manufacturer or from a dealership that they're comfortable with.
Scot:
[45:22] Yeah. And over back in my e-commerce world, this is a, you know, it was never was rarely thought of a brand could good, right? She had almost be like Nike level. Uh, and then now that that damn has broken every brands going direct, it's total chaos. And uh, and now every retailer is trying to be a brand and every brand is trying to be a retailer. So it's interesting to watch these things kind of reached this tipping point and then like go through a massive acceleration. So we'll, we'll kind of, it'll be fascinating to see what happens to these dealer networks. Absolutely. Cool. Uh, so we're, we're getting up against time here. Any last thoughts for listeners? So you want to share her, cause you're, you kind of spend all your time marinating in this world and in any other thoughts on the future of, of vehicles and where they're going, you want to share?
Sahas:
[46:03] Yeah, sure. I'll let, maybe we'll leave everyone with one thought. Um, when we look at what is the purpose of vehicles in most of the United States, the automobile is the only way to get to most places. Whether it's work, whether it's your school library, Grocery Star Hospital, or you know, to visit your family or friends is the only viable option because there isn't really a strong public transit infrastructure, uh, in most parts of the country, which means that mobility and cars are really more than just a luxury. It's, it's actually a necessity which really makes mobility fundamentally a human rights issue. Uh, to be a productive, successful member of society and to have a path to opportunity in a better life. You need mobility. So in our opinion, we want to really figure out a way to empower these developers to build all of these new forms of transit, new forms of car sharing, new forms of car rental, new forms of insurance, all of these things to become possible and ultimately will hopefully see a world in the near future where transportation is more accessible to the demographics that have kind of have been left behind in the dust where transportation is more affordable, it's more efficient, it's environmentally friendly, and ideally safe as well.
Scot:
[47:25] Cool. It's a, it's a deep thought. I'm gonna, I'm gonna spend some time pondering that one. Um, and last question, if a, if folks want to find follow friend tweets, uh, whatever, uh, with you, where do you hang out online?
Sahas:
[47:39] Smartcar.com is our company's website and you can actually find my email, my phone number, everything on the about page. I'm also on Twitter and Linkedin, so I'm very easy to find.
Scot:
[47:54] Awesome. Well we really appreciate you taking time out of your busy schedule, connecting all the cars in the world to join us on the Vehicle 2.0 Podcast.
Sahas:
[48:02] No, I appreciate it, Scot. I think, uh, what you guys are doing is pretty incredible and you're one of the key companies, I think driving a lot of innovation, you know, the vehicle 2.0 evolution. So we're really excited to be working with you. We think you guys are working on something incredible and I think companies like you are really those, uh, FM, the data companies that are helping make this transformation happen. So thank you very much for having me look forward to continuing working with, with you guys.
Scot:
[48:27] Awesome. And listeners. If you enjoyed today's podcast, please take a minute and go rate us in your favorite podcast listening app. Five-stars is always appreciated. Vote with how you feel and we will join you on the next episode.
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EP002 - Senior Editor of Auto Remarketing & Auto Remarketing Canada, Joe Overby
http://www.vehicle2.getspiffy.com
Episode 2 is an interview with Joe, Senior Editor of Auto Remarketing & Auto Remarketing Canada; recorded on Wednesday, March 6th, 2019. He and Scot discuss a variety of topics, including:
Joe’s position at Auto Remarketing Vehicle lifecycle - how people are buying and selling cars How changing ownership models (car-sharing, subscriptions) are influencing rental car agencies and dealerships The evolution of automotive auction, both physical and digital The progression of technologies for more connected cars Affordability of electric vehicles, as well as the availability of used EVs Slow down in autonomous vehicle hype It looks like dealers, auto auction companies (KAR/Cox) and rental car companies are on a collision course around the fleet maintenance/reconditioning/remarketing spaceBe sure to follow Joe on LinkedIn! Check out the multiple events hosted by Auto Remarketing and Auto Remarketing Canada, such as the Auto Intel Summit and Used Car Week.
If you enjoyed this episode, please write us a review on iTunes!
The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.
This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.
Transcript:
Scot:
[01:01] Welcome to the vehicle 2.0 Podcast. This is our second episode and it's being recorded Wednesday, March 6th, 2019. In this episode we have our first guest and I'll give you a little background. So here at Spiffy we are doing a lot of work at automobile auctions. It's a whole industry I've always heard about but never had experienced. So I was, I was reading online at a great site called Auto Remarketing and I kept seeing some content there by a guy named Joe Overby. And I said, "Wow, I've got to meet this guy some time" and went to his bio and discovered he is here local. So Joe is going to be our first guest here on the show.
Joe:
[01:37] Scot, thanks for having me.
