Tesla’s computing advantage and Italy’s population crisis on The Future, This Week

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Intro This is The Future, This Week on Sydney Business Insights. I'm Sandra Peter, and I'm Kai Riemer. Every week we get together and look at the news of the week. We discuss technology, the future of business, the weird and the wonderful and things that change the world. Okay, let's start. Let's start!

Kai Today on The Future, This Week: Tesla's computing advantage, Italy's population crisis, and gravitational batteries.

Sandra I'm Sandra Peter, I'm the Director of Sydney Business Insights.

Kai I'm Kai Riemer, professor at the Business School and leader of the Digital Disruption Research Group. What are we doing today? Sandra?

Sandra Oh, there's been really lots of stories this week that we could do. Kickstarter successfully unionised.

Kai So that's significant. I mean, we've discussed previously attempts among gig workers to unionise. It's not really something that happens in Silicon Valley a lot, so it's quite significant that Kickstarter would be one of the first big tech companies to actually do that.

Sandra So Kickstarter is a crowdfunding platform and we thought we wouldn't see this sort of things. But they have happened. They have been actually trying to unionise for quite a while, they've been at it for about a year. Some people got fired in the process, so the company didn't voluntarily recognise the union, but it came to a vote last week. And lo and behold, we now have the Office and Professional Employees International Union.

Kai Then there were a few stories around food, one around food waste, robots in agriculture, and an interesting one about floating farms in the Netherlands, where they're looking into attempts to actually house cows on islands that are covered with grass to basically have a way to do agriculture on the water. This is in a low-lying...

Sandra Floating cows.

Kai Yeah, well low-lying country that is quite heavily impacted by climate change and, you know, rising sea levels. So they're basically building little arcs to evacuate their milk production.

Sandra Would look quite different in Australia on the high seas.

Kai Surfing cows? Yes.

Sandra What else happened? IKEA in Dubai starting to take time as currency. If you can prove that you travelled quite a lot to get to an IKEA to spend your money on their furniture, they will give you credit for the time you spent trying to get there.

Kai So you have to produce your Google Maps timeline and show, you know, how long it took you to get to the store. And they would then translate that on what is sort of a minimum wage kind of hourly rate, and you can then purchase things. This was a campaign coinciding with the opening of a new store. So it's not a permanent thing, but it is quite an interesting way to think about time translating into money.

Sandra There has been no shortage of gadgets as well. We've got a new privacy bracelet from a couple of professors at the University of Chicago. This is the 'Bracelet of Silence', where you put it on and you walk past a smart speaker, a Google home or Alexa, and they can't eavesdrop on you.

Kai Yeah. So this looks like a, you know, device out of Mad Max or Blade Runner that you wear on your wrist. It's a bit bulky, but it has kind of a cool look and it emits ultrasonic white noise that irritates smart speakers. And so you basically have a conversation, you wave your arms around and the smart speakers can't record what you're saying.

Sandra So it's the anti-smartwatch?

Kai Yes, something like that. Yeah, and it's also still the time where the world's holds its breath around the coronavirus and COVID-19, something that we acknowledge, and is a medical emergency, but we're going to hold off talking about this until it becomes a bit clearer what the long-term implications for the future of business will be. So I'm certain we'll come back to that.

Sandra Well, in a way, we're almost coming back to it with our first story which is going to be about Tesla, but Tesla did experience some immediate impacts from the coronavirus as it's Shanghai Gigafactory was closed on government orders to help with the coronavirus outbreak. It has reopened on Monday, but of course, deliveries for the Tesla Model 3 are being delayed. And also, Tesla have to acknowledge that the health epidemics are a new risk. And in the latest financial filing, they did mention health epidemics and the coronavirus outbreak as a risk that would adversely impact its business.

Kai And so we are going to go to Tesla because there have been a large number of stories in recent weeks. Some around the short-selling of Tesla stock and the bounce-back, and the meteoric rise of Tesla at the stock market. There have been some around fooling Tesla's cameras with adverse examples and, you know, tricking the autopilot into speeding up when it shouldn't. But there's one story that stood out for us.

Sandra So let's get into it.

Kai So Sandra, what happened in the future this week?

Sandra Well, our first story is about Tesla, and it comes from the Nikkei Asian Review and its titled '"Tesla teardown finds electronics 6 years ahead of Toyota and VW".

Kai So this is the original outlet of this story. We found this story in a number of different outlets. It was reported in industry magazines such as Teslarati, InsideEV, which is an electronic vehicle magazine, Electrek and Green Car Report.

