Checking In on the State of Electric Vehicles

In this podcast, Motley Fool contributors Travis Hoium, Lou Whiteman, and Rachel Warren discuss:

• Waymo's rapid expansion.
• Rivian's breaking ground.
• Tesla's Robotaxi challenges.
• A top electric vehicle stock.

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A full transcript is below.

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Travis Hoium: Are electric vehicles up or down and what's the future of autonomous driving? Motley Fool Money starts now. Welcome to Motley Fool Money. I am Travis Hoium joined today by Lou Whiteman and Rachel Warren. We are at the point where electric vehicles have gone mainstream and we know that autonomous vehicles are real. But what's the future of this business? I want to start with this question for both of you. Waymo continues to chug along. They announced yesterday that they have driven 96 million miles fully autonomously. They're operating in five cities. They've got about a dozen cities or more that they're laying the groundwork for operations. They even announced this morning they're gonna be coming to Nashville on the LYFT network. LYFT stock was up over 10% early in trading on that news. Lou has Waymo gotten the strategy right here? They went with these expensive vehicles. That was always the criticism. They're about $250,000 or at least a couple of years ago they were, have all this equipment on them. But they didn't go cheap with vision only the way that Tesla did. They got a lot of criticism for that, but they're the ones scaling right now.

Lou Whiteman: Yeah, well, part of this is it's an unfair advantage. Not everyone has Alphabet's money to fall back on.

Travis Hoium: It's a bit of a help for them.

Lou Whiteman: Yes. But look, part of this too is and maybe this is because it's a side business and not core to the company and the company's ability to attract investment. But this has always been a boring engineering culture versus a hype culture. Others I think, and I'm not just looking at you, Tesla. I think even GM got caught up in this. It was about look at us, look at us, look at us. Either way you can get there. But I think just focusing on the bit by bit, blow by blow incremental. I don't think we should be surprised that that gets there first. Look, we still don't know if this is scalable. You mentioned they're using these up to $250,000 per car. I don't even know what scalable means, Travis, because it could mean that over time, these components get cheaper as we see with a lot of products, it could be that there's just newer technologies that are going to come out and change the cost curve. I don't know who's going to get there. I don't know how it's going to work, I don't know if I'm ready to say that they are the winner period, but I do think we should take a lesson out of their approach, and their approach was just shut up and slowly bit by bit, do the work.

Travis Hoium: Yeah, Rachel, the big thing here is that they do have all those sensors. They have benefited from things like LDR coming down 90% or so in cost over the past few years. It seems like that trajectory is going to continue as there's at least more buyers for these sensors and Waymo is one of those buyers, but there's other players as well.

Rachel Warren: Yeah, it is really interesting to think about the journey of Waymo. I do think that some of this success is the fact that they are a subsidiary of Alphabet. They have this really extensive engineering talent and capital that's behind them. But Waymo's also been developing its technology for almost two decades now since 2009, going all the way back to the DARPA grand challenge team. One of the things that I think has been really interesting about Waymo is they've been very strategic in how they have scaled their service city by city. No, they'll focus first on these very specific geofenced areas. They rely on these very detailed pre mapped environments which essentially act as a digital twin of the real world.

Travis Hoium: That was always the criticism of them. I just want to put that out.

Rachel Warren: Yes, I know and it's their advantage, in a way.

Travis Hoium: Yeah.

Rachel Warren: It also gives them, I think, something of a very precise understanding of their driving environment before they ever enter it. As you noted, they have this very robust sensor suite, wider radar, high resolution cameras. Their vehicles very practical issues. They can see clearly in diverse conditions including fog and rain. I think right now it's clear that Waymo is at the front of the pack. Are they the winner long term? I think that still remains to be seen. I think it's also important to say, even to someone like myself, who's bullish on this space. Autonomous vehicles are still met, I think, with a lot of public skepticism. You know, Waymo itself is, of course, currently not profitable as well, which I think is important to note that other Bets segment lost over a billion in operating income in Q2. There's still a lot of road ahead so to speak, but as an Alphabet shareholder, I do enjoy being a part owner of Waymo too.

