Ted Audio Collective
Hello everyone you're listening to After Hours, I'm Felix, I'm Me here and it's just
the two of us and it's the day after Halloween.
Do you have chocolate, overhang?
Oh yeah, completely sugar overhang and it lasts for a while because it's addictive, right?
So then you keep eating candy for quite a while.
Oh yeah, that's true and it's so good.
Do you have a particularly epic Halloween memory in your life?
Well I live in a street that is closed off for Halloween and it sort of attracts families
throughout the neighborhood and I tell you it must be I don't know hundreds, maybe thousands
of kids.
Fantastic.
So we always buy all this candy and we think okay this is going to be way more than anyone
can eat and then within an hour or two we're out of candy.
So somehow our expectations still really evolve over time.
Yeah, what about you?
I have come to appreciate this holiday more and more.
I think there was a period of time when I didn't really care that much about it.
Yeah, obviously when I was young I cared about it and now some of my proudest parenting
moments have been with Halloween costumes.
Oh okay.
And this year interestingly the two older ones have kind of decided to go their own way.
Okay.
So it's been a fantastic because it has saved me a fair amount of labor and completely
and utterly heartbreaking.
So I'm both extremely happy and a little bit sad, but it's great.
It's a great holiday.
It reminded me I saw Barbie a little while ago and I had almost forgotten about it and then
once you see the sea of pink, oh yeah, Barbie.
Exactly.
All right, good to do.
We have a scary topic.
Maybe scary.
I'd love to hear your views about Tesla which I think can be a scary story.
Yeah, I mean the developments in the EV market are fascinating.
What about you?
So I have a little bit of something which is not scary but incredibly good news.
There's some new data that came out about household finances, especially in the US.
Yes.
And it's really, really striking.
So I'd love to get your views on that too.
And boy, do we need good news?
Yeah, exactly.
Okay, Felix, Tesla and the EV market.
This was kind of heralded as a big year for the EV markets and I'm curious, what do you
make of the news we're getting, especially from Tesla and others?
And actually not so easy to read the news.
Yeah.
I think I can tell two very different stories.
One story is I've seen this movie before as an industry matures, growth rates come down
from say 60% last year to 50% now that the industry is still growing very quickly.
But at the same time, we have lots and lots of entry.
There's about 50 models available right now, kind of which we're introduced just this
fall.
What happens in a quickly maturing industry?
The industry leader often cuts prices because guess what?
The source of competitive advantage goes from customer value to at cost advantage.
Right.
And in that sense, it's really good news for Tesla.
So for instance, if you look at labor costs, theirs are probably around $45, $50 all
in.
And then if you compare that to Ford, it's more like 65, so about a $20 difference.
And then with the latest union contract, you know, likelihood that difference is going
to get even bigger.
And so in some sense, it's a solid position for Tesla.
They move from emphasizing customer value to now competing on cost.
And there's every reason to believe that they can do this very successfully.
And then looking at the same data, I can also tell a much more pessimistic story.
I look at the Tesla lineup and it seems old now.
It's like nothing new has really happened.
The Cybertruck which we expect to finally see deliveries this fall, I think full production
is now pushed off to 2024, 2025.
Who knows that entry level model that finally would bring price points markedly below $40,000
or so.
At least my current reading of Elon Musk's announcement is way off.
And maybe that plant in Mexico will never even really happen.
Yeah.
What do you make of it?
What's the data?
Let me hear.
Well, so first there's Tesla and then there's the broader EV market, right?
So the first thing about Tesla is just to your point Felix, the price cuts have been massive.
They've really been very large and they've been very fast and they've been fairly frequent.
That combination of things is not just one price cut.
It's several price cuts and it's been happening relatively quickly.
And it's not clear that they're getting a demand response.
So the question is, are you getting quantities moving?
That remains a little bit unclear.
And of course, when you cut the price dramatically of these durable goods, you influence all kinds
of things like the used car market and the ability to kind of want to buy a used car versus
a new car.
