Ep7. The Great IPO Debate, Tesla Robotaxi vs. Uber, & Tech Check | BG2 with Bill Gurley & Brad Gerstner

28:43But in those same companies, you have massive LP gains that are locked up, right? And it's very difficult. You can't sell easily a billion or a two billion dollar position in bite dance or sell a multi -billion dollar position. So all of the endowments, foundations, you know, pension funds, they're in a different position than they've been in the past. They perhaps have even if you did it, it would be a trade by appointment, pink sheet kind of with a likely with a banker grabbing five or 10 % along the way. It wouldn't be an efficient transfer. Right. So that, that to me, as if you said, what's the ultimate, you know, what's the ultimate cause of these companies to go public?

29:28The ultimate cause would seem to me that at some point, the LPs, the people who put up the first money into the business need to get liquidity, right? But two structural changes that we've seen there, right? One is it just seems companies with the best companies will stay private longer, right? And we've seen this trend over the course of the last 15 years. You know, now, although I will remind you that Zuckerberg said he's sitting on public two years sooner than he did. Right. And think about how early he went public relative to the companies, the late stage private companies that exist today.

30:05So I would say I do see that these companies will eventually come public, you know, because they need to get liquidity back to those LPs who provided that first capital, unless the private market again responds and provides some vehicle, you know, for these companies to come public. You know, it's interesting. By the way, by the way, another another negative impact of this, I mean, I think it's if you're right, I think it's structurally disadvantageous to the venture capital world at large or as a asset class in an industry, because one of the things that happens, if the best ones aren't doing it, is there's no pressure on the next level to do it?

30:51And it kind of trickles on down. And or just the common belief, as you've said, comes to be that, oh, you're not eligible for that. Right. And so, and then you're going to have even more companies that kind of rot in place, I hate to use such a dramatic term, but they're just 5, 7, 8 % a year on new equities and never get closer to the finish. Well, remember, we're the companies that can stay private bill are only the very best companies. The vast majority of these companies don't get to cash flow break even or they just barely get there. They need access to the cash, you know, in order to keep funding the business.

31:42They can get recap. They can get rolled up in P .E. There's a lot of things that can happen that don't necessarily equate to gains for VCs. And that's true. And I do think like I said, we're going to see a lot. I think this was the point of Gokel's tweet, actually. He's saying, hey, listen, a lot of these software companies no longer have the profile that allows them to ever get public. And so they're going to have to sell to private equity or do something else. They need to get real about their situation. And we are unquestionably in a place where because of overfunding over the past four or five years, I remember the one slide where there were more private unicorns and public unicorns.

32:26Like, there's a lot to clean up. And so unquestionably, that's true. The last thing I mentioned on this is that people talk about that are worried that mom and pop or that average investor doesn't have exposure to these names. And if you're right, and this is more permanent, something rather than back up and fix the regulatory costs that put us in this place, they'll try and fix it from the other side. They'll try and create ETFs for privates or they'll try and, mandate it, firms like yourself take on individual investors. And I think that's a complete ratchness. We don't have to go into why, but it's not fixing the real problem, which is having a functional capital market that's open and inviting to more customers.

33:22You know, it's an interesting debate. And one that is also evolving. So this is the question of, does the little guy get access to the best companies in technology, for example? And if those companies are in the public markets, then clearly all retail investors can buy those companies. But it's very difficult for a retail investor to get access perhaps to a space X or, you know, a data breaks a stripe, et cetera, the best of the private companies. But when you look at the evolution bill of who is providing the ultimate capital, right, increasingly pension funds, right, which represent firefighters and teachers and, you know, police officers in the city of New York or the city of San Francisco or the state of Texas, right, and increasingly their LPs in these growth equity funds, the later stage funds like ours, you know, so they are gaining access, the retail investor by virtue of being, you know, a participant in that 401k or that pension.

34:31So I do think that there's probably more retail exposure to these late stage big companies than appears at first blush, but I will also agree with you. It's much less egalitarian than being able to open a Robin Hood account and have access to those companies. Yes, yeah, and I, and I might, my history of reading and watching the regulators, that argument won't be good enough for them and they'll try and create what is in essence a new public market because when you want to have a market where everyone can trade in, it's all fair, you need the rules that exist in the public market. So trying to have your taken either, too, doesn't really work.

