Episode 144 - Financial Twists & Turns of the AV Market

From market consolidation to economic downturns, the mobility industry is facing many twists and turns.

When it comes to the AV market, there’s a lot to unpack. From strategy to capital flow to the media’s impact on potential investments, the financial state of the public and private AV market—and what the future holds for autonomy—is top of mind for stakeholders and consumers.

For insight into these trends, we sat down with Mark Gottfredson, Partner at Bain & Company, a leading global consultancy firm. As a 30-year Bain veteran and co-head of the Americas Automotive & Mobility practice, Mark discusses the perception of the AV industry, investor confidence in the sector, the impact of inflation, and what happens if we go into a recession.

Meet Our Guest

MARK GOTTFREDSON
Partner, Bain & Company

Mark Gottfredson is a partner of Bain & Company’s office in Dallas Texas, which he founded in 1990. Over the past 39 years, he has advised Chief Executives and top-level managers in a wide range of industries. Most recently he served as the leader of Bain’s Americas Automotive and Mobility practice. He is also a leader in the firm’s energy and strategy practices, and has led the firm’s global performance improvement practice.

In 2005, Mr. Gottfredson was named to Consulting Magazine’s list of Top 25 Consultants globally. He has been published extensively in publications such as the Harvard Business Review, European Strategy, and the World Business Review. In addition, he is frequently sought out and quoted in such publications as the Wall Street Journal, Financial Times, and Business Week. One of his specialties is in complexity reduction, a topic that he has pioneered and refined for more than 20 years. His book for general managers, called “The Breakthrough Imperative,” published by Harper Collins debuted in Spring 2008.

Mark obtained his M.B.A. from Harvard Business School in 1983, where he graduated with high distinction and was named a Baker Scholar. He received a Bachelor of Arts degree from Brigham Young University in Japanese (magna cum laude, honors). Prior to joining Bain, he worked in the financial services and real estate industries.

Transcript:

Grayson Brulte:

Hello, I'm your host, Grayson Brulte. Welcome to another episode of SAE Tomorrow Today, a show about emerging technology and trends in mobility with leaders, innovators, and strategists who make it all happen. On today's episode, we're absolutely honored to have Mark Gottfredson, partner at Bain and Company.

On today's episode, he'll discuss market consolidation in the mobility industry and the impacts of economic downturns. We hope you enjoy this episode. Mark, welcome to the podcast. 

Mark Gottfredson:

It's great to be here. Thanks, Grayson.

Grayson Brulte:

I'm excited to have you here because to say the least, it's interesting times in the mobility markets.

We're starting to see divergence from the public markets to the private markets. And Mark, you're an expert on all things markets and economics, and Bain has a really great practice in that. I wanna start by diving into the public perception of autonomy. If you look at the public markets, they're in trouble.

We had the SPAC meltdown and autonomous trucking led by Embark, which is down 97.44% year to date, as of December 2nd. And Aurora, which is down 87.21% year to date, as of December 2nd, it's only decreased investor confidence. I was looking at the Tiger Global 13F filings. They're slowly selling out of Embark. You have Cathie Wood at Ark Invest. She's sold out a hundred percent of TuSimple. With major funds liquidating the company's not performing in the public markets. In your opinion, what is gonna be the long-term damage to the autonomous vehicle industry? 

Mark Gottfredson:

So that's a big question. Grayson obviously let's start a little bit of background.

I think even a couple of years ago I was on a webinar that, where we talk about the whole idea of SPACs and the problem with SPACs as a vehicle for things like mobility really has to do with that. You get in that SPAC, you get a pile of money, and then if it looks like you're gonna run outta that money, You may not get additional funding.

The traditional venture capital model is a, there's an angel round, there's a B round, a C round, a D round. If you meet certain milestones, the public markets act very differently than that. As soon as you get stacked, you're now a public company. You have quarterly earnings calls and and the market starts looking at your cash burn.

The market's never happy when there. Either no revenue or no credible path to to revenue and profitability. And that's why you see the big drop off. And this is even with companies that, arguably could be healthy. Take an example of canoe, which came in as a SPAC. It has dropped its market prices dropped more than 95% and yet it has a $2 billion backorder backlog of orders. And you would say, Hey, this is a company that actually is meeting milestones, has contracts, it should be worth something. But the SPAC vehicle just makes it very difficult for the market to respond positively to it.

