Rick wager and Larry Burns this morning Auto line after hours is brought to you by Bridgestone tires solutions for your journey all right Mr Gary how are you you got something to surprise me with this week I I I've got one that is going to be impossibly hard or dead easy and it's the same thing okay you want the hard one sure if I give you the easy one you'll guess right away okay okay so there was a guy who was a chief engineer okay which is a pretty good job chief engineer right and he had a job and he quit his job on August 15th which is today's August 15th I'm not GNA tell you what year it was but August 15th okay so this is a chief engineer and you guys would everybody in the studio would know who this person was so he quits his job so a few years later he's at a car company and he's part of the development of a vehicle that everybody here knows who is this person so when you were first talking my my mind went to Walter P Chrysler oh but but then you said he was working at another of course he was working at another company but it was his own so this sounds like somebody who did not start his own company I'm not giving you Clues okay so everybody's got to know we got Mark Wakefield from Alex partners and Keith notton from Bloomberg what do you guys think any ideas God I'm I'm uh r one person who changed jobs L though I don't think he was ever a chief engineer it was Bob Lutz and he fed some famous vehicles but not Bob Lutz not Bob he was never a chief engineer I don't Mark you got any stabs in the August 15th I mean no I don't keep track of the dates that sounds like it's a it's a start upy guy though like a Tesla rivian person startup guy startup start Peter rollinson he was was he a chief engineer he was chief engineer L okay all right so I'm gonna give you we teaming I'm gonna give you the date and then you'll immediate see if I gave you the date first you'd immediately know what it was okay okay 1899 oh Jes okay Ferdinand pora not fer oh God I thought you Auto yeah yeah yeah yeah bingo Henry was in the business at 1899 yeah but actually he was working as a chief engineer for Edison oh yes yes and Edison did make cars they did not not at that time not at that time he did make a successful model later a different company but I always I always find this interesting that you that you know that so he leaves August of 1899 and goes to work for the Detroit automobile company which had a 18month run before it went bankrupt right and it made trucks Oh and then he started the Henry Ford company right and went bankr and well it it sort of went he he left and then it was turned into Cadillac correct and then in 1903 he started the Ford mortar company right it shows you startups are hard that's that's right third company yeah that's right and in fact um who's the guy that uh uh started Cadillac was the Henry Leland Henry Leland right there's you know so Henry was Henry Ford was miffed at Henry Leland because and you know fast forward to was it 1926 I think Henry Ford bought Lincoln and there's a picture of Henry and his son edel with Henry Leland with his son and Henry Leland looks like oh he look he does not look happy and Henry Ford looks like the canary the the cat that just ate the canary I mean it it's like he was so pleased he was yanking this company out from under Henry Leela could look a little stressed at times too yes he could but but that was because of Dad yeah everyone around him might have So speaking of companies that are successful in companies that may go bankrupt AR Mark how are you yeah not sure which I am but okay I like working for both well no no not working but I mean you're you guys recently did another study of the industry which uh yeah leads me to believe that uh there is going to be some churn in this industry more than there is now yeah and and you the future probably does go to the brave because so let let's set the stage a little bit more and have you pick it up from there so you guys are looking at the Chinese Auto industry and man this thing's a juggernaut this thing's a steamroller and what you guys essentially came out and warned the Legacy industry I don't want to call it the Western because this includes Japan and South Korea too absolutely but the legacies and Europe better change or else yeah in a Quantum way too um and we've talked last year about some of this ways to maybe separate and do other things this year we tried to bring it up a level to talk about particularly product development but about the just getting out of the Boiling Pot um what do you mean by that well it can feel good with you know and there's some people are feeling very good about the lack of Bev takeoff and and how this is all playing out and how much um demand there is for ice vehicles but the the competitive dynamics that are going on in China and byd's Ascension in that not just them though the auto a few others are pretty impressive um are painting the picture of a new operating model that if even if it's held out of the US and even if it's held out of Europe Which is less likely with building factories there and such um someone else could replicate that and it's a winning model and it's dried andr in China and now um somewhat scary if we don't do more Quantum changes to the fundamental approaches and how we're organized not just going a little faster or being a little more Innovative like it's not whipping people harder or hiring smarter people it's changing how we work and uh without that we could wake up in 5 years and be too late because the compounding Improvement and changes that are going on um in the knife fight that is China um will eventually spill over so you see the Chinese automakers having what 33% of the market by of the global market by 2030 so they lead in EVS they lead in technology they lead in supply chain they lead in cost I'm I'm struggling to see the opportunity for anyone else and feeling that 3 % is low uh well you you have protectionism so it's still in play at that point so in our 2030 we had a 1% market share in the US like a 20s something percent in in Mexico as an example but the the bigger issue is there's it's not written yet you know there's enough things to play that there's time to move and time to do things um the the market in Europe and North America is not heavily Bev yet we aren't really on what we call like a level four of stvs with realtime immersive connections these things are still being written the autonomous side