35:13Well, you know, a couple other points that I would make. One is, as we saw in 2021, there are a lot of companies that were just walking under the assumption that private market capital would always be available to them. Right. And so you don't go public because you around because you say, oh, you know, masa will always be there. So I'll bank will always be there to provide my next round of financing. And I think what people are starting to see as they burn through the capital that they raised during this period is that private markets are less liquid, right? Granted, the liquidity has gotten way deeper for the best companies.

35:48But for the average company in the private markets, that is not the same story. The negative reflexivity, the drawdown, the tightening up of those private markets can have draconian consequences on these businesses. So again, I think that there is for the vast majority of companies, I still, you know, I would conclude by saying, I'm in kind of the jamming, you know, go go camp that if you're a software company, you have $250 million in revenue, you're growing at 50%. You're approaching break even. You think you're going to compound at 30, 40, 50 % for the next five years, expand those margins.

36:25The public markets are perfectly good place to innovate, to grow, to build your brand, you know, to gain credibility. I do think we're going to see some acceleration. All those heads of capital markets that I talk to, they all told me their pipelines are filling. I know this because my team is spending more time on road shows. Well, I think there's also some off the beaten path companies with pretty good numbers that are going to come as well. Ironically, not in Silicon Valley, because I think these memes and rules and this kind of negativity about how big you have to be, I think those things echo much louder in Silicon Valley than they do external.

37:07One thing that we have done in I've encouraged LPs like endowments to think about is we used to have these two buckets, right? Venture and public when I talk to technology investors. And, you know, then they would have everything in their venture bucket all the way from, you know, a series, hey, all the way through Stripe or bite dance, which obviously makes no sense. Those companies are over $50 billion in enterprise value, you know, all the way up. So what we talk about internally is there's a venture market. Think of that as a market with less than $100 million in revenues, less than a billion dollars in EV.

37:48There's a lot of mortality risk associated with these businesses. There's a lot of volatility associated with them. Then for companies that have a couple hundred million dollars in revenue and are well over that billion dollars in EV, we call those quasi public, right? There's more liquidity associated with those businesses. There's less mortality associated with those businesses. These are oftentimes companies that could be public and are choosing to stay private, right? And so, and it has a whole different set of investors that invest in those companies, family offices, sovereign wealth funds, foundations and endowments, obviously big growth equity funds, private equity funds, and venture capital funds that are multi stage.

38:31And then of course, you have the public markets. And they also have different characteristics in that the VC bucket, obviously the VC chooses you, right? The quasi public bucket, that's not everybody can participate, but there are 10 to 50 firms, probably that show up around those, you know, like party rounds and have an opportunity to participate. And then of course, everybody can participate in the public market. So I think that at different points of the market cycle, we'll see different appetites for going public. But these underlying dynamics, I do think the structural changes are here to stay and that there will be a category of excellent companies that can choose to stay private a lot longer.

39:16And I don't necessarily think that's a bad thing. Yeah, and I would push back on that a little bit. I think you will, I think history will show, and unfortunately, when we may all be in our graves by the time, the window you need to evaluate this, but that staying private forever has consequences. And unfortunately, the way it'll show up is some people will have kept some private marks in their very large positions and very large portfolios for a very long time. And then they'll be corrected all at once. And the learning window on that is so long that there's not a self -correcting mechanism, not in the near term, for sure.

40:06Well, I would say the single greatest input to valuation in technology is growth. And number two, right, is margin. And the danger in technology, which is a highly disruptive industry, is that you stay private, your LPs and your investors don't get liquid. And during that period of time where you have ultimate confidence, a structural change occurs in the market dynamics, such that your growth rate goes down. Maybe you have to spend a lot more money to defend your market position. And so the multiple for the business goes down a lot. You and I remember this, there were companies in 2010, you know, this is really premobile taking off in the search industry that vertical search engines that really high multiples that were demolished by the transition to mobile.

40:55And when that happens, those things represent permanent capital loss to the investors. So I do think that getting people liquid performing and competing in the public markets, it's certainly a terrific choice. But I think Jamie Dimons, right, we've got way more liquid private markets. And the government has really mucked up through all of these regulations, allowing this excess litigation. It has mucked up and made it less attractive to be a public company today. But let's move on. Let's move on. So so the next thing we're going to talk about, I want to I want to kick it off. So we're going to talk about autonomous vehicles and and whether or not and how they would compete with ride sharing services.