Sandra But also more general outlets like Mashable and Futurism picked it up.

Kai Interestingly, most of those just sourced the original information from the Nikkei Asian Review. No one really added anything significant. And we read this and we thought this is really interesting, but there's more to this story. So let's unpack this. So what's the story about?

Sandra So what Nikkei Business Publications did was basically take a Tesla Model 3, take it apart, and the Tesla Model 3, let's remind people it's Tesla's cheapest, most affordable electric car. It starts at around 50,000 Australian dollars. That's about $33000.

Kai In the US, yeah. And so they literally stripped it bare. They stripped off the doors, the seats, all the electronics, the engine and looked at what was under the hood, so to speak.

Sandra And what they found was actually quite simple. They found a full self-driving computer that had a car around it,.

Kai And they had experts from car manufacturers such as Toyota and Volkswagen comment on what they were finding. And so what they found is, unlike in traditional cars where you have a petrol engine and you have a whole bunch of different kinds of so-called electronic control units from different supplier manufacturers, and it's a whole gamut of interconnected things. In Tesla, it looks much, much different. There is one central computing unit called Hardware 3.

Sandra So Hardware 3 is not just in the Model 3, which got taken apart in this instance, but also in the Model S and the Model X, basically all its vehicles. And it includes custom made AI chips that Tesla has developed on its own, along with all the special software designed to complement the hardware that is also developed by Tesla, so pretty much everything from the chips to the way they're integrated into the car is proprietary to Tesla.

Kai So one computer that houses the steering of the whole car that collects the data from the various sensors in the car, cameras, radar, sensors on the steering wheel, pedals, wheels, speed, GPS, everything runs through this central unit in the central unit also basically is in charge of the complete drivetrain telemetrics and basically running the car.

Sandra And historically, Tesla has done this really, really quickly. So they started with the Autopilot system that was their proprietary system around 2014. That was Hardware 1, and it was a kind of driver assistance that allowed Tesla to make inroads towards autonomous vehicles. But then on top of that, every couple of years, Tesla made really, really huge strides in completing their own proprietary system, which culminated last year with Hardware 3, which is more or less a full self-driving computer.

Kai The article also notes that a lot of the other elements of the car are proprietary to Tesla. A lot of the surrounding electronics, even the welding of the car, a lot of this is built by Tesla in-house rather than outsourced through a complex supply chains, which is what the car industry is normally used to, where, you know, a BMW or a Daimler, a Mercedes, a Volkswagen would often share the same supplier network. They would have sometimes custom-made or sometimes standardised units that go into their car. But a lot of the elements that go into a car outsourced, so the value-add of the OEM, the car manufacturer is oftentimes in the design and the putting together of the car. But a lot of the innovation in the parts is outsourced throughout the supply chain, whereas Tesla integrates all of this.

Sandra And that is what stumped the engineers who were looking at this. So what Nikkei had done after they tore down the Tesla Model 3 was to bring in engineers from some of the major Japanese carmakers and let them examine what they had found, and the article reports that a stunned engineer said "we cannot do it." He was commenting on the fact that the kind of platform that they had found at the core of the Model 3, which relied so heavily on integrating all the parts and on having one system was something beyond what traditional carmakers today can do. And industry insiders, the article reports, mentioned that the earliest they could get there would be by 2025, which means that Tesla has beaten them to it by at least six years.

Kai So that's what the article is honing in on. And while we are still sceptical that fully level 5 self-driving capability might ever be achieved, Tesla is certainly on a good way to make driving as safe and as assisted as possible. And in a position, according to this article, that is far beyond what the other car manufacturers are able to do. And so they use words like "they're frightened", right, so basically, they're shitting themselves over the advantage that Tesla is producing here. And this is what we want to discuss here, because this is something that we haven't heard before. Whenever Tesla is being discussed, the conversation is about the batteries and the electric capabilities and how this is a game changer for the industry. But the realisation that what is at the heart of a Tesla is essentially an integrated computer that is fully under the control of Tesla around which they have built a car in all of you could be a true game changer.

Sandra To be fair, there has been a lot of conversation around whether or not Tesla is a true game changer for the past few years. Every time someone says Tesla will be the disruptor of traditional car industry, someone comes back and says, 'well, but all they're doing is putting batteries into electric vehicles, we've seen this before'. And we've had some of these initial conversations on this podcast as well, trying to think about what exactly is the potential for disruption that come from Tesla.

