I have been reading more books around AI and one of the books that I am reading is:
“Digital Transformation: Survive and Thrive in an Era of Mass Extinction” which is written by Tom Siebel, who is a founder of Siebel Systems (which was acquired by Oracle in 2005 for $5.8bn) and C3.Ai. The link is here https://amzn.to/3sTpce4 (Disclaimer: I will get commission if you decide to purchase it). The book is $11 on Kindle, and it is worth the investment in my view.
I started reading the book because I heard about his recently IPO’d company – C3.Ai. So far there has been a lot of lessons and one of the key lesson is the important of fully connected and integrated platform in the era of big data, machine learning, and AI-driven implementation.
His rationale for the importance of fully connected / integrated platform is that it is now extremely inefficient to piece-meal together different components (whether it be software or hardware) in the era where there is so much data generation / flow / analysis that leads to constant iteration / improvement. There is need for a single stakeholder that owns across the spectrum because the high data / analytics velocity breaks down when different components are not on single platform.
When I saw WSJ article: How Volkswagen’s $50 Billion Plan to Beat Tesla Short-Circuited, I was naturally interested as I am a Tesla shareholder. As I read more through the article, the lesson from Tom Siebel in his book continued to ring in my head:
VW’s failure to make significant progress on electric vehicle had a fundamental issue of following the traditional automobile planning that relied some various component suppliers – the system that was stitched together simply was no longer compatible in electric vehicle.
Overall the article made me more bullish on Tesla/$TSLA or other upfront electric vehicle companies that do not have legacy assets that are now quickly turning into liabilities – like the existing ICE car manufacturers. The legacy assets that are turning into liabilities include
1) existing workforce base that is focused on outdated technologies (labor union and pension liabilities),
2) manufacturing equipment that are not fitted for electric vehicles (costs money to get rid of them since nobody wants them),
3) existing stitched platform (tough to pivot politically as companies run on 5-10 year strategic plan)
4) existing compensation plan (makes it tough to attract top talent – would you want VW stock or TSLA or upstart promising electric vehicle stock as part of your compensation?)
5) existing supplier relationships (these suppliers are not well-equipped for EV technology, but it is politically very hard to just severe relationships overnight).
Key quotes from the article are as follows:
“It could drive, turn corners and stop on a dime. But the fancy technology features VW had promised were either absent or broken. The company’s programmers hadn’t yet figured out how to update the car’s software remotely. Its futuristic head-up display that was supposed to flash speed, directions and other data onto the windshield didn’t function. Early owners began reporting hundreds of other software bugs.”
“What they didn’t consider: Electric vehicles are more about software than hardware. And producing exquisitely engineered gas-powered cars doesn’t translate into coding savvy.”
“The ID.3 debacle is raising the temperature at Volkswagen. Mr. Diess nearly lost his job last year amid a revolt of Germany’s powerful IG Metall labor union and shareholder anger over the botched launch of the Golf-8, the VW brand’s breadwinner, and the bungled launch of the ID.3.”
“The ID.3 has also garnered negative trade-press reviews and is still missing key features.”
“Software has been running in gas-powered cars for years. An average passenger vehicle typically includes about 80 parts fitted with chips that perform discrete tasks. These chips run code that remains static over a car’s lifetime.”
With the shift to electric, computing has become the heart of the vehicle, with a central processor managing the battery, running the electric motors, brakes, lights and other critical systems as well as additional features such as entertainment or heating in the seats. Just like a gas-powered car should be serviced regularly, a modern electric vehicle may receive software updates to improve safety and performance, offer new in-car services, or unlock sources of revenue for the manufacturer.
“The key here is taking this distributed system in the car, dozens if not hundreds of applications, and centralizing everything,” says Danny Shapiro, senior director of automotive at Nvidia Corp., the graphics chip maker that has become a player in self-driving car technology. “This is very complex, especially with a car where the safety level is critical. You can’t just flip a switch and be a software company.”
Typically, car makers order finished components from suppliers and install them in the vehicle on the assembly line. But the software for a connected car is never finished. Like an iPhone, it is constantly evolving and requires the supplier and customer to work interactively, something that VW and Continental first had to learn as the ICAS project was under way.
Prof. Malik said Mr. Diess posed a simple question for the group: What do we have to do to catch up with Tesla by 2024?
“In mid-2020 we had to make the decision that we would have to ask the first 50,000 vehicles to come to the service stations for an update,” Mr. Ulbrich said. “Updating the vehicle’s core software is a complex process and we have to make sure at any time that our vehicles are safe.”
“Karsten Michels, the senior Continental engineer working on the project, said the main problem was the teams simply ran out of time. “Maybe we underestimated how much work is involved and how little we could actually rely on existing legacy software,” Mr. Michels said in an interview.”
“VW’s goal is to eventually build at least 60% of automotive software in-house.”
“The biggest challenge, said Mr. Hilgenberg, isn’t the technology, it is the mind-set of the people—their reluctance to embrace radical change until circumstances force them to.“
“The small team, expected to expand to about 250 people this year, moved into their offices in December, and have begun working on preliminary designs for the new vehicle.”
WHAT IS THE FUTURE?
VW’s goal is to catch up Tesla by 2024 and VW is building up its small team to drive that process. Can they do it?
It will be a tough task – Pace of innovation at Tesla, Nio, or other pure EV companies has proven to be MUCH FASTER and the gap is only going to widen with time. Elon Musk is working until late night and is leading his team across SpaceX, Tesla, Neuralink, or his other companies by example. Generally you join big automakers for more relaxed work environment – in that culture and compensation scheme that trails those of pure EV companies that makes it tougher to attract talent, the rate of innovation simply can’t keep up.
At the same time, VW appears they may need more self-assessment – in WSJ, they noted they have better design than Tesla and they are behind Tesla only in software. I don’t know if I agree with their view – Tesla also has better designs than VW for sure. Look below – which car looks better?
I am not smart enough to be part of this technological revolution, but I would certainly put my money behind identifying companies that are hiring smart people and are changing the world.
What do you think about the new era of EV? Do you think Tesla can maintain its leadership? Can VW keep spending and grow out of its dinosaur form? Please share your thoughts below!
*not investment advice and the article link is here: https://www.wsj.com/articles/how-volkswagens-50-billion-plan-to-beat-tesla-short-circuited-11611073974
