EV and Autonomy State of the Union

0:05Travis Hoium:Are electric vehicles up or down and what's the future of autonomous driving? Motley Fool Money starts now.

0:20Travis Hoium:Welcome to Motley Fool Money. I am Travis Hoium, joined today by Lou Whiteman and Rachel Warren. We are at the point where electric vehicles have gone mainstream and we know that autonomous vehicles are real. But what's the future of this business? And I want to start with this question for both of you. Waymo continues to chug along. They announced yesterday that they have driven 96 million miles fully autonomously. They're operating in five cities. They've got about a dozen cities or more that they're kind of laying the groundwork for operations. They even announced this morning they're going to be coming to Nashville on the Lyft network.

0:55Travis Hoium:Lyft stock was up over 10 % early in trading on that news. Lou, has Waymo gotten the strategy right here? They went with these expensive vehicles. That was always the criticism. They're about$250 ,000 or at least a couple of years ago they were. Have all this equipment on them. But they didn't go kind of cheap with vision only the way that Tesla did. They got a lot of criticism for that. But they're the ones scaling right now.

1:20Lou Whiteman:Yeah. Yeah. Well, part of this is it's an unfair advantage, right? Not everyone has Alphabet's money to fall back on.

1:26Travis Hoium:It's a bit of a help for them.

1:28Lou Whiteman:Yes. Yeah. But look, a part of this too is, and maybe this is because it's a kind of side business and not core to the company and the company's ability to attract investment, but this has always been a kind of boring engineering culture versus a hype culture. And others, I think, and I'm not just looking at you, Tesla, I think even GM got caught up in this. It was about, look at us, look at us, look at us. Either way, you can get there. But I think just focusing on the bit-by-bit, blow-by-blow, incremental, I don't think we should be surprised that that gets there first. Look, we still don't know if this is scalable.

2:06Lou Whiteman:You mentioned they're using up to$250 ,000 per car. I don't even know what scalable means, Travis, because it could mean that over time, these components get cheaper as we see with a lot of products. It could be that there's just newer technologies that are going to come out and change the cost curve. I don't know who's going to get there. I don't know how it's going to work. I don't know if I'm ready to say that they are the winner, period. But I do think we should take a lesson out of their approach. Their approach was just shut up and slowly, bit by bit, do the work.

2:40Travis Hoium:Yeah, Rachel, the big thing here is that they do have all those sensors. They have benefited from things like LiDAR coming down 90 % or so in cost over the past few years. It seems like that trajectory is going to continue as there's at least more buyers for these sensors. And Waymo is one of those buyers, but there's other players as well. Yeah, it is really interesting to think about the journey of Waymo. And I do think that some of this success is the fact that they are a subsidiary of Alphabet. They have this really extensive engineering talent and capital that's behind them. But Waymo has also been developing its technology for almost two decades now, since 2009, going all the way back to the DARPA Grand Challenge team.

3:23One of the things that I think has been really interesting about Waymo is they've been very strategic in how they have scaled their service city by city. They'll focus first on these very specific geofenced areas. They rely on these very detailed pre-mapped environments, which essentially act as a digital twin of the real world.

3:43Travis Hoium:And that was always the criticism of them. I just want to point that out. I know. And it's their advantage in a way. Yeah. And it also gives them, I think, something of a very precise understanding, right, of their driving environment before they ever enter it. And as you noted, they have this very kind of robust sensor suite, you know, LiDAR, radar, high-resolution cameras. So, their vehicles, you know, very practical issues. They can see clearly in diverse conditions, you know, including fog and rain. So, I think right now it's clear that Waymo is at the front of the pack. Are they the winner long term?

4:15I think that still remains to be seen. I think it's also important to say, even as someone like myself who's bullish on this space, you know, autonomous vehicles are still met, I think, with a lot of public skepticism. You know, Waymo itself is, of course, currently not profitable as well, which I think is important to note that other bets segment lost over a billion in operating income in Q2. So there's still a lot of road ahead, so to speak. But as an Alphabet shareholder, I do enjoy being a part owner of Waymo too.

4:42Travis Hoium:Yeah, we don't quite know the economics behind these Waymo vehicles yet. We know the cost curve is coming down from a capital side. The other thing I think is interesting, if you just look at the number of rides that they've done and the number of vehicles they have, you could back out. They have about 24 rides per day per vehicle. So that's pretty compelling. Lou, let's expand a little bit on the business model side, because at the end of the day, technology is great. But if you don't have a good business model to back it up, you're not going to add value to shareholders. And we are investors.

5:13Travis Hoium:So they're testing multiple different business models in different cities. In some cities like Los Angeles, San Francisco, they own the vehicles and they have the app, the Lyft or Uber competitor. In other cities, I mentioned that Lyft was announced today that they're going to be launching in Nashville. Lyft is actually going to be the demand source and their subsidiary FlexDrive is going to maintain the vehicles. They've done some deals with Uber and some other companies as well in Phoenix. So they're kind of testing a whole bunch of different things. Where do you think this shakes out? Because they are able to kind of test these things out, but there are also other players who are going to watch very closely.