41:43And the thing that I think is bringing this topic to the forefront, obviously you and I have talked about this for, I don't know how long now, many many many many many many years as both being earlier investors in Uber. But but I think the thing that's bringing it to the forefront are twofold. One, Tesla has had some breakthroughs with FSD 12 and are good. They've already announced they're going to start talking about their Robotaxi initiative in a more public way. And then Waymo is open and available in more cities and people are riding in them. And so they're having experiences. So I'll just stop there like as as a kickoff and let you go next great.

42:27Well, I was up in the city. I was up in the city last night. I was shocked by the number of Waymo's I saw. I saw them everywhere. And you know, it reminded me like they none of them had I saw way none of them had drivers. None of them had anybody in the front seat. They had riders in the car. And you know, I think in the city of San Francisco and these other cities. I mean, that was just mind boggling when you saw it the first time. And there was at one point. I had three cars around me. And they were all Waymo's right and people having clips like experiences when they said, you know, I listen, I think part of the setup here is it's been, you know, it's been a tough tough week for Tesla.

43:08They're laying off 14 ,000 people or about 10 % of their workforce. Car demand is clearly weak, right? That's on the one hand. On the other hand, there's some transformative things going on that you and I've talked about, right? These imitation models are clearly better than expected at scale. They're having a larger rollout of FSD. So now I think they pushed FSD out to everybody who has the technical capability on their Tesla in order to receive it. They've talked about dramatically lowering the cost of FSD to 99 bucks a month. I think they've hit over a billion miles driven now with FSD. And by our estimates, they're adding over a billion miles a month.

43:46So I think that their confidence that their data advantage is increasing dramatically is going up. So there's some speculation out there. Oh, you know, Elon's throwing the long ball on Robotaxi and all this. I don't believe any of that, right? I think that the conditions that get the company re -excited about Robotaxi is that FSD is going way, way better than they expected it would 18 months ago in terms of the technology bill, in terms of the technology that they have available. So they've reprioritized Robotaxi. They said, we're going to move it to the top of our priority list. And, you know, and I think Elon announced that they're going to have an announcement in August.

44:29Now, of course, immediately after he does that, analyst dig in and they called the regulators in a couple of different states and the regular regulators said, we haven't heard from Tesla. And of course, there were tweets that went out and said that, you know, a couple states regulators had not heard from this. I don't think that really means anything, but because, of course, they could launch this in any city on the planet, right? They give it from Abu Dhabi to, you know, to South America. And certainly there's a city on the planet that wants to be first to have Tesla Robotaxis. So, so go ahead.

45:03I thought I thought for the, because I know you know, I've talked about this, there are a number of topics that I think are important to consider and discuss that live beyond the technical feasibility. So I know there are people that would say, okay, even if they're at four nines or not enough, it's got to be six nines or will it work in snow and all that kind of thing. But, but I would say for this discussion, let's put that aside. Let's assume Waymo and Tesla have both achieved the quality it takes for the vehicle to move around by itself. What are the other things that these companies need to think about in order to have a successful Robo fleet, if you know?

45:45Well, I'm going to touch on the technical thing real briefly. And then go to go to the other elements required to have a successful Robo fleet. Because I think, you know, if you think about the way Waymo, you know, you and I did this this breakdown on FSD 12. And we said one of the bad downsides of Waymo and Cruz is they have these deterministic models, right? That they have hundreds of thousands of lines of code and they all, you know, are a rule about how they expect the car to behave. Well, it turns out in ride sharing cities, airports impose a lot of specific rules on the ride sharing companies.

46:26They tell them where you can drop off, where you can pick up, how those cars have to behave in certain circumstances. So that would seem to lend itself to a deterministic model where you could just ride a line of code that says, here's what you do at an airport in San Francisco. You know, so one of the things I had a question on is just can an imitation model, right? That's imitating five star drivers. Can it easily, you know, have these deterministic components to it? And so I talked to some friends, you know, who are working on this. And they said, you know, think of it like, you know, once the user inputs, I'm going from, you know, San Francisco to the San Francisco airport that they would drop that information into the prompt, right?

47:12So that would tune the general model so that they actually have been thinking about, right, how to solve that technical problem. Because I, you know, certainly was one of the things on my mind. But okay, let's assume that they both have this cracked and that this becomes standard and ubiquitous that these cars can drive around. Well, one of the reasons you invested in Uber is that as Uber grows, the power of the network effects gets even bigger, right? And so they have more, more riders, which leads to more drivers, which reduces weight times, you know, which creates better experience, which leads to more riders.