Travis Hoium: We don't quite know the economics behind these Waymo vehicles yet. We know the cost curve is coming down from a capital side. The other thing I think is interesting, if you just look at the number of rides that they've done and the number of vehicles they have you could back out. They have about 24 rides per day per vehicle. That's pretty compelling. Lou, let's explain a little bit on the business model side, because at the end of the day, technology is great, but if you don't have a good business model to back it up, you're not going to add value to shareholders and we are investors. They're testing multiple different business models in different cities. In some cities like Los Angeles, San Francisco, they own the vehicles, and they have the app, the LYFT or Uber competitor. In other cities, like I mentioned that LYFT was announced today that they're going to be launching in Nashville, LYFT is actually going to be the demand source, and their subsidiary Flexdrive is going to maintain the vehicles. They've done some deals with Uber and some other companies as well in Phoenix. They're testing a whole bunch of different things. Where do you think this shakes out Because they are able to test these things out, but there are also other players who are going to watch very closely Tesla, Volkswagen, General Motors. Everybody's in this game in one way or another. But where do you think this goes from a business model standpoint?

Lou Whiteman: The truth is, I don't know any more than Waymo's management knows where this will end up. But as an investor, what I really like about Waymo is optionality. They basically are in every boat. Whatever evolves wins. If you look, I mean, there's a lot of companies I think, are doing interesting things here. Uber Lyft may only work with licensing partnerships. I know they're dabbling, but I don't know if they'll get there with the tech. Mobileye only works as a licenser. They are not going to roll out their own fleet and their own system. Waymo, in theory, can win in any of these environments. They can license their technology. They can work with partners or they can Waymo one on its own. This is so early on. We don't know what the future holds. There's one company that A is doing it on the road, and B seems to be future proofing the business just in terms of what consumers want and where the business side of it goes and that to me, I think might be the bigger advantage they have than their lead and number of miles or number of cars out there. I think the other things you can catch up on a lot quicker than business model flexibility.

Travis Hoium: It doesn't get a lot of attention, but Waymo is so far ahead that I think this is a company that we need to pay more attention to as investors. Alphabet is now a $3 trillion company, but Waymo could be one of those optionality businesses that could add hundreds of billions if not a trillion dollars or more in value long term. Next, we are going to talk about the latest updates at Rivian. They have now broken ground on their Georgia plant you're listening to Motley Fool Money.

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Travis Hoium: Rivian is one of the biggest names in electric vehicles. They are number two behind Tesla in the pure play as far as a market cap goes. They also just broke ground on their Georgia plant. That is going to be backed by a $6 billion or so loan from the government. But they have not made vehicles profitably yet. They're still making less than 50,000 vehicles per year. Rachel, with their vehicles and the demand that they have right now, the capacity that they have coming online, and oh, by the way, at the end of this month, a $7,500 tax credit which wasn't a big impact on the R1 vehicles, but it will be an impact on the R two vehicles. Where is Rivian sitting in this? Is this going to be a growth market that they can actually differentiate themselves?

Rachel Warren: I think there's a bit of an uphill battle for Rivian and don't get me wrong. I do think it's an interesting business. I get why there's a lot of excitement around the vehicles. This has just not been for me an investment that I've been able to get excited about. Obviously, I'm not alone in that. I mean, the stock's down more than 80% from its IPO price in 2021. But I think there are a lot of factors see when we look at Rivian's business and some of the challenges they've been contending with, obviously, the EV market is increasingly crowded. There's the reality where you have a lot of legacy automakers that are directly competing with their core products. As you noted, Rivian is really still contending with significant financial losses and its costs for the upcoming R2 launch are going to keep those expenses very high. It's also the case that their vehicles are very expensive. That does limit its target market compared to lower cost models. Now, the bulls for Rivian would say that the R2 and R3 models could be really critical new products that could significantly boost their market presence. Some have compared that to be aligned with how Tesla launched its mass market vehicles. I personally have some skepticism there. One thing that's important to note that you alluded to, a major source of Rivian's revenue had come from selling regulatory credits to other automakers. Now that the tax law has eliminated the penalties for failing to meet emission standards which is essentially why you would as a traditional automaker, buy those credits from EV makers, that's going to be a much less prevalent source of their business. Amazon is still the largest shareholder of the company. They're a customer for its delivery van. As an Amazon shareholder, I think I'm more interested in investing indirectly that way.

