EconTalk: Library of Economics and Liberty (8/28/17; Benedict Evans on the Future of Cars)
“An electric car doesn’t so much get rid of the gas tank as rip out the spine of the car. It’s not that you get rid of the gas tank and replace it with batteries, you get rid of the internal combustion engine and you get rid of the transmission system, so you probably have 5x-10x fewer moving parts. And that obviously has an awful lot of consequences inside the car industry, which are the first order effects. It has fairly obvious effects on the supply chain and things like companies making machine tools that make all the moving parts inside the gear box. But what about things like gas stations? There’s 150k gas stations in the US, gas is sold at almost no margin, they make their money on everything else – salt, sugar, and nicotine in shiny plastic packaging, and some part of that is an impulse purchase. And if you’re never going to a gas station again…what happens to sales of those? Something like over half the sales of tobacco in the USA are sold in gas stations, some portion of that is an impulse purchase.
There’s another [consequence] directly related to cars, which is repair. So, something around half of maintenance and repair expenditures in the US are related to the internal combustion engine, like the oil change and transmission. But you have many fewer moving parts and you’ll have many fewer failures…the radiator fan belt won’t fail because there won’t be a radiator. And the [repairs] are the economic support for a lot of the dealer network as well.
So, you’ve got these rippling out effects, the support infrastructure around the gasoline car, which will go away. The adoption of electric cars is really a function of ‘when’ rather than ‘if’, it’s a function of battery pricing and battery pricing is a function of scale, so there’s a circularity there…we’ll get to a point in the next 5-10 years when electric cars become cost competitive with gasoline. […]
UBS did a teardown of a Chevy Volt vs. a normal gasoline car and the propulsion part is a lot cheaper…the electric motors and the battery cost less than having a complete ICE + the cost of gasoline. And then you’ve got the electronics in there that add a significant amount of cost, but that’s a transitional issue, that will shrink down over time. […]
The portion of global oil production that goes to cars is something like 40%. Removing that demand over a period of 20 and 40 years, maybe longer [replacing the car parc with electric cars], and there are other uses for that production as well. So, it’s not like there’s going to be a guillotine. […]
If you look at Nigeria, the relevant petrochemical for a lot of people in Nigeria isn’t gasoline, it’s kerosene, for lighting. And so there there’s a solar story. So, the growth of solar in emerging markets as cheap, healthy energy because you’re sitting in a hut burning animal dung or kerosene…well, now you have a solar panel with an LED light.
As you move from Level 2 to Level 3, it’s basically a safer car but it’s still a car. Level 4/5, you use the word self-driving car, but I prefer the word ‘autonomous’…just as electric isn’t about removing the gas tank, autonomy is not actually about the car driving itself, it’s about getting rid of the person and it’s about changing everything else about that vehicle and the city around it.
The most optimistic people will say we’ll have Level 4/5 in 5 years. They consensus probably edges more towards 10 years. And that’s for the first vehicle. And just as with electric you have a whole transition question of how long does it take to go from the first one to all vehicles…in a city and do you have segregated lanes, etc. The variability within [whether it’s 5 years or 10 years] is really about the last couple of percent difficulty…the hard part is accounting for what other people are going to do…and so, we may have Level 4 on highways quite soon, having Level 5 in Naples might be a bit more difficult. […]
There’s a transition period where you still have human cars around and then a period where everything’s fully automatic. In a fully automatic world, there are no collisions and therefore, there are no safety cages, no crumple zones, no air bags…and so that obviously changes the weight and the cost, it can also change the physical design of the car…If you think about on-demand as well, you can design vehicles that can only go 20mph-30mph. So, today the vehicle you design has to be able to go on the freeway, but in an on-demand world, the system would know where you’re going and if you’re not going on the freeway, you wouldn’t necessarily have to send a vehicle that would have to do that.
If you remove the human driver from a vehicle, you take out at least 3/4 of the cost, so an on-demand ride that costs $10 today would cost $2-$3. And if you remove the insurance…then it goes from $10 to $2. So, your calculation about whether you own a vehicle or whether you own 1 or 2 is going to change a great deal…You’re thinking about going out to dinner in Manhattan on a night in November and it’s cold and dark and raining. You live in the suburbs. So you can walk 10 minutes to the train station and get a train for 20 minutes and get the subway. You could call for a car and that will cost $20 each way. You could drive yourself and then you’re going to spend 20 minutes looking for parking, pay for parking, and one of you can’t drink. Now, an on-demand ride will get you there and back for $3 each way. So, the whole way you think about a city changes.
The car will have a screen and speaker, yes, but I don’t think that will be standalone. I think that will be part of your broader account. Maybe it’ll be an Apple car, you’re log into it, and it’ll have the same stuff you have in your iPhone.”