Scot:
[01:38] Yeah. When we have 500 shows out, you'll, this'll be, you'll put it on your resume.
Joe:
[01:42] That's right, first ever guest on Vehicle 2.0.
Scot:
[01:43] Yes. We really appreciate it. And you're the senior editor of Auto Remarketing and Auto Remarketing Canada. So that's interesting. So you speak Canadian apparently as well as English.
Joe:
[01:56] I try to. My southern accent, a little bit, gets in the way.
Scot:
[01:59] Is that on your title? So you can go get some of the delicious Canadian beer or?
Joe:
[02:04] You have delicious, delicious Canadian beer and they have the gravy fries, which are out of this world.
Scot:
[02:11] Yeah. Yummy.
Joe:
[02:12] Going up there in two weeks for that.
Scot:
[02:15] Cool. Let's start off and kind of orient every, all the listeners about your background. How did you get into the industry and where you are today?
Joe:
[02:23] So I went to went to NC state and I majored in political science, did a minor in journalism and had worked in for technician for a few years. And the student newspaper and then had a job in sports writing at a newspaper in Georgia right after college and worked there for two years and decided I want to try something different and get into magazines and applied for the job back here in Raleigh at our S&A Cherokee, which is the parent company of Auto Remarketing. And I've been covering the auto industry for about 12 years now.
Scot:
[02:54] Awesome. Cool. Yeah. And NC state. Awesome. Go pack.
Joe:
[02:59] Yes sir.
Scot:
[02:59] Tell us more about Auto Remarketing. So is it print and online? Just online? And what kind of audience do you guys have? We'd love to know more about the publication.
Joe:
[03:14] So we're print online and we have a digital edition are online. You know, we have our website obviously, and then we have a wide range of e newsletters that we send out, kind of that's how we get our stories out. Our largest e-newsletters, a daily morning one that goes out to about 22,500 subscribers. And then we have, you know, various other daily and weekly newsletters. They're about the same size or smaller. And then we have a print publication that goes out to 36,000 subscribers and then a digital edition of our same, of the same magazine. It goes out to 50,000. And then we have the same another publication Auto Remarketing Canada for our Canadian audience. And that also has a weekly and daily newsletters, and also a digital edition as well along with print. And then a colleague of mine, a guy by the name of Nick Zulovich, he heads up a couple of automotive finance publications. So we have one kind of specializes in the fin-tech space and then one that specializes in kind of the subprime lower tier financing in automotive as well.
Scot:
[04:28] Yeah. And then the broader Cherokee, are all their publications automobile-oriented or do they go into a lot of different kinds of B2B verticals?
Joe:
[04:35] Most of it actually is automotive B2B. I think we have four prints, automotive publications, but then we've also got two local lifestyle magazines. Folks here in the Triangle area, probably know Cary Magazine and we just launched a magazine for Holly Springs and Fuquay called Main & Broad. And then our company also has done several custom publications where, you know, maybe it's a, an association or a, you know, company that will publish a custom custom job for them. But mostly, yes, our bread and butter is the automotive space.
Scot:
[05:11] Very cool. Yeah, it's interesting. The, you know, you read the headlines, print is dying out, but I think that's the daily newspaper. But it seems like where there's a lot of vibrancy is in kind of hyper local. So people want to know a lot more about what's going on with their community. And then also in, in kind of a lot of the B2B verticals, seems like you have those bases covered.
Joe:
[05:30] We've got a, we've got a captive audience, so to speak for the, for the B2B as well. Yeah.
Scot:
[05:35] Well, cool. We've got a ton of stuff we want to talk about. Let's start with what I call the vehicle life cycle. It seems like you guys got financing and then then kind of like, you know, the, the used car side, the remarketing refurbishing side. What are you seeing there, you know, around behavior around how people buy and sell cars. Is that changing or it's kind of the same it's been over the time you've tracked it?
Joe:
[05:59] Certainly. Probably since about 2013, well, 2014. It's become a lot more digital in terms of the actual transaction. I mean, you had, you know, back then you had a lot of companies like Carvana, you know the BPs of the world, the rooms that have launched in the last five years. And more consumers, even if they're not maybe signing on the dotted line and buying completely online, they're doing, if there's five steps to car buying, they might be completing four of 'em online and then going and picking it up at the dealership or, or, you know, setting up the deal online. So I think you're seeing a lot more movement to completing some or all pieces of the process online. And, and, and it's not just these, the startups that are doing it, dealers are getting into the game as well. And you know, using software providers to get in the game themselves in terms of online buying and selling.
