Friday Wrap-up: Physical AI and China's Speed Advantage

0:00Hi everyone, and welcome back to In Good Company, the Friday wrap-up. I'm still Marthe Skaar. Nicolai Tangen here. Hi, and this week's episode featured Brian Gu, which is Vice Chairman and President of Xpeng. And if you haven't listened to it, you should listen to it, because Nicolai, in my opinion, this episode is mind-blowing. Absolutely, totally.

0:30So let's start. In the old days, let's say back in 2020, a car company was a car company. Gu doesn't call X-Peng a car company. He calls it a physical AI company. What is that? Well, it's interesting. When we speak to the car manufacturers, they talk about the software becoming so important. And it's not only the software to drive the car, it's the software also to link in with the entertainment systems, the self-driving systems, and so on. Just the software component and the chip part of it is just now so important. And then he also talked about level four, which is fully autonomous cars, including no steering wheel.

1:17And he talks about it, that this will happen in our lifetime. What's your reaction to hearing how he talks about this? Well, interesting. We did another interview recently with a Chinese automation company. And so basically these kind of automation levels, one to four, it means that you go from hands-off to eyes-off to minds-off. Mind-off is when you can be fast asleep whilst the car is taking you from A to B. We're going to be properly hands-off, according to many people in China now, by 28, we'll be ice off by 30, and we'll be mines off by 35. So we can then be fast asleep. And the application for society is huge, right?

2:05Doesn't really matter whether you live far from the city because your transportation time, you can use it for constructive things. There are not going to be many more queues. This changes the concept of time and space, and I cannot wait. Yeah, and also how you think about cities and where you can live, et cetera. Okay, but let me paint the picture for you. Flying cars between skyscrapers, rowboats in the household, gadgets everywhere you look. You know where the scene is from? Well, it sounds a bit like Back to the Future, but I think you have another idea. It's Duckburg, which is the fictional city in Donald Duck.

2:44And I think all of us read a lot of Donald Duck as kids And now these things are finally coming into play because it turns out this is not that far into the future when it comes to flying cars. No, it's not far into the future. It's coming faster. I think it's also interesting how intertwined the supply chain is for cars compared to robots and humanoids. It's pretty much overlapping because what you need for self-driving cars is sensors, is actuators, is all type of software companies, software elements and chips. And it's very much the same overlap that you are now seeing in the robotics companies.

3:31China's got a really, really deep and wide supply chain here. It's really putting them at the forefront of the humanoid development as well. Yeah, it sure is. And Xpeng's journey actually started here in Oslo, where we're sitting, with their first physical stall. I know it's rolled out. And looking at the EV numbers here in Norway, it's tremendous. It's 98.7 % of all car sales in August. But of course, we are a tiny market. So then when you look at China, it's 60 % of new car sales. And then I wonder how important to have a home market like that. when you are a company like Xpay? It's hugely important.

4:17There are at least 60 producers of cars in China. Supposedly, over the last year or so, they launched some 500 models. So the number of models and the specifications coming out of the Chinese EV market now is just incredible. And of course, they compete extremely hard with each other, which means that when they go outside the Chinese borders and actually export, into the rest of the world, they are unbelievably strong, both from a technology point of view, but also on a pricing point of view. And talking about competition, because he calls China like the fittest gym in the world. What does that mean?

5:00Well, I think it means exactly that, that when you come out of that gym, you are a very, very good car company. And, you know, you have just fine-tuned the kind of things you do. when you look at the specification on some of the new models in terms of just everything from software entertainment, the charging time, the range and so on. It's fantastic.

5:28So then moving on to talk about the fund and the markets, because this is obviously not just affecting one company we are invested in. It affects the entire market. And for example, Volkswagen Group now recently announced that they're eliminated in 50 ,000 jobs and cutting half of its vehicles offerings. So my question is basically, how can companies in other regions here compete? And can they compete? I don't think, I probably don't think they can. We got export numbers out of China coming out, where they came out today, actually. We're seeing an increase of 25%. 50 % of the increase is from technology and AI-related export.

