RedBlue Newsletter: 22Aug22

Date
August 22, 2022

A concise yet comprehensive picture into all things mobility

Podcast: The Expert Series

Episode 2: Brad Templeton, Chairman Emeritus at the Electronic Frontier Foundation

We get asked all the time a set of questions about autonomous vehicles: When will they be here? Will people still drive when we have autonomous ridehailing? Will there be more or less cars in a world of robotaxis? Will autonomous trucking come before autonomous taxis? And of course: what about that trolley problem? Brad is probably the person in the world who has thought most about these questions and answers them very directly and clearly in this episode of the Expert Series podcast.

You can listen on Spotify & Apple as well

Brad was involved in the Google autonomous vehicle program as a strategist from its earliest days, back when it was still called Project Chauffeur (he tells us the backstory of how he got involved through his relationship with Sergey Brin and Larry Page). He is a global ambassador for autonomous vehicles and the value they will bring, and has been an advisor to and investor in a wide array of mobility startups.

Brad’s been part of the fabric of Silicon Valley for decades before self-driving entered the scene. He was one of the first to set up an international link on USENET in the 1980s, and in 1989 started the first paid subscriber internet newsletter - one of several digital ventures he built and sold. Social issues around the use of technology have been a focus of his thinking, and Brad is Chairman Emeritus of Electronic Frontier Foundation, the leading civil rights group focused on cyberspace.

Besides answering most of the big questions around autonomous vehicles, Brad explains why roads made of concrete are similar to the structure of the internet and we run through a scorecard of where various autonomous vehicle programs currently stand.

📺 Inflation Reduction Act (IRA)

Olaf was on Bloomberg discussing the recently passed inflation reduction act. Below is an except from the interview. You can watch the full interview here.

The EV parts of the IRA

The IRA extends the existing $7,500 tax credit on new vehicles, while changing the rules for which vehicles and buyers qualify.

Buyers: earning cap of $150,000 per year, doubled to $300,000 for a married couple.

Vehicles: $80,000 cost cap, vehicles must be US sourced and manufactured, even down to raw materials.

In addition to the tax credit for new vehicles, there is also now a $4,000 credit for used EVs.

Tension between America First vs Climate interests

The restriction that only vehicles fully manufactured in the US qualify for the credit is a reflection of America First policies, prioritizing domestic manufacturing over other considerations such as minimizing cost or maximizing EV supply. This policy reflects a discomfort that China today is central to the EV supply chain, manufacturing the majority of battery packs, especially as tensions between the US and China spike. The policy will accelerate a shift away from Chinese manufacturing, but that shift was already happening.

In the near term, these restrictions will severely limit the number of electric vehicles that qualify for the tax credit, with around 70% of EVs expected not to qualify. This creates confusion for buyers and even manufacturers as they try to shift their strategies to adapt to the suddenly shifted regulatory landscape.

On the positive side, the new subsidy regime brings long term policy stability with a ten year time horizon.

Partial correction towards less regressive policies

These new policies are less regressive than the existing set of subsidies, which didn’t limit who or which vehicles qualified (a wealthy person buying a Hummer EV seems a suboptimal candidate for a subsidy). Furthermore, the $4,000 credit for used EVs is particularly important for less wealthy buyers.

Two questions mostly overlooked while focusing on these specifics are: (1) does this policy meaningfully move us closer to the goal of reducing emissions from transportation? (2) are subsidies to consumers buying cars the right place to direct tax dollars?

But we should be focused on electrifying miles not electrifying vehicles

You might not want to make it an either/or, but the supply of lithium and other battery materials is limited, as is the money government can put to work to achieve key goals. Directing subsidies to cars that have massive battery packs is like subsidizing sponges that will suck lithium, cobalt and nickel away from the vehicles that could best utilize these supply constrained raw materials. The metric we should focus on is electric miles, not electric vehicles.

Beyond this, we also need to find ways to reduce the amount of energy required to move people and goods: our cars are comically over-designed for the things we need them for.

We argued this point at green.red.blue when the original Build Back Better legislation was on the table.

Here are three ways this bill and the policies it introduces could be improved going forward:

  • Incentivize smaller vehicles: The most tragic aspect of the IRA is that it originally included a $900 credit to purchase an ebike, but it was struck from the final version (link). It’s crazy that if you buy a new EV, you get $7,500 of the cost subsidized, but if you want to buy an electric bike, you get nothing. The relative efficiency and affordability of ebikes is effectively being punished: you could buy seven and a half RadMission ebikes for the value of the car credit (link). One way of more effectively rewarding less energy intense forms of transportation is a policy being proposed in California of a $2,500 tax credit to any adult within a household who does not own a car (link).
  • Focus on fleets: Fleets - whether trucks, Amazon delivery vans, shared scooters or Citi Bike - are the vehicles with highest utilization rates and therefore the most leveraged bundle of miles to focus on decarbonizing. Beyond this, they tend to be fit for purpose and designed specifically for the use they are applied, meaning that they consume the energy they need to fulfill their purpose. Subsidies should be directed here most aggressively to accelerate adoption and manufacturing scale while bringing forward the emissions benefits of a quicker transition. There is an allowance in the IRA for commercial vehicles (not picked up by the news cycle but present in section 45W (link)). However, the subsidy cap for small commercial vehicles is equal to the baseline for passenger vehicles. Meanwhile, similar to the missing ebike subsidy, small vehicle fleets like shared scooters and delivery bikes are overlooked: It is striking how much GM benefits from the IRA (it has the most vehicles that could qualify for subsidies) even though it was bailed out in recent memory; meanwhile Bird is on its knees as city governments (including in Santa Monica where it started) tie it up with red tape and provide no support (link), even though the miles it delivers are far, far more climate friendly.
  • Small vehicle infrastructure: The biggest barrier to the wide adoption of ebikes and other smaller form factors is the danger created by cars. The best way to get around this is to build viable networks of micromobility lanes. I discuss this in my book: Though Copenhagen and Seattle have a similar climate and population size, in Seattle just 3.1% of people commute by bicycle, compared with around 50% in Copenhagen. Seattle had just 3.2 miles of protected bike lanes in 2014; in contrast Copenhagen, has 513km (319 miles) of protected micromobility infrastructure in the city and an additional 167km (104 miles) of "super bike lanes" for longer distance commuters coming into the city (link).

