Rivian and Volkswagen’s New Partnership + Scott’s Tax Strategy

24:26I got it in foam green. I'm going to be an Aspen. I'm going to put Leia, my Great Dane, in the back. I'm going to cruise down into town. And they will love me, Ed. They will love me. I'm also going to put a bike in the back that I will never ride, but I want people to think I'm outdoorsy. I'm just going to make a prediction. You keep saying you're excited about this Rivian. I think you've been saying that for maybe at least two years, I want to say. I don't think this Rivian is ever going to arrive. You don't think it's ever going to be delivered? No, I don't think you're ever going to do whatever paperwork is needed to have it arrive at your house.

24:57I don't think you care about getting a Rivian. I don't know. For some reason, that hurts my feelings. I'm not sure why. I was actually thinking of ordering it and then auctioning it off for charity water. And then I thought, I'm not that generous. I want the option to have the Rivian. I think something like that's going to happen. You're never actually going to own a Rivian, but you'll continue to be excited about it. That's my plan to wait for the ask answer. Anyways, the fact that they can't make it, that means this is it. I mean, I think Fisker just went out of business. I believe that Tesla is going to hit a wall, but I've been saying that since the stock was at 15 and it's not 160 or something.

25:29But I would bet that Rivian becomes the next SUV that's shoved through the Volkswagen platform. Just to give some color to how far this company has fallen, it was worth, when it IPO'd, it was worth$130 billion. Jesus. I don't know if you remember, but everyone was obsessed with this thing. Everyone was saying it was like the best new car company. It's going to compete with Tesla. It's going to solve climate change. It was actually more valuable than Volkswagen at one point. We said many, many times that this was ridiculously overvalued. it's now worth around 15 billion dollars it's fallen 90 so i feel like we kind of won that prediction we also talked about the burn rate so let's just go through the numbers here operating cash outflows last quarter were 1.3 billion dollars capex for the quarter was a quarter of a billion dollars so total cash burn of one and a half billion dollars losing roughly forty thousand per vehicle, as you mentioned, at that burn rate, the company would be out of business by the beginning of next year.

26:32They had nine months of runway left. So it was in an extremely dire situation. People are saying that this Volkswagen investment was a lifeline. I think that's often hyperbole. In this case, it's completely true. If no one had come in, if Volkswagen hadn't come in here, this company would have died, which makes me think, why didn't they just buy the company effectively what they've done is they've peed on this thing and no one else that's it no one else any other dog or acquirer is going to go oh volkswagen's here that's really good so they've what they've bought is essentially an option and that is rather than saying okay for them volkswagen's market cap is 58 billion dollars and this is one of the biggest best run automobile companies in the world the fact that rivian was at one point where twice that gives you a sense for just how batshit crazy it is.

27:25Right now, what is Rivian's market cap? It's$12 billion. They would have to come in and offer probably$13 or$14 billion to take this thing private. Instead, they come in at$1 billion. If the stock goes way up, they've made a bunch of money. If it comes down, they buy the whole thing. They couldn't give 25 % of their outstanding equity to Rivian shareholders to buy something losing money. So this is a chance to date, get some technology work together and if rivian you know the stock goes from it's at 1458 if it goes from 1458 to five they'll step in and they'll take the whole thing do you think that this is the beginning of a huge run-up for rivian like does does this renew your excitement for this company or is this just kind of like softens the landing it happened rivian stock i was even looking at this thing, Rivian stock popped about 20 or 30 % in the last few days.

28:17It went up. It was trading at 12. It went up to 16. So what was that? It was up 30 or 35%. Now it's down to 14.5%. I would be shocked if it wasn't. I mean, I guess you could say that some of that pricing, it was at 10 bucks pretty recently, was that fear about them coming into a cash crunch. And now that's sort of been taken off the table, or at least they picked the can down the road. But this thing still has a$12 billion market cap for a company that's hemorrhaging money. This is how fucked up it is. This company is worth$12 billion. Ford Motors worth$12.3 billion. That's crazy. And Ford is a profitable company pushing out a ton of cars.

29:00Any long-term predictions for the EV market? You mentioned Fisker went out of business, So did Lordstown Motors. So did Proterra. Three different EV companies that went bankrupt in the last two years. EV sales last quarter in the U.S. also fell 7%. Is this kind of the beginning of the end for not EVs, but EV startups? That feels right. I mean, what is it that curve or the Gartner curve? I don't know who invented it, where there's growth, excitement, froth, hysteria, and then disappointment, realization, valley of death, and then consolidation. The weaker players get swept off the deck and then it comes back.

