I've surmised from years of reading the economic press that there's really only one bad thing that can happen in a capitalist economy: bondholders not getting paid. Heck, lots of commentators argue that war is good for the economy, a natural disaster is good for the economy, the broken window fallacy is a mainstay of Keynesian economics. However, bondholders not getting paid is something that should be prevented at all costs! The federal reserve is doing $40 billion a month of bond buying with electronically printed money (quantitative easing) so the bond holders get paid!
"I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody." - James Carville
That's not really how it works. Bondholders don't get paid all the time. This is priced in and isn't a problem for a capitalist economy unless the actual rate of defaults significantly exceeds the expected rate of defaults as predicted by bond ratings.
Massively fraudulent credit ratings on mortgage bonds was one of the things if not the thing that precipitated the 2008 housing/economic crisis. Your comment reads like you think bond ratings are mostly accurate but recent history tells us they can't really be trusted.
Yes, massive fraud is one factor that can cause bond defaults to significantly exceed those predicted by credit ratings. Other reasons can include disruptive technology, natural disasters, armed conflict, and other "black swan" events.
What does "priced in" actually mean? A low probability event should be priced in, with the appropriate small but non-zero coefficient. If you get hit by a "black swan event" couldn't you say that your model failed to account for it?
In practice, "black swan" is supposed to mean effects which we underestimate or fail to predict at all. The definition requires not just rarity but an event which hasn't been seen before, and is only only understood in retrospect.
You can try to leave a general hedge for unknowns, like never giving anything >99% long term confidence. But actually pricing black swan problems accurately should be impossible, pretty much by definition.
Ha ha. No they (the people who make real deals/trades/decisions) are just focused on their bonus. Having said that they also care a bit about their bonus. And of course their bonus is important too. Have I missed anything?
I think you're mostly comprehensive there. You missed out two things though: they care about their bonus, and secondly, how that bonus compares to their peers (which could be summarised as "their bonus").
After which they blame the "bad model" and immediately pass on to constructing newer, presumably better models. The fact that maybe, just maybe, trying to model such a thing as a modern-day economic system is futile never crossed these people's minds.
You are being unfairly downmoderated. It is of course not a given that modeling economic systems is impossible, but there is considerable debate as to e.g. what degree prices are random/unpredictable. Everyone agrees the problem is extremely difficult, and it seems somewhat unlikely that there would ever be such thing as a universally applicable financial model. So the remaining question is, of course, to what degree are these models useful? I do not believe there is sufficient evidence to reject the idea that the models are of no utility, especially in the context of failing to price in risks. The contrary position is equally viable, and I would hope anyone with what they considered to be a knock-down argument would do more arguing than knocking down.
Fair point, but the whole impetus for this reporting is that Fitch, one of the big 3 ratings agencies, has raised the issue and acknowledged that the full effect of battery technologies exceeds the time frame of their rating methodologies and so they're urging utilities to diversify into clean energy. I know that doesn't absolve them of past sins or even imply that they can be trusted, it just struck me as ironic that a warning from one is the basis of this post and discussion. They're doing their job here.
Less fraud than you might think. It was more the model where house values would increase or level off not crash, which meant worst case was recovering X% vs 100+% where x% would still cover the outstanding loan. Which allows you to slice and dice very low risks loan value from junk, not because most people are going to pay back, but because the houses have high inherent value.
Their scapegoat was the model. In reality they could probably make a model that gave whatever rating the client desired. That is the fraud, they weren't working in the interest of the investors they were working in the interests of the investment bankers.
In any organization whoever pays the bills tends to get what they value - because they can decide to pay someone else if they feel they're not getting it. All the "arms-length", "neutral" stuff - even if truly well intentioned - get impacted by whatever the payer wants.
In case of mortgage bonds, the bill payers were bond creators who wanted to get the loans off their books as quickly as possible. The buyers should really know better but they too were largely managers whose salary was paid
on % of assets basis with no real downside impact on their own wealth.
That's not really how it works either. Bondholders usually trust the ratings agencies (this trust is often mandated by law for pension funds, etc.) which have often basically lied about ratings because they were paid by the issuer.
When challenged on this they usually claim the first amendment (i.e. license to lie), although S&P went a step further and downgraded the US in a fit of rage when the SEC started investigating them for ratings fraud in 2011. Ironically interest rates on US treasuries went slightly down afterwards.
The entire rest of the market (and the other ratings agencies) were just about able to determine that if you have the keys to the cash printer you're actually not in danger of running out of cash and political bickering doesn't translate into risk of political suicide.
The white house and congress was deadlocked, the government was shut down, and the treasury was not legally authorized to borrow more to make payments. There was talk of a trillion dollar coin to side step the national debt cap. This was a really big deal, and people were scared the maneuvering wasn't going to work in time. It totally justifies a small credit rating downgrade.
Oh come on. This is partisan hackery. This "theatre" did in fact cause vital government functions to shut down. I was personally on a project where I had to stop work because our checks were sitting on a table in Washington and a major milestone meeting was canceled because the government was furloughed and would not be there, throwing the entire project schedule off. This was replicated thousands of times across the economy.
Even the ghost of a chance of going down to the wire as to whether a bond payment would be missed by a single day on US obligations, is in itself tremendously disruptive. The economy is structured around U.S. debt as being the safest paper there is. Don't downplay just how dangerous dicking around with this for partisan points was.
No, playing up the fearmongering as you are doing right now is partisan hackery. The main Democratic talking points centered around fearmongering, after all, which was almost as stupid as the Republicans temporarily shutting down the postal service, etc. in a fit of pique.
As I said before: the markets correctly characterized the debt ceiling negotiations as a bunch of drama queens on both sides of the political divide acting up & a storm in a teacup because neither side is politically suicidal.
However, a fair number of tea party members in congress were actively promoting defaulting on the debt. That's different than some random guy with a page on the internet. That's a lawmaker with a vote who can affect the outcome. So their political career would be hurt. The election wasn't the next day, it would have taken a long time to replace those yahoos and the damage would have been done. Examples:
You are right sir. And after the ratings agencies downgraded US debt, they actually appreciated in value. Because anyone who understands government finance knows that issuer's of currency cannot default on their own debt instruments unless they want to.
Not all bond holders get paid, however one's who bonds support a public pension will get paid. the courts and government have already shown a great disdain for the law (bankruptcy) and will pay one class before another even if the law specified other. Also, tax payers are on the hook for any and all failed bonded backed pensions.
I fully expect that energy companies have already started to diversify and buy into industries that could disrupt their earnings. Good successful corporations know when to move, RJ Reynolds is probably the best example of a company diversifying when its main product started to become a liability.
Private investors and tax payers are the only victims. The first because their investment is gone and the second who has to pay to fix the the public employee pension funds that may have purchased the same bonds which means the first party is actually stung twice
Ultimately, a company has to pay up, or liquidate what it has in order to pay its debts. If it can't do that, then those who hold equity get shafted. That's just a function of the capital structure.
A government uses debt to pay for stuff. If it defaults on its own debt, it hurts its ability to generate funds without printing currency. So if a government defaults, it not only incites domestic panic and foreign wariness of its markets, it also loses the ability to affordably borrow to pay for programs that can right the ship.
Even for companies where bonds are pricing in a substantial probability of default, it's a big deal if they fail to service their debts. Sprint can survive a 30% drop in its stock price. It probably can't survive defaulting on 30% of its debt.
Well, not getting paid is a pretty good incentive to make sure the expected rate of defaults closely approximates the actual rate of defaults. Maybe bondholders ought to try that sometimes.
> The federal reserve is doing $40 billion a month of bond buying with electronically printed money (quantitative easing) so the bond holders get paid!
Nope.
The US Federal Reserve did three rounds of QE, and round three ended in October, 2014. This is not an ongoing program.
> the broken window fallacy is a mainstay of Keynesian economics
No that is actually not true. You'll find the broken window theory espoused by dingbat modern economists[1] and business people[2] but not hoary old Keynesians and NeoKeynesians. Keynesians believe somethings different which is that if you have a demand and production shortfall due to excess debt and fear (dread zero bound), then the government can help by creating demand. AKA borrow money to pay for labor and materials and use that to build useful stuff. Experience from WWII in the US shows that it'll work even if the stuff is not very useful.
[1] Because modern economics isn't an applied science practitioners are allowed to believe what they want about the real economy.
[2] Leaned about the broken window theory at the country club bar.
> there's really only one bad thing that can happen in a capitalist economy: bondholders not getting paid.
Maybe I over-read it at the time, but I got the same feeling after reading a history of the 1500s Mediterranean countries (Braudel's "The Mediterranean and the Mediterranean World in the Age of Philip II"), more exactly that the a very great injustice had been made to the bankers of the time (mostly the Genoese and Fugger family) for not getting their money back from the King of Spain, to which they had lent a lot of money (it's like they had gotten a big haircut on present-day Government bonds). There's an interesting discussion about that at this link: http://history.stackexchange.com/questions/4432/what-were-th...
Agreed, but I find it funny/dangerous how bond markets can get into risky positions and then demand to be bailed out because they basically argue that bonds shouldn't be risky.
