ev – Marco Gonçalves

Transportation 2.0 update

Roughly three years ago I wrote some thoughts about the upcoming revolution in transportation, electrification and autonomy. Time for a quick update.

In the electrification front, sales of battery electric vehicles (BEV) in Europe (EU + EFTA + UK) + US have been blooming¹,

I have excluded China and hybrid sales, because in both situations basically anything with a wheel and a battery can (and will) be considered an electric vehicle, which distorts the data to the optimist side.

Bottom line in the electrification sales in Europe+USA have reached 3.2 millions units in 2023, a 164% increase from 2021.

There is some near term concern with interest rates, sold out media to big oil and legacy auto (pumping hybrids and denigrating electric cars), and looming price wars with China… but despise all this, the long game is playing out very well, and in my mind it’s already won due to Wright’s law and the learning curve effect. The learning curve model posits that for each doubling of the total quantity of items produced, costs decrease by a fixed proportion (observed experience curve effects for various industries ranged from 10% to 25%).

Every battle is won before it’s ever fought
Sun Tzu

For instance, from 2020 with 800k units (Europe + USA data) and a cumulative production trough 2023 of 6400k units, we can calculate with a conservative 10% learning slope curve a 27.1% cost improvement over these last 3 years. In the real world EV prices actually have been dropping and the specs getting better each year. It’s kind of comparing apples to oranges, to compare a battery electric vehicle (EV) to an internal combustion engine (ICE) car, but I believe point of sale price parity is just around the corner, and the trend will be cheaper EVs than ICE in the (near) future.

It’s important to notice ICE industry doesn’t benefit pretty much from scale anymore, Earth currently has circa 1.5 billion cars² in the world and a yearly 75 million production (an average 20 years renew of the fleet) so it would take at least 40 years to double the cumulative production… I’m convinced we will experience a curve discontinuity, when existing processes become obsolete by technological change.

Actually in the beginning of the ICE industry we can visualize Wright’s law working hard in Ford model T yearly price/units produced.

Also has expected, battery tech is progressing fast. At pack level (more relevant than cell level) the energy density trend is pretty self explanatory and there is still plenty of room for progress, while combustion engine is at the end of the technical development line.

Data points source³

YET… I reiterate, the true revolution it’s not the disruption of ICE, but it’s brewing in the autonomous vehicle (AV) front. And in the world of silicon chips and code lines, the frenetic Moore’s law is king. Dictating an expected doubling of capacity for the same cost every two years, hence a compound annual growth rate of 41%, Moore’s law predicts 180% better systems from 2021 to 2023 at the same cost (300% better by this year end, 21x better by decade’s end at the same cost… that’s the power of the compounding effect).

And boy there are big practical developments in the computers world, forget about machines playing chess (or go) at super human level, forget about image and text recognition. Artificial intelligence (AI) large language models (LLM) bots, being ChatGPT the most known to the general public, can now pass the Turing test!

Proposed by Alan Turing, it tests for intelligence in a computer, requiring that a human being should be unable to distinguish the machine from another human being by using the replies to questions put to both.

Also AI can now easily generate images and videos according to the user prompt. Let’s say, “draw me a picture of a dirt bike popping a wheelie on Mars with several spaceships in the sky” and after a couple of seconds… booom there you go….

So, as expected lots of progress going on, but can a machine drive a car safely in the real world with other road users around?

And the short answer is: YES IT CAN. Google’s Waymo currently operates daily commercial robotaxi services in parts of Phoenix, San Francisco and Los Angeles.

Google’s Waymo in SF

Also General Motors launched Cruise, a robotaxi service, but after several incidents, like cars freezing causing gridlocks, and crashes involving pedestrians and third party vehicles resulted in the suspension of the license to operate without a safety driver, and GM opted to halt it’s AV efforts “while undertakes a comprehensive safety review”⁴. Once again Mary Led and it matters.

Joe Biden notable remarks in 2021 Detroit Evs conference. Since, in 2023 Tesla sold 1.81 million (1.81 x 1000000) EVs, and GM sold 66 thousand EVs (66 x 1000) or about 3,6% of Tesla EVs sales…..

Also in the legacy auto world, Ford and Volkswagen, shut down Argo AI⁵ their joint effort to develop self-driving cars without achieving nothing relevant.

Meanwhile Mercedes has launched Drive Pilot, the first (and so far only) SAE Level 3 system (you can take hands out of wheel and eyes out of road) approved for sale in Europe and the US. Highly publicized It’s a mere marketing gimmick, because it only works on specific pre-mapped highways, during daytime, in good weather, and up to 40 mph in traffic jam situations (following a car).

Really what to expect from legacy auto in AV? As in 2024 they still struggle with simple software stuff like over the air updates and infotainment systems.I really don’t expect nothing but marketing.