still being written and even the battery electric side the chemistries are moving fast it's not like it's you're too late now but let a few Generations go and run just for cash um and instead of running for a decades long um winning strategy and there may not be decades along this out there so so you guys found that they have a cost Advantage as much as 35% product development times twice as fast as little as 20 months um higher ver vertical integration as much as 75% um 20 times over the a updates post launch yeah okay couldn't someone in a western company simply say Hey you know China's car companies are basically state-owned that's direction from the top it's it's you know government controlled we're free market that's just ridiculous we're not going to do it well we're not free market or else they'd be here it's probably a thankful thing for for many um but you know byd Le Auto gie others uh are not the state-owned ones yes they have support locally and and otherwise Neo a lot of support others sub substantial support but they aren't the faw seic um traditionals right it's actually a new breed in China that are winning in this and that are actually taking share from the traditional Chinese brands in China as well it's just that the two of those combined are demolishing the Western Auto brands in in China um so it's it's you were saying the the you know up toos and not all of them are up to quite that amount but there's a competitive advantage to the way they're organized uh and it's not just saying I'm going to launch in 20 months it's saying I'm going to launch in 20 months and setting up the things required to do that and to be able to do the OTAs afterwards and being willing to do those being willing to prioritize and focus on just what matters in the requirements to customers and to a competitive nature and then a fundamental belief that if I don't launch this in 20 months it's dead so it's it's time is not a variable um because there's not an opportunity to compete with a one-year-old vehicle launching in China you'd be a technology PED in the generation you know everyone looked at the xiaomi su7 and went oh my God you know let's let's go faster let's put more in they looked at all these different Vehicles each one that comes out reinforces the the idea that that to win in the n Market in China time can't be variable you must launch um and it can succeed or fail but you're guaranteed to fail to take an extra year mark when I talk to people uh about this need for the legacies to change yeah and and that the these advantages that the Chinese have there's so much denial and and and if it goes beyond denial it's like well you know they get all access to these lowcost loans the government is supporting them weager labor all this kind of stuff what do you re what's your response to that so what um you know compete there's uh I don't know if that there are aspects of that that matter and there's also brand legacies that matter a lot um and that have an advantage of some brands that mean a lot and have a lot of trust um in luxury and quality and other areas that the Chinese don't sell on that they sell on you know features and this sort of thing it's it's like there's not an apple based selling piece it's more Neo's trying to do a bit of that but it's much more of a Samsung style cell phone cell of look at this feature look at this stuff that I can do so there's an opportunity to leverage some of those things it's not that there's only one one way of uh doing it and only one set of competitive advantages you could take a different approach but to ignore 20 months to ignore the totally reorganized product development without ch gassy body do instead hardware and software a a cicd like continuous development continuous uh software development layer that's just has a you know a hardware connection layer to it but it's not coupled to the hardware and is able to continually innovate along agile Cycles this this exists it's real and it's and it's better um and it's producing better vehicles and it's Vehicles you couldn't you couldn't have done this 20 years ago because the the software the electronics wasn't available um it's easier in the EVS but it's happening in the in the Reeves as well the extended range ones um and so I would say you still have to look at the advantages and the what are people doing and what can I do or do better um with or without some State subsidies or other things going on and even the cultures the 996 culture is Alive and Well in what do you mean 996 uh 9 to 9 9:00 a.m. to 9:00 P p.m. 6 days a week as the sort of the shtick in China for these startups um we were we were talking to a a western company who's trying to hire a new team in China and they were dismayed because a lot of the people they were interviewing were excited to go work for them because they wouldn't have to work so hard and so there is other aspects there that um that are are daunting when you say okay how do I set up my culture and my structure and my processes and be willing to clean sheet enough to to make something that that fights this off and takes advantage of it because even if you know if you and I are both making cars here and um no one actually does come in but I do those changes and you don't I'm going to beat you um so I don't really even understand the focus of will they or won't they come and um it's not so much about a Chinese player like byd coming as much as it is the Quantum changes that are that are being shown to be the better I want to ask about one aspect of the the clean sheet though so organized labor is inocent in this country the UAW particular just negotiated their most lucrative contract in decades they just organized Volkswagen so how do you overcome those labor costs how do you get competitive on labor costs without somehow severing ties with the United Auto Workers which doesn't seem likely in this country I don't think it's labor isn't a huge portion of the cost structure compared to say a battery chemist the battery chemistry for example um if it's a billion dollars to launch a vehicle and I take an extra year I've spent a couple hundred million extra um if I don't do virtualized testing I've spent another couple hundred million there so there's other big things that are there and then the labor piece comes down to economics of the you know automation cobots what's the labor rate in Mexico and taking a an approach of fortunately coldly looking at