47:52And you have this virtuous cycle that's created by that. Obviously, that's made it very difficult on Uber's competitors. And they're achieving the natural market leadership economics and share position that you would expect. Veeza Vee left, you know, particularly now that access to capital to lift, you know, got a lot harder. So there's, you know, so we can start by just asking the question, how do we think Tesla will go to market with its Robotaxi, right? In the case of Waymo, they've chosen to go, chosen to go to market, both directly, you can book it on a Waymo app or in Phoenix, for example, you can book it on the Uber app.

48:32So you can book your Waymo on the Uber app. And so in that case, Waymo recognizes it's a very small fleet, right? In that case, Waymo owns the fleet. So huge costs of ownership there for Waymo, they want to drive utility of that fleet. So they're using Uber as third party demand generation into that. And they have an economic revenue sharing relationship between those two companies. Now, of course, that's not the way, you know, I would think that Elon might approach it, right? He has the potential to be much bigger. Tesla is a much better known brand. There are millions of people with the app already on their phone.

49:12So I think most of the people I talk to bill suggest in the first instance that he'll build an owned and operated fleet, right? Where he may have outside finances or rental car companies that take ownership of the car. But in so far as booking that fleet, you would go through the Tesla app. So, you know, we could talk about, I throw it back to you. Let's just say that that's the approach that they take. What is his chance? What a Tesla's chance is breaking into the, you know, breaking down the network effects that Uber currently has on ride share demand? Well, I think you've hit on a key point, which is I think you have to separate Tesla from everybody else.

49:56Waymo, and I don't know if Cruz and Aurora still aspire to compete with Waymo or not, but they all have this very high tech infrastructure with LiDAR that we've talked about. And they're all here today working on a model where they own and operate all the cars, which we should get into in a little bit because financially, I think that's a complete disaster. Tesla has the benefit that they can utilize theoretically the cars that are already owned by their customers and not have to front the cap for each and every vehicle. If you look at the data we already have, Cruz was losing what, $3 billion?

50:45Aurora's public lost two billion, two years ago, a billion last year, and virtually no revenue. I have zero to reason to believe, zero reason to believe, and if anyone wants to share data with us to correct this, that Waymo's financials don't look exactly like both of the ones that they used to. What do you think Waymo's worked today? They did it. We can look up. I mean, it's a private company. No, I'm asking you. All we can look up is what it traded for last time. Well, even Aurora is trading at what, $4 billion here with no revenue and a billion dollars a year of losses. So there's, there's the Wall Street speculating that the IP has.

51:25So keep going on Waymo. But here's the thing. I think it really comes down to supply and demand. There is a beautiful emergent quality of the Uber model where supply and demand are matched and it's enhanced with price through search charges. But there are plenty of people who want to make incremental money that no one to get on the road. I have a chart which we can put up, which shows at one point in time the weekly pattern of ride sharing. And it's remarkably nonlinear. Right? It peaks in the morning. It peaks in the evening. It really peaks on Friday and Saturday. And Waymo or anyone like them with an own fleet has, here's a huge conundrum.

52:22Are you going to build the fleet to average or peak? And by the way, you lose whatever your answer is. If you build it to average, you're not going to be able to serve your customers during the peak at all. Like they're only going to be disappointed. And if you build it to peak, you're going to have a bunch of very, very, very expensive capex sitting around doing nothing most. Okay, so I think this is the most critical point. Right? Because this is the same challenge that Amazon faced, which led to the creation of AWS. This is the same challenge that most businesses face, which is they have very spiky demand periods.

53:02And if you want to be an incredible customer experience, you have to have something that is can regulate to those higher periods of demand. Like you said with Uber, they have a natural thing. They can just charge a little bit of peak pricing. They got more people who get out of their houses, drive their cars, pick you up, wait times, don't go up that much. And they benefit from that. And as the network expands, it gets even better. So what and you remember it goes back to who was that word when Airbnb first came out? People, it was asset sharing. It's a different word it was used. But but there's a huge like amount of cars, especially in the US, they're sitting mostly eye -eyed.