Kai So one of the arguments is that it's just an electric car. Other manufacturers have the technology. They can just replace the engine, they can build electric cars. And that is true in a certain sense, if the battery technology and the electric aspect was the main thing here. Well, what we see now is that maybe the way in which Tesla builds its car on the basis of an integrated computing platform rather than the other way round, where traditionally car manufacturers would put a lot of electronics into a traditional car, so thinking from the car and then putting electronics in. It looks to us now that Tesla is doing the opposite, being a tech company, they have a central controlling unit around which they then design car capabilities.

Sandra And in this respect, the way Tesla is doing things has the potential to be a much bigger disruption to the traditional car industry than previously thought.

Kai Just to interject here, what this reminds me of, and in many ways cars are different to phones. It reminds me of the story when the BlackBerry executives got their hands on one of the first iPhones and they tore it apart and discovered that what Apple had done was not build computing into a mobile phone, but to shrink a Unix computer to the size of a phone and then taught the computer to make phone calls. So a complete game changer in that industry where the mobile phone was reinvented on a computing platform. And there's certain analogies here to what happens with a Tesla car.

Sandra And this is indeed as significant for the car industry as it was for the mobile phone industry, because what Tesla is doing is allowing them to set themselves apart in three respects. And the first one has to do with the type of data they can collect on their own platform, having a computer at the centre of a car that is a able to handle all the information that comes from every single sensor that they have embedded, but then being able to use the information from an entire fleet of cars in a centralised bay by the same company.

Kai And we'll put an article in the shownotes that spells that out quite nicely. It was published in CIO last August and it's titled "Tesla, the Data Company", and it's called fleet learning capability. And Elon Musk has stressed this quite a bit, the way in which they have, unlike other self-driving companies like Waymo, which have a few test vehicles out on the streets. Tesla has north of 500000 vehicles, life being driven in everyday environments, in commutes, in whatever consumers do with their cars. And they can capture, combine and analyse all the data that the car harvests from radar sensors, cameras, all of the kind of data, and use that to improve the self-driving, the autopilot capability.

Sandra But that's still not the biggest or the most revealing thing that this Nikkei article teardown of the Model 3 has shown. This brings us to the second way in which Tesla is setting itself apart from the traditional car manufacturers. And that has to do with the independence that they have from the traditional suppliers that car manufacture. It's used for many of the components in, let's say, Toyota's or mercy., this is traditionally. And this is quite important because if you think about it, the company like Toyota, our theirs, even if they had the engineering capability to develop a centralised computing system, they are beholden to many, many different contracts they have with a range of suppliers who have traditionally source that the parts that these companies use. So, for instance, a company like Toyota would have developed relationships with people make.

Kai So you mean like the central engine steering units and things like that, built by companies like Bosch, for example, which deliver a lot of the electronics that go into modern cars, and which you will find in many of the brands.

Sandra So even if, let's say Toyota would actually put the financial resources towards, let's say, hiring the engineers and developing this, they're still beholden to contracts and ways of working with hundreds of suppliers that actually now make what the Toyota car is.

Kai Yeah. And even more so, they rely on these suppliers for a lot of the innovation that goes into the electronics in the car. So they have for a long time outsourced that part of the innovation, which incidentally, is why Tesla had to invent all these things themselves, because they couldn't get what they wanted to do with their cars from a traditional supply chain. And one of the articles makes the point that it wasn't necessarily that they wanted to do everything differently, but because of the vision they had, they had to start reinventing the car from scratch. And they ended up with something that is really quite different in terms of internal concept than a traditional car. Not just in terms of drivetrain and battery.

Sandra And then interestingly, we actually stumbled upon this independence argument with one of our earlier episodes where we realised that Tesla's entire service network is not outsourced to car resellers, but rather belongs to Tesla itself.

Kai And we've had articles about how Tesla's able to service cars and upgrade cars over the air. A lot of what the car does is software. So you can basically upgrade the car much like you upgrade your phone or your computer. There was an article just recently which is sort of the dark side of this. Someone bought a Tesla used with the autopilot feature enabled and Tesla basically disabled it over the air and said, 'yes, you bought this, but you did not subscribe to the autopilot feature. You have to purchase this part again', just showing how much they are in control and able to remotely, not just service, but also tinker with the software in the car.

Sandra And there's another facet to this independence. What you could consider a third way of thinking about what gives Tesla the potential for disruption, which is the integration path.

Kai And that's sort of the Apple argument where Apple is able to build the whole iPhone hardware and software. Tesla is in charge of the entire platform. They've built much of their own hardware. They've built much of their own software. They can integrate this and they now provide the service around it. So they really control the entire customer experience.