what's the best outcome for the the industrial apparatus that want of put together we talked a bunch last year about different ways of setting up a factory and these sort of things and those are things you could do they're a lot easier to do if you do a structural change like this um but those also reduce the number of heads needed so it can be less which you know a union can choose to say I'm going to try to hold on to a number of jobs and create uneconomic waste um or I'm going to try to organize other things and make sure everyone has good rights and isn't taken advantage of but be economic players in terms of um how many jobs are actually needed and the Humane retraining or um severing of of employees so I don't think it's incompatible with a UAW Progressive UAW approach um sorry left my phone out there but my watch still stuck me um well you know we had mer mer uh uh Masters Masters in here he's an industrial relations expert and and his observation I totally agree with it by the way is it's not so much the wage rates it's the lines of demarcation it's the work rules it's the inflexibility that the union brings to any kind of shop that's the real issue it is the US versus them is a real issue um you know you you've walked the Toyota and Honda floors with the jumpsuits and not retailing who's who other than who everyone pays attention to um you know there's a there's a sense of everyone in it together in good factories some Union factories too um it's a little easier to be us versus them and two parties um in in a unionized one and particularly one where jobs are shrinking uh um that's a difficult situation remember unions came into play not because of um hey we need this to do this thing it was because of abuses of of the automakers and others to protect um so if you believe your fundamental role is to protect um it can be limiting and you can get to a local maximum pretty quickly instead of the global maximum of actually working together so I I think it depends but uh I think the wage rate doesn't help it's it makes Automation and Mexico more attractive does does 996 also include the engineering staff that's involved in doing these things and so so the thing that I wonder about is is that you know this this isn't an issue of uh just a Trade union movement whether it's here other European in in European countries but I mean it's it's a whole cultural thing I mean whe whether you're in Germany or in England or France or the United States if somebody told you you're working you know 12 hours a day six days a week they'd be against it whether you know this is at at Starbucks or Walmart or General Motors it would be unless you know you're have particularly you know China and and the US very aspirational culture that wants to succeed that wants the hero entrepreneur and the hero business person um and you know a grandis is that compared to a European that's maybe more doctor lawyer formerly priest um kind of a grandis thing and the the you know the capitalist is a mercantilist you know second tier person particularly you know Silicon Valley has you know tremendous history of of people people working to the Bone to accomplish fantastic things there's always been a pot of gold at the end of but even in this town I mean you guys have all been through some launches that people put in heroic amounts of effort to to get out the door and to do tremendous things a vehicle I was was when you when you started your chief engineer thing I was thinking of a certain chief engineer that just retired that worked through something with with his team was fantastically devoted to launching that vehicle um and that mode sort of propagates itself and reinforces itself and then become success when things are allowed to settle um it you know it gets uncomfortable because somebody else isn't comfortable sorry go ahead well I was just wondering if everything that we're talking about is how the Legacy automakers can catch up to what China's already doing I'm just wondering if there are any opportunities to LEAP ahead you know in the United States the domestic automakers do pickup trucks better than new radials right yeah somebody always has their area of expertise that that gives them an edge and keeps them alive yeah so what is the edge that the Legacy automakers would have over the Chinese I wouldn't say it's an edge they have brand Edge in many different ways um they have a homogeneous fairly homogeneous Market that has fmvss Type walls around it and other things that make it somewhat unique Market compared to others it allows them to grow to scale like in China there's yeah there's a few profitable there's a ton massively unprofitable right until you get to like four or 500,000 units you have no prayer um so it's there there is a lot of that going on there too that make it um more difficult than here it's nice not to have 130 automakers competing with you in the United States however it's thing the the bigger reaches are the broader out there I'm talking about more nuts and bolts of what needs to be done now for the five years from now vehicles and approach um the 20 years out thing you get into um you know autonomous pods that are built for three years of life and then disposable you get into multimodal and taking out train and and plane and autonomous on highway in between the all the the fun um Moon shoty things to think about and then expanding the pool of who's mobile into you know goods and people to make sure deadheading isn't as much there handicap old young um autonomous unlocks a lot of those things which is the fun iPhone moment to think about in the Auto industry and the US is very well poised um to to have a great shot at that let's go back to uh what you've been talking about though of how the legacies essentially need to reinvent themselves or restructure themselves if you were a CEO looking at a legacy company where would you start I mean here are companies in most cases that we're talking about been around a hundred years they have a hundred years of policies and procedures and ways of doing things how do you start even the process of change and what changes do you make well you don't do it by consensus probably you do you do it with a plan and you do it recognizing that you want those vehicles um that are out there in the market now to continue to be producing cash but you need to make fundamental changes going forward so the sunk cost of oh but I validated this and I have this