January 27th, 2021 by Guest Contributor
Tesla Model X, S, and 3, by David Havasi.
Originally published on EV Annex.
by Charles Morris
Zac and Jesse Cataldo are a father and son team who preside over an empire of YouTube channels focused on sustainable energy and transportation. Every week, they turn out a tremendous amount of content about Tesla, EVs, renewable energy and related topics. “We cover all the car manufacturers. We go into wind energy, solar energy, anything sustainable,” Zac told me during a recent chat. “Just like Elon, we’re trying to move the needle on sustainable energy and transportation.”
Zac and Jesse’s flagship show is called “Tesla Time News.” The name refers to the phenomenon of Tesla owners who meet at Superchargers and hang out discussing the latest EV news while waiting for their cars to charge — among those in the know, this is called Tesla time.
Tesla Time News, which comes out every Monday, has been on the air for five years, and has released over 227 consecutive episodes. A second show called “In Depth,” which comes out every Friday, has also logged over 200 consecutive episodes. And that’s far from all. “We’ve got a channel called Now Let’s Review where we review all kinds of e-mobility devices. We’ve got a disruptive investing channel, where we talk about all sorts of stock-related stuff. We’ve also got a clips channel where we put out little bite-sized clips of our stories, so that people can share them. We have over 1,000 videos on our main channel, everything from how to use your Model 3 to [the question of] whether Model 3 is cheaper than driving an ICE car.”
At the time of our interview, TSLA stock had just had another massive growth spurt, soaring into the high 800s, so I asked Zac what he thought was fueling the rapid rise, and if there was a bubble in the making. His answer led beyond the stock market to the larger question of why the battle between Tesla and legacy auto is an unequal contest.
“Right now, a lot of people are getting into the stock, let’s be honest, because of FOMO, fear of missing out. And the fact that’s it gotten into the S&P 500 has made it so that a lot of fund managers, who never would have touched it before, now have to get into it, so there’s a kind of pent-up demand. But I think that [most] people don’t understand that Tesla is not just a car company. If you look at it just as a car company, you might say, ‘Wow, looks like it’s overvalued,’ because [Tesla’s market cap is] more than Toyota, Ford, GM and BMW all combined, and it only makes 500,000 cars a year.”
Tesla’s mounting market cap makes more sense when you realize that the company is much more than an automaker. “It’s getting into things that I don’t think [most] people understand—they don’t understand what a virtual power plant is, or the fact that [Tesla is] vertically integrated, making all the batteries for their cars. I think people are just thinking in term of typical ICE cars today. They think, ‘Aren’t they just selling a lot of cars? And aren’t other car manufacturers able to make more of those?’”
What superficial observers fail to grasp is that the auto industry is in the middle of a disruption that none of the legacy automakers are yet fully participating in. It isn’t about how many cars a company makes — it’s about whether, a couple of years from now, anyone is going to want the cars they’re making. Zac believes we’re on the cusp of a transition to a new type of product, analogous to the situation with smartphones a decade ago. Once cell phones took off, providers of traditional phones and landline service were no longer offering what people were buying.
Zac addressed the Myth of the Tesla Killers, which we’ve discussed so many times in this space. “There’s been so much talk over the years: ‘As soon as the Tesla killer cars come out, Tesla’s in trouble. Once Ford and GM and all those companies make [viable EVs], then watch out, Tesla!’ And we’ve known for years that that’s just not true. Those companies are not innovative, so they’re not able to actually make a car that’s anything more than a compliance car. The only real competitors are going to come from outside. They’re going to come from companies — perhaps Lucid, or perhaps Rivian — that are looking at the problem from a different angle.”
“Our analogy is that you’re trapped in the woods, and you’ve got a bear trap on your leg. That’s legacy auto. If you want to get out of the woods, you’ve got to chew your leg off. What they would have to do is stop making ICE cars, right now. If we saw that happen, I think that they would have a chance. Because they’ve got the means, they’ve got the money to do it. It’s just that they don’t want to stop the cash flow of those engines that they’re selling, so they’re not going to do it. They’re going to keep making them.”
Some observers see this as a textbook example of the Innovator’s Dilemma — auto execs understand the situation as well as we do, but they don’t have any viable way out of it. Zac disagrees — he believes that many of those at the top still don’t understand what’s going on. “When you see interviews with [former Ford CEO Jim Hackett and GM CEO Mary Barra, for example], you would think they have the information I have. But most of them have never really driven an EV. I’ve talked to so many people in the industry, even in the charging industry, who have not really driven EVs for more than a fun little afternoon. Until you experience an EV, you don’t really understand the whole ecosystem of it. A lot of these leaders of companies just don’t buy into EVs yet. Now maybe this year, it’s finally been beaten over their heads enough times that they do. But up until now, and I think even today, most of them really don’t get it.”
What will it take for a legacy automaker to make the transition? “Look at what Herbert Diess is doing at the Volkswagen Group. He’s saying, ‘Look, we’ve got to pivot right now.’ And you’ve seen the pushback he’s getting from people who are [saying] ‘No, we don’t want to pivot. We want to keep making engines. We’re making money on these engines.’ It looks like maybe he’s won that battle with VW, but we’ll see. And some of these other companies—look at Honda. The CEO’s come out and blatantly said [electrification] is not the way they’re going to go.”