6:21So it's very important, and we are seeing it impacting more and more industries. They have been extraordinarily successful in implementing AI into what they do. And I do feel that, of course, Europe is slow here. When you look at the tech stack in AI, you typically start with energy, then you look at chips, you look at cloud solutions, you look at models, and then you look at applications. Now, the first four, we have kind of lost. There's still an opportunity for the application layer for us to be successful, but there is very little kind of political will to really drive the application layer here.

7:12And just talking about how companies then can make this happen, because last week we talked about a very old company, John Deere, but they have managed this transition into turning it into a technology company, whilst Gu really talks about the advantage of being a young company. So the question is, how can these older players really step it up here? And can they compete? Well, it's tough to say. You have to transform the way you work. You have to simplify your systems, your structures, your procedures. Clearly, it is an advantage to be a young company where you can set up from scratch with a totally new technology stack.

7:55We are seeing some of these companies going from nowhere to world leaders in less than 10 years. you know one company after the other uh unbelievable you see somebody like xiaomi which we had on recently they go from nothing to a fully fledged car company in three years three years i mean in europe it would take three to five years to have a new just to have a new model from an existing car company and have you basically go from nothing to a car in three it's very impressive yeah so it is the expression chinese speed here and for sure like at the listening to this, it is speed and ambition for sure, which is a dominating factor.

8:35And interestingly enough, that's two of the things that we have kind of set as a strategic direction in the fund. It's performance, it's speed and ambition. And take us through why you think that is so important also for us in a SOMMEL fund. Yeah, well, first of all, you have to have high levels of ambition because otherwise you don't achieve anything. And I think it's interesting. If you have high ambitions, even if you fail, you achieve great things. If you got low ambitions, you achieve nothing, even if you succeed. So it has to start with ambition. And in Europe, we generally have had two low ambitions.

9:08Then it has to do with speed. And it's just, you know, it's just saying that speed is a mindset. And I really believe in that. You know, things can take a day or it can take an hour. It just has to do how you think about it. So it's really, really important.

9:27And moving on to a bit more on the personal side and what you've been doing this week because you're in London this week. Yeah. What have you been up to? Well, I started off with Financial Times in the park. It's an event in Kenwood, which everybody should attend. It's incredible. It's one Saturday every year. They get together all types of people from art, literature, politics, economics, and so on. And they are in different types of tents and you can walk around and you can listen to them. They are interviewed by these brilliant journalists from the Financial Times. And I listened to one of them, Michael Moritz, who was one of the original partners at Sequoia, who now came out of a book about his Jewish background.

10:12And just to kind of put it together with what we talked about earlier today, it's interesting because he was asked, what do you think about the latest political development in Germany? And he said, well, you know, I've been looking at Asian technology for a long period of time. They are becoming so powerful. They are competing out a lot of the European car manufacturers and others. And that has implications for how economies grow, unemployment, and the political landscape. So to really embed AI into what we do in Europe, I think it's going to be really, really important to keep the type of democratic standards that we are seeing today.

10:57it's urgent and it's more important than ever. So that's one of the things I did during the weekend. And then of course, this week, we have the Tech Day in London, which is also fun. We do it across the firm. We have user cases that we have developed in, let's say, in Oslo or Singapore or New York. We showcase that in London. We are continuing to launch the agent factory so that everybody can build agents much easier. Already now, after a few weeks, we have more than half the employees in the fund have made their own agents. So there is a lot of stuff going on here. Yeah, so Tech Days is something we started a couple of years ago and it started out pretty small, but now it's like a big happening where we really sit down and work on cases and learn from each other.

11:52How important is it, you think, like for companies to have something like this to drive direction and move forward? I think it's one of many things you need to have. You need to have, you know, the tone from the top. You need to have ambassadors. You need to have, you need to look at it the way you recruit. But you also need to have events, nonstop events. And so much of this is to be inspired, is to see new solutions, is to work with your colleagues. And that's what we're doing here. And it's become a really cool thing. Sure has. Okay, but with a lot of speed, you also need some charging stations.

12:28You need an area where you slow things down as well. So how are you slowing things down now? Well, I am slowing down this weekend, going up in the forest. I think September is the most beautiful time of the year to be walking up in the forest and that kind of solitude and time to think and relax and some quality time with friends is super important. Sure is. And a bit of mushroom picking? Always. Always. Okay. Great to talk to you, Nikolai. And to all of the listeners, happy weekend. Happy weekend.