Invest Like the Best, Ep. 55 (David Tisch – Tech Investing Outside of Silicon Valley)
David Tisch [runs the Box Group, seed stage investors]:
“In 2007-2012, design was a stand-out skill. So if you had an incredibly designed, great product, the product itself could win, on the app store and on the web. And there was a willingness among the consumer base to try new things – that’s pretty, that’s cool…so just building a great product was almost enough back then…when it wasn’t a consumer facing product, it still mattered if it was trying to interrupt an established industry. In almost any industry where you were trying to touch non-technical users, product design mattered…Starting in 2012, a great product was a given. If you did not have a great product, you would lose but it had nothing to do with your success. […]
In 2010, everyone would wake up everyday and open the App store and say ‘what new apps can I get today, I’m so excited for more apps.’ That doesn’t happen today…so if you are a new app, you are trying to get someone who has no interest in trying new things to try your new thing. That’s a daunting proposition. The other side is, people got used to trying something and throwing it out immediately. So, as a new company you’re in a world where you have one shot to win people over. The lean startup, the iteration process of the 2007-2012 period is totally irrelevant today. A user has no tolerance for mistakes, no tolerance for a bad product…if the user doesn’t feel the [value prop], they’re gone and you’re never getting them back. The only way you get them back today, if you lost them already, 5 friends have to say ‘you have to download this.'”
Grant’s Podcast (11/10/17; Buying low and selling high: A How-to)
Paul Isaac [CEO and Founder of Arbiter Partners]:
“CIT is an old business finance company. It wound up having, like many financial companies, excessive ambitions. It’s been substantially pruned down. It’s basically left with a large California bank, it’s a deposit franchise, it does a good deal of specialized business lending, including railcar leasing. It also does a fair amount of specialty finance. It’s currently trading around 90%-95% of tangible book, they just did a large tender around 1x TBV to shrink the overcapitalization of the company after selling off the aircraft leasing business, which many saw as being risky…it now is relatively overcapitalized compared to most other banks and finance companies, it tends to lend to better quality credits, it pays a modest dividend, has committed to return capital to shareholders…so, it’s trading around 10x earnings, we think that book can continue to grow at certainly 7%-8% per year above the modest 1.5%-2% dividend, and if the thing were to be sold, we think the banking franchise is worth a significant premium to book and certainly you have a publicly traded comparable in the railcar leasing business that trades at 1.5x book. So, we think the sum of the parts are 30%-40% at least in excess of the current price…
JBG Smith is a spin-off from Vornado. It is their Washington DC real estate portfolio. This is actually a real estate re-developer, the company’s not particularly well-known, it was spun-off into a relatively poor REIT market, the company’s published estimate of its own NAV, which seem pretty reasonable, is around $41, and they have a whole series of properties, mostly in well-located downtown locations of some size, either in DC and its immediate suburbs near mass transit that they’re in the process of repositioning…and if the company can do that successfully, it’s reasonable to hope that the NAV will roughly double over the next 3-5 years and it’s trading now at about $32/$33, so we see a discount at an NAV that has the potential to increase pretty dramatically […]
There is softness in the DC market, there was a report that asking rents have ticked down modestly and there is a fair amount of supply coming onto that market. But DC is very tough place to do development in and over time, the excess tends to get absorbed, it’s not a place where it’s easy to put a lot of stuff into the pipeline…”
Very Bad Wizards, Ep. 126 (The Absurd)
From T. Nagel essay, The Absurd:
“If there is a philosophical sense of absurdity, it must arise from the perception of something universal, some respect in which pretension and reality inevitably clash for us all. This condition is supplied by the collision between the seriousness with which we take our lives and the perpetual possibility of everything about which we are serious as arbitrary or open to doubt […]
Like the capacity for epistemological skepticism, it results, this sense of absurdity, from the ability to understand our human limitations. It need not be a matter for agony unless we make it so, nor need it evoke a defiant contempt of fate that allows us to feel brave or proud. Such dramatics, even if carried on in private, betray a failure to appreciate the cosmic unimportance of the situation…if under the aspect of eternity, there’s no reason to believe that anything matters, then that doesn’t matter either, and we can approach our absurd lives with irony instead of heroism or despair.”
“According to Nagel, human beings only are able to experience the absurd…most animals don’t step back and question whether what they’re doing really matters. But we can always do that and we can never get a satisfactory answer to those doubts […]
This is completely inescapable. We both can’t avoid having the consciousness to be able to step back and question what we’re doing, but we also can’t avoid taking our lives with the upmost seriousness, to really think that what we’re doing matters.”
“…in our daily lives, we engage in activities that are clearly linked to higher order goals, so I am doing this in order to publish another paper, which is order to have a stronger CV, which is in order to get a good job. In those cases, I think it’s easy to fall into the meaninglessness trap where if you take that to its logical extent, you realize that nothing matters. But when you are doing things that aren’t so clearly linked to a hierarchy of goals, like spending an evening with your significant other, where sure, you could say there’s some goal of happiness in life in general, but really that is the goal. The goal is to have a happy evening with your significant other. There you’re less tempted to take that external view and if you did, it would actually ruin the moment. So maybe there are different kinds of activities that lend themselves more or less to that feeling of absurdity […]
I’m square of the belief that [Dan] Harmon expresses, which is save these moments of absurdity to get you out of those times when you really might be engaging in things that are absurd. When you realize that you’ve made such a big deal out of who got assigned the committee, did they not choose you on purpose of whatever, that’s when you can deploy this sense of absurdity to your advantage.”