Fannie/Freddie bonds before the housing crash were a perfect example of this. All the information marketing the bonds came with specific warnings that they were not backed by the US government and didn't carry any "explicit or implied" government guarantee. Of course, this turned out to be bunk, and the bond markets knew it, which is why Fannie and Freddie were able to borrow money at lower rates than everyone else. When push came to shove, everyone knew Fannie and Freddie were too big to fail and the government would have to bail them out. I wouldn't be surprised if history repeats itself.
> Destroying value is not such a big deal since after all value can always be created.
?! I'm not sure what you mean by that, but value is rather hard to create. Certainly the value in real estate and physical goods. Stock value and services are a bit more ephemeral.
But the reason Keyensian hole-digging makes sense is that labour is a wasting good - you can't store the output of people who would otherwise be unemployed, and having people unemployed does long term damage to productivity.
Almost. Hole-digging isn't any meaningful sort of employment, it's merely a tactic to put dollars in the hands of consumers, increasing "aggregate demand" (consumer spending), which DOES provide employment, as that spending is spent on OTHER people's otherwise-unemployed labor (not the hole-diggers' labor)
>>Almost. Hole-digging isn't any meaningful sort of employment
We aren't talking about literal hole-digging. There are a ton of infrastructure projects in America (highways, bridges, etc.) that could use the labor in construction.
How? A debt is a promise to transfer. A default is equivalent to a repayment plus a theft.
The only sense in which value is destroyed is if the money ends up in the hands of someone who less productive at invest it. But that can't really be predicted. If value is lost in a default, the value was already destroyed in the past, regardless default choice.
My point was that the only reason to take out a bond in the first place is time value of money: the auto industry needs them for its inventory and input parts. Bond markets seizing up present a problem for this kind of company, because it's possible to be profitable but bankrupt due to cashflow issues if the company cannot roll over its bonds when they fall due.
Bankruptcy causes real destruction of value as inventory is sold at liquidation prices and the concentration of knowledge and organisation that makes a firm valuable in the first place evaporates.
>broken window fallacy is a mainstay of Keynesian economics
That's a crass (although depressingly common) straw man of one of Keynes' views.
He mentioned that paying people to dig a hole/fill it up was one way - though emphatically not the most efficient way you could escape from a liquidity trap.
The reason why digging holes was suggested is if it wasn't a useless economic activity it wouldn't be politically acceptable. If the government employed workers produced anything of value they would compete with private companies.
"It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly ‘wasteful’ forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions." - Keynes
There was his observation that if building ships full of war stuff and sending them across the Atlantic for the U-Boats to sink was enough to shake off the great depression the US certainly didn't need to wait ten years for the Germans to declare war.
If one looks at the composition of debt 1920-1950 what happened during WWII is the US government essentially took all of the commercial and consumer debt onto it's own books.
Argentina didn't decide. It couldn't pay the interests anymore. It was a snowball of crazy high interest rates in a foreign currency. You can't pay your debt if it's much higher than GDP growth even with a surplus. And Argentina had neither growth nor surplus, thanks to the idiotic IMF economic plans with a currency pegged to the US dollar.
A better point might be, why were they lent money in the first place?!?
Debt to GDP ratios can also be described in terms of how long it takes to produce GDP equal to the debt. Owing 100% of GDP is owing one year's product. Whether that's a significant dividing line depends on rates of interest and growth.
When a company fails the bond holders get paid first. Bonds are also the rich man's way of getting paid by governments. Lending money to finance war has always been a nice way to trap governments.
If your investments are all inside the country That defaults on its debt then yeah your fucked anyway, but if you're investing in a country's debt and you have little other exposure to said country, then their defaulting on the debt is the only thing that's fucking you. Argentinas default is the best example of this problem.
nit: quantitative easing was ended in October 2014. The Fed is not currently buying bonds and is doing a combination of selling off some bonds and letting others mature.
While I don't agree with everything you said, you are right that modern economics puts a lot of emphasis on the bond market.
Their reasoning is that the bond market is like a giant, distributed bank. Bondholders borrow short-term, and invest long-term, thus providing liquidity for businesses that need to make long term investment.
The problem is, we have no idea what the actual economics of liquidity provision is. The standard Diamond–Dybvig model is used to justify bailing out the banks (and also the "shadow" banks, i.e. the bond market) when things go bad. But if the Diamond–Dybvig model is correct, then liquidity provision is a mechanical process that could be done just as well by the government, and the bond market is just a way to get the free market to do this at exorbitant cost.
We need better theories to understand liquidity. I think the best work in this area is by Holmstrom and Tirole. Holmstrom's nobel price should help raise the profile of this work.
>My rough definition of a financial crisis is that it's when someone borrows money from someone else, and can't pay it back, and it is politically and socially unacceptable not to pay it back.
A questions, is the broken window a fallacy if it forces you to spend money when instead you were just going to put it into the bank, and there is already enough money in the banks.
It's not. That's the original Keynesian analysis of the liquidity trap. Dollars have no inherent stored value, so putting them to use can improve economic productivity, even if the reason they start moving is silly.
Breaking windows is a stupid way to crate liquidity though. Better to do some debt-financed spending without destroying anything. For example, the USA's CCC and TVA, that started ending the Great Depression.
Well, they say that the economy has never gotten in the way of a war. I wouldn't completely rule it out. Most likely there would be some sort of skirmish, but not a full war.
But do recall that people said the same thing before World War I. All you need is some yahoo to kill the wrong person .
I used to work in energy corporate finance, and this feels like a pretty alarmist article to me for a few reasons. My logic runs as follows:
- The trillions in credit are issued by a wide array of energy companies running the gamut from production, to energy infrastructure, to utilities, etc.
- When a company is getting credit, the term is significant to the pricing of the credit. Riskier companies tend not to have access to long-term debt (10 years+); this tends to be open only to companies with more secure revenue streams (utilities, refineries, etc.)
- By projecting to 2040, the article assumes creditors won't have a chance to reprice the mosaic of debt many times over until then. Riskier companies may lose access to credit completely (as we've seen during the current downturn in oil prices), while others will have to pay a higher price for their debt.
- If the projections are accurate, this market will simply shrink in step with the overall market shrinking. And if past disruptions are any indications, it will be replaced by battery / EV companies needing credit and suddenly looking a lot less risky.
- The world doesn't end. Did I miss anything in my logic?
> Riskier companies may lose access to credit completely
If a riskier company can't renew it's credit, and in general the money is getting more expensive won't this lead to bankruptcy for many energy companies. Those companies won't be able to pay their debt back so ergo the money has to be written off.
This would lead to higher IR on any old-energy based debt which could then put even the less risky companies at risk as they need to put more of their profits into servicing their debt.
There would be a systemic failure. Unlike the housing crisis it will be due to companies that can't afford their debt in the future, rather than overextended home owners who couldn't afford the debt from day zero. But the effect could be the same.
Energy companies make up a tiny fraction of world debt. There is over 200 trillion in total debt world wide. You can find many trillion dollar slices of that that mean next to nothing.
Here is the libertarian response, maybe: I'm not going to feel we should protect the oil industry because of potential economic disruption. Winners. Losers. Free Market. Credit markets are about predicting future trends and credit worthiness. If creditors do a poor job, so be it.
This argument is generally pursuasive to me most of the time. Should I be convinced otherwise in the present case.
-a layman.
The future changes are clearly written on the wall. If the credit markets continue to ignore the trends and the risks of oil, then they deserve to loose money.
It absolutely would happen one way or the other, eventually, even with shale oil. Finite amount of oil-bearing rock is finite.
But also, even if there was vastly more oil than thought, that wouldn't matter because if you dig it up and burn it, Earth turns into Venus. Peak "oil we can afford to dig out without fucking ourselves over thoroughly" is already in the past and receding.
That's not a libertarian response, it's a capitalist response, the way capitalism is supposed to be. We don't (read shouldnt) protect anyone, we only should step into a free market where we see monopoly.
Not just a monopoly, but also when power concentration becomes too much of a risk to the market.
If just one of the big banks were to fail it could take down the entire economy along with it. Even after all the stress tests... Because they don't count the interconnectedness of these backs.
For this reason even the Libertarian and staunch capitalists should be clamoring to break them up into smaller chunks. There's no reason why such an action should be bad for investors or the banks themselves. It could merely be a forced diversification.
Strict libertarians belong in the same place as utopian marxists: a nice quiet room where they can't get access to the levers of power. Or sharp objects, for that matter.
I don't think it's by default bad if the government artificially keeps a dying sector alive for a while to soften the blow to the families who depend on that sector for income.
If government intervention can prevent a lot of people falling into poverty/homelessness at the cost of slightly delaying technological progress, I think that can be a price worth paying.
At what cost though? I've heard this protectionist argument from a friend of mine many times before, and it always ends up circling back to his current employer, who if there had been larger economic/regulatory barriers in his industry a decade and change or so ago, would likely not exist.