platform and I'd like to reuse this those pieces have to be killed and it has to go into a step change of okay I'm going to totally revamp my product development into hardware and software and these are going to be completely separate types of organizations the software being continuous the hard being launch and leave um type things I'm going to set uh my Manufacturing in a different way to do more vertical integration and to think of a supply chain in a completely different way as a network of things versus a vertical supply chain that I'm trying to get the right cost I'm trying to dual source and trying to have economic leverage rather than sort of abusive leverage over my my supply chain um and I'm going to build build in things that allow me to be flexible with volumes and scale and build units of scale and capacity rather than trying to go for the big thing that looks great on a spreadsheet um but if it's off 20% up or down it's a disaster um of e of industrial economics um I would figure out how to revamp my branding to go after it's a lot easier on an Nev to say a Reeve or a a battery like elect vehicle really to start with a different brand or a brand that isn't also trying to sell an old uh style vehicle um and kind of separating the company into two approaches there's a whole bunch of stuff that has to change for the future ones and even and then if I'm killing a evolutionary vehicle that's going to launch in two years for something that's going to launch in three that's ground up you know so be it but those kinds of things would change right away and it would be doing it in a way that's got a plan in place to be able to execute not with a hope that it produces something good there's a bit too much of the sort of well if I do Agile scrums that'll just work itself out it has to be in concert with the architecture it has to be in concert with the way you're going to do the manufacturing and the way you're going to do the OTAs after the way you're going to even interact with the customer in the in the vehicle um and the way you're going to get revenues then to match more recurring revenues that match my recurring costs of those Services I'm providing um and lesser costs not just added Revenue lesser costs in the hardware side but I mean what becomes the moment when someone decides they need to do this I mean it strikes me that you guys discovered that when you surveyed in China that there was basically price parody with a EV and an uh ice vehicle that um there was a good charging Network and that there was a benefit in terms of Licensing okay so Advantage Advantage Advantage here and in Western Europe you guys discovered it's a 35 to 55% price penalty to to get an EV so what are we seeing in Europe and what are we seeing here oh a greater interest in hybrids and plug-in hybrids right yeah so if someone is saying gee we were all in on EVS but now we want to be able to provide hybrids and and plugins because this is what the market wants yeah I mean how do you reconcile these two things you know because it seems to me that you would immediately default to the Legacy approach in order to provide those hybrids and and plugins that's where I think it it likely makes sense to somewhat separate companies and more so than people have done to date like which is bit more custom when you say separate companies you mean you need a an internal startup along with the Legacy Ops probably as not more more than that an actual an actual separation um of of parts of the company into two separate companies so not Saturn and the rest of General Motors no no SP and not the Skunk Works or Pilot things or not the yeah it's it's good to Pilot things and those sorts of things to see if an approach Works given the freedom of it but to then do it at an industrial scale it it takes a new company a new company and really a carved out piece that operates with the freedom to change the way it's operating interesting what what you're saying because we're seeing GM and Ford take two different approaches Ford doing the Skunk Works maybe going to grow a new company GM saying no we're keeping it integrated I think it's really tough to keep it integrated both of them are still fairly integrated yes yes the the too much so yeah they're fairly integrated and I think that holds them back considerably there's no real difference in how a supplier sells to Ford an EV part versus a a ice part for example um the relationship isn't much different um the approach to validating and and going through you know a vehicle isn't terribly different um and it needs to be um and the the way requirements are set the way business case is set and decisions get made that needs to be different and that's hard to do in an evolutionary way uh maybe it's not impossible we'll see it would seem to be a lot easier to um burn a bridge than be tempted to go back across the bridge each day I'd like to continue that we got to take a quick commercial break right now we're gonna give a shout out to Bridgestone the sponsor that makes this show possible when the elements are working against you being confident in your grip on the road is what really matters Bridgestone and lens of tires improved acceleration in wet [Music] conditions okay we're back talking with uh Mark Wakefield from Alex Partners Keith nton from Bloomberg is here with us too so let's let's just finish that thought then I'll let the other guys jump in but okay so your advice is start a whole new company within or separate from but you know uh it's it's still your your effort yeah well what do you do with the Legacy then I mean how do you wind that down what do you do do you cross pollinate what do you do it doesn't go away for a long time but it's operating in a different context where has anyone ever done this not really no um even outside the AO industry absolutely I mean you look at IBM you look at Microsoft you look at a number of companies that went through significant pivots they didn't completely abandon and stop they sort of created new you know the cloud and micro Microsoft was a big difficult change because they were making great money on those DVD those CDs they were sending out the Microsoft Office um do they regret making the change God no you know moving from you know moving from selling the the DVD games or the CD games also to the Xbox environment do they regret that move absolutely not you know does Kodak regret not moving to digital yeah probably um so