53:41And so Uber gets to take advantage of that and utilize that capex. Anyone that's and Tesla may have a similar advantage just because they have enough customers. Someone trying to build a completely separate fleet. I just don't think it works. And I would encourage anyone that believes in it or anyone that's a let's call them a Waymo advocate. Let's build a public Google sheet of the 20 year financial statements for this thing. And let's put it out there in the public. You're going to need hundreds and hundreds of billions of dollars. And I don't know how you answer this peak versus that. So let me, so let me, so I don't know how you do.

54:21So let's let's talk about some of the ways that might happen, right? You know, as a Tesla owner, you know, if I had the opportunity to put my Tesla in a pool, right? And allow it to be, you know, pulled out during peak periods of time, you know, for rideshare, I'd have a problem with that because I need my car during those periods of time. Well, it's very likely. Here's another way of saying what you're saying, which is it's very likely that the average Tesla owner's usage map is similar, of course, to the Uber map that we just put on. Of course, this is my point. So here's my, here would be a straw man.

54:59Tesla launches with an owned and operated fleet to prove the models to start building, right, the customer affinity with the product, the customer truck, which would, which would, which would uncastingly work because there's so many Tesla fans that would want to do it just to be supportive of. And by the way, there's a product, it feels great. You probably already have a Tesla. So you feel good about FSD. So my hunch is the launch and own, you might even, you might even launch it at first with only allowing Tesla or something like that. Oh, interesting. Interesting. Like it's almost, it's almost like a benefit of ownership.

55:38So then I think what they do is my hunch is that they will open it up and partner with Uber. I think Uber would like that. I think Tesla would like, would like it. And here's my, here's my argument for that. The only way you solve the peak demand problem bill is that you have to basically have high utilization at lower periods of demand. You have to reduce the delta between your trough and your peak. And the way you do that is you pull in the Uber demand when your demand is lower, right? And so an example of that would be, if you think about in the city of New York, McDonald's has an app. You can go on the McDonald's app and you can order a burger, right?

56:27Or you can go on the Uber eats app or the door dash app and order a burger. And so McDonald's recognizes that they want to try to flatten that demand out over the course of the day. And so they can yield manage that by having both a 3p and a 1p strategy. So it seems to me that the only way you really crack this is have a 3p and 1p strategy and the upside to that in addition, right? Is that now you have a flywheel of Uber drivers, right? Potentially building some many fleets of their own, right? You could imagine somebody who says, hey, this is pretty accretive. We saw this with black cars, I know in the early days, where you had one operator that may, you know, have two or three or four black cars, you could imagine somebody who says, listen, I can make money by arming this system and by having multiple, multiple Teslas in that fleet.

57:23So I think they probably launch it, you know, you know, on a standalone basis, they get a lot of excitement, a lot of customer love for it. But my sense is by the time you scale this, it probably does have to be an open system. We'll see. Yeah, and I mean, that's clearly up to the powers that be at Tesla to make that decision. The two companies have partnered to date already. They have quite a number of initiatives, including like free charging for people that buy them and put them on. So there's a close partnership already. But, you know, as this plays out, we may see, you know, reasons why they may not want to be close to our company.

58:04Can we talk a little bit just about the unity economics? You know, of these different businesses? Yeah, there's one thing I want to bring up specifically that that'll be interesting to see how it plays out. And that's insurance. And so last time I had specific knowledge and it's been four or five years, but I doubt it changed that much. The cost per mile of insurance for Uber in the US is dramatically higher than the rest of the world. And if you look at just the cost of consumer car insurance, the same things true, way higher in the US, which gets to another problem with Registrarian costs that our government should try and fix.

58:49But anyway, it strikes me, and I would be worried about this as an investor, it strikes me that a particularly aggressive litigator lawyer would chop it the bit to get in front of a jury on a robot killing a human. And maybe even create more litigation costs in a higher cost of insurance for a robot taxi than a driver. Now, I know how people are listeners are going to react to that. They are convinced in their heart of hearts and in their brain that these are safer than human drivers. And I am saying this even with that potentially being true, we may have just such a broken litigation situation in the US the actual cost of underwriting the insurance for a robot taxi may be higher than a real car.

59:52And time will tell. And as we know, Tesla has already brought some of their insurance operations internally. And if they're willing to underwrite it themselves and fight it themselves, maybe that's something they'll do as a part of this rolling out. I got to take a tangent here for a second. And then I'll come back to these unity economics. You know, I was with a certain investor, a group of investors in the Midwest, let's just say over the weekend that are very big investors in the insurance business. And I asked him the question, I said, what's up with car insurance being up 22 % in the CPI on a year over your basis?