Protectionism has its place, but we should fully evaluate the cost, damage and benefits created by protectionist policies before implementing them, otherwise you end up with massively subsidized US corn crushing our NAFTA partner's agriculture industry, and Chinese Steel being dumped on the US at significantly lower prices than the US Steel industry can produce said metal at (mostly due to Chinese state subsidies, just like our agribusiness subsidies).
I fully agree. There are many factors involved in this decision: how many jobs are at stake? how beneficial is the technology we're holding back for the population at large? how environmentally damaging is the old industry? how many new jobs can we eventually expect from the new technology? etc.
Note that I did not claim that protectionism should be the default policy. My only claim is: it would be silly for a government to refuse to consider protectionist solutions to certain problems, simply because capitalist dogma says it shouldn't.
Keep in mind that the solar industry employs more people than the coal industry. Why is it a good thing to soften the blow by keeping the coal industry alive, instead of directly paying former coal workers?
I won't respond to the specific example of the coal industry; I'm not advocating for keeping the coal industry alive artificially. My claim is that it's not always bad policy to do so.
So in a more general sense, why not simply pay the workers of an obsolete industry? I'm not sure I have a good answer to that, since I'm not educated in economics. But I would guess that a dying industry can still generate net wealth, just not enough to sustain itself. It depends on how much of its costs are labor vs infrastructure.
An industry that cannot generate enough wealth to sustain its infrastructure is probably generating negative net wealth, and it's better policy to let it die and give money directly to the workers.
But if an industry can sustain its infrastructure without government help, but it can no longer afford the labor costs, I think the industry can still generate positive net wealth for society if the government plugs that gap. The portion of the money the industry is paying out of its own pocket to its workers is already net gain for society, why throw that away?
The political question isn't a out bailing out losers, it's about overall total economiic value. Stability is incredibly valuable, and it's even worth taxing the beneficiaries of a bail out (by taking an ownership stake) to help finance the recovery.
Credit markets dependent on oil survived the "superspike", the decline of output from several Middle Eastern countries, the rise of US secondary and Canadian oil production, the substitution of natural gas for oil in power generation, and the resulting oil glut. Those were fast events, a few years at most. Conversion to electric cars is going to take a few decades.
Anyway, batteries are not an energy source, just storage. Somebody has to build generating capacity.
I think the idea is batteries enable people to use other sources of energy for transportation.
Not explained in the article is there is a threshold effect in play here. Electric cars are probably cheaper on a per mile basis now, but not on a capital basis. However batteries are coming down in price so fast that within a decade we may find that electric cars are cheaper on a capital basis. If that happens, gasoline cars will stop being produced overnight.
Other one that people don't consider as much is that outside the united states and a few other oil producing countries oil imports are considered to be a necessary evil. If the governments of those places think that they can run their transportation infrastructure without oil, they'll switch as fast as possible and erect very stiff taxes to reduce demand for oil imports. AKA do the rulers of China like that they need to import oil? No they absolutely hate that. Which is to say inside the US oil companies have a lot of economic and political power, outside the US governments hate and fear them.
Both of these means that demand for oil could start falling rapidly. That will depress the price, any producer that can't economically produce at the new price will be bankrupt. Any oil exploration business will go bankrupts.
Deal is when an electric car with 150-200 miles of range is cheaper than a gasoline powered car, then for the vast majority of people the next car purchase will be electric or a plug in hybrid (twice the mileage of conventional). Assume 12,000 miles a year for a mix of cars
% Type mpg gal/yr ext
50% Electric -- 0 0
25% Plug in Hybrid 80 150 X 0.25 = 37.5
25% Non-Hybrid 30 400 X 0.25 = 100
-----------------------------------------
Total 137.5
100% Non-Hybrid 30 400 X 1.00 = 400
------------------------------------------
100% 400
So the mix of electric, plug in hybrid and gasoline results in a 2/3 reduction in gasoline consumption.
And that's in the US. In countries without domestic oil production the choice will be made for you.
> Anyway, batteries are not an energy source, just storage. Somebody has to build generating capacity.
IIUC, you can generate far more solar electricity during the day than can be consumed. But that electricity isn't available at night because storing it in batteries is too expensive right now. With cheaper batteries there are stronger incentives to build more renewable generating capacity, driving down costs further etc etc.
Nuclear needs a lot of storage. The problem is that nuclear power plants only produce at a steady rate, they can't be brought online and shut down as demand fluctuates. (Natural gas is great for plants that need to handle peak load or spikes.)
Back in the 1960s and 1970s when the power industry thought we were going to go nuclear, they built a lot of pumped water storage systems. There's one in Western MA built under a mountain that pumps water from a river to an artificial lake at the top of the mountain. The plan was to pump water at night using extra power generated by nuclear plants, and then run generators during the day to make up the shortcoming.
My guess is that the facility now pumps water during the day to act as storage for solar power.
The efficiency is about 70 or 80%, from what I remember. Batteries are a much higher efficiency, and can be placed much closer to the load.
Thus, mass-produced low-cost batteries will really disrupt the grid, because older forms of storage, like pumped water, will be obsolete. Furthermore, because batteries can be placed much closer to load, the needs for grid capacity change because high transmission lines no longer need to handle peak load.
My favorite "SciFi-Like" power storage concept is a PowerLoop [1]
Someone could take the old Superconducting Supercollider tunnel in Texas, put in the theoretical PowerLoop infrastructure for about $500m and then it would be able to store enough power for the entire state of Texas to operate for over a day. The money it would make on the arbitrage between cheap power generated from solar & wind and times where demand exceeded baseline generation capacities would pay for the system, according to the designer, within a few weeks.
You can set up nuclear plants for reasonably-fast throttling. The problem is that it's much more expensive to throttle one because a nuclear plant is mostly fixed costs while natural gas plants are mostly fuel costs.
Why do they assume auto makers will just sit there and do nothing?
I have seen far too many "projections" that assume nothing will change - they are always wrong, and thus worthless (unless it's your job to make the change).
They are doing something, but I guess it's hard when youve invested hundreds of billions of dollars over the lifetime of your industry doing R+D to perfect the I/C engine. Are they just going to throw that work over the side of the ship? I mean rationally yes they should, but it's easier said than done! They also need to skill up in completely different areas of expertise, which also is hard/takes time.
Certainly the existing auto makers are developing new cars. But one of the major differentiators of the Tesla is the user interface - the navigation screen, the experience around calculating routes including charge stations, etc. On one hand it seems like developing good UX should be easier than building cars - it's mostly just software right? - but based on everyday experience with electronic goods it seems to be the hardest thing for companies that do not have a long pedigree of UI development. We all have iphones and androids is because of UX, not because of hardware.
For most of the history of the automobile, the UX was standard and very simple. Now there's a major expectation-resetting going on. The UX of a Tesla is not something that just can be bought from a third-party supplier and bolted on like a fuel injector or axle or radio. At best, the software departments of big automakers are accustomed to building embedded systems. Making the transition to will not be easy.
I for one don't want a UX in my car. I have a phone, and I use that for navigation. I don't need that duplicated in my car.
I want tactile controls (knobs and levers and pushbuttons) I can use by feel without taking my eyes off the road.
And, of course the UX of a Tesla is something that just can be bought from a third-party supplier and bolted on like a fuel injector or axle or radio. It's just a matter of hiring some smart developers. Many readers here could probably do it in a weekend ;-).
exactly this. i have older car without any fancy big screen. what for? all the necessary info is displayed anyway, for navigation i use offline maps which are superior to anything embedded i've seen (and free to update via wifi - this is due to my particular data limits in europe).
to adjust heating/volume/switch song/etc i don't need to lose focus on road, i just know which knob to turn or which button to press. I know by experience that when i look at central panel, nuke can blow in front of my car and my eyes would barely register it since it's not in my direct focus - very, very dangerous.
it feels much more premium to have dedicated physical controls for all required tasks. fuck tablets in cars, it's horrible idea that should be put only into cheapest cars, or straight forbidden.
Building a good embedded touchscreen UI is not so much rocket science as it was just 5-7 years ago. There are a lot more people with the knowledge nowadays - because of the mobile app revolution.
> We all have iphones and androids is because of UX, not because of hardware.
The iphone appeared as soon as the hardware shrunk enough to be able to support it. Earlier tablets failed mainly because the hardware just wasn't capable enough.
I'll add that they are building much more than car UI. They are building platforms.
The car itself is a complicated platform with many components. How they communicate will affect how easy it is for the developers to build reliable, secure, components. (e.g. braking systems preferably shouldn't be open to everyone https://www.wired.com/2015/07/hackers-remotely-kill-jeep-hig...).
Then you have the cloud aspect, which allows users to access car data and functionality from apps, allows the car manufacturer to do analytics, etc. Now you have a car company that's responsible for running safety-critical servers in the cloud. Again, this leads to huge variation in reliability, developer experience, and security (e.g. your car's climate control is best left to yourself and not everyone else https://www.troyhunt.com/controlling-vehicle-features-of-nis...).
This is exactly the argument AGAINST Tesla. I saw the luxury tesla model. It is so crude compared to the corresponding Benz. Daimler, BMW, Audi and other manufacturers have been making cars for a hundred years. They know how to do it. I'm afraid Tesla does not still.