Scot:
[06:56] Yeah, I think one of the Superbowl commercials that was my favorite was, I can't remember if it was Kia or Hyundai. Bt they had the commercial where the guy was in the elevator and it was Jason Bateman, and there was like root canal. And you know, like all these things and then like the bottom kind of the bottom level was buying a car and they were that company that, oh, that OEM was rolling out a model that was very Carvana [inaudible] will come to you, you have a return period. That kind of a thing. So I think it's been interesting to watch that.
Joe:
[07:25] Yeah, for sure. I mean the automakers are doing it and they're, they're doing it through their dealers. I mean partly obviously cause a franchise dealer laws that they have to go through their dealers. But you know, they, they've got the infrastructure of, of these large dealer networks that they can set that up. Yeah.
Scot:
[07:40] How about, I'm kind of staying on the topic of the vehicle life cycle. You mentioned your sister publication around finance. What's, what's new there? I know I've seen some data that leases are, are quite kind of, you know, continue to be the most, one of the increasingly popular ways to, to, to finance a car. What else are you seeing in that?
Joe:
[07:59] Well, I'm one of the, one of the alternatives now is some of the cult subscriptions and they, you know, instead of in one of the, one of the models that has launched recently is one called Fair, which was launched by a guy named Scott Painter who was the CEO and founder of True Car. And he brought in a guy named George Bauer who's a former executive with the German automotive. And I believe, you know, it's had a lot of, a lot of experience in, in that, in that space as well. But you know, they models like that kind of had, I've taken on the approach of, you know, why jump into a 60, 66, 72 month loan when you can subscribe to a vehicle for, you know, a year if you want it at three months, if you want it. And then kind of get out and move on to the next one. And it's, you know, not to get in the weeds too much, but it is a different little bit different model than say, you know, a rental or a lease. But it just gives another flexibility for, for someone who doesn't want to set up financing for the next six years of their life.
Scot:
[09:04] Yeah. Yeah. That, that's a good segway. So part of the reason we started this podcast is we at Spiffy. We've put out this framework, we call the vehicle 2.0 framework and it's got four components, changing ownership, connected car electrification and autonomous vehicles. And you know, Fair is a good example of kind of the changing ownership going from kind of long leases to kind of micro leases. Then you've got Getaround, and Toro. That's more Airbnb kind of like, you know, sharing almost car sharing. And then it's really topical because I'm sure you saw Lyft filed their IPO and it's kinda caused this whole raft of in there, you know, Lyft talks about long-term, they don't think everyone's going to own a car. And then now I've seen like six top level articles about, you know, what's happening with car ownership. Any other interesting car ownership trends you're seeing?
Joe:
[09:53] Well, I just, I think that the, in terms of car ownership, there's just such a variety of alternatives. Now, I mean the, you mentioned Lyft, I mean one of the stories we had this week was Lyft has partnered with Cox Automotive, which owns kind of a variety of different vendors in this space. And they're on the service side. You know, when, when you, there's a dealership service department platform where, you know, when you take your vehicle to get serviced, they've got an automatic partnership with Lyft. So instead of having a, a loaner fleet, that dealership can just get set you up with the Lyft vehicle for that, you know, for the time period that you're, your vehicles in the shop. And, you know, you've seen those Enterprise commercials with, I think it's Joel McHale where he says, you know, you can rent a car from enterprise, you can, you know, car share with enterprise or you can buy it from enterprise. So I think companies are realizing the, the amount of variety of, of different ownership models and the way people want to interact with their cars these days.
Scot:
[11:00] Yeah. So sometimes you know, the articles kind of doom and gloom for kind of the traditional dealer. Do you think the dealer is kind of a dinosaur in this model or did they, they have to kind of just pivot and become more of like the service center? So if we kind of go to the extreme, right, and we, we kind of, I think, you know, we believe car ownership's going to be more of kind of fleets owning cars and people kind of, you know, using them on a smaller kind of timescale. It's not, all these things are never going to be 100% either. I come from the world of eCommerce and we're like 15% of the city of retail is on the commerce. We've been at it for 25 years. So, but you know, imagine there's a day where more like 20% of cars are, are kind of a fleet kind of a model. Where do you think the dealer falls in that spectrum?
Joe:
[11:45] Well, I think at this point there's still, there's still very much in the game. I mean, a lot of these models that we talk about Fair and, and some of these subscription models, they, they worked through the dealership. So, you know, you may, the end consumer may go to their app and, and you know, subscription program or some sort of alternative ownership program that they access through an app. That company, a lot of times we'll still buy the car, you know, the delivery of the vehicle still through that dealership and a lot of the dealerships are offering these services themselves. So I think that they, I think it's more of a pivot that a dealer, you know, may shift part of its business from, you know, 100% retail sales to portions of it being, well part of our inventory is going to be first subscriptions or car sharing, you know, for a ride hailing drivers and that sort of thing. I do think there's an opportunity as well for dealers to be in the service business. I mean, for these vehicles, the service business of, of a dealership has long been the most profitable anyway. So, you know, they're, I think they're very excited about, you know, the ability to change their model. I mean, I was talking to a dealer recently who said that it's in dealer's nature to sell what the consumer wants. I mean, it's a simple statement, but, you know, dealer, a dealer wants to sell, however, you know, whether it's an electric vehicle and autonomous vehicle or, or an alternative method of ownership, a dealer wants to be the person selling that car and they're going to do it.
