Courtesy Tony SebaEarlier this summer, Worm Capital and I published our first report on electric vehicles and solar and wind energy titled, “The Renewable Energy Revolution: A Longterm Outlook For Investors.” In it, we document a core thesis of our firm: We believe electric vehicles, automation, and renewable energies are disrupting entire industries—and it’s happening quicker than most people realize.
While researching this report, we came across the work of Tony Seba, a clean energy guru, Silicon Valley entrepreneur, and Stanford lecturer. Seba’s most recent study on automotive disruption, “Rethinking Transportation 2020-2030,” makes the fascinating argument that by 2021, oil prices will collapse, electric vehicles will go mainstream, and that by 2030, about 95% of the U.S. population will be served by electric, self-driving vehicles.
He calls it “Transportation as a Service,” or “Taas,” for short.
Seba, like us, sees that the revolution happening in real-time, not in some far off future. For investors, this dynamic creates both enormous opportunity—as well as downside risk. Some companies are moving quickly and innovating within the automotive industry, but others are stuck in the past. In March, for instance, I criticized GM for spending $17 billion on wasteful stock buybacks and, in my opinion, not pivoting quickly enough to electric. (Buybacks, we believe, are a major cause of harm to the U.S. economy).
Tesla, meanwhile, is building Gigafactories all around the world and turning itself into the gold standard brand for fully electric, automated vehicles. They also don't do buybacks. (Disclosure: Worm Capital owns shares in Tesla.)
Seba’s work has been getting plenty of attention—he’s been quoted by The Guardian, Axios, CNBC, and others—so for this month’s Q&A, we reached out to him to talk a little more about his views on automation, Tesla, and the death of the internal combustion engine.
An edited transcript appears below. (Note: The opinions expressed in this Q&A are those of Tony Seba and not necessarily Worm Capital.)
Worm Capital: Tony, you make the prediction that the internal combustion engine (ICE) will be obsolete in the next couple of decades. For traditional manufactures, is this the “innovator’s dilemma” playing out as we speak? And how do you see the battle between electric vehicle (EV) companies and ICE vehicle companies?
Tony Seba: Right. It's about the inability of the incumbent to make a transition. It's essentially about them being addicted to the existing business model, to the cash flow that it generates, and not seeing that it's going to dry up—and it's going to dry up very quickly.
So just to use an example, Kodak—they essentially invented digital imaging, they had a thousand patents on digital imaging—digital cameras and sensors and so on, and still they were unable to transition. So it's not like they didn't see it coming; they were just unable to make the transition. Culturally, it was very difficult to adjust.
The same thing seems to be happening with the traditional OEMs versus electrification of vehicles. This is a technology that they know well. EVs are very simple to build—they only have twenty moving parts, plus the battery, versus the 2,000+ moving parts of the internal combustion engine.
So the inability to transition does not lie in the technology itself, but in the fact that they're addicted to the cash flow that they already have. Also, the internal combustion engine industry hasn't changed, really, in a hundred years. They add one little thing at a time, but it hasn't really changed substantially.
On the other hand, electric vehicles are more like computers on wheels. Things change dramatically very quickly. So back to your question -- how do I see the battle between EV companies and ICE vehicle companies? It's more cultural than it is about their technology itself. That's one. The next one they don't understand, or at least have been denying, is the speed of the rate of change in electric vehicles. That has mostly to do with the drop in costs of Lithium ion batteries, which is more than anything what drives the cost of electric vehicles.
This is what I call disruption from above. Think about the smartphone: When it first came out 10 years ago in 2007, experts said, “Who would ever buy a $600 phone, when you can buy the $100 Nokia?”
Worm Capital: Famous last words, right?
Seba: Right. But all the costs of the technology of smartphones have come down substantially since. It's the disruption from above when you start out with a superior product that drops down in cost. And notice that I said "cost" not "price."
So for EVs—in 2010 the Tesla model S was a $100,000+ car. And now the Tesla model 3—we are talking about a $35,000 electric vehicle.