They don't. They assume automakers will start selling EVs and not PVs, petroleum vehicles. This article was about oil and energy industry. Try reading OA next time.
>Why do they assume auto makers will just sit there and do nothing?
Because the hype will be with the new, and auto makers will be perceived as "old" even if they release electric cars, which will be tough because they're already behind Tesla.
Everyone wants to have that Tesla, and no one wants a Blackberry even if the newer versions have touch and have all the features of an iPhone.
It happened in the smartphone industry, with taxi apps etc. etc. It's hard to shake off widespread public perception short of reinventing yourself which is possible, but quite rarely seen.
The difference is that Blackberry spent years ignoring the iphone, pretending they didn't need to change anything.
The car manufacturers don't appear to be ignoring tesla at all. In fact, Tesla is being outsold by more than one of the "old" companies electric cars today.
If you have to compare it to phones, it's much more similar to iphone vs android. Android might not have been first, but they responded quickly.. a variety of phones/cars allows manufacturers to meet the requirements of more market segments.
At the end of the day, Tesla/Apple can only offer a handful of models.. if you don't like it, you're choices are the large variety produced by Android manufacturers. That virtually guarantees Android will have a greater market share than the iphone/Tesla.
I agree.. but it's interesting to think of Tesla in that way.
Powerwall clearly is not a complimentary product of a car. If it was wildly successful, it would have had minimal effect on Tesla's car sales, while having a significant effect on it's battery production.
Similarly, SolarCity (which is merging with Tesla) increases demand for batteries.. but again, has little effect on their car sales.
In fact, the one thing all of their products share in common (solar, powerwall, cars) is that they increase the demand for batteries.
Tesla may be a car manufacturer.. but it would easy to think their primary business is actually batteries.
Powerwall doesn't make a lot of sense. It's about 30-40% more expensive than other batteries that were on the market when it came out.
And, while Tesla cars might be bragworthy and worthy of showing off to your friends, house batteries are not. All that really matters is cost and efficiency.
If you already have a Tesla you effectively have a powerwall too. All you need to do is plug it into your home circuit and store whatever energy you want. If the car isn't moving it's just a huge battery. The extra hardware required to convert the energy in the batteries back to household power is pretty trivial, and it shares major characteristics/components with the electronics in the power module of the inverter driving the electric motor in the car.
In addition to the sibling comment, I'll add that I don't want to have think about whether my EV is at 100% or 30% despite it being connected to the charger for the last 12 hours since I got home from work the day before.
Also, existing EV owners don't have an EV <> Household bidirectional interface connected, and I'm not aware of any serious vehicle manufacturers claiming they will do this. Probably because if the battery has an X kilometer / Y year warranty, how does using it as a household power reserve affect that warranty?
Obviously if you need a full tank you'd unplug your house from the car. But the point of the Tesla car is that, like a gas car, 30% tank is enough for
99% of the days of the year.
An X Km warranty is just an X KWHr warranty in different units.
Some Tesla cars have more capacity built in than you can use. You can unlock the extra capacity by paying more. They could use that as distributed storage.
One thing that doesn't wear out your battery at all is a smart controller that charges your battery when energy is cheapest. So all that excess night-time wind energy can be sopped up, not to mention that day-time excess solar energy for cars that plug in at work.
It's like storage, only it costs almost nothing: all you need is a lot of cars with overly-large batteries plugged in, and a little predictive software.
Chevy will probably be the largest electric vehicle manufacturer in a year or two. They're #2 right now, and the Chevy Bolt comes out soon. The Bolt is a useful car, the price is affordable, it has more range than the Tesla Model 3, and the Chevrolet Division of General Motors has a track record of building large numbers of cars at low cost.
I think range anxiety is over-played because 1. people don't drive for long distances all the much anyway and 2. battery capacity improves 8% year on year, within 9 years it will have doubled and it will be a moot point.
But what about when you do want to drive a long distance? Unless you just want to drive in circles around a major metropolitan area where charging stations are plentiful it's going to require having a planned route/schedule and sticking to it. That's a huge decrease in utility compared to a vehicle you can fuel up anywhere. Unless chargers become close to as common as gas stations EV range will have to be greater than that of traditional vehicles.
Same thing you do when you own a sedan and want to go on a big camping trip or move to a new apartment. You rent a journey-approppriate car for the rare special case.
you would be surprised how many people do need long distance travel, and not just once or twice per year. for me and quite a few people I know, till electric cars can make at least 800km in single push of 130 kmh real traffic, they are useless as private cars. it will come, but maybe in 5-10 years.
I mean, doing 1500km travel (which i do 1-2x per year) would mean 4 hour drive, then couple of hours of forced wait, again drive and so on? completely useless
If you regularly drive more than 300km, then yes, ICE vehicles will remain your only option. But if you are a suburbanite or city-dweller who has a typical round trip commute of 70 miles or less[1] then in the very near future a Tesla Model 3 or equivalent will be the economically rational option for you to purchase.
I think about buying a EV in the same way as I would think about choosing the number of bedrooms in a hypothetical house purchase: do I overpay for a house with one extra bedroom, in the rare case I have relatives or friends once or twice a year, or do I offer to put them up in a nearby fancy hotel for that rare case? Similarly, do I buy the car that fits my needs for 95% of my day to day driving, is economical to run, and rent a car when I need the extra range, or do I overpay day to day for the rare edge case where I need that extra range?
Then again, plenty of people choose ridiculously oversized SUVs to drive their kids to school so we shouldn't expect drivers to suddenly become economically rational in their vehicle choice.
> you would be surprised how many people do need long distance travel, and not just once or twice per year.
> I mean, doing 1500km travel (which i do 1-2x per year)
which is it? Things you do once or twice per year are exactly what the GP is talking about. Rent a car that can.
Besides, I believe the Model S can go for about 400km at 130 km/h, so realistically you'd have two half-hour breaks at a supercharger. It's not so bad if you combine it with lunch / coffee. If you were to take the recommended driving breaks (at least 15 minutes every 2 hours) and increase the interval from 2 to 3 hours (because people who do 1500km pushes probably don't take as many breaks as they should), then you end up with 30 minutes more. That's not ideal, but not too bad either.
> Unless chargers become close to as common as gas stations [...]
If an EV supports 120V outlets, then chargers are already more common than gas stations by many orders of magnitude. Fast charging is a different story... But for long road trips, taking a break for a couple hours every 400 miles doesn't sound like a bad idea, and we already have ample rest stops along most highways.
Charging a 60 kWh battery in two hours requires average power of 30 kilowatts, i.e. about ten times more power than available from a regular household outlet. So you really need proper fast charging infrastructure.
Relative to the feed going into my house (not just a standard outlet), that doesn't seem too bad. People like to make it sound like electrical distribution is some giant hurdle... I don't see the problem.
What happens when thousands of people all get home from work at around the same time, and then plug in their cars? There's your problem, because most populations aren't going to be wanting brownouts.
The solution to overnight charging is potentially even more trivial: Smart grid-aware chargers (if Nest can do it, so can your car); surge pricing; eliminating individual car ownership in the coming autonomy craze.
People like to make it sound like cultural problems are insurmountable. Sometimes, that may be true. Other times... we just have to suck it up and realize: The future is already here, and it requires change. Personally... I'm excited to get away from a gasoline automotive economy -- at least electricity is agnostic as to the source of EMF.
(In fact, a whole bunch of car batteries hooked to the grid sounds a lot like distributed energy storage required to smooth demand curves...)
I'm sure if you're taking a long trip, you'll stop somewhere long enough to charge the battery. Anywhere where you park for a long time can have a charger. A hotel, restaurant, or theme park are examples of places where you will park long enough to charge.
And then you don't need to go out of your way to buy gas!
But, that considered: I see a lot of stories about developments in rapid charging. IMO, in about 5-10 years an EV will be able to charge to 90% capacity in 10 minutes.
That's about as long as I spend at a gas station when I drive long distances. (I usually go to the bathroom, stretch my legs, ect.)
They just need to be reminded that they can rent a car for long trips. Some car sellers even bundle in a gas-car rental stipend with the electric car purchase.
Range anxiety is enormously overrated. With an EV you wake up every single day with a 100% full charge. This is rarely mentioned for god knows why. Also, for the rare long range trips you drive your non EV.
that's assuming people have more than one car. a person can get a rental car, this is added mental task that you're asking a person to do. if you're requiring the user to think/work you're going to lose a lot of users.
That's the marketing angle that will be played, obviously for people here in a general socioeconomic sense there's no problem affording an EV and no problem getting a rental at the drop of a hat anywhere on the planet. Like claiming those airplane thingies will never catch on because people don't like renting cars and we are all familiar with suddenly having a transoceanic or cross continent travel dropped in our laps so we'll all be forced to live on houseboats or something. I mean, everybody travels all the time, so no body should be permitted to own a car that isn't for travelers, right?