So all kinds of things kind of get a little screwy.
And I've been struck by how Tesla approaches price cuts, not as a marketing company because
they're not.
Yeah.
But basically it's a production company.
If you listen to the way they talk about the business, it's all about $400,000 units.
You know, whatever it is, and we push them off the lot.
It's completely a production mentality.
And so that mentality, when you run into competition and you run into maybe softening
demand, you got to get 400,000 units off the truck.
You have to keep going.
And so I'm a little bit worried about what it does for Tesla, but I'm also worried about
what it does for the EV market generally, Felix, because there we've also seen some remarkable
signs.
So one answer is the market gets a little bit more competitive.
That can be great news for the consumer.
It can be great news for the market.
It can be great news for everything.
But the alternative story is that the EV market is hitting a little bit of a road bump
and Tesla's struggling with that, but so is GM and so is Ford and so is Mercedes.
And those data points make you a little bit more worried that maybe one of a couple of things
is true.
One is maybe Tesla screwing up the market for everybody.
Or there's something going on macroeconomically, or the third is there's something going on
more generally with the development of this nascent market.
And so I'm curious which you make of those announcements and what of those three hypotheses
you think might be true.
Yeah, so hard to say.
I mean, the first thing that I say maybe is sky high expectations, of course, the market
grew 70% last year.
So now we get a slowdown from 70 to 50%.
Show me some other market that grows by 50% and we're in a mile panic that might be
a little premature.
So that's my first response also because interest rates have to have an influence on the demand
for new vehicles.
The more disquieting possibility that you'll do to me here is that we've basically made
predictions off of early adopter numbers.
The early enthusiasts that really love the idea of driving an EV and maybe their behavior
is dramatically different.
One thing that I find really interesting in Tesla data is before people buy their first
electric vehicle, range anxiety is one of the biggest things that people worry about.
Because you imagine, and I think you read the newspaper stories that go along with it,
what if I do this cross country trip, which of course in reality you will never really
do, but still it's like something you worry about the moment you have this vehicle, that
issue goes completely away.
It might have been not such a big hurdle for the early adopters and there might be a really
huge hurdle for late adopters.
One data point that's consistent with this is that hybrid is picking up again.
Right.
Each of these explanations is plausible.
Your first one I think is exactly right, which is the price points matter and in particular
in the SUV space, which matters a lot in the US.
ICE is still relatively cheap, relative to the EVs and so that matters.
Musk has said that the interest rates have been massive and he has suggested that they
matter a lot for people buying and we know that people finance their cars a lot.
But I too think your third explanation is important to think through because it hasn't just
been Tesla.
It's been Ford and GM and Mercedes and even for example Hertz, which had a remarkable
report because they had committed to buying and they did buy and then guess what, their
fleet got depreciated a lot because of the price cuts which hurt them.
But then repair costs were high and they got really worried about repair costs.
I think your final possibility that there's something going on after you peel away the early
range anxieties may be more persistent than we would have expected.
I think there is this issue about quality that's raised in the Hertz report, which is super
interesting.
I never really thought about this but these cars are heavier, they have more torque because
of the nature of their acceleration.
And so what Hertz says is we actually have a lot more repairs than we expected and then
we do on ICE cars.
And so that's an additional wrinkle.
Let me just say one last thing which is until your point, expectations were out of control.
But just to be clear, it's supposed to come to like 50% of annual sales relatively soon
like in 2030 and it's at eight.
So there is distance to be traveled here.
And then of course the final piece of this feel that I think is completely fascinating
is something that we did an episode on your urging a while ago which is BYD.
BYD as far as I can tell just continues.
Doing so well to just bang it out of the park.
And now people think of that as a China story meaning how does Tesla compete with BYD in
China.
But look in Australia, look in Asia, look in Sweden.
I mean BYD is just killing it.
And so that also suggests that in a very cost conscious market that may be the producer
who really ends up winning in a big way.