From the tech world, Mobileye an Israeli spinoff from chip giant Intel focused only in AV technology, is currently valued at 26 billions, and it develops AV hardware and software to auto makers. Mobileye actually was the original provider of Tesla first autopilot, but after a deadly crash Tesla decided to pursuit AV on it own⁶. Also worth mention is Comma.ai, creation of George Hotz (the Iphone and Playstation jail brake hacker) that develops Openpilot, an open source (find it on github) effort that provides advanced driver assist features to several car makers trough purpose built hardware designed to be installed in the car.

There are clearly two different approaches to solve the AV problem, the legacy auto (and Waymo) using highly detailed and up-to-date maps combined with a suite of sensors like high precision GPS, lidar, radar, 5G connectivity. And the tech world going for cameras (vision only) and AI solution.

While the first approach, can bear fruit much quicker in geofenced applications like Waymo or Mercedes Drive Pilot it’s non practical or economical to scale, it’s a nightmare and expensive to produce and keep updated 3D maps at millimeter precision, and all those sensors come with a hefty cost, so (at least by now) it’s a non economic and non scalable solution. A general AV solution is needed, and in my mind this will be achieved with cameras and AI neural nets, you have to teach a F*g machine to see and react in real time to the world circumstances and changes.

$TSLA

So, if you read the original Transportation 2.0 post back in the day and decided to invest some hard earned money in $TSLA (260.20 close at the posting day) you are now a certified bag holder carrying a 7% loss.

General sentiment is not great, inflation, interest rates, waging wars are taking a toll in the markets generally, and Tesla specifically is also victim of a strong negative narrative from main stream media, and some US government harassment specially since Elon Musk bought Twitter.

So, is this the end? Better to sell all and move along? CNBC, Bloomberg, CNN heck most of the main stream media and Zuck social networks are spoon feeding the viewers with the same message, Elon Musk is bad, EVs suck, Tesla is doomed, FSD is a public danger, Cybertruck rusts overnight, the electric small/affordable car will never be produced, Tesla is doomed. investing in Tesla is crazy, the Chinese are coming, the end of world is upon us…

They must be right? Right? When, in doubt zoom out (and filter signal from noise).

I personally feel some 2018 vibes, when the company was between 2 growth waves, the first wave was the proof of concept with luxury segment Roadster, Model S and model X (tens of thousands units production), and the second wave was the EV mass production with Model 3 and Model Y (millions of units production). Back in the day, just like today, main stream media (with the best compliments of legacy auto and big oil advertising dollars) was pumping the don’t buy a Tesla and don’t touch TSLA stock narrative, they were soon to be bankrupt they say, DOOMED they say.

Tesla is doomed…
fate loves irony as Bob Lutz was a former vice chair of GM bailed in 2009 at a cost in excess of 10 billion USD to the tax payer.

I love it, it shows the fear and desperation of the bears.

Tesla FSD solution is now in 12.5 supervised, meaning it can do all the trips for you without touching the controls, but it requires a person at the driver seat supervising and being ready to intervene and override any error of the system. It’s not geofenced, it works well in rain or night conditions, with or without traffic (leading cars). A general solution for all, that is driving more and more miles.

Is it perfect? No, it’s a ongoing effort, and as time goes by It’s actually learning to drive better and better. Many FSD users report most of trips now are zero interventions, and it’s pretty easy to find Youtube videos of the car driving itself on FSD flawlessly for hours (the videos are getting quite boring).

We also know that in AI systems more data and more compute are always better. This is a big advantage to Tesla, because it’s the only auto maker with 6 million + vehicles with data collection and reporting capability. Talking about more compute, Tesla is developing a huge supercomputer cluster, code name Cortex, in Giga Texas scheduled to be operational in a few months, powered by a system up to 500MW specifically designed to train AI models.

So, when will the Tesla FSD be unsupervised? When will it drive around without no driver? Well my best guess (yes, it’s a guess) it will be available for customers in the next couple of years. There is a massive effort going, results are coming in. Back in 2021 it could drive for a couple of minutes without disengagements, now we are in the days mark and pretty sure weeks without disengagements are coming in. Tesla is getting closer and closer to the holy grail.

Pretty soon in 10/10 Tesla is doing the robotaxi unveil in the Warner Bros studios, and for sure we will have juicy updates and more visibility about the current state and future developments.

Other toughts amd considerations ex manufacturing and FSD

Biden administration is clearly anti Elon Musk, maybe because Tesla is not a unionized company, maybe because he’s a billionaire, maybe because he leans more to the center right, maybe because he bought and freed Twitter from left bias, maybe because he is a free thinker. The bottom point is that if Kamala wins the November USA presidential election, the federal harassment will continue, so let’s hope for a Trump win and a free market normal operation.