Travis Hoium: Yeah, Amazon is also now testing the bright drop which comes from General Motors. They're not a one trick pony when it comes to.

Rachel Warren: Not at all.

Travis Hoium: Delivery vehicles. Lou, you've been following these more capital intensive or manufacturing businesses for a long time. It sounds great to say, you know what? We're going to build another 200, maybe 400,000 vehicles. But Rivian has not shown the ability yet to actually manufacture the 215,000 or so vehicles that they can make in their normal Illinois plant currently. That was supposed to be filled with the R1 vehicles. They're going to now build R2 there initially. What do you think about this new plant and is this a go for broke bet by Rivian?

Lou Whiteman: I don't know if it's go for broke. I do think there's a reason for this, but I don't think there's a business case for this. As you say, it's 150,000 plus up to 200,000 now out of normal. They delivered 51,000 vehicles last year. They are not capacity constrained. They're spending five billion or so to add another 200,000 in capacity initially, up to 400 there's just no need for this in a market where there's, I love confidence. I love bold bets, but if you look at the macro trends, if you look at the tax cuts, there's a real question here. I think there's two answers though, Travis. For some reason, they are committed to building the R3, which is the lower cost in Georgia. It seems to me it'd be cheaper to retool Illinois to just get that out. Look, it's not coming to 2028 either but you mentioned it. There's a lot of government money here. We're coming up we're now almost a year away from a governor's election in Georgia and the current governor who is not up for re election was a big champion of Rivian and throughout has been willing this into existence. It feels like that if you believe you can survive the now, now is the time to grab that while it's there. I think that's what's going on here. I don't think there's a business case to do this. I think there is a long term bet that maybe in two years, they may not have this ability so do it now.

Travis Hoium: I want to ask you this Lou first quickly. Tesla's deliveries peaked in 2023, 1.81 million vehicles. Rivian has had trouble getting past 50,000 deliveries. We've seen struggles at Lucid. GM has pulled back on their EV. Has this market already peaked from a hype standpoint? Are we now at a, you know what? This is a manufacturing business, it's just going to be steady and boring as it goes as the auto business has been for a century.

Lou Whiteman: Yeah, the early adapter stage is over. The euphoria stage is over. That doesn't mean we can't see growth from here. I don't think I'm not going to give consumers enough credit to think they're all waiting on quantum scape or something like that. But I don't think that EVs have really hit Main Street as a, yes this is a viable alternative or I can replace my entire fleet. Right now, yeah, we are dealing and especially in Rivian's case, very expensive vehicles. We're waiting for this next inflection point where either the vehicles come down in price which they're all working on it, but we're not there yet, or we see some battery breakthrough slash charging breakthrough where they're more reliable. I think we're going to tread water until just there's another spark to move past the initial euphoria phase.

Travis Hoium: Rachel is an inflection point on the horizon.

Rachel Warren: I mean, I think we're still looking at where the on ramps to adoption are in the EV space. I agree with Lou. I do think the euphoria stage is over. I think also some of it comes down to the expansion of the critical infrastructure that EV vehicle owners need. I think that's something where we are still way behind the curve, so to speak. I think unless and until that changes, I think we're still going to see a very slow adoption phase, like we've been witnessing the last few years.

Travis Hoium: Lots of questions for Rivian, and there are questions for another name in electric vehicles that is Tesla. We will get to that in just a second. You're listening to Motley Fool money.

Welcome back to Motley Fool Money. Tesla was supposed to be the runaway winner in electric vehicles, and looking at the stock market, you would still think that's the case today. The company's worth over a trillion dollars. But Elon Musk has put a little less focus on the EV business in the past couple of years. Going back to 2021, he predicted there was going to be 50% annual growth in their production. They're now dropping their production 2023-2025. Heading in the wrong direction there, they've also launched their Robotaxi service in Austin. They still have a safety driver in the front seat. But this is a decade after Autopilot launched. Lou, is it time to give up on Tesla winning autonomy?