And I, and so I think when you say public markets, you're talking about the, in my mind a lot, the SPAC market. And that has been a disaster for this kind of investment. On the venture side, however, as I think you, you noted there's, there continues to be interest, although let's talk just a little bit about what's been happening in the venture capital market.

The total number of deals is off by about 30% this year. The total dollar value in venture capital generally is about 50% off, and the number of deals in mobility is off by about two-thirds. Now, a lot of that has to do with where we are in the economy and people becoming much more cautious. And the evidence that I have for that is that actually in the third quarter of 2022, the venture capital industry has had record breaking fundraising.

They've raised more money than they And annually, this'll be probably the best fundraising year, maybe of all time for venture capital. So what's happening is you have a decrease in the number of deals. And an increasing amount of dry powder. And so that, that means there's gonna be money spent.

But it is definitely more cautious right now. And as I will probably talk about more as we have this discussion, it is more focused on getting to. Profitability sooner. 

Grayson Brulte:

Profitability matters, markets reward. Growing companies that are profitable. I repeat markets, reward growing companies that are profitable.

I know several of the CEOs that went the SPAC route and I asked them to the, to these gentlemen. Why are you doing a SPAC? I said, it's a bubble that's gonna burst when the Fed turns hawkish. It's a giant pile of money and the terms are great. I said, you're gonna lose your company. It's a giant pile of money, and the terms are great.

It just seemed that there was this SPAC mania. I believe that was the cover of Bloomberg Business Week with social Innovation capital. It just seems that there's gonna be this carnage that, when that carnage happens, do we see these companies merge together as they go through a de-listing process?

At the end, the investors that were, I'll use the word naive enough to jump in will get burnt, but what's gonna happen to those companies and all that valuable IP private markets value IP at a pretty significant premium depending on the IP that you have?

Mark Gottfredson:

Yeah, I think it, it comes down to when you look at these companies, As they, as I mentioned earlier, the problem with the SPAC is you get that big pile of money and then if you run through it, where do you go from there?

Because the mar, you really can't go back to the public markets. Then you have to go back and see if there's somebody from a venture capital perspective who will actually fund you. And, but basically at that point your reputation is tarnished and so I think there will be some carnage here. I think there will be some companies that actually have some very promising products that will go under, but I also think that some will be able to pivot and they'll find some sources of capital because they can point to, wait a minute, we're actually profitable.

If you look at it on a variable basis, we just need to scale this thing. And if you can make that argument and that's compelling, I think there will be, some funding for you, but it may no longer be under the umbrella of a public company.

Grayson Brulte:

If you look at different metrics to determining profitability, Gatik, which is in the private markets, it's backed by Eric Schmidt, it's backed by Koch Industries.

They're focused on a per mile profitability metric. And I talked to Gautam, he's been on the podcast. Gautam, how many points? Nope, I'm staying private. We're gonna focus on our metrics until we can show the market long-term profitable revenue. Why are more companies not taking that approach? If you look at companies that are being incubated inside of companies that are doing really well, they're taking that approach.

You have Alphabet, which is incubating Waymo, you have GM which is incubating Cruise, and if you've started to notice, they're starting to publicly declare some, even though the numbers are light, they're saying we're getting revenue, and they're putting it out there. GM for example, on their balance sheet, breaks Cruise out as a line item.

When Cruise becomes profitable on a publicly accepted basis and they're growing revenue, does GM eventually spin that out to unlock that value? When GM could say, okay, we've been profitable, say for 18 months, we've been profitable for 24 months, or eight quarters, 10 quarters. Did we actually see that spin out because there is value there and there is a track record? 

Mark Gottfredson:

I think doing a spin is always a possibility. The other side of it is, I think part of the reason to start breaking it out and showing revenue is to highlight to the public markets that we're making progress and to hopefully get a pop in the share price base.

If you're a GM, you actually wanna be a tech company. And you wanna say, look, a lot of our company is tech related, and by the way, we're getting revenue on it. And I think that the breaking it out is less about a spin right now. In fact, I think GM would, would like to figure out that this is the future of their business.

That, an analogy that I can think of here is the pharmaceutical industry. If you think about the pharmaceutical industry, they do a lot of just basic, pure research. Knowing that in their portfolio of peer research, there's gonna be things that end up being products or not.