The marketing push we can all look forward to is exhaustive explanation via legacy TV commercials and perhaps product placement on sitcoms, etc, that only poor people can't afford to rent a car for weird long trips and being poor isn't cool, so that'll kinda take care of itself.
i don't think it would get that far. we're living the intersecting of type of cars and ownership of cars. if it's a play on status i see Uber and such services dominating this marketing space. why rent and drive yourself, only the poor drive themselves.
This is a big problem in many European cities. Many people in cities (and just about all in city centres) don't live in a house, they live in a flat. And while the newer ones in very large cities often do, most older apartment buildings don't have parking garages. I think my neighbours would be mildly annoyed if I were to lay a 30m power cable from my third floor window to my (hypothetical) EV somewhere close to the house. Not to mention the strangulation issues for those nasty pedestrians on the sidewalk in between house and car.
Well you can down vote me all you want but it's not a UX problem that's been solved so far and it's a legitimate factor in range anxiety.
Unlike switching the lights off you have to get out of the car to plug it in.
If the car is going to beep before you get out then it's not a reminder for something I've forgotten,as with lights left on, it's just irritating UX noise, like the "don't forget your mobile phone" message. After a very short time I go blind to that.
If it's an alarm on a mobile/smart watch it's still a tedious chore to have to plug in a car when it's raining or I'm in a rush or I've parked in a spot without a charge point.
People _will_ forget to charge their cars, just as they forget to charge their phones and they will be late because of it.
If purely electric cars are to be brilliantly convenient everyday repacements for fossil fuels they'd be better with either some kind of induction charging, fast charging that doesn't take hours or hydrogen fuel cells.
If we had better ways of splitting hydrogen we could "fast charge" anywhere water and electricity is available.
But no, it's not a huge issue. New cars seem to come with apps nowadays, so as you said your car can just send you a notification to your phone if you haven't plugged it in five minutes after arriving back home. And maybe another one if it's still not plugged in before you go to bed.
Unavailability of charging (see sibling comment) is a bigger issue that won't be as easy to tackle. But reminding users to charge their car isn't what's hindering EV adoption. You can be late if you forget to fill up your petrol car, too. That can easily take ten minutes if there's a bit of a queue.
Yeah - the Bolt's going to be a nice car. I'm leasing a Spark EV now (more or less a prototype Bolt sold as a CARB compliance car) and it's a fun lil' car.
I also think that Tessa lead is overestimated due to the cult of personality around their CEO. Particularly around these parts. GM was making electric cars in yeh 90's.
...in Silicon Valley. Tesla is far smaller than you think. The market and mind share outside of extremely wealthy sectors of the country is miniscule. Nobody where I live has even heard of them (unless, of course, you are a technically inclined forum reader).
HN seems to think Tesla has already won (even though they can't profitably produce a vehicle), and that everyone working for the auto majors are old, stodgy, and stupid. But I'm betting otherwise. I think they see that the writing is on the wall, and they're allowing Tesla to do much of the leg work.
On the other hand, here in the Northern Europe, people even outside of tech circles talk about Teslas and recognize them on the streets. But I very rarely hear people talking about other electric car models. I think Tesla has already tremendous global brand for such a young company.
Of course more people recognise the old guard, but that wasn't the point. The point is that Tesla already has a significant global mindshare in electric cars despite the fact that they have only sold less than 200K cars to date. I bet I'm not far off when claiming that almost everyone who is considering of buying a full electric car has heard about Tesla.
This has been debunked already. They can profitably produce cars but have chosen to double down on investment to grow and create new technologies. They are a hardware startup and can't scale "easily" like a tech startup could.
Have you ever looked at what all the auto majors spend on R&D? Do you you think that it's $0? Both GM and Ford spent $7 Billion on R&D last year. Tesla spent under $1BB. Yes, those old, stodgy, do-nothing companies outspent Tesla by a factor of 10-1 on R&D. This is a heavy R&D based industry.
> no one wants a Blackberry even if the newer versions have ...
I agree that there is a hype aspect to this, but I don't think it's the whole story. You rightly point out that it's hard to shake off widespread public perception short of reinventing yourself. I think that in many cases the perception is earned.
As is often pointed out, there are many aspects of the iPhone that are not original to Apple. Tesla isn't the first company to come out with an electric car. I don't think hype alone is going to have people shelling out tens of thousands of dollars for a new car.
What prevented the established companies from putting out compelling products themselves? After all, they already have experience in the industry. Clayton M. Christensen's "The Innovator's Dilemma" discusses this in part. And once you've lost the perception of being competitive, you're playing catch up on both marketing and product. Ouch.
> Because the hype will be with the new, and auto makers will be perceived as "old" even if they release electric cars, which will be tough because they're already behind Tesla.
Much like how Red Bull completely replaced Coca-Cola.
Or that time Microsoft was replaced on the desktop by Ubuntu.
Or that occasion when the Segway killed off bicycles.
Sometimes the incumbent wins. Sometimes they don't.
Making sweeping generalisations across all competitive landscapes in all industries isn't a very effective method of forecasting in particular industries.
GM is shipping a (practical) mass market electric platform in a few months. They are apparently behind Tesla when it comes to autonomous features, the Bolt looks to be competitive with the Model 3 as a daily driver and will beat it to market.
>They are apparently behind Tesla when it comes to autonomous features
I'm not even sure this is the case. Tesla, with AP2.0, seems to be starting from scratch. New cars will have no autonomous features. I'm not convinced they have a technological lead over other players in what is becoming a saturated space.
They have a non zero chance of activating it in cars that they are selling now (or at least in the near future). You can't do that trick if you don't commit to the hardware.
More broadly I think you are right, it's hard to see where the different groups really stand from the outside.
>You can't do that trick if you don't commit to the hardware.
I agree, this was a pretty slick move all around. Add the hardware (which is simple and cheap), collect data, iterate on the technology, and sell it now as a "game-changer" and "upgrade". Elon has a knack for packaging things like this.
The Honda Insight hit big Western markets before the Toyota Prius around the turn of the century, but ultimately the Prius became the most popular hybrid vehicle.
What customers want in a car is different from what they want in a phone.
The (original) Honda Insight was a tiny 2-seater of a car, more tech demo than "ordinary" car, and perhaps it's the gift of hindsight but the Prius' popularity for with people that own one car, as a 4-door 5-seater car vs a non-sportscar 2-door 2-seater car seems all but guaranteed. (How many people do you know that own 2-seaters vs 5-seaters?)
Similarly, the vast majority of smartphones these days are (unfortunately) glass bricks, as first popularized by Apple. There were other interesting designs out there, but ultimately the iPhone design became the most popular smartphone design.
The first generation Prius wasn't exactly a hot-seller. It was still a compact car and the battery pack reduced the utility even more. The second-gen was the home-run for Toyota. It was about the same size as a Camry for not much more money and a lot of additional utility, especially around 2008-2009 when gas prices were absolutely crazy.
I would have no problem buying an 'old' car if price/performance was right, as would many others, not to mention that outside of hipster circles people value old brands as reliable and trustworthy. You can't comparre brands like VW and BlackBerry.
Not everyone wants a Tesla, that's just absurd. There will be plenty of buyers across the price range from cheap Asian commuter cars to mainstream Ford and GM to luxury BMW and Mercedes EVs.
Sodium batteries[1] could be the answer to grid storage batteries. Sodium can be extracted from seawater (e.g. desalination plants, there's a huge supply of salt readily available), and while it's heavier than lithium, it's chemically similar. It's heavier weight probably makes it less suitable for transport, at least initially but ideal for grid storage if/when they figure out how to produce the batteries commercially.
[Side note: some interesting quotes from the above link...
In 2012, the French researcher decided to take the bull by the horns and make the most of France's know-how in sodium batteries. "For lithium, all fundamental research had been conducted in Europe, especially in France," Tarascon points out. "Yet it was in Japan that the technology was transferred and brought to market, allowing Sony to launch its first lithium-ion battery in 1991. As a result, 95% of Li-ion production today takes place in Asia." It is out of the question to repeat history. The CNRS (responsible for fundamental research) and the LITEN-CEA (in charge of technology transfer) have thus joined forces with around 15 industrial players such as Renault, Saft, and Alstom to create the RS2E network dedicated to new-generation batteries. Their stated objective is to ensure research AND development, in order to bring sodium-ion batteries to market on European soil as soon as they are ready.]
The biggest drawback of batteries today is high costs, not physical parameters. A BEV with Model S range could be as popular as the Toyota Camry if it could be profitably sold for the same pre-rebate MSRP as a Camry. Tesla doesn't need to find a metal lighter than lithium; they just need to bring lithium ion costs down.
For stationary energy storage energy density is even less important and costs are even more important. IMO the best way to make stationary energy storage affordable would be to increase battery cycle life, via chemistry tweaks and/or charge controller tweaks. You don't have to compete so fiercely on lowering up-front costs if you're selling to institutional customers and can demonstrate lowered lifetime costs.