The media bias, as most of the media is left wing biased and on top of that Tesla doesn’t advertise (so they don’t get their money) it’s a daily stream of false information against Tesla that can eventually take it’s toll. The good point is that someone said any advertising is good advertising, and the facts speak for themselves and most persons with a functional brain can dismantle the lies and the bias really fast.

and….

so…. probably the Norwegians are just stupid or the news is stupid?

The TSLA stock chart is very promising with a massive symmetrical triangle ready to pop.

Symmetrical triangles represent a pause in the prevailing trend as bulls and bears reach an equilibrium. However, once the price breaks out decisively from the triangle, it often signals the start of a new trend or continuation of the prior trend. The direction of the breakout, whether above the upper trend line or below the lower trend line, tells you which side has gained the upper hand

Yesterday the Federal Reserve reduced the target for its key lending rate by 0.5 percentage points, to the range of 4.75%-5%. The first drop in 4 years signaling the beginning of an easing cycle that is historically very positive for stocks.

So if you are holding the bag since the 2021 post, be excited about the future and hold, there is a bright future ahead, and your patience can (and will) be very well rewarded (nfa).

Personally I wouldn’t bet against Tesla and Elon Musk.

Data sources: European Automobile Manufacturers Association, Kelley Blue Book ↩︎
Data source: fair estimate from automotive industry research firm Hedges & Company. ↩︎
https://www.youtube.com/watch?v=iWOD55f2mEk by https://x.com/LimitingThe ↩︎
GM 2023 Annual report filing 10-k ↩︎
Ford 2023 Annual report filing 10-k ↩︎
Tesla and Mobileye disagree on lack of emergency braking in deadly Autopilot crash ↩︎

Transportation 2.0

This post is on drafts now for about 2 years, it’s a concise summary of my Tesla investment thesis. My mental carburetor chocked at AI and autonomous driving… and guess what? I still have a shallow understanding of machine learning, neural nets, PyTorch, TPUs and all the technical stuff to deep dive into the AI stuff. And bear with me this stuff is crucial in my mind rational as Tesla’s business model is like a Trojan horse to deploy autonomous driving.

BUT no way that I could overcome my technical limitations… SO this post could stay in Drafts indefinitely, OR just like a IRL conversation with friends (congrats for the ones that actually invested) just wrap it up, and put out the general ideas to all my friends that unfortunately don’t have the opportunity to meet IRL so often.

Disclaimer: this is just my stream of consciousness, do not to take it as financial advise. DO YOUR OWN research and thinking. This can be the ramblings of a insane mind.

Humans, are quite an unsuccessful species about self conservation. We have a (declared) stockpile of nukes to destroy the total earth landmass SEVERAL times. The most important leader today doesn’t “believe” in climate change, and most of the others humans happily let the poison of the atmosphere, the water and the land to continue despite all the warnings.

Imagine a visitor from another world looking at this madness, probably we would be cataloged as “Technological savvy but totally schizophrenic species”. One must ask what legacy are we leaving to the next generations?

Anyway let’s be optimistic, continue the exercise and indulge into random thoughts and speculations about the future. Look and behold when one day the measure of computer RAM will be not in gigabytes, but in terabytes.

Transportation 2.0

There is a revolution about the way people and cargo move around, probably the Jetsons flying car is not coming around soon (or probably it is in the form of electric VTOLs), but billions and billions are being spent into electrification of vehicles.

And this an extremely good thing, because a big chunk of total world CO2 and pollution is generated by burning stuff inside ICE (internal combustion engines), and the BEV (battery electric vehicle) is so much more efficient that it’s operation is much cleaner. And as the power grid gets greener with more renewables in the mix, the overall gap just gets bigger and bigger.

There are two metrics about batteries that don’t lie, the energy density Wh/L and the cost USD/kWh, and the trend is simple for both, higher energy density and less cost every year. It’s nothing at all like Moore’s law, much slower, but even predicting a very conservative 5% increase in density and 5% decrease in price every year, around 2050 (perhaps much sooner considering the massive resources allocations) BEVs will have the equal energy density at a fraction of cost of ICE. Factoring in the difference in engine efficiency, supply chain, and environmental impact, probably much sooner than 2050 will be the end of the ICE age.

Perhaps in a far future there will be internal combustion engines in museums showing the exquisite materials and craftsmanship of a time that the world was powered by an ordered symphony of tiny explosions. I imagine like something like a starting up and revving up event with all the attendees in highly protective gear…

Sometimes i see this video (that as quietly been deleted from everywhere, but the Internet never forgets) of Jim Cramer on CNBC about Tesla IPO just for the comic entertainment value:

It’s so funny, this was June 2010, each TSLA share was selling at 17USD (1.13 USD August 2022 split adjusted…). Guess the market had different view… why was Jim Cramer so wrong?