yes outside of Automotive there are some some good examples and there are people trying different flavors of it within Automotive um but it's the temptation to go back across the bridge and um not be as as Quantum and as as distinctly different is is very much there I wanted to talk a little bit about the role of government and all this we touched on it a little bit government is currently US Government keeping Chinese y EVS out um I have this story that you're quoted in this week in business week about the extended range EVs and I can't tell you the number of people I've heard from saying how can I get one of these and I said well move to China so um yeah L6 L9 yeah you drove around in a Le AO L9 in in China so um is government um helping or are they leading to the de-industrialization of America well at least there is more of an industrial policy now um because that was a bad dirty word for a good 30 years I think um and it's no longer really on both sides of the aisle um the idea that government can be involved and shape it while different views of how that goes is sort of a recognition that you know what China was doing and has been doing in their five-year plans and their longer plans um isn't necess playing fair and one needs to Fight Fire with Fire to a degree um so I think there's an there's definitely attempts at it some of it gets a bit blunt and it's tough not to be blunt I think as a government when you're doing things but the focus like the IRA on batteries and Battery things maybe pushes uneconomic stuff if there isn't charging a charging network and infrastructure there it's better in China it's not great but it's better in China um it's it's tough to do a chicken and egg thing though um if you're trying to do um what the US government is trying to do and trying to sort of protect jobs somewhat protect companies somewhat um but not put too many thumbs on the scale and yet put these stretch goals out and you know they've backed off and backed off and backed off on the the both Cali as well as the federal um as they hit the wall of realities each time um the IRA if that were to go away would change dramatically I would hope it doesn't because whether it's good or bad policy stable policy is actually probably the most important thing first um secondly what is that policy so we're seeing more industrial policy good um the charging network and infrastructure is well behind and then the over focus on battery over other aspects of the the industry is is a little blunt um and it's it's protective versus um frontf footed I wonder if it's we talked about protecting jobs and protecting companies I I wonder if it's even consumer friendly I come back to revs you can't get one here and people would like them yeah the I think part of that comes from and it's going to be somewhat addressed in the the the cafe targets you know it's no longer a 3X or won't be a 3X benefit for a Bev on the empg anymore it's going to be like 1.5 by 2027 I think that starts to to go down so that normalization you know that was a big thumb on the scale of Bev right you've got also the truck car split that's a big thumb on the scale of truck and big heavy even the footprint curve is another big thumb on the scale of make a big vehicle so there are regulatory thumbs on the scale that that um lead away from from an - um the extended range piece though it comes down to I think you will be seeing many more coming in the next five years so I mean what what role does the market have I mean we're talking about government okay so there you know the $7,500 incentive I mean what if that goes away like that what happens to this market in terms of the demand for EVS I've got to believe it'll be significantly lower it will be lower and yet as you point out the auto companies are competing with some fairly quick agile Savvy Chinese companies that are full bore yeah on EVS so if we look five 10 years into the future what then well so is their market right their Market is 50% n now in China and when we surveyed people in China 97% of them said yes they're they're considering or intending to buy an Nev vehicle when we did it in the US and in Europe we got 35 to 40ish percent I think and it was flat from the last few years to this year whereas China's basically gone to to full um when you say why is that why are people different in China well as what back to I can buy you know a byd song for less than a comparable ice vehicle I can't do that here so consumers in China are making somewhat economical logical decisions um and if you've then got a charging infrastructure or if you're concerned about charging and you buy you know an extended range EV that's not you know 20 miles it's like 100 miles of range um on the battery before even you're you're using much of it and you've got a thousand kilometer range on these things um you've got a very different um Choice you're giving to the consumer for them to make a rational decision about that was generated somewhat with some government support and somewhat with you know 130 companies fighting to the death to innovate and come up with something faster better cheaper the prices of a vehicle here at 35 you know 45 you know it's hugely increased at the same time period China went up a bit and then has come down quite a lot there's a price war going on in China and has been started by cesla then the Chinese automakers now byd um that's consumer friendly to have that level of competition and then if they're faced with a you know faster better cheaper you know um choice they'll start making those choices if yeah if the government's incentives went away it would it would dampen demand for sure we're still in the early stages Innovative early adopter kind of stuff so Akio Toyota says natural demand for Pure electric vehicles will Top out around 30% they're going all hybrid with their company reportedly and I just wonder is that Alex Partners you of the world or do you think it goes higher our data is different it depends obviously by segments and use cases and regions but if you looked at countries uh in the US we saw natural demand where you see a bend in the curve of do you how much cheaper does it have to be or how much more expensive does it have to be we saw a natural bend around 70% in the US so the last 30% in the US would suggests that it's difficult to convert it was higher it was like high 70s in Europe um so natural ASM toting higher but of course you can regulate that