1:00:28I mean, it was crazy car insurance up 22 % and he said, here's how it works, Bill. In 2021, then we have very predictable and very steady number of miles driven in this country on a year over your basis. And the accident rate remains very steady. So the cost of our auto insurance has largely been, you know, pretty flat growing with GDP. What happened in 2021, the number of miles driven fell a lot. Okay. And so it fell so much that, you know, those companies were prone to over -earn, right? Because there were just, there was less chance of an accident with fewer people driving or at least that was the assumption.

1:01:07But what turned out to be true is that the miles that came off the road for some reason were safe miles. And the mile, the accidents per mile driven actually spiked a lot. So much so that the insurance companies lost a lot of money during this period of time. So they went to the state regulators who control insurance pricing and they said, hey, we got to raise the price of insurance because we're losing money. Now remember, auto insurance companies try to price the insurance to make about, you know, 3, 4, 5 % on the insurance and the rest of the money they make is on the float. Okay. But in those years, they were losing 5 to 10 % on the insurance.

1:01:46Right. So the companies were actually losing money even with the float. How long do you think it takes the California state regulator to pass along an insurance increase? Right. You have to threaten them that you're going to leave the state and all this other stuff. And then eventually, they do it. So now they passed on this insurance increase. And it just kicked in, which is what you saw in the CPI, right? And ironically and not surprisingly, the patterns of driving have now returned to pre -COVID levels. So we went from a period where the auto insurance were not charging enough because they had to beg the state regulators and they were slow.

1:02:20And now they're charging too much. Set that aside for a second. Let's come back to the unity cannot. And by the way, I think this cost, this is a lot of guesswork and I apologize. People should treat it as such. But I think in the Uber case, in the US, about 5 % of gross revenue goes to insurance. Yeah. So it's an expensive input. And we took a crack. Okay. So let's just say at the high level, most people think that taking the driver out of the Uber will lead to an explosion in profit margins because it represents 70 % or 75 % of the cost of the right. But we actually took a crack at these unit economics.

1:03:02And what I think that fails to understand is a couple of things. Number one, if you just break this down per car, we estimate that there's about 140 ,000 dollars of revenue per car driven on the Uber network. Now, of course, this is blended across tons of different markets, tons of different cars, et cetera. So 140 ,000 of GBV. When you do that in self -driving, we think it goes down to about 100 ,000. Why? Well, you have actually more rides in the self -driven car, right? But it actually comes in at a lower cost because you put so many cars on the road that the charge to the consumer gets shared back with the consumer.

1:03:41Right? margins come down as you as you have more competition because you have more cars on the road. Next up, the revenue per car. Well, of course, you take out 70 % of the cost, the driver cost on the driver driven car. So at a revenue level, we think that if you were comparing apples for apples, in the case of the person, the one with a driver, they make about 40 ,000 dollars a car. Without the driver, they would make about 90 ,000 dollars per car. This is just revenue. So about double the revenue. But the costs are way higher in the full self -driving case. Obviously, first up is you have to pay for the car, right?

1:04:24Their massive costs associated with that maintaining the car, the insurance on the car, all the things the driver currently does now is dropped upon. Well, just yeah, and just on that first one, because I can go buy a two -year -old used car for 25K, 30K and get on the road. And then you add in the cost to the human. You need the fully autonomous car to be really cheap in order because if it, and I don't think anyone thinks the current way will when you are surrounded by the other days, anywhere. Those cars cost probably 150 ,000 bucks. So that car would need that car would need to get down towards this 30K number for that disruption to matter.

1:05:16If it's in the 4550K, and it's an alternative to 30K plus a driver, you have no, but again, where Tesla has an advantage, they probably can put a car on the road at those lower price points. So when we shake it all out, and I'm happy to, you know, But by the way, there's other things that the driver does. I mean, the driver maintains the car. So once again, this is in the Tesla case, if it's not on fleet, it's a customer on fleet, they can clean it. And that'll just be a cost to put in your car out on the road. But in the case of a Waymo, like that car has to come back to headquarters at some point, someone's got to get in it, someone's got to clean it.