But the way they have to think about it is they have to think about, we have to have revenue today from the portfolio of products that we developed many years ago, and that's gonna pay for what's gonna happen in the future. You. , if you're working on a cancer drug, you don't know whether it's gonna work or not.

It's very hard to put a, an NPV or a specific business case on it. So it's not an NPV based calculation. It's a strategy based calculation and it's a portfolio based calculation. And that's the way that they manage it. And that's, that's how companies like GM or Ford, other OEMs should be thinking about the future.

You've gotta have a strategy which plays into what the future of the world is, which. Is electric vehicles and it is autonomy and it is shared mobility. You've got to be playing in those markets cuz that's where the future's going to be. And you need to have, a portfolio of investments that you're going after.

Some of them may not pay off but to the extent that you're getting any traction, you want to, you wanna share that with the world because you are a public company. You wanna be a technology company. You wanna demonstrate that there is a strategy that makes sense that's gonna play out for us in 10 years. And have the markets appreciate that. 

Grayson Brulte:

I really like the pharmaceutical analogy. That's the first time I ever heard that pharmaceutical, GSK or Merck, they're known for large research and development budget. You right, they have to find, I'll use the common term blockbuster drug. They always have to work towards that next blockbuster drug.

GM, in my opinion, doesn't get enough credit for what, if you wanna use the research and development from pharmaceutical standpoint, what they're incubating, they have bright. Companies on track for a billion dollars. They, Mary Barra has the entire electric vehicle strategy that she's been working on.

You have the Ultium battery inside of GM and you have crews. It just seemed like all these pieces will eventually overlap. The GM's building the Cruise origin that runs on an Ultium battery. If you're gonna buy a Cadillac that runs on an Ultium battery, if you're gonna have eventually your goods delivered by FedEx, that comes in a break drop vehicle, run on an Ultium battery.

Who's the common denominator there? It's GM. You're right. If one of those just hits and becomes a nice, say, a nice new multi-billion dollar year revenue stream. That's a very good thing for patient investors.

Mark Gottfredson: 

Exactly. And it's, and it's a great example of a company looking and saying, where is the industry going to be 10 years, 15 years from now?

And how do I develop a strategy that is going to pay off in that in that long term thing? Because, the other side of it is I think many of the OEMs potentially risk. A real decline in their business if it gets, if they're not in tune with where things are going from an electrification standpoint, and if they're not in tune where things go from a mob mobility standpoint, then, sooner or later they start losing share, even though in the short term they save some money on on some of the research and investment that, that other companies were making.

Grayson Brulte:

Does the financing model eventually start to change as the large OEMs introduce more and more electric vehicles? You're seeing there's autonomy. A startup outta Santa Monica. I was started by the founder of Autotrader that's doing subscriptions. You're having several subscriptions in the European market.

GM has a banker, a financing arm, Land Rover, Jaguar has JPM, some have Wells Fargo or Bank of America. Do we start to see the quote unquote, the lease reinvented? As a subscription where you say, okay, for X amount of dollars a month, you're gonna get the vehicle unlimited mileage. You're gonna get your charging, you're gonna get your insurance.

Of the consumer can know, okay, my monthly expense to operate this vehicle is X dollars. Especially as we go into potential financial downturn. 

Mark Gottfredson:

It's interesting, we've been watching the idea of subscriptions. Now, at least, I've been involved in working with clients in thinking about subscription models since about 2015.

In 2015 was just really way too early for it. But if you look at uh, consumer research and people's willingness to consider a subscription model that has gone from, less than 10% of the people to just in the last year, that number has crossed the 50% threshold that people, when they're buying a vehicle would consider a subscription model.

That doesn't mean that they're all going to take it. And there are advantages and disadvantages and there are also some, still some business model issues in terms of thinking about, there's many dimensions you can think of on a subscription. Do you have the right to trade your vehicle out for a, a vehicle of a different type when you need it, know, when you're going camping, could you get a different vehicle than the one that is your normal subscription vehicle?

And. And getting some of the utilization terms to work from a subscription model standpoint are difficult. But I think the trend is there. We have subscriptions for music. People are getting more used to the idea of subscriptions that are more about experiences and things like that. And so, I think we're still in the nascent stages, but I think it will be growing and I think it will become a significant segment of the market.

I, I think it's a long ways to say that everybody's gonna go to a subscription model. Ha, having said that, when we get to full autonomy and people are shedding their vehicles because they can access an autonomous vehicle anytime. I think the model does shift at that point in time. 