Scot:
[13:25] Yeah, absolutely. How about, and this may be out of your purview, but we were doing a lot of work now with rental car companies and I had kind of assumed that they would be on the decline because I've gone through a phase where if I go to a city now, I kind of do some math and figure out am I just gonna kind of Uber around or am I going to rent a car? And you know, that that bar is kind of increasingly leaning towards more ride sharing. But I was surprised to find rental car companies that are actually growing pretty nicely. What do you think, you know, are they kind of going to start competing? The other argument could be maybe rental car companies are better equipped to manage these kind of future fleets than dealers are. Do you have any point of view on that?
Joe:
[14:06] That's, that's interesting. I mean, I think they certainly have the, if you think about what they already do, you know, a lot of them already sell cars. Just like dealers, you know, they have, they operate in many ways like dealerships.
Scot:
[14:21] Yeah, and they have more flexibility because like, you know, dealers get kind of locked in, if you bought it here, I want you to service it here and you know, and they're locked into one type of vehicle. Like I'm not going to take my, my Honda to a Lexus dealer for now. They may actually, sometimes you talk to dealers and they would actually do that, which always surprised me. I never knew that was a thing. Yeah. But most consumers don't think that way. Whereas whereas Hertz, Avis, etc. Are, you know, manufacturer agnostic.
Joe:
[14:44] And they do have, I mean, you know, a dealer, a dealer wants to get that, that new car sales there. They are going to take a trade in and then, you know, either use it on their own lot or, or take it to auction or, or you know, dispose of it via wholesale. But, as far as rental companies, I mean, I think, you know, they certainly have the type of infrastructure, national footprint that automaker or franchise dealership system has. They also recently, I mean, if you'll notice that a lot of these companies, either their, you know, the, the large rental car companies are either outright buying some of these smaller alternative, physical ownership platforms or they're working very closely with them to partner, you know, cause they know that they know that, you know, when, when you go, when, when somebody goes to travel there, they're doing the math that you just described. You know, it actually be cheaper for me to take a Lyft to and from a hotel rather than, you know, renting a car. And I think, I think those companies are doing the math and partnering with some of those companies. And, you know, they, I know that they're even getting into the connected vehicle space as well, these rental companies. You know, I think they're just as progressive, you know, in terms of this technology as the dealership and automakers are.
Scot:
[16:22] Yeah. And I mentioned at the top of the show that, you know, you guys put a lot of great content out there about auto auctions. That's when, as an eCommerce guy, it's kind of interesting to think about, you know, I haven't visited one, but a lot of people at Spiffy have, and then they seem to be these giant fields full of cars. And you know, there's, there's a point in time like a Wednesday morning and three days before Wednesday, you know, tractor trailers are showing up with cars and unloading them and then they're getting washed and they're putting them through an auction process and they're loading them back up. It just seems like a hugely physical analog kind of a thing in today's world. Is digital hitting auto auctions and, and what's that look like and give, give listeners that maybe they don't even know the industry, like maybe a high-level overview of and what's going on.
Joe:
[16:57] Yeah, absolutely. I mean, I think the, I mean, first of all, the physical auction space definitely is still happening. I mean that, physical sales, you know, are still going on every single week, every single day. But you do have where the two, the two largest corporate physical auction companies in the US, Manheim and Adesa, Manheim is owned by Cox Automotive, which is part of this global huge company, Cox Enterprises, Cox Automotive. And then you have Adesa which is owned by Clorox and services, which is a publicly traded large company. Both those companies are pushing more and more on their auction side to digital. I mean, I don't have exact stats in front of me, but it's about 50/50 of their auction sales involve some digital element, whether it's somebody buying via simulcast or you know, somebody sitting on a computer and buying through an online auction. They're pushing, those two large companies are pushing more of their business to the digital side.
Scot:
[18:08] But digital, is like an overlay on the physical or, or is it actually a separate digital thing so I could buy one and it's not actually in a physical auction?
