CES 2022 Day 1 – The EV cycle

Automotive dominates on day 1.

• Consumer electronics companies are regularly referring to vehicles as devices on wheels in their CES 2022 marketing which is almost certain to incense the very companies that they are hoping to sell their products to.
• This is because “handset on wheels” or “IoT on wheels” is a sign of failure for the OEMs who look at what Google has done to the Android handset makers and fear that the same fate will apply to them.
• The OEMs need their products to become digital devices in their own right with a separate usage proposition rather than a mobile version of someone else’s.
• At the same time, consumer electronics companies continue their march into the already massively crowded EV space with Sony launching a separate division to manufacture and sell an EV.
• CES 2022 will see many others continue down this road.
• I have seen this cycle many times and it always follows the same pattern.
• It happened with web portals, feature phones, smartphone user interfaces, app stores, AI chips and so on.
• Everyone decides to make one but only a few are any good and so the sector rapidly and excruciatingly consolidates to the few that know what they are doing and can produce a good product.
• EVs are the latest and this cycle is likely to be particularly painful.
• This is because while the mechanics of EVs are simple compared to their petrol equivalents, making good quality vehicles is still very difficult.
• For example, a good quality vehicle will have doors that open and close in exactly the same place, multiple times a day for more than 10 years.
• This is much harder than it sounds to produce but is central to the user’s experience of the vehicle.
• This is where Tesla struggles as while its EV chops are very good, its interiors and its overall quality need a lot of work in my opinion.
• There are over 400 EV makers in China alone which combined with every man and his dog in the West wanting to make an EV, makes for a very crowded market.
• Given that only 26 vehicle makers survive in the petrol and diesel world, there is almost certainly going to be a bloodbath of brutal competition and consolidation.
• This will occur when the dreams touted by EV companies when raising money at ludicrous valuations are expected to be translated into reality.
• I am not aware of any arithmetic method by which one can justify the valuations of any of these companies and so this is a hype cycle I am more than comfortable to miss out on.
• Instead, I have invested in the second derivative of the EV story which is the requirement for carbon-free baseload electricity to charge all of these vehicles on a daily basis.
• The only technology capable of reliably doing this carbon-free today is nuclear power.
• I will also be watching very carefully when the crunch comes because the shares of the companies that survive, will very likely be crushed in the shake-out representing a big opportunity for the brave.
• Needless to say, I do not expect Sony to last very long in EVs.