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Why legacy car brands, IT giants are rushing to make electric cars

This article originally published at http://www.arirang.co.kr/News/News_View.asp?nseq=274827 on April 1, 2021.


Can Hyundai, Kia, Volkswagen, GM make better electric cars than Tesla? Last year, sales of electric cars surged 44.6% despite the general downturn of car sales in the global market. In early 2021, a number of automobile giants announced plans to go fully electric within the next ten years. Can they beat the likes of Tesla and offer innovative rides for consumers?

 

Show Notes

 

SO: Last year sales of electric cars surged 44.6 despite the general downturn of car sales in the global market and that trend looks set to accelerate in early 2021. A number of automobile giants including Volkswagen, General Motors and Volvo announced plans to go fully electric within the next 10 years but can they beat the likes of Tesla and offer innovative rides for their customers?

 

For insights on this we turn to Tony Nash, CEO and founder of Complete Intelligence based in Houston, Texas and Jason Salvucci, national manager of the Overseas Military Sales Group based in Seoul but currently in Okinawa. Well, a very warm welcome to you both and well Tony good to see you again.

 

I think it’s our first time connecting this year but well we’ve seen we’ve heard some very exciting news coming from these automakers and the likes of Volkswagen and General Motors. They’re going all electric they’re really moving away from this at the main business that they’ve been building over the decades based on combustion engines.

 

What’s led them to take this risk and do you think it’s the right move?

 

TN: I think, it’s a move that they have to make. Whether or not it’s a move that they want to make. I don’t think there’s really a lot of debate there but I think their equity market valuation they have to catch up well.

 

I don’t know that they will but they’ll try to catch up with say Tesla or something within terms of the equity market valuation but the customer perception they’re actually making viable EVs that they want is really critically important especially with younger customers. But from a balancing perspective at least in the US for example there are emission standards and the more electric vehicles they produce that also allows them produced to produce other larger vehicles SUVs and other high polluting vehicles. So as long as on an average basis they keep it down to the emission standards.

 

They can produce EVs to allow them to produce say the SUVs that other say consumers want. So, it’s both perception and equity market valuation as well as balancing out the regulatory aspects.

 

SO: So, they’re wearing the different sort of costs and risks here. Well, Jason, what’s your thoughts on this? I mean the world’s biggest legacy automakers scrapping their combustion engines. Do you think they’re making the right move?

 

JS: You know, I kind of got to agree with Tony that this is electric is the future. I mean, they have no choice. It’s not just the standards. Electric cars are easier to maintain. They’re quieter. They’re cleaner. They’re more efficient. I mean, the power is better it’s the way everything’s going. I mean, we don’t really have much choice in the matter. While it may not be 100 electric tomorrow. We’re getting there.

 

The big manufacturers if they want to, they want to play with you know companies like Tesla, they have no choice. That’s where the future is.

 

SO: And the force Tony, Tesla is without a doubt the world’s most iconic electric car company but do you think it’s leading the global market is going to last with all these other competitors now coming into the market these giant auto businesses? And are these car makers catching up quickly enough in terms of battery technology and other key technologies?

 

TN: Well obviously, they have a lead but will they be able to keep it as the real question. I think they may be able to keep it for a few years but I’m not sure that they can keep it say over the medium to long term.

 

So, Tesla has a lead but that gap is closing. And with technology they can use external, say sources to either acquire or develop the battery technology that they need to compete with Tesla. So, I think really at the end of the day it comes down to: can you produce a quality vehicle? Can it perform like consumers want and does it drive like consumers want?

 

So, the novelty of an EV is wearing off. And as it goes broad-based that first user advantage or first user interest wears off. And the broad market really just wants a functional car that is electric. And so, you have the segmentation and other things but I think Tesla is going to have a tougher job going forward to keep the lead that it’s got.

 

SO: Well, Jason is it as straightforward as one might think for these giant automakers to transition into all EV?

 

I mean, what are the major differences that traditional car makers are going to have to adapt to and really face as they transition into all electric?

 

JS: Well, the manufacturing process for one, you know, the number of components in a combustion engine vehicle, compared to an electric car, it’s night and day. I mean it goes beyond the manufacture of the vehicle. It’s the maintenance of the vehicle it’s really everything.