Grayson Brulte:

I fully agree with that.

What caused the 40% increase in enthusiasm? Is it budgeting? Is it convenience? Is it the ability to have experiences or different options of vehicles? And from your research, what has caused that 40% increase in enthusiasm? 

Mark Gottfredson: 

I think it's a number of factors. I mentioned to you that people are getting more used to the idea of subscriptions to the extent that that people are seeing real value in it.

In other words, this could work for me. It's it's not higher costs than if I do a lease. Those kinds of things are, factors that, the auto companies have started to figure out how they can make it economical for the consumer. And that's really the key. The consumer might pay a little bit for convenience, but the fact is most people don't have massive amounts of extra money to pay for convenience.

They have a certain amount of money that they can pay for a vehicle. One of the things that I think is really interesting about consumer purchase behavior is that, about 95% of the population when they walk into a dealership, they know how much they can pay per month, period.

And they buy the most car they can get for what they can afford per month. That's, what their budget is. And so to really make the subscription model work you can't charge a huge premium for convenience. And I think that's one of the things that the OEMs have learned a lot.

Grayson Brulte:

I'll share some insight here. I studied in depth of the Porsche program from the original subscription and the Cadillac program and subscription, and speaking to a lot of the Porsche executives in Atlanta where they ran one of the pilots. I said how's it going? They said we would get phone calls, I ran outta gas on the side of the highway, bring me a new car, because somebody found out in the terms of use that, that you could swap out your car even if you run out of gas. And people would, individuals would take advantage of that. So you're right, we have to get the terms right. And the other issue is from the Cadillac program, having experienced that firsthand was the positioning of the vehicles.

If you want to swap the vehicles, the consumer does not wanna wait a long time. So all these logistical things, and they do not want to go to a airport parking lot. They want to go to example. Cadillac was in negotiations on the Beverly Hills. Go to the Beverly Hills Hotel. You get into your new Cadillac.

Ah, this is a great experience. I'll pay you a premium for that. If you look at individuals that are going into the dealership, they have a fixed budget with they know they can afford every month as you go to a subscription. What role will brand play in that? Because if you look at a certain levels of Mercedes or BMWs or Jaguar Land Rovers, they're aspirational brands.

Individuals want to aspire to own them, to drive. If say, a traditional lease for a high-end Mercedes is $1,500 and a subscription can come in at $1,200, do you see more consumers trying to stretch their budget because they wanna have that experience, they wanna have that self-confidence of driving that large Mercedes?

Mark Gottfredson:

Certainly all of the OEMs, when you look at where they put out subscription programs, they started at the premium end of the market because the perception is that's where the consumers are willing to pay more for convenience, more for the brand image. The cache of doing this and so on and so forth and so yes, I think that's where it starts. I think you it moves down market if you can get the economics figured out. But, in the beginning it starts in a market where you're trying to sell a concept or you're trying to sell a brand or exclusiveness or something like that. 

Grayson Brulte:

When we move into full autonomy, what becomes the defining factor? Waymo will get you there safely, Cruise will get you there safely. In your opinion, what becomes that defining factor? Let's just say it's both $12 for both vehicles, the same amount of distance, same amount of pickup time. What becomes that defining factor? 

Mark Gottfredson:

Yeah, so It's, that's a tricky one. I think one of the, one of the challenges for the OEMs in particular is that the hardware itself becomes a little bit commoditized.

In other words, you may want a luxury vehicle, but you don't really care if it's BMW or Cadillac. It's a luxury interior. It's appointed in certain ways. I think that the differentiation will be less about. The brand themselves and more about the use case for which the vehicle comes to pick you up.

So if you are a businessman somebody who has an interior configured that provides the most productivity on the commute and those kinds of things, that's, and then creating a, that we're the first to have gotten there and we have some brand around that will really be the defining factor because, In many ways.

It really does become a commodity, and that is, change that's gonna happen in the in the overall profit pool, if you will. Is that the fear of the OEMs? What everybody says is we become the Foxconn of the mobility space. 

Grayson Brulte:

That's the fear. But the way there's fear, there's opportunity there's the Buffett saying, people get greedy, get worried when they're worried, get greedy. I'm paraphrasing that. I look at this, and you're right, the Foxconn, I see the vehicle you called a commodity. I see it as a platform. I see it as a platform to build upon it where you could put an app, store or experience.