1:05:57There's eyes that are going to be needed. So there's going to be a customer service staff that's going to have a camera because you're going to have to settle disputes. You're going to have to deal with customers. And that the human does that in the case. So there are going to be other costs. So the point is you have to take the 70 % that you save on the driver. And then you have to add all these new costs that you're going to incur. We still think that the margin goes up from, let's call it seven percent of gross bookings to something like 12 or 14 percent of gross bookings, even taken into account all of that bill.

1:06:34But that's what we're all trying to do. We're all trying to build a forecast and understand, you know, assuming that this could work, assuming that regulators pass it, assuming you could build the 25 or 30, thousand dollar car, assuming that you could enter into a commercial relationship with Uber and yield manage the peak and, you know, demand, all of that is to say there are a lot of needles that have to be threaded in order for this to work at scale. And I think if it does work at scale, I don't, you know, obviously talking our book a little bit here, I don't think this is much of a threat to Uber.

1:07:09In fact, I think if it works for Tesla, I think there's an opportunity for both companies. And by the way, like another way, I'd risk state, what you just said, which is, it's not going to be financially disruptive at the beginning or in the middle. It might theoretically be financially disruptive at the very end, but, but, but there's way too much capital that, and the price of the car has to come down. There's too much that has to happen. There's no way for someone's not going to come out tomorrow with a robof fleet and under price Uber. Well, and let's put one final point here. Remember this deal that Tesla entered into with Hertz, where Hertz bought a bunch of Teslas.

1:07:54It turned out that the resale value on those cars was dramatically less than they had forecast. And the CEO lost his job over this. I think the right down for Hertz was like a billion dollars over this misforecast. So if you're in the business of buying and maintaining that fleet on behalf of Tesla, you're doing so with full knowledge that all of this is hard to forecast. So you're going to bake into your model, a huge margin of safety, right? So that you don't, you're not going to have the problem that Hertz just ran into. I would say based on everything I know, and we're not, you know, in the in the in the boardroom with these guys, but like letting the customers own the Teslas that own the fleet is a better alternative.

1:08:39Much much much much better. And I will say this, you know, the fact that we're even talking about a Robotaxi fleet shows you the incredible progress that Tesla has made. And you know, and what we talked about on the show a few weeks ago, the month to month improvement and the model, the data that they're collecting. And you know, just the anecdote, I shared from last night, I am more convinced than I ever have that we're going to see tons of cars on the roads with no drivers, you know, in the years ahead, you know, you and I are just speculating as to how the business model might come together.

1:09:15But by the way, one last thing I'm so sorry, I do think there is an argument that you might see be prolific in a different history soon. Of course. Both China and India have much higher road desks per mile. So you can see the government wanting it to happen. China being more autocratic could just wave their hand and change insurance rates, mandates, they could just make it a reality. Whereas we in the US with the way our litigation and regulation work are very unlikely to clear the doubts and make way for some, you know, I also think, you know, as I mentioned earlier, Tesla and Uber coexist in a ton of markets around the world.

1:10:02And there are a lot of markets that frankly are more innovative than the United States have less regulatory headwinds. I could see this happening in Abu Dhabi or Dubai. I could see this happening in Singapore. I could see this happening in South America. I could see this happening in Mexico. There are a ton of jurisdictions where I expect this. Unfortunately, before I expect it in the US, you know, at scale. All right. Before we wrap up, let's check in on markets since we talked last. What are you seeing out there, Brad? What do we need to worry about? You know, if you tell us, go, we're about ready to enter earnings season, right?

1:10:42Next week, we have we have Tesla report, we have Facebook reports, Microsoft reports, Google reports. So, you know, thinking about the setup heading into earnings. If you tell us, go way out. The S &P and the NASDAQ are about up about 6 % year to date, Bill. The small caps are down about 3%. And it really comes down to a lot of those, the companies that are up in tech have beat their numbers, right? If videos beat their numbers, Microsoft beat their numbers, Google beat their numbers. And the companies that are down, Tesla and Apple have largely disappointed. You know, but against this backdrop of the NASDAQ being up 6%, we've had a huge move in the 10 year, right?

1:11:27We've talked Ed Nazim over the course of last couple of years about how interest rates are the economic law of gravity for the financial markets. And since the start of the year, the cost of that 10 year is up 20%. We've gone from 3 .9 to now 4 .7 today. So just all else being equal, right? You would expect that growth company multiples would be down 10 to 15 % because the 10 year is up a lot. So I think the reason the thing that's making a bunch of people nervous is usually you have this inverse relationship as rates are going up, you know, that's a headwind for tech. You might expect that the NASDAQ would actually be down a little bit on the year in, you know, relationship to the cost of the 10 year going up.