29:41It feels like we're entering the valley of death. And that is companies are either going to go out of business or need more capital. I mean, there's been a bunch of electric EV kind of truck companies that have really struggled. And I think that as a whole, I mean, I think the market was only up three. The market for EVs was only up 3 % year on year. But as the Chinese enter the market, bring the prices down, as it becomes more accepted, as the charging station infrastructure is built out, supposedly one out of five charging stations are working right now. I think that this market, it just feels to me like the whole world is headed this way.

30:20We'll be right back after the break with a look at tax harvesting.

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32:02We're back with ProfitU Markets. JPMorgan Chase is on a mission to take share of a growing business, tax strategy. The bank has attracted more than$15 billion in assets under management in its tax-advantaged accounts, known as SMAs, or separately managed accounts. Unlike a regular account, these accounts offer personalized tax management advisory. And according to one J.P. Morgan banker, quote, it might be the fastest growing piece of asset management over the last 18 plus months. The growth is not just at J.P. Morgan, however, it's industry-wide. Assets in separately managed accounts have increased 30 % year over year in 2023, and And asset managers say 45 % of assets are now subject to tax management.

32:43That's up from 33 % in 2022. So, Scott, tax avoidance is becoming increasingly popular from the numbers here. And to be clear, this is different from tax evasion, which describes illegal tax strategies. We're talking about legal tax strategies, tax avoidance. So as someone who works quite a lot with tax lawyers, could you describe what some of those tax avoidance strategies actually are that wealthy people are using today? So first off, this is a key component of obtaining and maintaining wealth is tax. We call it tax minimization. We have an entire chapter in the algebra of wealth on taxes. If you don't, it's just, it's going to be near impossible for someone to become economically secure, much less really wealthy unless they have a pretty strong grasp of taxes.

33:39You're driving towards economic security. Do you want to figure out which toll booth is$2 versus$7? You just got to figure this shit out. You got to understand how to get through this toll booth as inexpensively and as quickly as possible. This is why I think young people need to talk about money. You need to understand taxes. If you, I mean, I just did the math. When I was living in New York in 2010, I just had a couple of kids and I was doing the math and I thought, okay, we make a lot of money and I feel broke and I don't like it. And so we decided to move to Florida. And in addition to the lifestyle arbitrage where the private school we sent our kids to was, no joke,$14 ,000 a year at that time versus$58 ,000 at First Presbyterian.

34:32And everything was cheaper. I was going to save, the income tax savings was 13%. And I did the following, and I was very disciplined about this. I took the majority, not all, but the majority of our lifestyle savings. And I took that 13%. I did the math and said, every month, I'm going to take 13 % of my top line income, and I'm going to pay taxes to me, and that is I'm going to invest it. And it changed my life economically. So thinking about taxes and how to minimize your taxes, I mean, it's like the guy, Wayne Huizenga, who passed away, was the founder of Blockbuster, and I think ended up owning the Miami Dolphins for a hot minute.

35:11When he was doing ads for Florida, he used to say, it's not what you make, It's what you keep. He's right. And what people don't focus on enough, they focus so much on how much they make, they don't focus on what they keep. Anyways, tax minimization is about what you keep. So there's some very basic strategies. The first is geographic arbitrage, right? Moving to a low tax state or establishing residence in a low tax state. The second is just being thoughtful about timing of sales. And that is you really don't want to be in any asset less than a year because the The top tax rate for the short-term capital gains, that's assets you own for less than 12 months, is 37 % versus I think it's 22.8 % for long-term capital gains.

35:55So anything I buy, almost anything investment I make, I assume I'm going to hold longer than 12 months. Now, on the flip side, if there's a loss at the end of the year, I think about taking those loss. I harvest losses. Could you just describe how tax loss harvesting actually works? Yeah, you buy, you own Amazon. What's the stock that's gone down? I'm trying to think of what stock has gone down the most over the last 12 months. That would actually be interesting to see what, you know. So whatever it is, stock's gone down 50%. You sell it on December 30th, you paid$10 ,000 for it. It's worth$6 ,000.