out of existence too um when you get to that point um but no 30 I think that would be a fairly narrow um set of yeah or you know today's price at today's price it's not even 30 right zero um it's you're doing it because it's an innovation it's neater it's better in some small different ways other than some passenger vehicles that are are pure commuter second and third vehicles uh some last mile delivery type situations very specific use case it's uneconomic right now Mark what what are your ideas of as Legacy automakers or suppliers even working with the Chinese so we've seen Carlos tarez run to LEAP motor in China to get to get vehicles um we're seeing Chinese suppliers looking to set up shop in Mexico in fact reportedly there's 29 of them who collectively are investing $7 billion doar to build all kinds of components not just you know uh yeah Advanced ad ass things in in included do you run to them or you know xiaomi and Huawei seem to have the lock on ux right of you know user interfaces and and everything that goes along with it what would you do as a legacy automaker would you do what Taris has done and and run to the Chinese would you use these Mexican Chinese suppliers would you run to get their ux or would you say you know what I'm just going to become dependent on those guys they're going to become my dealers you know I'm gonna be hooked on them or do I try to do it in house well I mean by is making more than 70% of their content so they're not dependent on these guys and they're in China there's a lot of dual sourcing to put pressure on suppliers uh in an economic way way rather than in a artificial way um and so there's different Dynamics to selling to Chinese automakers but it you can make good money on it and you definitely want as they are going into Eastern Europe as into Mexico if you're a supplier here or asire in Europe you'd want them not to feel the need to to open a plant doing what you do here and bringing someone over now if that's byd that might be a little bit more difficult with fin dreams and other so you may be in a situation where you are a second source and you're you've got to prove yourself and fight um but proving yourself in fighting might make you a more competitive company um cooperating in a sense like what stellantis has done I think they probably felt like they needed to do that they hadn't really done much themselves so this was taking something that uh you know Le Moto is not a tier one of the of the automakers but you know had cost competitive small vehicles um and are are pretty um cost conscious as as a company so able to hit price points and launch dates um pretty well um and they needed money they needed a partner so it sort of fits closer for them given they really didn't have much to work on and they pulled back from China you know when Jeep's business wound up and I guess last year um there really wasn't it's not like they're cannibalizing something to do that um so it can be it's just you don't really see boid or Tesla doing that um so you certainly don't need to do that to succeed in electric vehicles um a more ambitious thing would be to to sort of plot a a path um if you had the balance sheet to do it um that that makes you the winning player in a network in a different way in a three to five year window so so getting to the balance sheet one of the things that you guys asked rhetorically and this was based on powertrain it was how can I afford the cost of financing multiple approaches meaning that here in this market where when one of the car companies reports as financials they always say we made a lot of money on our full-size pickup trucks and full-size SUVs and we're using that for our electric vehicles okay so so they're spending money all over the place and and you're talking about doing Focus so how do you achieve this focus when you have this admitted dependence on the other stuff and then you're saying to yourself oh I got to cover all of these bases and spend money here here and here and you have to spend more on hybrids now right because yeah there's a finite pot right yeah and oh by the way I've got to do Adas and I've got to do you know autonomous and I've got you I mean it's just it is tough and this is the first year in in a decade where collectively the investment in capex and R&D or last year was uh was significantly up it was quite flat for a decade before that even with the shifting to more case oriented Investments uh so that is a tough one it's a tough one though that that needs to be done saying I'm not going to try to do everything for every person but I am going to have different Horizons I have my things now I have to build my things for the future um and I need to be competitive everywhere I am I can't accept a subsidy into one it may not be um it may not be that your vehicle succeeds that you launch in a in a extended range vehicle or a Bev um but then you can't be wetted to it you've got to stop it early cut it and make a new one that's better um and not be wetted to being in a segment for a dealer so the dealer has a full stack of things to sell and you know if you want this car or this big SUV Mr dealer you've got to order 10 of my things I'm having tough time moving you have to break those incentives and be willing to take the one step back to take two steps forward um and then what you hit with with the you hit the market with has to win has to be competitive has to be a step change better it can't just be getting exposure to it learning a bit how to do it it has to be winning product that everyone believes in and is taking enough reach that it will lose or fail but it won't be the fifth best vehicle or 10th best vehicle in it segment so that sounds like ruthless winnowing do we end up with much smaller Legacy automakers that offer far fewer models um been winnowing somewhat now it's the Europeans that are sort of um never met a segment they don't like although they're waking up to that I I think they are yeah I think I think the body style tweaks of let's CP everything uh with this light off the back and try to raise the price by 5,000 you know it's probably played out it it's played out and that's it they did it because they made money at it I mean especially the luxury Brands the luxury brand they were masters of finding little niches and and as long as the customer paid for it it was great but let's go back to what you were just saying because higher capex in fact you know byd's