And this is maybe not such great news for the legacy companies in the US.
So if you look at the new Ford labor contract that will probably raise wages from $65 an
hour all in to close to $80, $85 or so.
That's about $1,000 per vehicle roughly speaking.
And this is in an environment where probably the profitability of electric vehicles for
for the GM doesn't really rival the profitability of their traditional vehicle.
So in some strange sense, the slowdown in the transition might actually shield the legacy
car makers for a little while.
Of course at the expense of longer term prospects and you already see it, the delay in the openings
of new factories, the delay in bringing new models to the market.
All of this says the future of EVs is many, many new companies that we haven't really
considered traditionally.
Maybe Tesla certainly be wide.
It seems that the market goes from never really have been such a great industry from a profitability
point of view to potentially being quite worse, which then if I look at the $800 plus
billion market cap of Tesla, ooh, that really gives me pause.
So if you want to hasten the transition and you want to get over this hump, I can imagine
a couple of things that different people could do.
So one suggestion that I think is kind of interesting is that Tesla has never spent money
on marketing and sales.
Yeah.
I don't think you've ever seen a Tesla ad.
And so one answer is, well, maybe we need to stoke consumer demand that way.
The second possibility, Felix, is, well, wait a second, maybe instead of giving away $7,500
with a tax credit at the point of purchase, we should be doing things with charging stations.
We should really at a national level be thinking about charging stations.
I don't know.
I'm curious of which of those two you think that would help or do you have another way
to think about hastening the transition?
Charging stations, I think, would go a long way to address range anxiety.
I thought it's very interesting that BP committed to buying about $100 million worth of
charges from Tesla.
Now getting into the game, I think that could make a big difference.
I think it now looks like just like in Europe, we're going to get one standard for charging,
which is the Tesla standard in the US.
Which I think for the market as a whole is fabulous for Tesla drivers who are anxious
about the longer way times if the superchargers are used by everyone, not so clear whether
that's really a big competitive advantage.
But I thought in addition to Hyundai, which now has the problem that they're excluded
from the $7,500 subsidy that many consumers will get, they have opted to throw in an
at home charger for free.
Right.
So both the charger and then I think some of the installation cost.
And I thought that was very clever.
It's just one of the many new senses of making the transitions as a private household.
And frankly, we will never really need the number of gas stations because as a practical
matter, most people will charge their electric vehicle at home most of the time if that's
possible, if you have a garage.
So that's maybe a clever way of removing some of the uncertainty about what it means
to own an electric vehicle.
So final verdict, are you up on Tesla?
What's your sense?
Well, I've been down on Tesla for a while.
So I don't know if I can change that position.
But I think the EV market, I was also extremely optimistic about.
I think last year it was one of my predictions.
And I think I'm a little bit more cautious about the speed of that.
These hybrid vehicles are super interesting.
And just the caution of the different automakers on this suggests to me that things will take
longer.
Are we going to go there?
Yes.
Might the path take longer?
I don't know.
I'm revising my expectations.
What about you, Felix?
I think I remain quite optimistic.
And one reason is that yes, you do have these early adopter phenomena that then lead you
to be overly optimistic.
But at the same time, the moment your neighbor has an electric vehicle, then you see the
neighbor go to work and not be stuck at home every day.
I think perceptions of these products can change quite quickly.
Yeah, that's true.
So me here, consumer finances.
What's new?
Well, it's such an important topic for many people because of the way we think about
our own financial health.
But I wanted to talk a little bit about a report that came out because it's kind of the
gold standard of reports on consumer finances that the Federal Reserve Board puts out.
It's called the Survey of Consumer Finances.
It just came out and it's a triennial survey.
They do it every three years.
It's just so rich with data and high quality data.
The news is, I don't know, Felix, to me amazing.
Positive and fiber-guesting.
Let me just walk you through some of the numbers.
What happened to median net worth for families in the US in those three years from 2019 to
2022?