Joe:
[18:15] Right. So a little bit of both. Actually. The, for example, car and services, which owns Adesa also owns a online auction company called Trade Rev. And that is completely digital and you think, oh, it's kind of cannibalizing. But no, it's, it's really a compliment to their existing auction business. Cox Automotive has, you know, dealer to dealer sales platforms. They have online auctions. So you know, these companies, the approach that I've seen them take is they want to sell however the buyer wants to buy. I mean, and dealers are just like consumers and that a lot of them are moving more towards making purchases digitally. That said, I mean, there's still a huge role for these, for these auto auctions. I mean, there's, some of them, for example, at Manheim, there's a former Manheim location that now has been turned into a mobility fleet servicing center. So what they do is they, you know, they do all of the things that need to happen with a fleet of, of mobility vehicles. So gassing them, washing, reconditioning. All of this sort of services you might think have to happen on the backend, this former auto auction does. And I think you're going to see a model where you know, an auto auction might do a little bit of both. They might still have those physical sales in the lane every Wednesday morning, but also sell vehicles digitally and act as a service center for all kinds of, you know, they already do a lot of ancillary services anyways. Now they have a new client and these large fleets of, you know, ride sharing, car sharing, you know, subscription services that it's a new clientele that they can serve as those vehicles as well.
Scot:
[20:15] Yeah. So it kind of sounds like we've got three factions fighting for this future of, of you know, fleet management. So you've got the dealers and the OEMs kind of aligned on one side. And in the eCommerce world, it's interesting. So, you know, you have kind of brands and retailers and, and those guys have fractured themselves because there's been a lot of channel conflict where the brands are starting to go around kind of their traditional channels. So it'll be interesting to see if that happens. But that's one faction do, we had the rental car kind of faction and the now it seems like the auto auction guys kind of also want to put their hat in the ring for managing this.
Joe:
[20:48] Yeah, absolutely. And, and even then, you also have a, aside from the, the large kind of corporately owned auctions, you have a lot of independent independently owned auctions. I mean there's, I don't know the exact count, but there's hundreds of independently owned auctions and they're, you know, they're just as innovative and then getting into the same type of a, the same type of play that, that these, you know, large corporate auctions are as well.
Scot:
[21:16] Yeah. And I saw a company called ACV Auction, am I saying that right? And they just announced, I forget the amount, but it was like a big raise. Was it 70 million, a hundred. It was like a, it was kind of eye popping. Let's see if I can find that. But that's more of just kind of a new new entrant. Right. So just pure digital if I understand?
Joe:
[21:35] Yeah, absolutely. They are a digital dealer to dealer online auction and they have been, I mean it seems like for a while there, almost every other store we had was about them than raising capital. I mean they, they have been, they hired a relatively new CEO I think has somewhat of a Wall Street background and funding background. A guy named George Simone and they have just been raising money and raising money and then, you know, Trade Rev, which I mentioned earlier is I guess it would be a competitor to theirs. And they're, they're owned by, you know, one of the publicly traded large company in the auction space. And then you have, there was a new, a company from Canada called Eblock, which they just launched in the US in Burlington, Vermont. And then you have just tons of other companies into this, in this digital, wholesale space where if you think about Carvana and Vroom and some of those companies and just think about, you know, those they're in customers or retail customers like you and me, ACV, Trade Rev, their customers are, they're doing essentially the same thing, but their customers are dealers. Yeah. And there's just, they're well capitalized. There's lots of them. And you know, I think it's a growing space. And then you, and then to add to that, there's, you know, a company like a Smart Auction, which is a piece of Ally Financial. They'd been around for 20 plus years doing this. And there's, it's, it's a growing space.
Scot:
[23:09] They're coming at it from the financial side?
Joe:
[23:11] Well, they're an online auction, but they, you know, it's, it's a similar concept to me as it were. Dealers can go in and buy car wholesale cars online for their inventories. Yeah. Got It. Does Cox so, so noticeably absent for that was kind of Cox, do they have a digital auction platforms? They do. They have OVE. They have Manheim Express, which is a dealer to dealer platform. And you know, they're, they're very much involved in digital wholesale. Yeah. Cox Automotive.
Scot:
[23:42] Cool. And while you were talking, looked it up. So they raised a ACV auction, raised 93 million in December and they've raised 150 million total. So that's a pretty considerable. It's interesting because watching, so I come from the marketplace world and they've, they've kind of gone through this kind of touchless to high touch. So, so kind of the famous example is a lot of people use Open Door. I don't know if you've ever shopped for a house now, but they'll go in and buy the starter homes and a whole area of, so here in the triangle they've bought like any house, but between kind of 102k, they'll go buy it and then they'll run a marketplace. So, so imagine like, you know, Zillow went out and bought all the houses and was selling them. So it'll be interesting to see if we kind of go full circle and see someone like an ACV actually taking some inventory risk or something. You would imagine with raising that much capital there, there's gotta be something going on there that's all that it's a lot of engineers behind the scenes deal for $200 million. Okay, cool. So changing ownership, some interesting trends there. How about connected car? What, what did, what do you think happens in a world where our car is kind of connected to the cloud and, you know, it lights up a lot of nice new features for, for the consumer, but what else does it mean for the future of cars?