36:32You sell it. At the end of the year, you get a$4 ,000 tax deduction. You recognize the loss. And now there's funds that whenever anything's down, they sell them right away, and they have to wait a certain amount of time to buy back in, but they're constantly harvesting losses, which juices the returns. So being really thoughtful about tax minimization is just hugely important. So there's, I mean, I'll give you an example. Vox is going to owe me a lot of money. I did this strategy or did this agreement with Vox who distributes this podcast where they're going to give me a lump sum of money in May of 2025.

37:09And because that's current income, which I hate, 37%, I'll lose 37 % of it right away. I'm going to do something or we're talking about doing something called the installment method. Now, what is that? they can pay me over six years, which they like, which because it saves them cashflow, because it's a sizable amount of money. We pick an interest rate. I don't know, call it 7%. And over six or seven years, they pay down. I'm basically loaning them the money they were owing me, say it was a hundred dollars. I'm loaning them a hundred bucks and they pay it off over six or seven years, like a mortgage.

37:43And they pay me 7 % on it. But here's the fun part, because they're paying it off over seven years, I'm getting 7 % on the pre-tax income. So for the first, whatever it is, three or six months, I'm getting 7 % on$100. Whereas if I sold it all or I just recognized the gain with a 37 % tax rate, I'd end up with 63 cents and I would need to get 10 or 12 % on an investment. The biggest tax loophole that has increased my wealth is our tax system really loves real estate and it loves entrepreneurship. So I would start companies, small companies, and if they had less than 50 million in assets, which any company I start does, you can either invest in it or start it in the stock you get.

38:29If you hold onto that stock for more than five years, the first 10 million or whichever is greater, the first 10 million or 10 times the initial investment is tax-free. So when I sold L2, the first 10 million was tax-free. When I made an investment in a small company that went up dramatically, the first 10 times my initial investment was tax-free. So that's 1202. Also, in terms of entrepreneurship, creating a company, you can run a lot. If I'm going to LA and I see my dad in San Diego, but I spent four of the five days in LA working on an original scripted drama on big tech based on the book The Four written by Scott Galloway, I can write off all of my expenses.

39:20You can shove a lot of expenses through a small business because you'll find most of your life, at least if you're an entrepreneur, is somewhat related to business. Who really gets fucked is the person working at Goldman or working in a law firm or working for an employer where every year they just get all of this reportable income that's top line. And then it's all current income and it gets taxed in a high tax state. Like you are now at a point, Ed, where you're going to start paying 30, 35, 40 percent tax rates. because there's really no hiding your income. So the key to tax minimization is to figure out a way to save enough money as an earner such that you become an owner, because then you can get long-term capital gains.

40:03Think of yourself as a stock, and that is every year the stock of Ed Elson goes up, call it 150 grand in value. Every year you have to pay 40 % tax on that, whereas Whereas if you manage to save money and you buy 150 grand worth of Amazon stock over five or 10 years and it doubles, it goes up 150 grand, unless you sell it, it is growing tax deferred. So at the end of the day, the kind of the ultimate rich person's tax avoidance strategy is the following. You have a lot of stock in Amazon and you never sell it. You just let it increase in value and then you borrow against it and you never recognize a capital gain.

40:42And you can even write off the interest on the money you borrow. Now, at some point, you got to pay that back. So what do you do? You pretend you want to spend more time with your father and you move to Florida. And then when you sell that stock, it's taxed at a much lower rate. So it really is, you really want to learn about taxes and understand tax policy because if I had been paying, again, that 13 % that I was disciplined enough to reinvest every year in stocks that grow tax-deferred changed my life economically. And these strategies are out there and it's important that you know them. And again, if it sounds like we're fucking the young and people who make all of their money from current income from sweat, who are earners as opposed to people who own or invest or own real estate, trust your instincts.

41:30It's yet another transfer of wealth from the entrance to the incumbents. I think that's something that a lot of people would criticize you for, which is, you know, what we talk a lot about is the fact that the ultra-rich, generally speaking, are not really paying taxes. Wealthiest 400 families in the U.S. paid an average effective tax rate of 8 % in the past decade. You talked about the buy, borrow, die strategy where you have a huge asset base and instead of selling and registering and having to pay taxes on those sales, you just borrow against it and you keep on doing that and you can do that at an extremely low rate because you're so rich.