And I see the experiences both from a digital perspective and from a real world perspective. Giving an example, I was speaking to an AV company who no longer existence in Miami. All about how I see the experiences rolling outta Miami. It says your biggest thing that you need to conquer in Miami is exclusive valet parking and drop off for your customers in front of the restaurant.

And then to go to a Dolphins game or go to a concert, do you have a, do you have a dedicated lane? Your consumers will pay a premium for that. Not having to wait in traffic to be able to go see a concert or get the premium drop off at a restaurant. How do you see the experiences? When we get to autonomy, for example, this is an exclusive.

Cruise drop off lane. It's an exclusive Waymo because we saw this precedence because we saw it there with Uber and Lyft in the early days where they had preferential treatment at stadiums. Do we see that kind of repeating itself, but enhancing it as we get to autonomy? Cuz you can do more stuff inside of the vehicle.

Mark Gottfredson:

I think what you've said is exactly the way that it would go. And, And the question then becomes, who, who gets the profits, from making that change. You know who in the value? Is it the platform owner? Is it somebody like Apple who has the software that, that runs all of these things?

Or is it a specific company that's providing the service, the fleet owner who's actually making the revenue off of this? But I think, you actually raise an interesting thing, this idea of having unique, a unique lane for cruise or a unique lane for Uber, or a unique lane for Waymo.

And I think that's one of the issues that has. Has slowed down the whole mobility thing is that there are many things that you have to do that are outside the autonomous software stack, if you will, to actually make all of this work. Because if you're dropping off at a at a stadium, those drop off points are chaos and, you an autonomous vehicle is gonna have a difficult time.

Identifying some guy who's pointing to you and saying, you move over here. And you move over there and they're all problems that can be solved, but like you say, they end up being solved individually. How do we manage the parking, the entry to a stadium? And then because we have to interact with the stadium, Who gets to the stadium first, who gets the preferential rights?

Those kinds of issues are actually huge issues that the software in the vehicle itself can't solve. By definition, cannot solve. 

Grayson Brulte:

It cannot solve, and that's why you need individuals that are multifaceted, multi-talent. In order to do a deal like that, you have to have sponsorship experience. Oh, you want to come on the stadium?

We own the land, we, you're gonna have to pay a premium, you're gonna have to build experience, or we're gonna build it in house. And we're gonna license it. That's where it has to come down to. You have to look at everything through experiences. I think a lot about the platform and who owns it, if it's Waymo or Cruise to perhaps they build a highly regulated app store where your market enterprises and you want to run an AR augmented app.

Okay, you can put that on there. But then they get a cut very similar to what. Getting a cut cuz when I look at autonomy, I go against the grain and everything. I think the first rollout of true autonomy that's profitable, repeat, profitable autonomy will be high-end luxury experiences. And I have this theory that I've been pontificating on a while and I've run some pretty in-depth financial analysis on.

If you, and I'll give you an example of this. If you look at where Mr. Arnault from Louis Vu Hennessy is taking LVMH Moët Hennessy Louis Vuitton. Mr. Arnault, in my opinion, is moving to vertical integration where they acquired a few years ago, Belmont Hotels, they're expanding the Cheval Blanc brand into hotels. And when you, when I speak with executives that work for Mr. Arnault, they say, we're trying to figure out how do you build the world's best luxury travel experience where we can integrate. Ruinart, we can integrate Dom Perignon, we can integrate our various Dior or shopping brands and these whole different experiences. And we saw this recently with the recently opened Veuve Clicquot pop up in Australia.

Did we get to the point where LVMH partners with an autonomous vehicle company where they developed the interior to meet the LVMH standards? And then this is where the TikTok Instagram influencer crowd comes in. You can buy an exclusive handbag in that vehicle. Cuz if we look at history, Mr. Arno has always wanted the Birkin and the Kelly bags.

They called the wolf in cashmere clothing. He was never able to get it cuz the poison bill, the airmen family took to stop it. Louis Vuitton bag has a 42% margin on it. Let's just say your average bag is $7,000, so now you're $3,200 on the ride. That becomes the most profitable autonomous vehicle ride in history.

Do you start to see these luxury brands go in there because it's profitable and then perhaps they share 20% to 30% of that with the operator and now they're making money as well? 

Mark Gottfredson:

So this is an interesting question and it's. It, this is a sort of a broad, if you think about business management question, I, and I don't wanna pull the camera too far back here, but if you think about, Clayton Christensen and his talking, his discussions, he always thought that something good enough comes up from the bottom and then takes over from the big players.