Facing the future will mean “having to admit that what you worked on for decades is no longer the way you should go. And I think that’s really, really hard in these cultures. You set up a company with a culture around it, and now you have to throw all that out? That’s really hard, to move that ship in a new direction.”
| A look at some of the Tesla topics and clean energy content covered by Zac and Jesse Cataldo on their YouTube channel (YouTube: Now You Know) |
If and when any legacy automaker decided it wanted to go all in and try to challenge Tesla, there’s another problem: Tesla’s technological head start, which most observers estimate at five years or more.
“Not only does Tesla have a head start, but here’s another part where I think these companies don’t get it. Elon’s innovating so fast, that you can’t just say, ‘Oh well, we’re three years behind but we’re going to catch up.’ He’s changing the rate of change so quickly that by the time you’ve caught up to him, he’s on to the next thing. He’s already on to the machine that makes the machine, whereas I’ve not yet heard any of the big auto manufacturers even talking about that. I don’t think they’ve wrapped their head around it. So, when they finally do catch up to the 4680 battery, Tesla will be, again, three, four, seven years ahead or whatever.”
“Most carmakers, all they want to do is not upset the applecart. They want to come out with a new model that just has enough bells and whistles that you want to buy it as a consumer, but that it doesn’t force them to go into the Osborne effect, which would mean that they [announce] a model for next year and no one’s going to buy this year’s model, they’re going to wait for the new one.”
In Zac’s view, Tesla has disrupted the traditional auto industry product cycle, and changed the way it works. “I bought a Model 3 two years ago, and I got the latest update, so it’s almost like I have the latest model. I know there are a couple of little physical things, like the speaker — I don’t have Boombox Mode, but it’s not the end of the world for me. And [Tesla has] leapfrogged other auto manufacturers by such a wide margin. I was reading this week that one auto manufacturer’s going to put a giant screen in their car. Yeah, but it has to work the same way that Tesla screens work, and I’ve been in all the other latest and greatest cars, and their touchscreens suck. It’s not about the size of the screen, it’s about how it works.”
“Existing Big Auto, all they are, really, is a supplier manager. They take hundreds of suppliers, and put their pieces together into a car. I’m not saying that’s easy to do — it’s hard to do. But Tesla is vertically integrated, Tesla makes pretty much everything they put into the car. I’m not saying they don’t sub out certain things. But every now and then, when Elon gets frustrated with a supplier, he just takes it in-house. Whereas Ford and GM and Toyota, they’re all looking to basically sub stuff out as much as possible. Which means that you can’t even do over-the-air updates to that stuff, because it doesn’t speak to one architecture.”
This echoes something that Tesla co-founder Ian Wright told me six or seven years ago — in a Tesla vehicle, one computer system controls everything, whereas a typical legacy car has a dozen or so different computers that don’t work together very well.
“Yeah, that’s kind of crazy to think that people realized that back then, and it still hasn’t made it to [mainstream vehicles]. And I think that that kind of speaks to the auto manufacturers not having a freakin’ clue. Because they’ve had a decade now. It doesn’t require a complete redesign of the car from the standpoint of the drivetrain, so it seems like that should be [fairly] easy, but it’s not how their companies are set up.”
“There’s such a pent-up demand for EVs, even if people don’t know it. Once you get butts in seats, once you experience the car, something clicks in your brain, and you now understand that you’re in the future of transportation. And I think what’s been going on is, as each new Model 3 or Model Y gets into someone’s hands, and they show it off to a family member or a friend, [those people] get to bypass all of the FUD that’s been written about electric cars — are they going to catch fire? Are electric cars just too weird?”
“When you get to experience the actual technology, it’s a lot like when people first started experiencing smartphones. I remember when smartphones came out, a lot of people would just look at them and dismiss them: ‘I’ll never need that.’ But once you see, up close, someone using a smartphone and what it can be used for, your brain clicks and you begin to realize, ‘Oh, I can do that with this? I can order food, I can order an Uber, I can do my email on it.’ Same thing with an electric car. Once you get in it you realize: How often do I have to get maintenance? Oh, I don’t. How often do I have to go to the gas station? Oh, I don’t — I can just plug it in at home. All the things that you and I know about are things that, to most people, are still outside their understanding, and they need to talk to someone and to experience the car. Not to mention what it feels like to drive an electric car. It’s just this exhilarating experience.”
The demand is out there, says Zac, even if most people don’t realize it yet. High prices, and a limited selection of available EV models, are still holding back sales, but oddly, these factors may also be hurting sales of legacy vehicles. “Once you think you want an electric car, you’re going to hold off your purchase of any car until you can get an electric car that you want. And to be honest, we still aren’t at the place we’d all like to be, where there’s super-cheap electric cars. The Model 3 is about the cheapest car that’ll do everything you want it to do, in terms of range, but that’s still not cheap — $35,000 for the very cheapest model — so a lot of people out there, who probably want a $25,000 car, are just waiting. They’re making their ICE car work until that day. And that’s why you’re seeing ICE car sales plummet. Because you can make your car last. You’ll hold on for a year or two, put a little more maintenance into it, while you wait for that EV of your dreams.”
“We’re in a really unique position, Jesse and I. Because our YouTube channel’s been growing so fast and we get to talk to so many people around the world, we’re kind of in touch, on a grassroots level, with what is going on. People write to us, daily, and say, ‘I’ve got an old Honda, and I’m going to hold onto it until I can afford a Model 3.’ And so, just hearing, anecdotally, all these stories kind of clues us into what’s really going on. We’ll also hear from people saying things like, ‘I want to try and convince my parents to buy a Model Y for the family.’ And then they go to the showroom, and they convince their father or their mother to get in the car. And then it’s like, ‘We have one on order now.’”
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