The answer is it went up by 37%.
It's now close to $200,000.
What about average net worth?
Average net worth.
I don't know.
Just sit down.
So average net worth over that three-year period went up 23%.
It's now close to $1.1 million.
When you think about that, the average household net worth in excess of a million dollars.
Who would have thought?
Even the median household is at close to 200.
That's up 37% in three years.
By the way, those gains in wealth were actually fairly well spread out across the income
distribution.
They were fairly well spread out.
Racial, they were fairly well spread out in lots of different ways.
That doesn't, of course, mean everyone gains the same amount of wealth, but percentage-wise,
we actually have, if anything, a narrowing of wealth distribution.
Income actually has a slightly different story, which is also quite positive.
So average income grew in that three-year period by 15%.
So almost $140,000.
That's amazing.
$5,000.
And this includes the COVID period.
Yeah.
20 million jobs disappear and yet income's...
Exactly.
That's really amazing.
Even at the median level grew by 3%.
So less the top deathile, which is kind of interesting to think a little bit about feelings.
The median income and the top deathile is now 380.
The average income in the top deathile is 690.
Here it's not so evenly distributed.
Yeah.
So here, for those who think that college is about investment, the data is just so striking.
All the gains to the college educated.
And also racially a little bit more emphasizing the white population.
So it's just kind of a staggering set of data on how healthy American households are.
Eventually.
And I don't know.
I have so many different reactions to this feeling.
I'm curious, what do you make of all this news?
The numbers are amazing.
In particular, thinking back, if you had asked me what's the financial, the economic,
the business story of the last couple of years, I would have said, oh, you know, there
was this thing called COVID and it was incredibly difficult.
And we were so worried that businesses wouldn't get workers back.
So it's literally like one difficulty after another.
And then of course, high interest rates that make life more difficult for many households.
And yet the numbers are just amazing.
Even the financial health, if you look at that, basically has not really moved over this
time period.
Yeah.
66% of American households own their home.
About two thirds have retirement plans and so on.
And so if you're thinking, why is the economy doing so well?
And though we have these high interest rates, part of the answer has to be actually the
average financial picture so much more positive than you might have expected.
Exactly right.
I have so many weird reactions.
I want to start at like 50,000 feet Felix with you, which is, I think one reaction I had
is the US is just so saggaringly rich for a country of this size to be generating GDP
per capita numbers that it does.
It's just staggering.
Yeah.
Because they, and sometimes you have to step back and just think hard because if you just
looked at GDP per capita relative to the other large countries, it's just amazing.
The second reaction I had of course is really just yours, which is just how good it is.
The third is, then why are people so upset?
Yeah.
How do you make sense of what is kind of clear in the polling data, which is people don't
seem to be thinking that they're doing well.
They seem relatively upset about things and the final reaction is, well, how did it happen?
I think there's two big things we have to think about.
One is housing.
Yeah.
Housing values just go up so much during this period, which is a manifestation of low interest
rates, but also some COVID dynamics with people moving around and restricted supply and
then lots of demand.
Then second, at the low end, you know, remarkable assistance.
In the bottom desiles, they're going from like having a thousand dollars to having five
thousand dollars.
That's a huge difference, but it also is largely about some of the programs we saw.
And so as amazing as this news is, there's a part of me that also is like, wait a second,
what happens next?
Is there a shoot-a-drop with housing prices and with the disappearance of those programs
that will make us revisit this and the next survey of consumer finance comes out and
it won't be quite the same picture.
Do you know what I mean?
Maybe I can go back to something that you said that I find completely puzzling as well.
Given these numbers, people really have a view of the economy that is completely at odds
with what is actually happening.
So I saw a recent survey where half of respondents said that unemployment is at a 50 year high.
When in fact, it's the lowest since the 1960s.
I still read about the great resignation at a time when labor force participation is
higher than it has been in about 20 years.
How can it be that the fundamentals are so good?