5:56Travis Hoium:Tesla, Volkswagen, General Motors, everybody's sort of in this game in one way or another. But where do you think this goes from a business model standpoint?

6:05Lou Whiteman:So the truth is, I don't know any more than Waymo's management knows where this will end up. But as an investor, what I really like about Waymo is optionality. They basically are in every boat. So, whatever evolves wins. If you look, I mean, there's a lot of companies I think are doing interesting things here. Uber, Lyft may only work with licensing and partnerships. I know they're dabbling, but I don't know if they'll get there with the tech. Mobileye only works as a licensure. They are not going to roll out their own fleet and their own system. Waymo, in theory, can win in any of these environments.

6:43Lou Whiteman:They can license their technology. They can work with partners or they can Waymo one on its own. This is so early on. We don't know what the future holds. There's one company that A, is doing it on the road and B, seems to be future-proofing the business in just in terms of what consumers want and where the business side of it goes. And that, to me, I think might be the bigger advantage they have than their lead in number of miles or number of cars out there. I think the other things you can catch up on a lot quicker than business model flexibility.

7:17Travis Hoium:It doesn't get a lot of attention, but Waymo is so far ahead that I think this is a company that we need to pay more attention to as investors. Alphabet is now a$3 trillion company, but Waymo could be one of those optionality businesses that could add hundreds of billions, if not a trillion dollars or more in value long term. Next, we are going to talk about the latest updates at Rivian. They have now broken ground on their Georgia plant. You're listening to Motley Fool Money.

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8:18Travis Hoium:Rivian is one of the biggest names in electric vehicles. They are kind of number two behind Tesla in the pure play as far as a market cap goes. They also just broke ground on their Georgia plant. That is going to be backed by a$6 billion or so loan from the government. But they have not made vehicles profitably yet. They're still making less than 50 ,000 vehicles per year. So, Rachel, with their vehicles and the demand that they have right now, the capacity that they have coming online, And oh, by the way, at the end of this month, the$7 ,500 tax credit, which wasn't a big impact on the R1 vehicles, but it will be an impact on the R2 vehicles.

9:01Travis Hoium:Where is Rivian sitting in this? And is this going to be a growth market that they can actually sort of differentiate themselves? I think there's a bit of an uphill battle for Rivian. And, you know, don't get me wrong. I do think it's an interesting business. I get why there's a lot of excitement around the vehicles. This has just not been, for me, an investment that I've been able to get excited about. Obviously, I'm not alone in that. The stock's down more than 80 % from its IPO price in 2021. But I think there are a lot of factors that we see when we look at Rivian's business and some of the challenges they've been contending with.

9:36Obviously, the EV market is increasingly crowded. There's the reality where you have a lot of legacy automakers that are directly competing with their core products. As you noted, Rivian is really still contending with significant financial losses, and its costs for the upcoming R2 launch are going to keep those expenses very high. It's also the case that their vehicles are very expensive. So, that does kind of limit its target market compared to lower-cost models. Now, the bulls for Rivian would say that the R2 and R3 models could be really critical new products that could significantly boost their market presence.

10:10Some have compared that to be sort of aligned with how Tesla launched its mass market vehicles. I personally have some skepticism there. One thing that's important to note that you alluded to, a major source of Rivian's revenue had come from selling regulatory credits to other automakers. And now that the tax law has eliminated the penalties for failing to meet emission standards, which was essentially why you would, as a traditional automaker, buy those credits from EV makers, that's going to be a much less prevalent source of their business. So, you know, Amazon is still the largest shareholder of the company, right?

10:44They're a customer for its delivery van. So as an Amazon shareholder, I think I'm more interested in investing indirectly that way. Yeah.

10:52Travis Hoium:Amazon is also now testing the bright drop, which comes from General Motors. So they're not, they're not a one trick pony when it comes to electric delivery vehicles. Lou, you've been following more of these more capital intensive or manufacturing businesses for a long time. It sounds great to say, you know what, we're going to build another 200, maybe 400 ,000 vehicles. But Rivian has not shown the ability yet to actually manufacture the 215 ,000 or so vehicles that they can make in their normal Illinois plant currently. That was supposed to be filled with the R1 vehicles. They're going to now build R2 there initially.

11:29Travis Hoium:What do you think about this new plant? And is this kind of a go for broke bet by Rivian?

11:34Lou Whiteman:I don't know if it's go for broke. I do think there's a reason for this, but I don't think there's a business case for this. As you say, it's$150 ,000 plus, up to$200 ,000 now at a normal. They delivered 51 ,000 vehicles last year. They are not capacity constrained. They're spending $5 billion or so to add another$200 ,000 in capacity initially, up to$400 ,000. There's just no need for this in a market where there's... I love confidence. I love bold bets. But if you look at the macro trends, if you look at the tax cuts, there's a real question here. I think there's two answers though, Travis. For some reason, they're committed to building the R3, which is the lower cost in Georgia.