Because he couldn’t understand inside his primate brain that the real transportation revolution is not the transition from liquid fuel to electric. No, that is just tip of the iceberg, the real revolution that’s going to turn everything upside down, it’s autonomous driving.

Think of all business around moving people and cargo, think of all the payrolls for professional drivers, think of all social security for professional drivers, think of all the road fatalities, think ride sharing and no ownership, think of long distance truck hauling, think of your car leave you on the spot and then proceed to park itself, think about drinking a coffee and finishing that report on your boring morning stop and go commute, think about going home drunk with no problem at all, think about catching some sleep on that long journey, think about elderly or disabled people who want to continue to go places by themselves…. etc, etc, etc…. it’s going to be a beautiful new world.

How much does it worth to have a total autonomous car system that can drive better than the top human drivers? That can operate 24/7 and doesn’t get tired, sleepy, drunk, nervous, over optimistic or distracted? A lot, really a LOT.

The race for the jackpot is on, with billions and billions being invested now. And where there is strong competition there will be results, and here Moore’s law is king, so expect this future to be nearer than generally expected. The company in the pole position is Tesla, and if they can deliver first probably they will become one of the most valuable companies in the world, probably the most valuable company in the world as autonomous driving implies solving computer vision, and computer vision achieved unlocks much more than autonomous driving.

Pushing forward deep into the future. We can ask this question, when an autonomous vehicle will be say 10x, 20x, or 100x safer than an average human driving, will human driving in public roads should be even allowed? Guess not, so I bet a lunch in the best restaurant in town with everyone that accepts the bet, that in 100 years from now human driving in Sweden (or Norway) will only be allowed in closed circuits (lets us hope the Nurburgring is still up and running).

1951 First AI program
1956 Los Alamos chess is the first program to play chess
1997 Deep Blue defeats Garry Kasparok
2007 Checkers is solved paper published
2015 Baidu Deep Image outperforms average human in image sorting and recognition
2017 AlphaZero learns chess self playing itself 24h and crushes the strongest chess AI
2017 AlphaGo beats Lee Seedol in the game of Go (10^170 valid board configurations)

as we can see with these few examples the machines are learning, and are learning more complex tasks and are learning faster. As of now machines are already at super human level at many tasks.

Sure driving is a task that one must parse several complex inputs (vision, sound, proper acceleration) and compute with context real time outputs (turning, accelerating, braking), but there is nothing magical or physical impossible for a machine to perform, and perform well better than an human.

Assuming hardware will keep improving offering better performance at lower price each year, and computer science AI and machine learning will also keep improving over time, there will be a point in time that these factors will compound and intersect to unlock autonomous driving, and Tesla with silicon valley tech know-how, best engineers in the world, huge fleet collecting real world data for training the neural networks, own chip designed specifically for artificial intelligence, etc, etc… will be (in my mind) the one company to unlock it first.

According to Tesla 2021 2q safety report, they recorded one crash for every 4.41 million miles driven in which drivers were using Autopilot technology (Autosteer and active safety features). For drivers who were not using Autopilot technology (no Autosteer and active safety features), they recorded one crash for every 1.2 million miles driven. By comparison, NHTSA’s most recent data shows that in the United States there is an automobile crash every 484,000 miles.

Some of the typical questions i have been asked IRL about the thesis:

Won’t legacy auto crush Tesla by sheer volume?
Well if that was to happen, it should have happened many moons ago. Tesla is a big boy now, growing fast with probably the strongest balance sheet in the industry. Besides legacy auto strength is in metal casting and folding, it can’t even put up a decent infotainment system… much more develop an autonomous driving system.

Besides legacy auto is in a world of pain, declining sales, convert factories and human resources to electric powertrains, battery supply, huge debts…. they are giants on clay feet.

OK, but the actual stock value has already risen tremendously, didn’t I missed the boat?
It’s a fact, the stock price already skyrocketed. If you invested 1000 USD back in the IPO and hold it (Jim told you to sell… big shout out to Jim) you would have today around 200.000 USD…

You can make a solid case to justify the current valuation on current business alone, you can go trough profit margins, growth rates, CAGR, ROI and other financial indicators, you can value Elon Musk as the modern Edison, but for me the equation is really simple, if you can envision a near future with autonomous driving with Tesla leading, the valuation is cheap. If you can’t envision this, probably the valuation is more on the pricey side.

I’m not a big fan of reasoning by analogy, but I must also point that for disruptive companies, companies that change the world, with strong leadership and mission, companies that enter a positive loop feedback system it doesn’t make much sense to cap an upper limit.

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” – Benjamin Graham