Tesla actually flew in the face of that Tesla started with really luxury vehicles in electric vehicles and has built their business coming in from the top. And so there's a question here. Is it gonna come in from the top or is it gonna come in from the bottom? And and you're talking about fully autonomous?

In many ways I think it'll happen both ways. So right now you have a lot of. Of use cases that are starting to be developed that really come at, I would describe it as good enough situations. So we talked earlier about the fact that crews and Waymo now have some driverless vehicles, but they have those driverless vehicles in very small contained areas, right?

Where you can actually manage it. And they haven't demonstrated that they're profitable yet, but they're working and that, that can allow some additional funding and things, as we've talked about in the past, but it's very narrowly defined. But that's not the only place where autonomy is actually finding real profitable niches.

John Deere in agriculture, for example, is doing some amazing things. The farmer community is absolutely gaga about what's happening with John Deere tractors and what it means for their productivity, how it gets them out of the cab. They can spend their time on other things. And it, and the autonomous tractor does so much more than they can do as an individual.

Caterpillar claims that they have three times as many miles as any OEM or Waymo with, experience with autonomous vehicles because their vehicles are mining vehicles and they are, they're running that you have. You have examples starting to come up at Haneda Airport with uh, autonomous buses for installs, NAVIA with with the autonomous vehicle that they've, again, in a very contain area you can reserve on are.

As you come up from the bottom, you start asking yourself the question, where else could we actually apply this? And I think that what happens is you get go from uh, one adjacent autonomous opportunity to the next, and at some point somebody will come up with a very luxurious thing, which is a park and ride type of thing.

They've got an autonomous vehicle that works very well in say, downtown Manhattan. But now they've figured out how to get through the Lincoln Tunnel and over to New Jersey to a parking lot. And now you can drive to the parking lot, get in the vehicle and it will take you to your office in Manhattan cuz it knows how to man manage that, that middle of Manhattan, to a direct endpoint.

And then you'll get a little bit limited. I could come pick you up within certain neighborhoods. And so on and so forth. And then you get to, I think, what, what you're talking about, which is, Hey, I'm gonna provide you the best luxury experience and that luxury experience. It might be, I was talking with a company called Landline just the other day and basically they've created a bus that, you know from Atlantic City to Newark.

And you can now book your travel from Atlantic City through Newark. But the first leg is actually on a bus, on a luxury bus. And you, but you go through TSA in Atlantic City at a much less crowded TSA location. You get on a bus, it takes you right onto the The tarmac and then loads you onto your connection in in Newark and sends you on, and you can actually order that up.

You can reserve that through, your app. That's the same thing that's gonna happen with, eventually those buses will be, Autonomous because it'll be a very direct route that they go on and those are the kind of applications that I think you're gonna see building up over time. Will there be, I think it then comes into all kinds of use cases.

In fact, my view of mobility is we see it going from use case to use case. And some of those will be just as you say, the high-end luxury experience kind of a use. Does that make sense? 

Grayson Brulte:

Bingo. You hit the nail on the head. The reason why I'm so bullish on LVMH, it's resort areas.

They tend to be, they tend to be close to either private airports or public airports. They're, it's a constrained domain because if you look at hotels, the metric that they're measured on is available revenue per room. They wanna know what is the revenue per room, the biggest thing that they always wanna, when are you coming and when are you leaving?

Cause then they can optimize their rev part. So now they know when you're arriving. Okay, let's say, I'm just gonna use small numbers here. The airport's five miles away. We've done this trip a hundred thousand times. They know when you're coming and going, they can increase their revenue.

That's where I see autonomy going is very similar to what you describe with landline. It's going to give landline the ability to increase their revenue. They know from Atlantic City to EWR Newark, they know that route. They know all the time, and then they can coordinate with the united system. The plane's delayed by 45 minutes.

Okay? We know that becomes this great experience for the consumer because autonomy can eliminate the stress. If you're going to the airport, is the plane gonna be on time? Is there gonna be traffic? Think about all the stress from what you described can be eliminated for a consumer. It's priceless.

Mark Gottfredson:

Yeah, totally agree. I think there's really the limitations on this are really just our imagination. In terms of the use cases and the possible business models that could be achieved. And in my view, when you sent some of the questions you said, that you quoted TCI who had said that enthusiasm for self-driving vehicles had collapsed.