">Courtesy Tony SebaEarlier this summer, Worm Capital and I published our first report on electric vehicles and solar and wind energy titled, “The Renewable Energy Revolution: A Longterm Outlook For Investors.” In it, we document a core thesis of our firm: We believe electric vehicles, automation, and renewable energies are disrupting entire industries—and it’s happening quicker than most people realize.
While researching this report, we came across the work of Tony Seba, a clean energy guru, Silicon Valley entrepreneur, and Stanford lecturer. Seba’s most recent study on automotive disruption, “Rethinking Transportation 2020-2030,” makes the fascinating argument that by 2021, oil prices will collapse, electric vehicles will go mainstream, and that by 2030, about 95% of the U.S. population will be served by electric, self-driving vehicles.
He calls it “Transportation as a Service,” or “Taas,” for short.
Seba, like us, sees that the revolution happening in real-time, not in some far off future. For investors, this dynamic creates both enormous opportunity—as well as downside risk. Some companies are moving quickly and innovating within the automotive industry, but others are stuck in the past. In March, for instance, I criticized GM for spending $17 billion on wasteful stock buybacks and, in my opinion, not pivoting quickly enough to electric. (Buybacks, we believe, are a major cause of harm to the U.S. economy).
Tesla, meanwhile, is building Gigafactories all around the world and turning itself into the gold standard brand for fully electric, automated vehicles. They also don't do buybacks. (Disclosure: Worm Capital owns shares in Tesla.)
Seba’s work has been getting plenty of attention—he’s been quoted by The Guardian, Axios, CNBC, and others—so for this month’s Q&A, we reached out to him to talk a little more about his views on automation, Tesla, and the death of the internal combustion engine.
An edited transcript appears below. (Note: The opinions expressed in this Q&A are those of Tony Seba and not necessarily Worm Capital.)
Worm Capital: Tony, you make the prediction that the internal combustion engine (ICE) will be obsolete in the next couple of decades. For traditional manufactures, is this the “innovator’s dilemma” playing out as we speak? And how do you see the battle between electric vehicle (EV) companies and ICE vehicle companies?
Tony Seba: Right. It's about the inability of the incumbent to make a transition. It's essentially about them being addicted to the existing business model, to the cash flow that it generates, and not seeing that it's going to dry up—and it's going to dry up very quickly.
So just to use an example, Kodak—they essentially invented digital imaging, they had a thousand patents on digital imaging—digital cameras and sensors and so on, and still they were unable to transition. So it's not like they didn't see it coming; they were just unable to make the transition. Culturally, it was very difficult to adjust.
The same thing seems to be happening with the traditional OEMs versus electrification of vehicles. This is a technology that they know well. EVs are very simple to build—they only have twenty moving parts, plus the battery, versus the 2,000+ moving parts of the internal combustion engine.
So the inability to transition does not lie in the technology itself, but in the fact that they're addicted to the cash flow that they already have. Also, the internal combustion engine industry hasn't changed, really, in a hundred years. They add one little thing at a time, but it hasn't really changed substantially.
On the other hand, electric vehicles are more like computers on wheels. Things change dramatically very quickly. So back to your question -- how do I see the battle between EV companies and ICE vehicle companies? It's more cultural than it is about their technology itself. That's one. The next one they don't understand, or at least have been denying, is the speed of the rate of change in electric vehicles. That has mostly to do with the drop in costs of Lithium ion batteries, which is more than anything what drives the cost of electric vehicles.
This is what I call disruption from above. Think about the smartphone: When it first came out 10 years ago in 2007, experts said, “Who would ever buy a $600 phone, when you can buy the $100 Nokia?”
Worm Capital: Famous last words, right?
Seba: Right. But all the costs of the technology of smartphones have come down substantially since. It's the disruption from above when you start out with a superior product that drops down in cost. And notice that I said "cost" not "price."
So for EVs—in 2010 the Tesla model S was a $100,000+ car. And now the Tesla model 3—we are talking about a $35,000 electric vehicle.
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