42:06There are all these different strategies which you use. And so I think a lot of people would say that you're being hypocritical because you're arguing against this and talking about how it does screw the young over. But at the same time, you're also doing it. So what would your response be to that criticism? I understand the criticism. The question is, is anyone out of my funeral going to say he paid more taxes than he was supposed to? What a great guy. Be clear. I am going to vote for people who restore a progressive tax structure. Why? If your job in a capitalist society is to make as much money as you can, and it's your job to minimize your taxes, to protect yourself, why would you vote for someone who's going to increase your taxes?

42:54Because I want a healthy America, and I want an America that makes the same forward-leaning investments in the middle class that were made in the 60s and 70s and 80s that benefited me. And so I want to see the same opportunities provided to people your age that were provided to me. Having said that, I will absolutely, I'm not going to disarm unilaterally. I will take advantage of every single tax loophole. Now, now that I feel a little bit defensive, I'll say the following. I recognize my privilege. I got to a certain number and I decided anything above that, I was either going to spend or give away.

43:29And my personal code around this is I look at my spending every year, and I give away that or more every year as a self-imposed tax. Over the last four years, I think I've given away approximately somewhere between$17 and$20 million. And I think a virus that infects America is hoarding. There is no reason to have more than $100 million. I just can't rationalize why any individual would need more than$100 million. Do you want to build a dynasty? Well, guess what? Your kids are probably going to be fucked up. That's not good for your kids. I'm not saying it's bad for them. Make sure they have some money and they can buy a house.

44:07There's no evidence that building dynasties does any good for anybody. Once you have the nice house, the second house can do amazing things, take care of your parents, take care of your kids, give money away. Why do you need more money? You don't. And it's a society telling you that your worth is based on a number that keeps getting bigger and bigger. You need to get off that treadmill. So spend it, I think it's great, and give it away. And that's what I do. But be clear, along the way, I'm going to minimize my taxes and try and increase my wealth. And above a certain point, I'm going to either spend it or give it all away.

44:42And that's another tax loophole is a donor advisor fund, and that is a DAF. If I think I'm going to give away$10 or$20 million, I put it into a DAF and immediately, immediately, or just stock, I'm going to give this away. It's been designated that I'm going to give it away. And immediately, I get the tax deduction without giving it away right away. And I can borrow money against it. I mean, essentially for every dollar that's donated in philanthropy, the government loses like 72 or 73 cents. So really what we have here is kind of people, rich people deciding what are our social priorities and the government not gaining from it.

45:19It doesn't replace government spending because they don't get the, you know, it doesn't help the government. But that argument doesn't really work in your favor here, because that is something that you're doing. And by the way, I just want to be clear, I'm with you, I would be doing the same thing. But I just think the critics would say, well, why are you deciding where that money goes? Why are you spending all this time? If you believe that you don't need that much more money, why not just hand it over to the government? They need money, they need to build infrastructure. Why are you deciding that it should go to this charity and doing all this work to minimize the taxes such that you don't have to pay it to the government?

45:56I understand the argument, but the idea of just sending Uncle Sam, first off, I don't think they'd let you. I mean, maybe they would. It just would feel weird to send money to the Treasury. And what I do is I say, okay, I'm very, my two big charities are teen depression and right now vocational programming for young men and women. And those are two things I'm really passionate about. I think those add social good. I don't create large organizations or offices. I just sign them a check. I inspired my Mackenzie Scott. I don't want my name on shit. I gave a bunch of money to UCLA and Berkeley for vocational program.

46:34They said, do you want to call it the Galloway thing? I'm like, no, in 20 years, they're going to find out I said things that are upset. I don't want my kids to be embarrassed. Respect. I don't just, I want to, I just want to, I don't want my name on anything. I think this is, I think it's anyways. So, but yeah, if you, if, if the notion is I should just send money to the government that I don't technically owe, no, I don't do that. But I do try to pay it forward and impose a hundred percent consumption tax. My big aha moment was my number, if you will, kept getting bigger and bigger and bigger.

47:09I thought, at one point I thought, when I sold L2, I thought, well, I could start a private equity fund, raise a shit ton of money, and maybe in 10 or 15 years I could be a billionaire. And I just like the sound of that. Scott Galloway, billionaire. That just felt sexy. That just felt right. And then I remember a moment, which is personal. I won't go into it. I remember thinking, why the fuck do I need to be a billionaire? Like, who am I trying to impress? I need to impress the people who I love and love me. And the way I do that is a set of shared experiences and spending more time with them, which is not going to happen if I get on a hamster wheel to try to get to a billion dollars.