Future bills such as the upcoming ‘22 amortization R&D tax bill do create opportunities to direct incentives towards some of these areas with greater leverage, especially an ebike credit (link).

🏍️ River

We led the seed round of River, a company building electric two-wheelers in India (back when we were at Maniv). The company just raised a $11m Series A, with participation from two big names: early Uber investor Chris Sacca’s new fund Lowercarbon Capital, and Toyota Ventures.

To succeed in India, you need to build a car with the appeal of a Range Rover, the durability of a Land Cruiser, and the cost of a used Corolla. Most Indian founders & the VCs who back them want to build the next Tesla and be the next Elon. In doing so, they're missing the largest opportunity - to build an electric platform for the mass market!

Here are some reflections that Prescott wrote up about the challenges of winning in the Indian market and what is so unique about the strategy that River has taken:

🎢 Ups and downs

Right now, the economy is a bit like a fist coming towards the face, but we don’t yet know how hard it’s going to hit or whether it might just glance off the cheek.

It’s confusing because different signs point in different directions: Inflation seems to be bad, but maybe it isn’t. Consumers still seem to have a lot of purchasing power even though some things are slowing down. Mobility companies give an interesting window into the state of the economy because they span a range of discretionary and non-discretionary purchases.

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  • 📉 Amazon (ecommerce) - Amazon just recorded its slowest growth quarter. Remember that slow growth is still growth (Amazon’s business today is bigger that it’s ever been) but it’s not a great sign following the very rapid phase of growth and investment the company saw during the pandemic. Consequently, Amazon is also slowing its investment and buildout of logistics infrastructure, but is still growing out significant capacity in key markets (link).
  • 📈 Uber/Lyft (ridehailing) - In the 19May22 edition of this newsletter, we explained why we thought Uber was on track to generate free cash flow, and that’s exactly what has happened (link). It seems that inflation is increasing Uber’s supply of drivers more than it is decreasing demand for the platform. Not so for Lyft, which lost about as much money as Uber made (link).
  • 📈 Established OEMs - Most carmakers churned out profits in the second quarter, with VW posting operating income of €12.8 billion and Stellantis posting a comparable €10.3 billion (link). However BMW downgraded its full-year free cash flow guidance to €10B from €12B which may indicate trouble ahead (link).
  • 📉 Arrival (emerging OEMs) - Arrival (down 82% YTD) is slashing production targets (from 400 to 20 vehicles) and its ambitions in order to focus on the delivery van they are building for UPS (link). Previously they had hoped to launch a bus and ridehailing vehicle in parallel.

Besides market performance, risk and inflation will affect long term investment into next generation technologies like autonomous vehicles. GM’s Cruise subsidiary is burning $5M per day (link) and Waymo is likely burning way more, so finding a way to generate revenues will become increasingly important. TuSimple (link) and BMW (link) both also suffered crashes with autonomous test vehicles, highlighting technological challenges that still lie ahead of deployment. Brad Templeton gives a deep perspective into where things currently stand in the autonomous vehicles race in this week’s podcast (link).

Your thoughts?

During the Bloomberg interview, Ed Ludlow asked what would be included in a better version of the IRA. If you were rewriting the bill, what would you include?

We’d love feedback on our newsletter! Let us know here.

News

Priority

2 views

Priority

All News

NameRelease dateCategoryLink
Arrival slashes production targets to just 20 EV vans as part of restructuring
August 11, 2022
E-CommerceOEMEVLast-mileLogistics
The Place With the Most Lithium Is Blowing the Electric-Car Revolution
August 10, 2022
Batteries
Carvana Cuts Costs as Demand for Used Autos Remains Under Pressure
August 4, 2022
Aftermarket / auto retail / dealers
Auto Makers Ask Congress for Easier Path to Electric-Vehicle Tax Break
August 4, 2022
Regulation/PolicyEVOEM
Volkswagen (VW) Ordering $4 Billion Worth of Sensors From Israel’s Innoviz
August 2, 2022
AutonomyOEM
Incentives for biking are missing from the climate deal
August 2, 2022
MicromobilityRegulation/Policy
Self-Driving Truck Accident Draws Attention to Safety at TuSimple
August 1, 2022
AutonomyTruckingSafety
Car Makers Are Churning Out Profits—From the Passenger Seat
July 29, 2022
OEMAftermarket / auto retail / dealers
Amazon’s Plans for Massive Warehouses Go Forward Amid Logistics Review
July 28, 2022
E-Commerce
General Motors' Cruise Robotaxi Unit Is Losing $5 Million A Day
July 27, 2022
Conflict or crisisAutonomyOEM
Low-Cost Cities With Strong Economies Remain Attractive as Housing Market Slows - WSJ
July 26, 2022
Smart City / Urban Renewal
Porsches Postponed by Buggy Software Cost VW’s CEO His Job
July 25, 2022
Conflict or crisisOEM
Why Did VW CEO Herbert Diess Get Fired? - Bloomberg
July 23, 2022
Industry trends
Volkswagen CEO Herbert Diess to Step Down
July 22, 2022
OEMConflict or crisis

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