capex last year was1 19 billion dollar you know twice as much as anybody else it's staggering amount of money shorter product Cycles you're talking one and a half years two years you may not be able to recoup your investment in that time Wall Street will excoriate you you're you're going to hurt your margins if you do that right so how do you as uh you know the officers of a company commit to a plan where you know that wall Street's going to Garrett you you hire engineer business people that don't just put it as a stretch Target that bottom up understand what they're doing to make that work so for example if you look in under the hood in a Chinese a lot of the Chinese vehicles you the engineer in there would say the packaging is awful what's all this space everywhere it's because they're using very standardized components that they're not revalidating that the suppliers have tested and they're not then doing a ton of vehicle integration and so when you use a standard component you can do less vehicle integration if you're not allowed to go tell that supplier well I want the torque curve to be this way well then you don't have to go tune in the torker it is what it is now go figure out in your software how you can deal with that in a different way and make a 95% good vehicle instead of the 99% good vehicle and do it on time on budget um and without the pride of having to tweak every last thing and having ride and handling be better than the last vehicle it might have been good enough the last vehicle um but your technology your style does need to be fresh and does need to change you know you shock technology is not dramatically changing a lot I don't say that the shock people will not like they will not say that they totally disagree but if you compare that to the infotainment or you compare that to to some other aspects that are more software based you'd say no it's completely different um and you know just the the opening platform things of having everything going to zonal and Central and then being able to core hop and being able to adjust everything in the vehicle being able to have that all accessible as an OTA so you can always you can actually adjust and improve over time change over time those things just didn't exist in the past right and so making sure you're staying on the Leading Edge of those is a lot more important than hitting your requirements on um passenger comfort and noise and some rid and handling and some of these other aspects and where do you think the Legacy automakers are on the softwar defined vehicle compared to the Chinese well behind um I mean Tesla is a somewhat exception um it's the legacies are are well behind and I think you only have to see every CEO that goes to China and sits in like the xiaomi su7 or other ones and goes oh wow um that that drives home that nature of of it um and part of is that clean sheet benefit it's a easier to do the clean sheet benefit it's easier to run hard when there is no other option it's harder to do when there is another option when there is a full-size pickup truck um you know making more money than the rest of the company combined right is is there a possibility that the Chinese companies are going to fall into the same pattern that Western companies have yeah in in terms of like oh we've already got that you know let's just just let's just make that incrementally better and we'll be fine not until there's like 20 25 of them if there's over 100 of them um probably not um I think they're terrified of that and I think they um they look at the the what's happened in the rest of the industry and and intensively don't want to become like that I think Tesla also looks at the industry and doesn't want to become like that either and it's trying to to put enough pressure on the system positive tension on the system to to stay in the in the um h more 996 environment um than the um punching of clock environment so yeah I think they're definitely afraid of that particularly that it's difficult for the Chinese brands that are that are Legacy Chinese brands that are the ice brands or the state-owned ones that are having to compete with Xiao Pang and others and byd and Neo and and other ones that are seen as more Innovative um and are taking share you know getting back to John's question about Wall Street um when you were describing a company that is willing to kill products rather than you know embroidering the seats and putting some stickers outside and selling it as a special addition because they've already paid for the tooling and they want to keep that thing for as long as they can and companies that are dedicated to achieving more than Can Be Imagined you know I began to think well are you're talking about the car industry or the computer industry and it just seemed like a disconnect there but okay so so right now you know there there are three companies within 20 miles of the studio and they've got Executives and the executives have lots of experience and they probably don't want to go anywhere so what you're talking about strikes me as being such a massive change you would have to get many of these people to decide to leave which then goes to John's point of like well would Wall Street feel comfortable with non-car people running car companies in order to achieve these yeah I don't know that you need non-car people running car companies I think there needs to be and generally there tends to be at the top of of most companies uh people who want to make change they're not usually just those aren't clock punchers right those are intense people um that are very competitive and want to win and want to change um some a bit stuck and some undermined by the um The evolutionary nature of change in a big organization that hasn't had a fundamental change to the product development process and the sequence of what people do how things are organized in big ways like all of those three companies still have a chassis group in purchasing and in engering that is doing chassis stuff and is interacting with vehicle programs the same way they've been doing plus or minus for a long long long time you go to the these Nev company n startups you go to Tesla you see much more systems approach and connectedness you see software teams that are doing things in a very different way in a very different sprinting way that's decoupled from what these vehicle teams are doing it's different and that Quantum change is a really difficult one because