Joe:
[24:56] Well, I think that this number one, it's sort of been progressively happening already. I mean with, with Onstar, with General Motors, you know, having the, having that kind of feature. And then, you know, on the way over here I had my, how to podcast and music and directions going through my phone. So there's already a level of connectivity in cars and, and I think that is a bigger, not worry, it's going to be here faster, I guess, than autonomous vehicles. Yeah. I've, I've heard that, I've heard that in the industry that, you know, that's, people aren't talking about that as much as they are autonomous cars, but I think there's a greater chance that we have connected vehicles much quicker than we have self driving vehicles. It'll be interesting it, you know, what's the, you know, what are some of the purposes to that, you know, is it safety? I mean, that, that would be a, to me, you know, cars communicating with each other, you know, could be a big help for safety is that, you know, when cars are too close together or, you know, does it help avoid accidental oil, you know, or accident avoidance. I think that's a potential play there. I mean, obviously the infotainment is, we're already there. Yeah. But I think there's a lot of, a lot of room for growth there and I think you're going to see that quicker than, than you are autonomous cars.
Scot:
[26:26] Yeah, it's been interesting. So a lot of, a lot of companies kind of went with their own kind of, you know, app, App store thing and now it seems to be kind of standardizing on a, you know, the Apple system or the Android and kind of Amazon. It seems to be having some legs with Alexa, kind of, in the car. Yup. It's interesting to see what happens there.
Joe:
[26:46] And another point to that. There's a, there's been a couple companies that have come out with basically devices that you plug into the onboard, got an onboard diagnostic port. And so as long as the vehicle is something, it's either sometime in the 80s or sometime in the 90s that if your vehicle was made after a certain point, you can turn it, you know, 1995 Toyota Camry into a connected car by plugging in their device to a, to the onboard, the OBD two sensor. So it's, it's really interesting. Even used cars are becoming connected cars.
Scot:
[27:21] Yeah. And some companies like a Verizon has Hum where now that not only do you plug that in, so sometimes you can plug the sensor ended, it'll talk to your phone and get to the cloud, but sometimes it will have its own cell phone connection in there so it can, you know, to your point it can, it can add retroactively add connect to capabilities. Yeah. Electrification. So there, there's a, you know, avi is a autonomy is like the shiny bulp, but in the industry, but electrification seems to be kind of grinding out a lot faster. What do you think about that?
Joe:
[27:51] Well, I think the biggest issue I see is affordability. I mean, new car affordability in general is already an issue. And it's driving a lot of people to the used car market right now. And that is partly as a function of consumers more interested in trucks and SUVs and crossovers than they are sedans. It's a, naturally the price goes up on those vehicles. But you know, I, I think you look at it like the Tesla's of the world and some of these, you know, electric vehicles or are too far past a price point where they don't make up for the gas savings. But I think there, there are people working on that. I mean the, actually the next, next couple stories I'm working on, one of them is about a, a company called Current Automotive and they are a used electric vehicle dealership that sells primarily online. They're actually one of the co-founders is part of the, or has families that the built Jacobs Automotive Group up in Chicago. And then the other co-founder I believe is a former Tesla executive, but they are, you know, having, having the point now we're where there's enough used electric vehicles that are hitting the market. Having that infrastructure of a, of a dealership type of organization that can sell them, you know, I think should help some of the affordability around electric vehicles.
Scot:
[29:23] You don't think a $35,000 Model 3 is, we think we have to go lower than that?
Joe:
[29:29] Well no, I mean I don't think so cause I, I think that the way new car prices are now, that's probably about what average for a new car now.
Scot:
[29:38] Yeah I think average is between 30 and 40k. Right?
Joe:
[29:39] So, you know, I don't know there has to go lower than that, but I do think it is a positive sign that there are going to be used vehicle options for people that, you know, don't necessarily want to shell out 35 grand at the low end for an electric vehicle. And then, you know, you had another, another kind of story we're looking into is the the former House majority leader Richard Gephardt,is signed on as an advisor with Fisker Automotive. And they're in that same kind of electric vehicle space in there. They're looking to basically solve the pain point of, you know, creating a, a workforce for people to build electric vehicles. And so I think with more options I think the price will come down on, on electric vehicles. And again, going back to the kind of the different types of ownership models, there's several different iterations of electric vehicles. You know, you have your hybrids, you have your-
Scot:
[30:44] Different plug in hybrids.