12:14Lou Whiteman:It seems to me it'd be cheaper to retool Illinois to just get that out. And look, it's not coming to 2028 either, but you mentioned it. There's a lot of government money here. We're coming up, we're now almost a year away from a governor's election in Georgia and the current governor who is not up for reelection was a big champion of Rivian and has been, you know, throughout has been willing this into existence. It feels like that if you believe you can survive the now to now is the time to grab that while it's there. And I think that's what's going on here. I don't think there's a business case to do this.

12:50Lou Whiteman:I think there is a long-term bet that maybe in two years, they may not have this ability. So do it now.

12:59Travis Hoium:I want to ask you this, Lou, first quickly. Tesla's deliveries peaked in 2023, 1.81 million vehicles. Rivian has had trouble getting past 50 ,000 deliveries. We've seen struggles at Lucid. GM has pulled back on their EV. Has this market already peaked from a hype standpoint? And are we now at a, you know what, this is a manufacturing business. It's just going to be kind of steady and boring as it goes as the auto business has been for a century. Yeah.

13:29Lou Whiteman:The early adapter stage is over. The euphoria stage is over. That doesn't mean we can't see growth from here. I don't think, I'm not going to give consumers enough credit to think they're all waiting on quantum scape or something like that. But I don't think that EVs have really hit Main Street as a, yes, this is a viable alternative, or I can replace my entire fleet. So right now, yeah, we are dealing, and especially in Rivian's case, very expensive vehicles. We're waiting for this next inflection point where either the vehicles come down in price, which they're all working on it, but we're not there yet.

14:06Lou Whiteman:Or we see some sort of battery breakthrough slash charging breakthrough where they're more reliable. So I think we're going to tread water until just there's another spark to move past the initial euphoria phase.

14:20Travis Hoium:Rachel, is it inflection point on the horizon? I mean, I think we're still looking at where the on-ramps to adoption are, right, in the EV space. I agree with Lou. I do think the euphoria stage is over. And I think also some of it comes down to the expansion of the critical infrastructure that EV vehicle owners need. And I think that's something where we are still kind of way behind the curve, so to speak. And I think unless and until that changes, I think we're still going to see a very kind of slow adoption phase like we've been witnessing the last few years. Lots of questions for Rivian. And there are questions for another name in electric vehicles.

14:53Travis Hoium:That is Tesla. We will get to that in just a second. You're listening to Motley Fool Money.

14:58Lou Whiteman:As a podcaster, my voice is heard by thousands. And now with Vanguard Investor Choice, I can be heard by the companies that I invest in too. Vanguard Investor Choice makes it easy to set your proxy voting preference for your Vanguard Index funds. In just a few clicks, you can make your voice heard on important shareholder topics like executive pay and director elections. Visit vanguard.com slash investor choice to learn more. Vanguard Investors own shares of Vanguard Index funds and those funds own shares of the companies they invest in. Available for Vanguard index funds that participate in investor choice.

15:31Lou Whiteman:Vanguard Marketing Corporation Distributor.

15:33Travis Hoium:Welcome back to Motley Fool Money. Tesla was supposed to be the runaway winner in electric vehicles. And looking at the stock market, you would still think that's the case today. The company is worth over a trillion dollars. But Elon Musk has put a little less focus on the EV business in the past couple of years. Going back to 2021, he predicted there was going to be 50 % annual growth in their production. they're now dropping their production from 2023 to 2025. So heading kind of in the wrong direction there. They've also launched the robo taxi service in Austin. They still have a safety driver in the front seat, but this is a decade after autopilot launched.

16:09Travis Hoium:Lou, is it time to give up on Tesla winning autonomy?

16:14Lou Whiteman:All right. Slow down, Mr. Hot Take. First of all, all right. The whole EV, you know, giving up on EVs, The Model 2 is right around the corner. I think, in theory, we should be hearing more about that before the end of the year for production next year. Yes, there's been a lull. Yes, I don't think they invested enough to get new models here fast enough. But I'm not ready to say that Elon Musk and Tesla aren't going to be able to grow their EV business. I think that that's very much next year should. Let's come back a year from now, if not. As for winning and autonomy, my question is, define winning.

16:54Lou Whiteman:I think there's a solid case to be made that Tesla will get there. And I'm not sure if there's real value in getting there first. I mean, there's some value. But look, in some ways, if they do what was originally designed, where they're using your car and Rachel's car as their robotaxi feat, they are, in effect, sharing some of the capex with their customers in terms of the investment of fleet. I think that could provide cost advantage. They do have a well-known brand. Take that what you will right now, but these things change. And it is, I think, a well-respected brand as far as technology. I don't think they're winning right now.

17:33Lou Whiteman:I agree with you on that. But again, does it really matter if they're first? The real question is, can they get there? I think they can. And so, I'm not ready to say busted thesis yet.