I'm not going to proclaim that lithium ion batteries will certainly win the storage wars. But I think there's an interesting historical example from photovoltaics. In 1976 terrestrial PV cells were mostly made out of crystalline silicon and a lot of researchers were searching for materials that could lower PV costs either by increasing conversion efficiency or by being cheaper than high purity silicon. The search never stopped, and maybe some day silicon will be overthrown. But in 2016 crystalline silicon is still the most common, most efficient, and least expensive option for making terrestrial PV cells. Iterative improvements on the incumbent technology kept it ahead of all the many disruptive alternatives proposed over the decades. Maybe the same will happen with battery chemistry (either lithium ion or another one that's already been commercialized, like sodium ion) -- iterative improvements that keep disruptors forever playing catch-up.
Isn't there a huge potential in Lithium air or aluminum air? I get that it's hard to achieve reliable rechargeable tech there.. but if we're looking at theoretical capacity there should be plenty of opportunity, no?
As for the shorter term, have you looked at SolidEnergy? If their tech lives up to their promises I think it could really tip the scales for EVs. If it's relevant for grid storage I don't know.
No. [EDIT: headline here fixed to not include the words "death spiral"]
The article is a (lousy) summary of a report from Fitch. It has no new content, and its regurgitation of the report confuses most of the fundamentals of the energy and credit industries.
This is by itself a very useful kind of HN comment, but just so you know, it leaves me hungry for a lot more detail. In case having a waiting audience motives you to write more... well, you've got one.
I haven't access to the Fitch article, and I'm no specialist of the automotive market at large. I know even much less about oil. However, here are a couple of guesses about how things are likely to go wrong for car makers.
In a vertical market like cars, you've got many actors, from iron ore mining to the "going from A to B reliably" service, going through part makers (who actually make most of the car), car maker (brands), repairmen, dealers, etc. Very often in those markets, one actor controls a key level, protected by entry costs, secrets, regulations, exclusive customer relationship, whatever. By leveraging this stronghold, this actor extracts most of the margins, leaving just enough to other levels to let them survive. You want all other levels in your vertical market to be commoditised: Microsoft wants PC hardware commoditised, Über wants driving to be commoditised (through underpaid drivers first, unpaid robots ASAP), etc.
It seems that for cars, mastering the engine is the way to control the whole vertical market. Moreover, ever-more-stringent emission + fuel efficiency regulations keep it hard to make engines, despite technical progress. Electrical cars change that, because it's (comparatively) very easy to make an electrical engine.
Another asset held by carmaker is the brand and consumer relationship, and this one's probably doomed as well. Cars stay parked for 95%+ of their lives, the only reason you buy one (and it's your most expensive possession after your house) is because you want it to be reliably available whenever you want. Once cars drive themselves, it stops making economical sense to own one: for a fraction of the price, you'll rather subscribe to a fleet of autonomous cars which reliably deliver one on your front door 10 minutes after you summoned it with your smartphone. That not only means fewer cars driving a higher percentage of time: it makes obsolete the car-makers' genuine expertise in making individuals want to buy their models. I'd bet that selling hundreds of thousands of units to Kalanick is significantly tougher than making some hillbilly lust for a Canyonero.
It looks like mastering level-4 autonomy will be the new way to lock that vertical market, and current car-makers don't look better positioned than the Silicon Valley to secure that stronghold. Cue the famous last words by the then Palm CEO, saying about the iPhone “PC guys are not going to just figure this out. They’re not going to just walk in”. Yes, in radical changes, it typically is an incumbent who figures it out.
<Very often in those markets, one actor controls a key level, protected by..
Any writings on who these actors in different markets? clothing? retail? shipping? whatever?
<Once cars drive themselves, it stops making economical sense to own one
Driving is so much fun. Do you ever think they will have laws reducing the driver-cars? Like HOV but for NDV?
So.. when you get into a house you no longer need a landline 'cause of cellular phones. Does this mean when you get into a house you no longer need to own a car? Do you really think this will happen?
Another observation. reporting of deaths.
Now, whenever a passenger plane crashes, it becomes top of search news. "We Interrupt this broadcast" historical procedures. Same for bad rail accidents. Yet with automobile accidents, there are over 30k each year on our highways. Not "interrupt this broadcast" or top of search news. [some, but the weather chair reactions or extreme pileups]. It is even hard to find news about the death near your home highway at times.
But, anytime a driverless car is involved in an accident, especially a death, we can expect them to be top of search results and lead news story. It is new. It will be years before an accident with a driverless car becomes so routine it does not make news. Tons of news sites need fodder. A driverless accident is perfect food for clicks and genuine interest.
<deliver one on your front door 10 minutes after you summoned it with your smartphone
I thought about this. Okay, I will not trust anybody to be better than me when I drive in a snow storm. Several months I HAVE to go to work. I really doubt I will take a driverless car especially because I know how crazy other drivers are and I know the idiosyncrisies of the trek I take 530 times a year. Thus, I will have to own a car. It will make economic sense.
So is horse-riding, and some people still own personal horses. But most people don't, and those who do ride for fun, not for transportation. They take their car to go and ride their horse actually. Because horses are comparatively impractical.
When autonomous cars will be mainstream enough, there won't be any traffic jams in autonomous-only lanes (yes of course it will be a thing), contrary to those allowed to legacy cars. Also, fleet cars won't park, so the pressure to reclaim parking space in the cities will become enormous, and parking your personal car will become as hard as feeding your horses while shopping at Walmart. Human-driven cars will become as impractical compared to fleet cars as horses are compared to cars today.
> reporting of deaths
It's hard to predict which deaths remain newsworthy, and I don't feel like I can. However, I suspect that crashes between two autonomous cars will be very rare, compared to human driven vs. autonomous car crashes. And the primate-operated vehicle will be blamed, probably rightly. Musk considers he needs autonomous cars to be 10x safer than legacy ones, in order to overcome this effect, and expects to reach that level in a couple of years (he wrote that's when he'll remove the "beta" qualifier on his auto-pilot).
> when I drive in a snow storm.
Tesla's radars see perfectly well in the worse snowstorms, you don't. The car has reflexes orders of magnitude faster than yours, a direct connection to ABS sensors, etc. As of today, Tesla cars monitor their human drivers in every driving conditions, compares it to what the autopilot would have done, and whenever a discrepancy occurs, it sends a report over GSM to Tesla's engineering teams. That's how they improve their autopilot. As soon as you drive one you're teaching every car to drive better than you in pathological conditions :-)
It also does 2 other things as we've seen with other automation. The maintenance schedule can be forecast with higher accuracy (humans really make this difficult). Second, it lowers the insurance premiums as a result of higher predictability (humans REALLY screw this one up). As a comparison to existing solutions there's no room for competition if your company can't cross the moat.
> for a fraction of the price, you'll rather subscribe to a fleet of autonomous cars which reliably deliver one on your front door 10 minutes after you summoned it with your smartphone
Interesting, I'd picked a different idea as the market shape ("AirBNB for self-driving cars").
Yours probably works better for a well-capitalised firm. Especially since it encourages lockin through mere inertia.
There's no reason the manufacturers can't take this approach themselves. With a self-driving fleet, they can bypass their dealer channels and undercut everyone else, especially Uber, and Lyft (less Tesla).
In short, it's the GE model for aircraft engine. Selling engine hours, not engines. You can charge a premium over the actual financial costs because it's simple.
Plus most buyers prefer a fixed, regular payment over paying-per-use, even if doing so is financially irrational. Loss aversion and whatnot.
AirBnB works great when you exceptionally need accommodation, far from your normal environment. Most people would hate to need booking an AirBnB every night of the year, in order not to sleep under a bridge.
I think people can regularly move around in impersonal vehicles (as shown by public transportations), but they'd hate depending daily on borrowing a car that's clearly someone else's. They'd probably also have a problem leasing their own car when there's a slight risk that they might need it. So really, the dynamics that makes AirBnB possible doesn't seem to translate well to daily transportation.
> There's no reason the manufacturers can't take this approach themselves.
I'd turn it the other way: it's likely that the fleet operators will also build and repair the vehicles. But I wouldn't bet that legacy car manufacturers will be the ones cornering that market.
Very unluckily for them, electric power and autonomous driving look like they'll become mainstream simultaneously. As explained above, I believe the former will breach their historical moat, and nothing indicates that they'll be the first to rock at the latter, as well as the new kind of consumer relationship that comes with fleet operating for consumers (most of them already operate corporate fleets).
Anyway, unless you're a shareholder, it doesn't matter much whether the behemoth of tomorrow is called Ford, Tesla or Über. Many of the individual engineers will be the same either way, hired by the winner. I don't believe in Apple winning this: they're good at making you lust for ownership of tangible goods, but offering collective services in impersonal vehicles doesn't feel like it's in their DNA. As for Google's moonshots, I can't remember any of them being successful. Moreover, they'll probably be beaten at their usual strategy of accumulating more data than others and parsing it better: Tesla's already accumulating millions of analysable miles with their actual fleet of actual cars doing actual travels, while Google toys around SF with replicas of Noddy's car. And Musk's been hinting at interest for building a company-owned fleet (although he would be a fool to say it out loud: Tesla's all about making electric cars sexy to own).
Über is also very well positioned for smart data accumulation. And IIRC, Kalanick has always been open about his plan of cornering the autonomous cars fleet market before autonomous cars exist, and hiring drivers as a temporary stop-gap (which he also openly treats like shit).