Joe:
[30:45] Exactly. Yeah. I know a lot of people that are doing the plug in hybrid thing kind of helps with the range anxiety to have an internal combustion engine there. So I think there's, there's more options come to the table. I think you'll see the price come down and more people get into them. I don't think we're going to get it go away from internal combustion engines. I mean, not only because of the infrastructure challenges, I mean there's, there's political challenges do it as well. I mean, there's entire industries that would lobby against that. So you know, I think, you know, I know certain countries are probably will go 100% evs, but I don't think that's going to happen in the US.
Scot:
[31:26] Yeah. China seems to be very aggressive. So they're, you know, they've got massive pollution problems and they're pushing for that big subsidies. And they're building out of the, all of the infrastructure will be interesting to see what happens there. Do you guys cover electrical infrastructure at all? Like, do you know how many chargers and companies like Chargepoint? There's a lot of startups trying to dissolve the charging challenge.
Joe:
[31:46] Not yet. I'll say, we, you know, our focus has mainly been in the the used car retail and you wholesale space and sort of the, that side of the industry. But in the past, you know, three or four years, we've really ramped up our, for lack of better word, automotive technology coverage, whether it's mobility, whether it's, you know, EVs online buying eCommerce as become a huge part of the industry. And so it's kind of been a huge part of our, of our coverage. So I think as, as more of those models gain traction, that that'll be something we'd probably open, open ourselves up to a little bit.
Scot:
[32:24] Yeah. I think the industry is not really ready for electric cars because when we visited an auto auction and they had almost a whole, there were helping Tesla do a kind of a bunch of refurb kind of stuff. And their biggest, one of their biggest challenges was having so many Teslas there, they couldn't charge them all.
Joe:
[32:41] Yeah.
Scot:
[32:42] So they would like, you know, they had a line of a hundred Teslas and over, you know, over a period of time the batteries, you know, they're, they're using some electricity and they would kind of brick the, the vehicle and have to go figure out like once it's bricked, it's hard to get it to two power. So, so, you know, it's interesting to like, you know, the, the infrastructure we always think about on the consumer of the retail side of charging, but it kind of flows through, you know. Imagine a rental car company trying to do this and you know, having to add, you know, they're going to have to charge hundreds of vehicles overnight and the infrastructure, on that side, I don't think a lot people think about that. But that's big too.
Joe:
[33:15] And there's probably companies out there that eventually if they're not already, would go and work with the rental car companies and the auto auctions that they can set up charging stations. You know, if they say we've got too many Tesla's here at the auction, the charge, all of them, you know, at this company as I'm sure it could come in and do that.
Scot:
[33:34] Yeah, they're expensive though. Each one of those is like, you know, a hundred to 200 k and like with, when you put it all in with the, the backend electrical plus the wiring and the head unit. Yeah. It's expensive. Yeah. Cool. And then the, the shiny bulb in the industry is autonomous vehicles. What do you think about that?
Joe:
[33:52] I think it's going to be awhile before they gain a whole lot of traction. I think there's, you know, what I've seen mainly is that it will be like as a staged rollout where it's, each level is kind of staggered I guess. But you know, I think last year the, the much publicized, you know, unfortunate, you know, the accidents that resulted in fatalities involving self driving cars. I mean I think that kind of slowed it down a little bit. I think the, there's too many, too much safety concern right now. Whether that's overblown, it's still there. I mean I think, there's a lot more testing that needs to be worked out before those gain any kind of real, you know, measurable market share.
Scot:
[34:40] Yes. Yeah. It's been interesting to watch it CES. I haven't been to CES in a while, but I watched the coverage. And this is the beautiful thing about social media, you don't have to go to these things anymore. Save a trip. And it seemed like the last three CESs is prior to 2019 we're all a lot of autonomous vehicle hype and then this year it was kind of like the reality of more of the things they were showing were, you know, really constrained public transit kind of thing. Just so you know, these vehicles are going to go in a very predetermined route with its own lanes and a very safe kind of approach and they're only going to go 20 to 30 miles an hour and they'll have a human in there. And so really kind of pulling back from that, you know, I'm just going to hop in a car and it's gonna drive me coast to coast and I won't, I can sleep or something like that.
Joe:
[35:22] I think it's more of a pragmatic approach. It's cities looking at how do we solve these mass transit issues, you know, whether it's a or, you know, even even companies, I mean who were, you know, if it's a, if it's a self driving a shuttle at a company or something that it goes around the campus or, or you know, helping cities out, solving those, solving those issues, more of a pragmatic approach rather than a retail consumer just wants a self driving car, like, you know, on the Jetsons or something.
Scot:
[35:51] Yeah. So any other trends in Auto Remarketing that, that are kind of top of mind with you?