it's so holistic and you need to change so many different pieces while you have an industrial machine and and gear turning it's tough to say no no I need a new gear and what you're getting it is going back almost to the beginning of this conversation is why you said you need to grow a whole new company I think it's easier that way and I think it's it's easier to to prevent the millions of little decisions that could undermine the Big Goal well you know another thing to to reorganize the company it's usually a nightmare you know I I think back to the GM reorganization of 1984 it it essentially destroyed the company as it knew as it existed at the time they got rid of Fisher body you know they they changed everything people for several years had no idea you know there was an old ad hoc relationship in the old GM people hey if I got I'm got to go over to Bob here or I'm going to call Sue they they they and when the reorganization happened nobody knew where anything was going and so to to restructure uh an existing one that's been around for a hundred years and everything you you're asking for a lot of trouble especially if you do it without a really detailed out plan like if you go and hope you'll work it out as it goes that's going to be not so good and that where some of those come from when they're really topped down like that when they aren't as fundamental driven and thought through you know what malali was doing was very thought through right and what Sergio was doing was also very thought through and also very contained there was nothing that escaped either of those two right there was no there was no Escape out of the boundary um of this is the only way it's going to go and going forward and so so I I would say that that those two situations Ford's revamp um and avoidance of bankruptcy and and how they've organized what Sergio did with with the Chrysler Group and in Fiat and FCA um are are examples of some things gone right as well with a plan but in the more recent Ford reorganization that Farley did they looked at spending off the EV business but they couldn't do it for family ownership reasons so I I guess I just wonder you know can they get over some of the really fundamental things that keep them wedded to the Past um I think the question becomes um do you think you're going to be able to sort of react your way through and that's going to work out better or is it worth the one step back to take two steps forward and I like when we've looked at this we've looked at spinning off engine pieces of a business look at other pieces there's ways to do it in ways that aren't you know second class Citizen First Class citizen approaches um because there's enough there's enough value there and there's enough things to do and there's enough honorable work to be done um but there's also decisions that you need the right motivations to make um if you try to do this just by dictum um you would run into a lot of motivations that are and and metrics and other things and other limitations for it that in the middle of a company would kill in the middle and the bottom of the company would would turn it into a paper exercise so you mentioned the the possibility of some people feeling like second class citizens were a new company to be started and I mean and we can see you know in history and again going back to the General Motors Saturn situation that the people who were back in Detroit and who are not in Spring Hill who were working for Brands like o mobile which of course no longer exists they were just ranting up and down like why are they spending the money there they should give that money to us we deserve that money so I mean I cannot imagine that if there were a startup of something out of General Motors or Ford or even stantis that we're separate that the people left behind wouldn't say that's our money why are you spending it over there that's that's the see that's but that's the problem it's not left behind there's a mission for for people to do if it's really a left behind then it's probably more transparent Humane and and courageous ways to deal with those pieces rather than sort of hoping it sort of attri at trits it way its way out kind of thing but those pickup trucks are fantastic Vehicles there's people that know a ton about how to engineer those how to sell those how to make those and they should be really proud of what they do because they're you Toyota's tried for quite some time and they can't do it they can't break that stronghold um Nissan's tried others have tried um so there's reason to be quite proud of what they're doing and get great returns from those there's also reason though to say there's a better way of doing some of this you don't need necessarily on an STV for it to be an electric vehicle the next pickup truck could also be an STV you can have a Powertrain that's that's decoupled from the software that isal Computing the whole nine yards so it's systems engineering the whole nine yards so it's not so it's not that there has to be like the freeze in time um business that then repeats and iterates on that it's changing the way a business works and so you know whether you take the GM approach and say we're all going to change this way or take the approach of saying oh I'm going to separate somehow and make a change um I don't think the story is written on whether one is easier than another it seems straightforward and more easier to me and more clear to me and less prone to to the Frozen middle um to do it in a separate way but with clear motivations clear financial pieces so that there isn't the you know does Saturn or oos mobile squawk louder to get the next vehicle that that Dynamic is one of the reasons why I think a more clear separation with a constitution of what's what's spent on what um is a lot more and do you see that in your five-year Outlook that some of the legacies will spend off parts of their businesses to operate them more autonomously and independently yes real good hey look we're at the top of the hour we're going to have to wrap this up Mark awesome having you on the show this is really good stuff uh it's amazing to watch what's going on right now it's fun it's a fun time to be in the industry so much change it it is right Keith great having you back on for and let's do another show next week Gary do that okay want to thank all of you for having tuned in a don't after hours is 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