And uh, and it's an interesting statement. It is true that the, what I call the all singing, all dancing model of autonomy. Is a little bit slower than everybody at one point thought. I, five years ago the idea came out and we all thought, in two or three years we're gonna be, commuting in autonomous vehicles, we'll be going on vacations, in autonomous vehicles, and so on and so forth.

And that level of autonomy has not happened partly because of. Just the autonomy is more difficult and partly because of what we already talked about, which is that you, it's not just the software in the car. You actually have to interface with the environment as well. And all of those things have slowed them down.

That doesn't mean it's not going to happen, but. It's, we're more likely to see those kinds of things in the late twenties or early thirties than we are today. But that doesn't mean that there aren't tons and tons of use cases today. There's this company called Otonomy, spelled with an o, that's has autonomous delivery vehicles inside the Pittsburgh airport, which is a very heavy, pedestrian rich environment, but is delivering food within the airport.

Who would've thought of that? But it is just your imagination. Think about what a consumer might like or what would be convenient for them, and if you can provide that, now that you don't have a driver and you're just providing it with software, you can do things at a cost that you never could before.

And there's a whole world of potential creativity. And I do believe that a lot of business models are gonna be funded. I think there's a backlog of funding and I think that business models will be funded for creative ideas that have a path to profitability. 

Grayson Brulte:

I'll give you another example of a very creative, it's, I forget, I think it's a Gerald Ford airport in Michigan where they're prototyping autonomous wheelchairs or the wheelchair can take the passenger to the gate, and then when it has to go back to a thing, it drives autonomously. That is a really great practical use because you don't have the labor cost of the individual taking it back to the TSA checkpoint. It can go very, it's an, it's a constrained domain, all the stuff and there's a lot of really great things and mining. We have the lithium and cobalt boom. There's over 1100 heavy duty autonomous mining trucks operating in the world. And I speak to the world's largest miners. They say to me, we're doubling and we're tripling down on autonomy.

And I said, is that cuz the technology? And said, no. We can't get the labor to meet the growing demand for the minerals that market mining as we've all seen Rio Tinto, BHP, extremely profitable markets. There, they're boom and bust, but right now they're profitable. You talk about business models, the one that has not been talked about a lot.

John Krafcik former CEO of Waymo, talked about it. At high level here and there, but never really went into it, is the licensing of the technology of the autonomy stack. When does that model start to emerge? 

Mark Gottfredson:

You will start to see it emerging I think very soon, because if you're John Deere and you've got some track tractor technology and you say, this is really working.

But we have some great technology here. What are some other use cases for it? Then John Deere's gonna say, yeah, but that use case is not really our business. It's outside of agriculture. It's not our core, but we can see how our technology really works there. Let's license it. That's when the licensing starts.

It's when you're moving into the adjacencies and those adjacencies are a little bit far from the core, but now your core is actually the software. That's how the licensing world starts to move. Now, I think John Kraft Chicken, all of them, the way they saw it is they saw it as like Intel insight or something like that.

That you would have the all singing, all dancing stack and it would be a winner take. Stack and so you rush to try and get the all singing, all dancing product, be the first to market, and then you license it to everybody once you've got it in place. And I think that, to a certain extent that will happen when you get to the all singing, all dancing and, you, you now have, mobile fleets.

By city and they interact with the city. And if you have the best software that works with LA or Chicago or whatever, you'll be able to license it to a lot of fleet owners and you'll be the big winner. But I think there's lots of other licensing opportunities from many of these other situations that will come up that people will say, Hey, there's another use case for the software we just developed.

If we just tweak it a little bit, we could then license it to another industry. I think that'll happen. 

Grayson Brulte:

The beauty about licensing, it's profitable and you can grow that revenue very quickly. 

Mark Gottfredson:

Absolutely. Absolutely. Yeah. It's there. There's very low fixed costs on that, so the money goes straight to the bottom line.


Grayson Brulte:

It's a great business. We look at profitable companies. You have to think of Apple. We have the news recently that the quote unquote, project Titan's been delayed to 2026. It's going to be. Highway only. Nobody really truly knows what Apple's doing. There's a lot of assumption. There's quote unquote leaks, but nobody truly knows what Apple's doing if they're gonna build a car.