 

The shell may look the same but when you transition to, you know even a mild hybrid to a all-electric vehicle. It’s completely different. Not only will the way the cars are sold have to change but also because how the customers buy the cars. How they maintain. How they operate the cars everything changes. It’s not as simple as just shifting from one to the other.

 

So, I think that the manufacturers have quite a task ahead of them. They are really playing catch up, if they want to grow in this and be industry leaders as they have been for years like Volkswagen, Toyota, Ford. They were industry leaders for years and they’ve surrendered that position to a startup company like Tesla.

 

SO: Right and there was some news this week that Volkswagen might be changing its name in the US to Voltswagen. So, really goes to show. It’s not as easy or straightforward as simply changing the name and probably…

 

JS: That’s an April fool’s joke by the way. Yeah, it was April fool’s joke. I fell for it too. Voltswagen is their April fool’s joke.

 

SO: It was a bit too early for April fool’s day but well thankfully yes, they’re retaining the Volkswagen brand. And well Tony, internet companies like Apple and Google and apparently Xiaomi now and Huawei. They’re working on electric vehicles as well and it’s clearly not going to be such an easy ride. So, what’s really in it for them? And what kind of innovations do you think they’re going to bring to the market as tech companies?

 

TN: Well, that’s a great question. Jason brought up a great point about the business models and as you move into the more software-based business models that EVs are you move into a different ability. In a different way for consumers to pay for things. And you know, I think it’s possible for kind of that big expense of a car that a consumer would buy instead of it being financed. It could be a service fee that’s put over a period of time. I don’t really know what that model looks like but these software companies are companies that really balance out especially Apple. A hard asset like a phone plus monthly recurring software fees.

 

And so, these guys will come into the market. Understanding the risk associated with making hardware and balancing that out with software fees. Whereas automakers traditional automakers at least are accustomed to one big transaction that gets financed by a third party. So, it’s a fundamental change in the business model.

 

SO: And Jason, now South Korean car makers, Hyundai and Kia. They currently set fourth place in the global EV markets and of course Kia having unveiled its EB6 this week. And Honda continuing to expand this EB lineup, of course.

 

So, how competitive are these South Korean car makers products? And do you think they’re really going to have to step up the game? Now as market leaders global market leaders Volkswagen GM they’re going out all electric?

 

JS: I’ve been in South Korea 20 years and the way cars have improved in the last 20 years is phenomenal. When I first got to South Korea. Korean cars were far behind but now the fit, the finish, the quality is amazing.

 

I think the larger auto manufacturers are going to get a run for their money by the likes of Hyundai and Kia when it comes to electric vehicles. I really do.

 

SO: So, what kind of… I suppose, what kind of advantages or what kind of features do you think they offer Jason that might really help them really engage in the competition especially as all these car makers go electric?

 

JS: It seems to me the… not just the quality but the design of the Korean cars is a little more exciting than some of the other manufacturers. That’s what I’ve noticed over the last couple of years, is that they’re good-looking cars and they’re reliable. And the price points are, well, I mean they’ve significantly come up in cost in the last 20 years, that’s for sure but they’re nice. And I see a future of like a subscription type of service for electric cars because you know the United States every three years to 39 months. Americans are trading their vehicle up trading in one car for another car. And we have a traditional dealer manufacturer, dealer model that we have to require our customers to go through a subscription service in the future.

 

It is definitely, in the makes for electric cars because you’ll trade out of them much more frequently.

 

SO: So, it’s not just the hardware but also the software that’s going to bring about a lot of changes in how we consume electric vehicles, as well. And of course, everyone cares about the design too. And well Tony, it seems that EVs really are the future but it looks like for now the stock market is quite confused about the prospects they’ve been fluctuating. They’ve been declining over the last few weeks. And of course there was a boost on Wednesday after the Biden administration announced its plans to really ramp up green vehicles and infrastructure but what do you make of these market fluctuations? And how does Complete Intelligence really project the demand or market for electric vehicles in the near future?

 

TN: Sure, obviously there’s a healthy market ahead. I think the equity market fluctuations over the last few weeks are really just, that its markets searching for the right price. And there are so many different variables with bond prices. And currencies. And equity markets that are going into the calculations around the stock market prices for these companies but I do think that those companies that will not only crack the battery technology. And the value proposition for the market but also the business model, as Jason mentioned. Those companies are the ones that the equity analysts. And the investors will really want to follow.