47:44And also, you have to take a lot of risks with the money you have to get to a billion. So I said, I just need to get off this fucking treadmill. And it's hard to get off it, Ed, when your whole life you're trying to get to a bigger number and you keep getting shot in the face and going to zero and finally you're back and then you go down and you go up. it's just hard to get off that treadmill. But be clear, no one's going to disarm unilaterally. Rich people aren't stupid. They're not going to start cutting checks to the government. What we need to do is elect people. And I do this. I spend money and I work and I canvas for people who are going to restore a progressive tax structure, have an alternative minimum tax on corporations who have the lowest tax rate since 1939.

48:25Their taxes used to be 2.5 % of GDP, another 1%, and also have an alternative minimum tax on very, very wealthy people, such that no matter what loopholes they manage to invent, they pay at least 20 or 30 % of their income. But tax strategy, the tax code's gone from 400 pages to 4 ,000, and those 3 ,600 pages aren't there to help out the middle class. They're there to fuck the middle class, not intentionally, but to say, to have thoughtful conversations and then do things like opportunity zones, which by the way, I've invested in. Here's a good one. Put a million dollars into an opportunity zone fund.

49:04And they've designated a bunch of low-income areas. And if you invest in an opportunity zone, and that is a warehouse in Reno that Amazon just leased out, which I invested in, I invested, I think I invested$5 million,$5 million tax deduction. In seven years, I'll have to pay taxes on that, but I get to invest with$5 million in pre-tax income for seven years and any gains on it if I hold onto it for 10 years are tax-free. And they couch it as helping low-income neighborhoods or whatever. No, it's not. It's a tax loophole for rich people. These are everywhere, Ed. These things are everywhere. And they're even more present in real estate and among corporations.

49:48If you own commercial real estate, you can depreciate the property two or 3 % a year. If you own Apple and it doubles, you can't you can't depreciate it. You can actually depreciate commercial real estate. If you own, I mean, if you own an asset in real estate and it goes up, it doubles in value from a million to 2 million, a piece of commercial real estate, you can do a 1031B exchange. And as long as you roll it into a similar asset class, you don't trigger a capital gain. If you sell Apple at a hundred bucks a share and you've made 50 bucks, you get taxed on it. So real estate, very effective lobby, hugely tax advantaged.

50:27And what are we doing? Trump raised the limit on trusts, where if I put money into a trust, it grows tax-free. And then my kids inherit it. I mean, which is probably the thing that needs the most. 100%. We're turning into dynastic wealth. But so a lot of people, what they do is they go, earn money, invest it, borrow against it, die. And you never pay taxes on it. It gets your kids get it. And Trump, I think, increased the per person trust limit from 5 million to 13 million. So if you're a couple, you can put$26 million in a trust that your kids will get and they'll never have to pay the taxes that you accrued while you were alive.

51:09Yeah, but he's fighting for the working people. Yeah. So look, the tax code has been weaponized by the rich and corporations. I want to be clear. I will fight hard to change it. But no, I'm not going to disarm unilaterally and just cut a check to the government. Just be clear about your position. You want to get rid of the loopholes, but so long as they exist, you will use them. Yeah, 100%. Which I think is a fair position. because the way i think of it it's like it's a lot easier to pay to pay 20 30 taxes if so is everyone else but if you look around and these other rich guys are paying eight percent or nothing a lot of them are paying nothing uh it's a lot harder to do that let me just put it this way if team england finally calls me up in the finals against germany and berlin because i actually have a pretty good foot i don't know if you know this about me and and i get fouled in the last minute of the game or someone knocks me over in the penalty box, I am so falling to the ground and pretending I've torn my ACL and trying to win.

52:12I am so flopping. I'm going to try and win, Ed. And if that's unethical, fine. I'm unethical. But I'm going to play by the rules of the game and do my best to win, full stop. Let's take a look at the week ahead. We'll see the unemployment rate for June and the minutes from the Federal Reserve's latest meeting. Do you have any predictions? Well, that was my prediction was that Starlink is going to be the technology from SpaceX is going to be the technology of 2025. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producers are Jason Stavis and Catherine Dillon.

52:49Mia Silvera is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. We'll be back with a fresh take on markets on Monday.

53:26And the dark flies in love.

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