1:12:17So if you dig in a little bit to, you know, to these businesses and say, what has to happen in order for these stocks to work next week? It really comes down to this. The margin in 2023, all you had to do is be less bad, right? It was the only way your stock's going up is you got to beat numbers, right? Your numbers have to get revised us upward. And if you miss numbers, it'll be brutal to the downside. You know, the teams made a chart on an interesting chart on cloud acceleration. So what might be driving that acceleration? We've talked a lot on the show about AI, but check out this chart. So you can see for hyperscalers, you can see that COVID bump.

1:13:02So this is absolute dollars that were added to the three large clouds over the course of the past several years. So you see how that really bumped up during COVID and Zerp. And then you can see the belt tightening period as interest rates went up. People got a lot more nervous about the economy. These are cap excellence, right? No, these are the absolute dollars of revenue that were added to those companies, right? So this is, think of this year -of -year revenue growth. And so we dipped. It started to go up over the course of the last couple quarters. And now consensus is forecasting that it continues to go up above trend line.

1:13:43So those companies are going to have to deliver. That's AWS, that's Microsoft, that's Google, and our belief is that they will. We think they will beat those forecasts because we do see that real acceleration coming out of AI. Now look at this chart. This is that same chart bill for data dog, Mongo, Confluent, Elastic. Think of this, the data infrastructure companies. They got a much bigger benefit during COVID, but they also had a much bigger pullback. Now look here what the consensus is forecasting. Unlike for the hyperscalers, the consensus is saying, no, we don't buy that they're going to reaccelerate and get back above trend line.

1:14:22We think they still have, they have some challenges ahead. And they're not going to get back up to those COVID levels of absolute revenue dollars that were added on a year -over -year basis. So I think that's an interesting divergence that you'll have to keep your eye on when Snowflake and Mongo report. We actually think a bunch of those companies are seeing the flow through out of AI as more enterprises are moving more of their data into the cloud. But there's clearly tension in the market about that. One other thing that is really interesting to me is we universally see companies holding the line on expenses.

1:15:05And so think of this as, we had real questions, was the age of efficiency going to be a moment in time or were companies going to continue to do that? I was talking to the CEO of a major company the other day and with tens of thousands of employees. And he said, over the course of the next three years, we'll grow our top line 50 % and we'll reduce our personnel costs by 10 to 20%. That's extraordinary. I don't think we've had a moment like the moment we have today in terms of margin expansion. Right. And in any time frame that I can remember where it was voluntary. It's not because we're in a recession.

1:15:49It's not but it's because companies really do see the opportunity. Both they had some, they have room to cut because they got excessive in 2021. And because they now have these tools, copilot soon to be co -workers in engineering that enable them to be more productive, more efficient in engineering and also allow them to be much more efficient. And that includes slack and in Zoom and things that allow people to have more employees outside of the Bay Area. I mean, that every one of these CEOs I talked to are intentionally trying to get headcount out of the Bay Area. Which in response to our SBC pod that we did, I had a CEO of a major company called me and say, hey, we're rebalancing how we're thinking about SBC across the business.

1:16:43And I said, doesn't that make you nervous that you'll lose your best engineers? If the total cost of SBC comes down. And he said, no, because we don't need as many engineers, the labor market for engineers is softening. It's easy for us to keep and retain the best talent. And so now is exactly the time to get our comp plan reset for the next five to seven years. So net net, I would say that I'm really excited about both the re accelerating top line for some of these businesses. Again, this is very unique to tech. You know, I see other pockets in the economy. Like we just talked about autos. I mean, it's a tough story out there.

1:17:24Higher interest rates, less consumer demand. People burnt through their stemmy checks. They have less savings. And so I think it is a tale of these two worlds. But I think one of the key drivers over the course of next several years in tech is going to be these expanding margins caused by, you know, the tool set that they're investing in around AI. Well, here's the good news. You've now set to stage for earning. So when we get back together in two weeks and this stuff starts coming through, we'll have a lens and a framework from what to talk about. And I'll get a report card. Okay. Great. Sandy man.

1:18:03A lot of fun. Good to see you. Take care. Bye.

1:18:17As a reminder, everybody, just our opinions, not investment advice.