And then at one at the same time, people's individual experience of this economy couldn't
be more different from the story that the numbers tell.
One of the things that I find striking and this is true across all the surveys is the
partisan divide whether you are Democrat or Republican has a huge influence in how you
think about where we are in the cycle, huge influence on whether you think about where
on the right track or not.
I think that points to sources of information that obviously vary between these two camps.
What television program do you watch, what newspaper do you read that gives you a completely
different perspective?
That is a dramatic failure in the media market.
We can disagree about just about everything.
But we can't really disagree meaningfully about is inflation getting worse or is it getting
better?
Are incomes going up or incomes going down?
In some sense, we have less shared reality than we used to.
It shows up in very stark fashion.
This is one of many examples.
Yeah.
I think two ways to think about that, both of which are embedded in what you said.
That will give you a third way.
If you are parties not in power, then you are obviously upset about the way the economy
is no matter what the economy is actually doing.
The second is I think on news and media, this is just a manifestation of fake news and
manifestation of phenomena where information is not being disseminated in clear ways and
no one trusts information.
If you are told that the inflation rate is coming down, you don't believe it because you've
been conditioned not to believe these kinds of things.
I think the third possibility I want to just raise with you, Felix, is I do feel like
there is a little bit of a politics of victimization going on in the US, but maybe more broadly,
which everybody feels like they are not getting what they deserve.
And politicians are breeding that sense of, look, it isn't as good as it should be.
And that person over there is getting things they shouldn't be getting.
And that leads people to think of themselves as discontented.
And I wonder if that is also kind of what's going on here, which is every party is kind
of giving a narrative of, look over there.
It's unfair what's kind of going on.
The game is rigged in some way.
And yet on average people are doing remarkably well.
Now are there problems for sure?
There are.
And we should be doing more at different levels to think about different kinds of problems.
But I do worry that just this politics of victimization leads people to see the world in very
distorted ways.
I think it's such a great point, me here.
And it's the same on the left and on the right.
It's just the story about who the victims are and who are the perpetrators.
Those stories are different, but the sense that you don't get to benefit as much as you
should.
That is now very common.
And part of what I find really fascinating is in financial data.
If you look at your checking account or if you look at your savings account, you must
know what's really true.
And yet you believe that you are to speak exception.
We see this in other erenas as well.
So people think crime has gotten much worse, which is definitely not right.
And there you also say that, well, where I live, it's actually not terrible, terrible,
but generally speaking crime is a much bigger problem.
And so what's fascinating, both in finances and crime is that you look at your own situation
and you think you're the exception.
When in fact, as most of the time, you're much more representative of what's going on
on average people or average.
I think that's true across all of these events.
But not you Felix, you're way above average.
Yes, of course.
So this exceptionalism is an interesting and worrisome trend.
Yeah.
And I said, Felix, I confess that there's some part of this which feels artificial because
of the housing prices and maybe because of the government transfer programs.
Yeah.
I hate to be like a glass half empty guy.
But if people are upset when it's this good, then what happens when it's not that good?
Yeah.
In fact, in some sense, the cost of not seeing that things are good are exceptional because
you could now say one of the things that we learned during COVID is that government assistance
to households who are really in dire straits is remarkably effective.
Yeah.
Think about what happened to child poverty rates.
We can tell many of these stories.
But of course, those kinds of programs need to be supported by a general notion of look.
The US is doing well or in a very successful economy.
Exactly.
Well, we should be incredibly generous with people who have greater difficulty participating
in the wealth creation that we see all around us.
But if we feel miserable about a really stellar economy, that's of course exactly not the
conversation we can have.
Exactly.
One of the main issues that we face is housing affordability.
Of course, the good news story that property values have gone up so much is at one at the
same time, this terrible story that affordability has gotten even worse over the last couple
of years.
But I just wish we could have these conversations from a sense of strength, from a sense of
we have an incredibly dynamic, successful economy.