Joe:
[35:58] Well, I think going back to the, just the increasingly digitize digitalized presence of, of the auto auction industry. I mean I, I think there is, it's an interesting time because so much of it is, is going digital, you know, and despite there being still the need for the physical auto auction because you're moving these large assets and it's, you know, there's a lot of physical movement. It's still needed in the industry. It's interesting to see how you'd mentioned the ACV investment. It's, it's been really fascinating to watch how much money and how much attention is, is getting paid to, to that side of the business. And I think it's a, it's only going to grow from here. You know, that the digital wholesale environment.
Scot:
[36:45] Cool. Awesome. And you guys have, you mentioned earlier that you spend more time on kind of, you know, some of the future vehicle technology stuff. And I noticed that you'd put a lot of events on this seem to be kind of anchored around this. Tell listeners about some of the events you guys host and how they can learn more about this.
Joe:
[37:02] Sure. So we do, we have four automotive conferences each year. Two of them were actually coming up in Canada. I'm heading to Toronto in a week and a half. That'll be for the Toronto used car industry. But this summer in Raleigh we have the Automotive Intelligence Summit. This is our second one. It really, it focuses on just the, you know, a lot of what we've talked about today, you know, autonomous vehicles, the connected vehicles, digital retail, the use of big data and data analytics and artificial intelligence and the, you know, things, you know, what role does blockchain management have in, in automotive. So a lot of these tech driven changes in automotive. This conference, you know, we'll address, and again, it's our second year of doing it. It's going to be July 23rd through 25th in Raleigh at the Marriott Crabtree right across from the Crabtree Mall. But if, if people are interested in learning more, they can go to autointelsummit.com. That's autointelsummit.com. Or they can holler at me on Twitter @AR_JoeOverby and I can share more information there as well.
Scot:
[38:25] Cool. So I think you said four, so two in Canada, Auto Intel, is there a fourth one?
Joe:
[38:30] Yeah, absolutely. Our signature event. I'm glad you reminded me. Our signature kind of flagship conference is Used Car Week and each year we host that in the fall and it's typically in the southwest. This year we're going to be in Las Vegas at the Red Rock. Last year we were in Phoenix or Scottsdale, Arizona. And what it is is it's four separate conferences that are all kind of part of the used vehicle life-cycle. So we have a retail focus conference on pre-owned. We have a finance auto finance conference, we have the repossession and recovery space. And then we have our National Remarketing Conference, which is the kind of wholesale, the auto auctions, that sort of thing. And we're actually going to be celebrating our 20th anniversary of that National Remarketing Conference. But that's going to be November 11th through 15th in at Red Rock in Las Vegas. And folks who are interested in that can visit usedcarweek.biz. And that and that again, you know, it is kind of an overall auto industry conference, but given the nature of, of automotive these days, it is going to be tech. You know, there's going to be some tech focus, some innovation, some, you know, talk about digital and that sort of thing as well.
Scot:
[39:55] Yeah. So just kind of reading the between the lines sounds like the Raleigh one is maybe like hundreds, low, hundreds, a couple hundred folks. Anything in Vegasis going to be at least single digit thousands if not tens of thousands. T
Joe:
[40:08] Yeah, the Auto Intel summit, we had about two or 300 last year, very kind of boutique conference, but you know, everybody there was very engaged and there to, you know, be in the sessions. And again Used Car Week is a broader, larger, you know, we've been doing it for a couple of decades, it is in the, you know, I think last year we had about, attendance was about 1600, I believe. Yeah.
Scot:
[40:36] Yeah. Cool. Yeah, it's fun to go to kind of both cause you kind of, you know, the smaller shows are more in a minute and literally deep on something but maybe not as actionable sometimes. And then the networking is good and then the bigger ones you can kind of go and have a list of here's five vendors I want to meet. And it a lot more to kind of tactical get, get business done. So it's good to kind of go to both, I think.
Joe:
[40:57] It's like going to a basketball game at Cameron indoor stadium versus going to a football game at Carter Finley. It's just, one's a big crowd and loud and once you know, it's small intimate atmosphere, so, yeah.
Scot:
[41:09] Absolutely. Cool. Well Joe, we don't want to take more of your time. Appreciate you coming over to Spiffy to record the podcast. Excited to have you as one of our first guests. You mentioned your Twitter handle. If folks want to, that's one way to kind of get in touch with you. Are you active on Linkedin or other social media and maybe let's definitely kind of bring them to the website too.
Joe:
[41:28] Yeah, absolutely. Certainly active on Linkedin, just Joe there. And my email, if anybody has any questions about our conferences or about our publications. It's at [email protected]. The website for all of our publication is Autoremarketing.com.
Scot:
[41:53] Great. Thanks for coming and thanks Jackson on the audio engineering side.
Joe:
[41:59] Well thank you Scot. This has been fun!
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