Lou Whiteman: Slow down, Mr. Hot take. First of all. The whole EV, giving up on EVs. The Model 2 is right around the corner. I think in theory, we should be hearing more about that before the end of the year for production next year. Yes, there's been a law. Yes, I don't think they invested enough to get new models here fast enough, but I'm not ready to say that Elon Musk and Tesla aren't going to be able to grow their EV business. Let's come back a year from now, if not. As for winning autonomy, my question is defined winning? I think there's a solid case to be made that Tesla will get there, and I'm not sure if there's real value in getting there first. I mean, there's some value. But look, in some ways, if they do what was originally designed where they're using your car and Rachel's car as their robotaxi feat, they are in effect, sharing some of the CAPEX with their customers in terms of the investment in fleet. I think that could provide cost advantage. They do have a well known brand. Take that what you will right now, but these things change, and it is I think, a well respected brand as far as technology. I don't think they are winning right now. I agree with you that. But again, does it really matter if they're first? The real question is, can they get there? I think they can and so I'm not ready to say busted thesis yet.

Travis Hoium: Rachel, what is the future of Tesla's autonomy business?

Rachel Warren: I don't think that winning autonomy is the near term reality for Tesla. Obviously, that could change. I think there's a few reasons for that. I mean, one of their core differentiators and also I think, one of the weaknesses we've seen in their vision of the future of autonomy is their cameras only approach. They had made that decision to remove radar in 2022, even ultrasonic sensors to reduce hardware costs. But from a very practical standpoint, that reliance on cameras makes their autonomous systems vulnerable to things like misinterpreting shadows or other really important.

Travis Hoium: They've had accidents where glare has been blamed and so just from a technical standpoint, a radar has a different failure mode than a camera does. That's why a lot of these companies are using two different sensors because you don't want to fail on one of them and just have the system completely break or get into an accident. This was an intentional decision that Elon Musk made that everybody else has gone the other way.

Rachel Warren: Yeah. Waymo, for example, they use a combo of cameras, radar for precision, radar for long range detection. There have been, I think, a lot of excitement around Tesla's autonomous journey, but right now, their systems are really only semi autonomous. I think that Tesla needs to focus on its core business, which is a quality business that I think has struggled the last couple of years. I mean, you look at Q2. Their operating income was down about 42% year over year. Vehicle deliveries were down almost 14%. They are also facing growing pressure from competitors, even the lower cost EV manufacturers, for example, in China, like BYD. I think that core part of their business is where the focus needs to be. I think the vision of autonomy for Tesla is still a very distant reality.

Travis Hoium: Let's end on this. In the space of electric vehicles and autonomy, what stocks are on the top of your radar or maybe your buy list? Lou, I'm going to start with you.

Lou Whiteman: This is boring, and I don't know valuation comes in, but Mobileye to me, because I do see a world where we're just going to get better and better, safer and safer, whether it's, no steering wheels or just safe. They are in a commoditized world, I like the supplier of that commodity, and that's Mobileye to me.

Travis Hoium: Rachel?

Rachel Warren: I mean Amazon's subsidiary Zoox is cool. If you want to invest in a big name and get exposure to this space, Zoox has about 50 purpose built vehicles in its fleet they most recently launched in Vegas. There's another way to approach this too. I mean, NVIDIA, they provide the hardware and software and AI powered chips for self driving cars. I think that's a fun way to approach this space, too.

Travis Hoium: NVIDIA is coming they've been talking about this for a long time, but they are now partnering with companies like General Motors. If some of these older OEMs get into autonomy, they may be leaning on some of these tech first companies like NVIDIA, like Mobileye. Lots of different ways to play this, but something we will be talking a lot about, especially after this tax credit expires in a few weeks.

As always, people on the program may have interest in the stocks they talk about. The Motley Fool may have formal recommendations for organs, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. See our full advertising disclosure. Please check out our show notes. For Lou Whiteman, Rachel Warren, and Dan Boyd behind the glass, I'm Travis Hoium Thanks for listening to Motley Fool Money.

Lou Whiteman has no position in any of the stocks mentioned. Rachel Warren has positions in Alphabet and Amazon. Travis Hoium has positions in Alphabet, Lyft, Mobileye Global, and Uber Technologies and has the following options: long December 2027 $5 puts on Rivian Automotive. The Motley Fool has positions in and recommends Alphabet, Amazon, Nvidia, Tesla, and Uber Technologies. The Motley Fool recommends BYD Company, General Motors, Lyft, Mobileye Global, and Volkswagen Ag. The Motley Fool has a disclosure policy.