 

So, Tesla is a high visibility leader, early leader in electric cars. And I think they’ll remain a leader but the volume of cars that they produce compared to say a Volkswagen on an annual basis is tiny. And so, the scale that a Volkswagen or a Hyundai or somebody can bring to this market can overwhelm almost an artisan car maker like a Tesla.

 

That’s I don’t mean that as an insult to Tesla at all they’ve done some amazing groundbreaking work but they just don’t have the scale that a Volkswagen or Hyundai has.

 

SO: Well, the likes of Volkswagen and Volvo. They’re going all electric Jason but Hyundai seems to be putting its eggs in multiple baskets. It’s been betting on hydrogen cars as well. Which right now are considered a bit less economical. And there’s also a lack of supportive infrastructure in most parts of the world.

 

Do you think this investment is going to pay off for the company?

 

JS: I think the future is multi-faceted. I don’t necessarily see the entire replacement of the combustion engine, anytime soon. I mean, they’ll definitely be hybrid vehicles, will be mild hybrid plug-in hybrids. There’ll be some hydrogen fuel cell vehicles. I think that there’s multiple avenues that manufacturers will have in the future.

 

So, that we can kind of have something for everybody. I don’t know that the investment in the infrastructure for hydrogen pays off because right now extracting the hydrogen requires fossil fuels. That’s a bit of a problem until they can crack the hydrogen extraction of via solar or something like. That it’s a bit of an… it’s not there yet. I don’t think.

 

SO: And Tony, before we go now there’s a massive EV market in China. And recently, Huawei technologies. They’ve come out and said they’re going to invest billions into that market.

 

How do you see the prospects and do you see China sort of leading the global market in terms of EVs just with the massive number of consumers they have?

 

TN: Sure, I think, Yes. I think China’s challenge is moving their vehicles beyond China and beyond Asia. There’s so much intense competition from Korea, Japan, the US, Germany and so on and so forth, that I think their challenge will be taking an electric domestic, electric vehicle market that will be massive. And moving that into other countries whether it’s safety standards or features or business models.

 

I think, there is something especially with technology that is specific to China that is very difficult to move beyond Asia. And so, if there is a Chinese EV maker, who can move beyond China and beyond Asia. I think they’ll do very very well.

 

SO: See, well, this is all we have time for today but that was Tony Nash, CEO and founder of Complete Intelligence and Jason Salvici, national manager of the Overseas Military Sales Group.

 

Thank you both so much for your insights today. And to our viewers, as always, thank you for watching.

 

Categories
Podcasts

BBC Business Matters Podcast: What Tesla needs to do to justify valuation

Our CEO and founder Tony Nash joins Jimmy Robertson at the BBC for Business Matters podcast where they discussed about the importance of Tesla in the stock market and in the auto industry. What is the additional factor that really helps Tesla justify its valuation? Also discussed are the protests in Ukraine dominated by women, community theaters in COVID era, and how the future of work from home looks like.

 

This podcast was published on September 2, 2020 and the original source can be found at https://www.bbc.co.uk/sounds/play/w172x18xp28m1xj

 

BBC Business Matters Description:

 

The chief and other police leaders step down following accusations of cover-up in the Daniel Prude case, a black man who was hooded and restrained during an arrest. Michael Wilson is a reporter at the New York Times who’s been covering the story.

 

Also in the programme electric car company Tesla’s shares tumble almost 20 percent after it failed to be included in the S&P 500 index. Richard Waters, the Financial Times West Coast Editor in San Francisco explains. And English composer and theatre impresario Andrew Lloyd Webber warns the future of theatre is on a knife edge.

 

Show Notes

 

JR: Tony, is this getting any coverage at all in the U.S.?

 

TN: Very little, actually. There’s a great story of three leading women in Ukraine with the Tikhanovskaya election, I think what’s happening with Kolesnikova is pretty amazing and the fact that she’s staying becauseTikhanovskaya actually left the country, of course. So there is such passion here about Belarus that is pretty incredible. And one has to wonder, can they be determined enough to see this through? I think they can. And would it have other effects on other countries in the region? I think it’s possible actually. If they can have a peaceful protest, which is amazing to bring this change about, I think it’s possible that this could happen to other countries in the region.