> Plus most buyers prefer a fixed, regular payment over paying-per-use
They currently pay a mix of the two (they pay for gas and maintenance per mile). With electricity being cheaper than oil, it's possible for fleet operators to offer an even better per-month / per-mile ratio. And I agree with you that they'll probably do just that. Unless of course, a monopoly is secured so fast that there's no point in making fleet customers happier than those of cellphone or cable operators.
> Most people would hate to need booking an AirBnB every night of the year, in order not to sleep under a bridge.
Some people use Uber or Lyft occasionally. Some use them every day. In both cases the mechanics of use and billing are identical.
> I'd turn it the other way: it's likely that the fleet operators will also build and repair the vehicles.
Hertz, Avis et al are not seen as competitors to GM or Toyota, because the car-hours market is relatively dominated by owner-operators.
I don't see anyone talking about those companies manufacturing their own cars. Probably because manufacturing a modern car is a hard business to get started in. Tesla did, after years and many millions of dollars.
Maybe Tesla will go the fleet model. But nothing stops Chevy from doing the same. Nothing stops every single manufacturer from doing the same. There is no network-effect moat here.
They aren't: you have to go and fetch the car at their shop, which is very impractical compared to having your car parked on your driveway.
The most radical change with autonomous cars isn't that they drive themselves with passengers in it: it's that they'll drive themselves empty in order to pick up passenger wherever they want, whenever they want. That's what makes not owning a car practical.
> There is no network-effect moat here.
There might not be a natural monopoly, but there is a pretty big critical mass: to reliably serve cars fast enough at predictable prices, a fleet must be pretty large. And whenever you go from city A to city B, you need the operator to be present in both cities.
You're right that everyone's allowed to compete on this new market, including Chevy. Just as Blackberry and Nokia and Microsoft were allowed to compete in the post-iPhone smartphone market. But have they got a critical advantage to help them succeed? They've got plenty of legacy that will be more of an hindrance: dealership networks (that's another thing Tesla is fighting tooth and nail not to get entrapped with), many engineers and engineers-turned-executive who can't let go of a dead culture (ICE, driving as a dangerous-but-exhilarating activity, cars marketed as phallic substitutes), syndicated workers on their assembly chains...
Twice in my career I've seen incumbents lose their market, because it took them too long to embrace inevitable change: Unix workstations killed by Linux on beefed-up PC in the early 00's, and cell phone makers deprecated by iPhone and Android in the late 00's. I'd be surprised if GM and Ford proved smarter and more adaptable that HP or Sun in the good old days, or Nokia and RIM a decade later.
When the paradigm shifts, you're better off with a clean slate than with a legacy.
> They aren't: you have to go and fetch the car at their shop, which is very impractical compared to having your car parked on your driveway.
Precisely. Some people will still want to own their car, even if it's autonomous. I imagine that over time folk will become accustomed to living more like New Yorkers -- renting car time -- but it might not be a big bang.
> And whenever you go from city A to city B, you need the operator to be present in both cities.
Or you have a service acting as middleman. Like AirBNB, or Amazon, or Google.
> Unix workstations killed by Linux on beefed-up PC in the early 00's
This process has already played out in the car market. It's what Ford did to the dozens of small manufacturers who existed previously. Unix vendors had high margins that couldn't be sustained as mass-market technology caught up. Sheer manufacturing power (and let's not forget Windows here) did them in.
New car manufacturers are not entering a market of Unices. They are entering a market of Intels.
> cell phone makers deprecated by iPhone and Android in the late 00's
This one is due to genuine product improvement, in my view. The iPhone was actually usable, it wasn't just random options stuffed any old where the engineers found a gap in the menus.
But again, cars are a rather more sophisticated product. They already compete on design. There might be some more competition on usability.
> I'd be surprised if GM and Ford proved smarter and more adaptable
It occurs to me that I ought to have disclosed that I work for Pivotal, in which Ford recently invested a lot of money. It didn't occur to me because I don't work with any Ford teams myself, though some colleagues in the company do.
What I can see is that neither Ford, nor GM, are just sitting around waiting to be replaced. The lessons of the technology industry are now widely diffused. Applying them uncritically means assuming incumbents will rest on their laurels, because that's what happened in tech.
Except everyone else has gotten to observe what happened in tech. Incumbents understand the perils of laurel-resting.
> When the paradigm shifts, you're better off with a clean slate than with a legacy.
iOS is based on a technology that is nearly 50 years old. Android is based on a technology that's 25, inspired by the technology that is nearly 50.
I don't have enough time to write a thorough post, but the most obvious flaw in their logic is that utilities and auto-makers are unlikely to be disrupted completely by switching from fossil-fuel technologies to renewable+battery technologies. Since the switch will take an estimated 20 years, they have plenty of time to invest in renewables.
A few things (like shale oil drilling investments) might be impacted in a "death spiral" way, but I don't believe that is anywhere near the 25% they claim by invoking everything that touches oil.
Also, bonds have a finite lifetime and are often for equipment with depreciation. Even if 25% of bonds today were for oil infrastructure, many would be re-paid before the disruption had significant financial implications.
TLDR: the headline is egregious clickbait of a regurgitated article.
Just to chime in, I too value when community members can provide more detailed arguments on things. There's a lot of very interesting topics on here that are simply WAY outside my domain of knowledge. The modern world is complex, and while I have opinions on a lot of topics I'm barely qualified to, there's a very real limit on how much we can even have any kind of view about.
I enjoy the comments on places like HN, because it provides a good accompaniment to Wikipedia: where Wikipedia is a summary of the topic, as it stands, comments on HN are a summary of the discussion about the topic, as it stands. (Well, when we get at least two different perspectives contributing and discussing, which is why we should be careful with groupthink and downvoting dissenting views.)
I agree that the article was very click baity, but I am curious about how energy utilities will be affected by cheap batteries. These are some of the most entrenched and connected industries, so disruption, if it happens, won't be easy or fast.
What you say is true but, one thing they usually cannot do is affect whether not individuals put solar panels on their roofs and batteries in their garages. When the price of these two components become cheap enough for consumers to comfortably go 'off the grid' utilities will have little recourse.
The left was right about peak oil. Just for the wrong reasons. People will stop using oil, not because we ran out, but because the alternatives will just be so much better.
I don't think people really understand how much oil is out there. We've got more oil in the Colorado shale formations, than Saudia Arabia does! It is fairly expensive to extract, but its existence means that oil prices will never 'consistently' stay above 100-120$ a barrel for more than a couple years. Nightmare 200$/barrel "peak oil" are just never going to happen.
There's an excellent talk by Tony Seba at the Nordic Enegy Summit that goes into more depth about how batteries and solar are quite possibly going to reach the tipping point sooner than anyone has been forecasting: https://www.youtube.com/watch?v=Kxryv2XrnqM
Excellent talk, thank you. Really puts a lot of things in one place.
Wonder what city councils are going to do to supplement the revenue lost if and when income from parking spot use shrinks due to a combination of smaller fleets and individual cars in the fleet spending less time parked up.
Of the 4 exponentially improving technology clusters mentioned: battery storage, electric vehicles, self-driving hw/sw, solar pv -- I'm trying to imagine if any one of them might not ramp up within the 5 to 10 year time scale Tony is talking about. And I guess it would have to be the software[1] part of the self-driving hardware (sensors + compute) / software combo. And perhaps lithium[2] ore extraction. I don't know enough about the technologies of solar pv to hazard a guess. If battery storage happens we definitely get electric vehicles (along with better laptops, tablets, and phones).
Credit markets can sustain expected / anticipated losses. Car makers all have low ratings when they are not fresh out of chapter 11. The problem with credit markets is when there is a big blow in a credit that was deemed to be very safe. Then it hits portfolio that aren't designed to sustain large loses like money market funds or smaller banks or people overleveraging their position. Then you have 2008. But a slowly degrading credit quality to which investors will have years to adjust shouldn't be a problem.
I find it strange that articles such as this one states these two things at the same time:
1. Battery cost is falling and EVs will be as affordable as their gasoline counterparts in six years
2. It will take until 2030-2040 until the demand for oil starts contracting
It seems to me like you get to pick only one of these statements. Once EVs reach affordability parity with ICE autos my guess is that things will hit the steep part of an S-curve.
6 years takes us to 2022. That gives 8+ years for people to replace the oil demand creating things that can go away like cars, ships, heaters, aeroplanes, generators etc.
And general inertia of change. Think more recently how long people held onto blackberries after the glass front smartphone took off. Few would now argue the merits of the keyboard over the full screen (not trying to trigger those of you left!) but a fair chunk held to the traditional view for many years. The same will be for the above machines. From this the timeline seems reasonable for me.
If the changeover relied on consumer purchases to replace the fleet, I would agree.
But I don't think it does. If (when?) you can hail a self-driving cab for a lower per-mile fee than the cost of gas+insurance+car payment, Uber (Tesla?) can (will?) put electrics on the street as fast as they can be financed (manufactured?).
People will let their vehicles rust if it's cheaper to take a cab. No major consumer purchases required, just cultural diffusion at the speed of super bowl ads.