What is your opinion on where Apple's going? I look at where Apple's going. Oh, it's a toxic, I don't look at that. I see it as an extension of the App Store. As another way to continue their growing, their very profitable services revenue, and then leveraging the Apple stores. It's called an information learning center.

You can go there to learn about the vehicle. This is how it interacts with everything. How do you see, and where do you see Apple going with Project Titan and their car ambitions? 

Mark Gottfredson:

So I don't have any insider information on Apple, obviously and so anything that I say is as much speculation as anything anybody else says.

But I think if you're. There's a couple of things that I would say. They've taken a look at the world and they recognize that what's happening in the mobility industry is one of the biggest changes that is gonna happen in our lifetimes. And if you look at the iPhone and the way that we use iPhones, that's one of those major things.

But in the world of mobility, we're undergoing a change, which is equally as big as the switch from the force and buggy. To the horseless carriage in terms of what it'll mean for our lifestyles and everything else. And so I think, apple is investing in this because they're saying this is gonna be one of the biggest changes in the world.

We have to figure out how to lead in some ways in this business. And I think they're still sorting out, what's our real core They can attract terrific talent. And so one of the things you say, let's start developing autonomy. They started to develop the autonomy and they realized that, wait a minute, it's not just the software, there's, it's harder.

All of this. So of course it's taking them longer just like it's taking everybody else longer but they're working very hard to figure out how they can dominate some of the profit pools out there. And and I'm not sure they've figured it all out yet, but. But they're using their best minds to figure out how do we participate in that value chain.

Grayson Brulte:

One thing that everybody can agree with, you can't count Apple out there. There might be, oh, confusion, the project's a disaster. They have an installed base of over a billion users and they have a balance sheet second to none. You can't cap count apple out. That's the one thing that we can all agree on there.

Mark, in your opinion, what is the future of autonomy? 

Mark Gottfredson:

Another very broad question, but I think it's incredibly bright. The fact that there are. Profitable use cases out there today is very encouraging to me. And and, the press is still focused on the disappointment that we're, we don't have the all singing, all dancing solution today, but I think that you are seeing so many new, innovative ideas coming out.

Like I said, I think they're limitless and I do believe that eventually we will get to the, the situation where we'll be able to commute in an autonomous vehicle. I think it's several years out, but I think that what you're gonna see over the next five years is a lot of emerging companies and technologies that are making money, that are growing fast and that are expanding their capabilities in a dramatic way, ultimately.

All of our lives will be made better because of that. And it is. It's gonna be in, drones delivering packages to our homes. I, there's just no limit to the ideas. You can begin to think of what you can do when you have something that can move around autonomously. 

Grayson Brulte:

Autonomy unlocks creativity, despite all the press headlines of negativity industry's failing.

I like how you said it, cuz you're right. The future of autonomy is incredibly bright. The future of autonomy will have an impact on society. I'll usher in new business models. It'll create new companies and new titans, and it will impact every aspect of society. Mark, as we look to wrap up this insightful conversation, we shed a awesome light on all things markets and autonomy. Thank you. What would you like our listeners take away with them today? 

Mark Gottfredson:

Yeah, I think I, I think you know, the listeners who are gonna be here are a lot of engineers. And and I think one of the things that the engineers need to be thinking about is the projects you're working on. How do they fit into that future?

Those are the things that you really need to be thinking about is what's the game? What's the game the next 10 to 15 years, and how do you position yourself to be a part of that game? I think that's the key message. 

Grayson Brulte:

That's the key message, and for the engineers are listening, build the future. You have the skillset because today is tomorrow, tomorrow is today, and the future is autonomous. Mark, thank you so much for coming on SAE Tomorrow Today. 

Mark Gottfredson:

Thank you, Grayson and it's been a pleasure. Bye-bye. 

Grayson Brulte:

Thank you for listening to SAE Tomorrow Today. If you've enjoyed this episode and would like to hear more, please kindly rate review and let us know what topics you'd like for us to explore next.

Be sure to join us next week as we speak with Petch Jirapinyo, Head of Commercialization at Nuro. On this episode, he'll discuss the future of delivery using automated vehicles in the commercialization of shared mobility. 

SAE International makes no representations as to the accuracy of the information presented in this podcast.

The information and opinions are for general information only. SAE International does not endorse, approve, recommend, or certify any information, product, process, service, or organization presented or mentioned in this podcast.

 

Listen to the full back catalog on your favorite podcast platform.

   

X