 

JR: The situation does seem to be very much on a knife edge. I mean, everyone is very worried about what how Russia is going to react and also, of course, how the West is going to react as well. But it was just a small comment which was made about the fact that women have been very prominent in this particular line of protest, basically as opposition leaders, but also actually out on the streets. Now, just trying to think whether I’ve known of any other protests where you’ve had women dominating the protests. I think you perhaps probably in Argentina where you seen you remember the mothers who protested about the disappeared children. But I can’t think of many other places. I’m not quite sure why women dominate this particular protest.

 

TN: Was it in Georgia? I think like 20 years ago, what was her name? But I know that former Soviet republics have had women protest leaders and female prime ministers. And so I do think that that it’s not I’ll try to dig up her name, but it’s not unprecedented. But I think the determination is because it is a woman who was elected and then the protest leaders are also women. I think it’s very amazing.

 

JR: Well, Tesla’s importance, but to two things. One, its importance to the stock market, to the Nasdaq and how it is a kind of bellwether within the actual tech stocks and the other is its importance within the auto industry. Let’s just talk about, of course, two things are connected, but let’s just talk about its importance in on the stock market. I mean, it really is one of the reasons why the stock market has fallen. But Nasdaq I mean, I don’t know if people have been following this, but Nasdaq has fallen in the last three trading days, has fallen 10 percent. I mean, we’re talking about a proper correction here. A lot of that was Tesla, wasn’t it?

 

TN: It was and just today, Tesla fell 21 percent in value. So if we looked at Tesla last week, the valuation was around 1,100 times earnings. Today, the value is 855 times earnings. So it’s still incredibly highly valued. You know, valuations range between, say, 15 and 25 times earnings, maybe more 30, 35. But Tesla is trading at, 100, more than 100, almost 200 times earnings of a car company. And so it is incredibly highly valued. Whether it’s overvalued or not, that depends on what the market says. But just to put it in perspective, Tesla makes about 400,000 vehicles a year. Volkswagen makes almost 11 million. Yet Tesla is valued much more highly than Volkswagen is.

 

JR: But we are talking about potential. And I mean always when you’re buying a stock, you’re not looking really at what it has done. You’re looking at what it’s going to do. And that is why people have been buying it.

 

TN: Is it overvalued?

 

JR: I know you. The answer is I don’t know. But I mean, it’s over. But it’s…

 

TN: It’s really interesting that the founder of Great Wall Motors in China, I think that’s who it was, once said that a car is nothing more than four wheels and two sofas. And, you know, he really helped build the Chinese auto industry on the back of that philosophy. So, Tesla is four wheels in two sofas with some really interesting interfaces and monitors. And, of course, it has an electric engine, these sorts of things. But the real question is, are they selling units or are they selling technologies?

 

Because if you’re selling, let’s say, a piece of software, Apple sells the iPhone, but they also sell a lot of software around that. OK, is Tesla pushing the number of units to be able to sell the amount of software it needs to sell to justify the valuation it has? So if you take that comparison to, say, Tesla is equivalent to, say, an Apple, they just don’t have the number of units in the market to push the software they would need in my mind to justify the valuation. That’s nothing against Tesla. I just think they need more units in the market to be able to push that software technology story.

 

JR: You’re talking about the software technology that surrounds the car you mean, that sort of self-driving stuff or whatever. It’s going to be electronics, not all that.

 

TN: That’s right. Because you would pay subscription fees and other things on that software and the upgrades and the safety and other things. Right. Because without that, it’s just four wheels and two sofas. Right. It’s a pretty cool four wheels and two sofas. But for the most part, it’s four wheels that gets you around from place to place. So what is that additional factor that really helps Tesla justify its valuation?

 

They’ve got a very outspoken CEO. They do a lot of cool stuff. It’s electric, but a lot of companies have electric car technology now. So they’re not unique.

 

JR: So what you’re saying also, I mean, the question which I asked Richard right at the end was about whether it’s going to be tech companies are going to be buying cars from the future or whether it’s going to be the likes of Volkswagen and whether Volkswagen and GM and the rest of them can actually turn themselves around and become tech companies. I suppose that really is the question.

 

TN: Well, I guess the question is, is that tech modular enough for them to buy and integrate into their manufacturing scale? And so, you know, can they buy the electronic displays? Can they buy and build the electric engine technology? Can they have their own, say, autopilot or self-driving software?

 

I think it’s possible for all of them to do it, especially when you look at a Volkswagen or something like that. So, Tesla always has to be on the edge. And I don’t have a position in Tesla. I don’t have anything for or against Tesla. I just think that as a technology company, they need to make sure that they’re so far ahead of every other auto company. And if they aren’t, then people are going to start questioning their valuation.