1. Those statements are attributed to different organizations (Bloomberg New Energy Finance and World Energy Council respectively) but are quoted in the same article... They maybe be inconsistent!
2. If you consider integrated (or global) oil demand, you can image a world in which they are both true: EVs may become cost competitive with gas in markets w/high gas + car prices (eg Norway) but not in markets with lower prices (for both goods) where EV takes longer to cross a 'tipping point', delaying the global oil demand "peak" to a later date. There is no one homogeneous "global market" but a bunch of different local markets w/different cross-over dates. (I suspect the 1st article is talked about market for certain products - but not global.)
3. Oil use will also keep growing even as the % of EVs sold starts to increase - b/c of other uses (e.g. trains/heating etc.) that are linked to growing population/gdp.
There is inertia in the market. The existing fleet needs to be replaced. So even if EVs were equally affordable today it would still take years for them to reach a high market penetration.
And some ICE cars would also be sold in non-negligible amounts if those cars merely reached parity. You actually want them to be more affordable than the competition.
This is an interesting topic - I've read some good articles on it. It turns out that lithium ion batteries contains only quite little lithium. 1-2% of the weight _and_ value of the battery only. And there are multiple alternative sources of lithium. So actually world battery production will not be constrained by lithium.
There aren't many precedents for huge global industries that went from AAA-bondable to rapid obsolescence. There are some that should have, like cigarettes, but they found ways of hanging on. Or international toll calls, still a many-billion dollar business. Perhaps oil will be like that: since the marginal cost is so low, producers will keep it flowing many decades after it made sense. And like tobacco, perhaps we'll pay oil fields to not produce.
Who will probably provide the template for the decline of petrol: fight like hell in the courts and lobbies to try and stay relevant in the first world, use ISDS mechanisms and so on, while cranking up campaigns in the third world to cover your losses.
There weren't huge companies with AAA credit ratings making horses. Railroads did have bond financing, but the decline has been extremely slow. VCR companies also made DVD players and other consumer electronics, so no bankruptcies have resulted. Radio is still pretty big.
Newspapers might be the closest parallel, but they haven't completely crashed yet and might well bounce back.
Um. Good morning? Didn't Germany call for a ban of combustion engines by 2030 just two weeks or so ago? These graphs are wildly optimistic if that happens.
I've been reading a lot about this, and I've been wondering the best way to buy a long term 'call' option on oil is... Ideally, I'd buy stock in an unhedged owner of the right to drill for oil in places where it's only profitable to drill if the price of oil goes up above where it is now.
I mean, I'm no 'peak oil' person or anything, I just don't trust that we went so quickly from the idea that we were running out of oil and that it would as a result become super expensive now to this idea that it won't be worth pulling oil out of the ground for much longer; I strongly suspect that the truth is between those two scenarios, and would like to lay some money on that suspicion.
Oh certainly. I am just saying that right now, the estimated future value of oil is oscillating wildly, I think, more wildly than I think it ought. I would like to lay some money on that over, say, a ten year time span. Not enough to be a huge deal if I am wrong or that I never have to work again if I am right or anything, but I think it would be an interesting bet.
(Unlike many people, I don't think I am smarter than the market... But I do think I am less excitable and often have a longer time horizon. And yes, I know that I am probably just as wrong as the people who think they are smarter than the market.)
There is no such thing as 'peak oil' because we keep figuring out ways to find more.
Think Oil Sands: massive amounts of Oil in Alberta and Venezuela was not considered in reserves just a decade ago because it was not economically feasible to access it. Now it is. Deep Oil drilling, arctic exploration - so much changes so quickly. Heck - most wells are left with a lot of Oil in them because it cannot be extracted.
Of course eventually there will be such a thing as 'peak oil' but it's hard to determine.
My comment was just about how the normal peaks and troughs of oil prices seem to often be interpreted in permanent (often apocalypticly permanent) terms when history shows that oil is just a very volatile commodity.
When individual jobs are threatened from offshoring, it's just too bad for the workers and is just considered the regular working of the market. When battery technology threatens previous investments in old tech, its a "threat" to the market. Hmmm.
Oil is also used for plastics, fertilizer, and many other goods. Not just used for fuel.
As the world economy expands, because in 10 years everyone will be on a smartphone, the demand for plastics and fertilizer and rubber and roads etc. that demand should expand more than fast enough to cover the fleet conversion from gas to electric.
200 million vehicles in the USA fleet, and they sell 17 million in a good year. 12 years to replace the fleet; it is currently about 11 years old on average.
I think the article is over stating it. There won't be any problem, it will take decades to adjust anyway.
The original Fitch report is available here (needs a login but I believe it's available to free registered users, ie non-subscribers)
https://www.fitchratings.com/site/pr/1013282
On that first chart, so battery count will drop post-2030? That's what the y-axis is, battery count (is it count? production rate?), but the conclusion drawn is that oil demand will drop, which feels related to the article, but wholly unrelated to the chart.
Best case scenario, according to the graphs in the article, is if "Low Carbon Policies" come into effect to disrupt the oil industry as quickly as possible... we will still be consuming 50 million barrels of oil per day in the year 2060.
So if you have a stable business toady that appears to make money regardless, it will continue to do so for decades to come (or whatever the bond maturity term happens to be).
There's never been a case in the past when that assumption didn't turn out to be true, of course..
Is this at all related to the recent cries of "bubble!" in the sub-prime auto loan market that John Oliver did one of his segments on? Or do those folks just shift to selling electric cars, instead of gas cars?
>Those companies have a STRONG incentive to avoid disruption
A less cynical person might says "Those companies" have a strong incentive to preempt and partake in the disruption. And it is my belief that's the path most of them will take.
Battery technology is a lot like bitcoin and gold in that once it is manufactured, users are not dependent upon a state controlled centralized network for it. It's revolutionary, and will probably be heavily regulated given the amount of independence it will provide people.
The big secret in a lot of countries where energy and communications are state monopolies or semi-private corporations is that they are LOADED with debt that the govt used as a private slush fund.
If you are looking for "off balance sheet" liabilities in a government, look at its utilities that are exempt from public records laws. This is where a lot of the bodies are buried.
If people start dropping off the grid, states will just convert the power bill to a straight up tax bill, but without the pretense of a service attached to it. There are already precedents for charging electric vehicle taxes to make up for the shortfall in fuel taxes they create. Govts say, "well, if they are using the roads, they should pay for them." except gas taxes go into the slop bucket of general revenue, and the roads have been paid for through other taxes. The largest state expense is employee salaries, yet all road maintenance is done by contractors, so the "roads" thing doesn't really wash.
When Greece was trying to sort out its default, it outsourced tax collection to its utility companies as part of the bailout.
Efficient power storage will be a game changer, like a redrawing of international boundaries game changer.
> When Greece was trying to sort out its default, it outsourced tax collection to its utility companies as part of the bailout.
Not exactly.
The Greek government wanted to collect a new extra property tax, and needed to collect it as fast as possible (instead of waiting for about a year for the normal tax collection).
So, the payment of the tax was set to be paid temporarily through the electricity bill. The electricity bill is used anyway to collect 1) council tax and 2) compulsory TV licence, and is still used to pay these two.
Now, that extra property tax is paid in the traditional way through the tax office.
When Greece was trying to sort out its default, it outsourced tax collection to its utility companies as part of the bailout.
Because the utility companies were good at getting paid? It was because everyone in Greece was evading taxes through cash-only businesses and self-employment, so the government had a hard time collecting tax. It's not some big conspiracy.
> Battery technology is a lot like bitcoin and gold in that once it is manufactured, users are not dependent upon a state controlled centralized network for it.
Gold is just a commodity, it does not have any magical properties. Since gold is durable, uniform, divisible and portable, it makes a good currency.
Uh, ok, so where is all the power for these electric cars going to come from? That oil/natural gas/whatever is just going to get burned at some large newly built plan and transferred using a ton of grid upgrades (all likely paid for using bonds).
Moreover, the cars aren't going away, instead of buying one with a ICE, its going to have a battery and some electric motors, the companies producing that will likely need bonds too. So, without attempting to compute the costs of a few dozen gigafactories, rare earth mines, etc, the article seems pretty worthless to me.
Frankly, i've been wondering for the past few years what percentage of a modern car's production cost is actually the gas engine. Modern engine complexity seems to have peaked 20 years ago, and declined. Of course safety, comfort and entertainment systems have exploded in complexity in that same time period, but those are things people expect out of modern electric cars too.
>That oil/natural gas/whatever is just going to get burned at some large newly built plan and transferred using a ton of grid upgrades (all likely paid for using bonds).
Drivers of electric cars can choose their electricity source. Whether they want to pay more for green electricity is up to them. If there is demand more green electricity will be produced. With a ICE there is no choice.
>Frankly, i've been wondering for the past few years what percentage of a modern car's production cost is actually the gas engine.
I don't care about that. I've already paid 30% of my cars value just for the gasoline alone. Even if I had to pay 30% more for an electric car then it would still be worth it because of tax benefits and less maintenance.
"I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody." - James Carville