And now let's think about making the kinds of investments that would allow an even larger
number of households to participate in that success.
And that's not the conversation we can have if we're in denial about what the state of
affairs is in the first place.
And when things turn, it'll become even harder to have that conversation.
So I think we should commit to a triennial discussion of the sort of consequences.
That would be great.
And I encourage listeners to take a look at it.
It's like this wonderfully accessible document.
You can find it on the Federal Reserve website.
It's just a really interesting and fascinating reading.
Anyway, it's also an example of a government agency just doing an incredible job making
data available, but also making data highly, highly accessible.
If you look at the report, if you look at the charts, it's beautifully done.
Absolutely.
Okay, recommendations.
Felix, what do you got?
So I slip into your role for one episode now.
I have two recommendations.
And then I get to chastise you for it.
How could you?
What is actually an old recommendation that I just wanted to re-emphasize.
It's a podcast called The World, which is maybe a half dozen stories about what is happening
in the world today.
But the reason why I wanted to talk about it is it strikes me for completely obvious
reasons that our attention swings so dramatically from one topic to another.
From part because we have these big catastrophes that really deserve our attention.
So we go from talking about Ukraine almost nonstop to now, yes, some things are happening
in the Ukraine, but it's not really the center of attention anymore.
Almost no one talks about just the incredibly terrible things that happen in Sudan.
Khartoum, I think, is completely leveled at this point in time.
We have all of these dramatic developments in Myanmar.
If you wanted an interesting roundup of stories around the world, and in particular stories,
I think that deserve more attention, but we don't naturally pay attention to these stories.
The world is a really fabulous source in particular because it's all reported by local journalists.
So it's always a truly local angle, which is absolutely fantastic.
Fantastic.
That sounds great.
And then, of course, after listening to The World, you need something that's a little
more uplifting.
Yeah, you might need a drink indeed.
You need a drink or you need some Mexican music.
And one recommendation that I have is a Banda El Recurdo.
What is that?
I don't know if it's the oldest or one of the older Mexican Banda bands.
It's basically a family enterprise.
It was founded in the 1930s.
And the person who leads the band is still from the original family.
Of course, it has to have an amazing Suzafone player, which you get all the Suzafone you
can possibly hope for, no matter what the news of the day, no matter how terrible it is,
you feel lighter right away.
It's really a joy to listen to these guys.
So Banda El Recurdo and any album really that you can find will be a joy to listen to.
Oh my God.
That sounds like a great recommendation.
I will take a look.
So what do you have for us here?
I too have something to maybe lift your spirits.
Fortitude is something that I admire in many people, including you Felix, as a co-host
for dealing with me.
But fortitude is also the name of, I think the best bakery I've ever been to.
Oh my God.
I love bakeries.
I've previously recommended Olandstein and Rosetta.
But this is a bakery in London, which I happened upon and it's just so good.
So it's located in Bloomsbury.
And I think when you're traveling, there is nothing better than finding a good bakery.
And this is just one outlet.
It's in Bloomsbury and it's located on this lovely alley.
There's no indoor seating.
So part of it is also just the experience of waiting in line and then sitting outside
in this little alley.
And they emphasize sourdough.
So they have just great breads, but they also have prepared foods.
And so they have great sandwiches and great banyés.
I went there four days in a row and everything was spectacular.
I went there for breakfast and for lunch and I got to tell you it was spectacular
every single time I went.
And so I recommend it highly.
And by the way, unlike some bakeries that I love, like for example, flour in Cambridge,
I love.
Yes, it's fabulous.
But the coffee, not great.
But at fortitude, the coffee is also spectacular.
So everything about fortitude, the whole experience, the food, and when you're traveling, you
need a good bakery.
If you're going to be in London, I'm going to recommend fortitude.
What a recommendation.
As if I needed another reason to want to travel to London.
Exactly right.
There you go.
And this is it for tonight.
Thank you everyone for listening.
This was after hours from the TED Audio Collector.