 

JR: Are they that far ahead? We don’t know yet. You know,

 

TN: I think they probably are far ahead in some areas. But for the most part, most drivers really are not that discerning around the technology. Most people don’t have the newest iPhone. They have an iPhone. Most people don’t have the newest, you know, fill in the blank. They have something that works. And so, you know, the real question is, can Tesla… Well, they’ve already cashed in, as your story said, they pulled five billion dollars out of the market last week. Right. So they’re cashing in on this and good for them. That’s a good management decision for them to look at a share price that’s really highly valued and pull some money out. That’s a great management decision. And so the real question is, can they continue to keep their valuation up?

 

I guess a precursor question is to that is what is keeping their valuation up? And then they have to look at do they have that much of a technology lead that people care about to be able to justify that, let’s say, high valuation? And I think those are really, really important questions. No doubt they have cool technology, but cool technology is not necessarily the most useful technology, especially if it’s not resulting in unit sales. Again, Tesla sells 400,000 units. Volkswagen sells 11 million units, yet Tesla is valued much higher.

 

JB: In Texas. I gather you have you managed to buy into it? You have been to the theater?

 

TN: Yes, I’ve been to the theater twice, two times over the past month.

 

JB: Fantastic. What?…

 

TN: My son is an actor and he acts in community theater and it was great to be in the theater. But there were social distancing and all sorts of considerations wearing masks, these sorts of things. People sat in family groups. There had to be distance between family groups, that sort of thing. So the financial issues that were discussed at length, you know, it’s the same thing with community theater here. I think they could only sell, say, 30 percent of the tickets that they would normally sell. So, you know, it’s a great performance on a really creative budget. And so but it is amazing to get out, be with people, see people, be at the theater. It’s fantastic.

 

JR: Can they can they survive as a community? I mean, are they able to make enough money to keep going?

 

TN: They can. In some cases, people bought tickets and chose not to attend so that they could help the theater out while still having distance, so that’s one way to do it. The theater had some additional things you could buy, that sort of thing, but I think they could do it. I think they could do it, but the productions would probably have to be a bit smaller. And so, you know, anyway, I think they could continue to do it, but obviously wouldn’t be preferable.

 

JR: Sort of One-Man shows and things like that. Perhaps that one person shows.

 

TN: Know this was actually a pretty big cast, but it’s not paid. This is community. So, you know, it’s not paid. So they can you know, they have different budget constraints than than, say, a professional theater.

 

JR: Are they getting any government, central, regional, state health or anything like that?

 

TN: Theater group is not. This was all done through personal kind of buying of things and donations and other things.

 

JR: I find this really interesting about if we’re all going to change the way we work, we’re going to be working at home. We’re not going to be working so much in big cities. How is the money going to be spent now? It’s not going to be spent on sandwiches and on trains and all cars, even perhaps. How do you think we’re going to spend that money?

 

TN: Amazon. I mean, I don’t know, it’s like food delivery in Amazon. I just I mean, you know, if if people are at home and they’re eating from home, it’s great to have that, you know, homemade sandwich or whatever, you know, on a regular basis. But they’re going to order out or go out locally or something like that. So it’s great to save more money, but I think that’s relatively short term. I think over time, you know, people spend what they make. That’s just what happens. You spend what comes in. I mean, you set some aside from savings, but once you hit that threshold, you spend what you make so people will find ways to spend it. I think they’ll be home delivery. I think there’ll be other things where people just eat better stuff for lunch at home.

 

JR: I think the other thing is and I think this is probably most worrying side of it, is the people who continue to work will actually do very well and actually be saving money and spending money, making a lot of money. And the people who don’t are going to be very badly off and we’re going to have quite a wealth divide as a result.

 

TN: No, it’s terrible. And I think the, you know, the sandwich shops and other things. So my company, we haven’t closed our office through COVID. We live in a county where it wasn’t mandated. And so we’ve tried to patronize the shops around us. But it’s been hard. Many of them have been closed. And but we’ve been trying to go to them, not really to splash out, but just to support people. But in some cases, you know, they were just doing the best they could to serve us.

 

JR: OK, Tony Nash in Houston, Texas, thank you very much indeed for joining me here on Business Matters has been a pleasure to have you here. And we’ll be back again tomorrow with business matters to join us in.