Sandra And let's not forget the sales as well. So what Tesla has been doing over the past few years was steadily bringing in-house pretty much everything that has to do with making the car, servicing the car, updating the car and making use of everything that comes out of the onboard computer.

Kai And so where traditional car manufacturers are beholden not just to the supplier network and contracts there, they're also beholden to the seller networks and the franchises that carry their brands to the consumer. And in Australia, we're just seeing the fallout from the closedown of the famous Holden brand where General Motors are withdrawing...

Sandra Rest in peace Holden.

Kai Yes. From the Australian market, where dealer networks are now up in arms and say, look what's happening to us. You know all these jobs. How long are these cars going to be serviced? How is this all going to play out? So it's a complex undertaking to run a traditional car company because of all the relationships upstream and downstream from the company.

Sandra So we're only now beginning to see what the disruptive potential of Tesla is. So what does it mean to make your own connected fleet of cars? And we've mentioned more or less three "I's", that set it apart, we've mentioned intelligence, the fact that they can make use of all the data that is being generated on all the Tesla cars, we've mentioned independence, the fact that they are not beholden to traditional service companies or to traditional supply chain manufacturers. And we've mentioned integration. The fact that Tesla has now brought under one umbrella increasingly every single part of what makes the Tesla car from software to electric drive system to sales management.

Kai And so it remains to be seen what they will do with this capability, we can envision fleets of connected cars. They could socially network cars. It could be things like, you know, Tesla owners helping each other out with battery sharing, finding each other when someone runs low on battery. They can use the fleet data to position the charging systems in an optimal way because they know where people are going and when they are running low on battery. So they have an integrated network view of all their Tesla's out in the marketplace, and they can remotely control every aspect of the car. So it is one of those platforms that has yet to really emerge as a game changer. But I think for the first time we're seeing what might be most significant about the Tesla platform, and it's not necessarily just the batteries.

Sandra So really, someone should do some research on this.

Kai And here's a paper title, "Connected learning at scale: how Tesla disrupts the car industry with data'.

Sandra So I think it's time for our second story.

Kai And our second story comes from Bloomberg. And it's titled "Italy is facing the Worst Demographic Crisis Since World War One".

Sandra So this story is about the fact that Italy is not only going through really hard economic times and it has been for a while, but it also seems to be going through a population crisis. That is to say that for every 100 deaths in the country, there are just 67 births. So Bloomberg reports on the fact that this is the fifth year deaths exceeded births in Italy and the number of people in the country has been steadily declining for over five years. But in fact, this is the biggest gap since 1918. So the biggest gap since the First World War. So what we thought we'd have a look at with this story is what population crisis actually are and how do we think about demographic change and demographic crisis.

Kai I mean, there can be obviously many different forms of population crisis. In this case, we have the aging population from not enough birth. But there's also the opposite problem where we see certain countries around the world, developing countries which have many, many young people. And so they have almost the opposite situation where they now have to feed and school a lot of children and youth with not enough people in jobs to actually do so. Whereas here we have the opposite problem, that there's not enough people coming through to look after and pay for the elderly.

Sandra So whilst in this crisis there is an aging population, in other places around the world, Latin America or Africa, you have countries where you have over 30 percent of the population under the age of 50. The opposite is, of course, happening in Italy, but they are by no means alone. Japan, and we've spoken about this previously on the podcast, we'll include it in the shownotes, it's experiencing a very similar problem. And so is China experiencing a demographic crisis. So around the globe on average, there are currently about four people working, sustaining one person in retirement. But very slowly that has been shifting to a new equilibrium where for every four people in retirement, we have two people working. And China is actually a very good example of this. It's the 4-2-1 challenge, where one person has to support two aging parents and four grandparents. And indeed, in countries like Italy and China, this is creating a bottleneck in which, as you have an aging population but also very low birth rate in China, that is through the one-child policy which was now relaxed, you increasingly have a working population unable to sustain the aging population.

Kai So the Bloomberg article has quite a revealing chart where they single out the population between the ages of 25 and 49, which is the core working population. And what this chart shows is that GDP of the country pretty much develops in unison to the growth and tailing off of the population in that age bracket. And interestingly, the chart gives two different forecasts. One is the GDP forecast by the IMF for Italy, which is slightly increasing. And then the Eurostat demographic forecast, which has the population in that age bracket, fall off dramatically by about 4 million in the next 10 years or so. And so if you look at these forecasts, if history holds, something is not quite right here. So it looks to me like Italy will not be able to actually sustain the GDP forecast that is being visualised.

Sandra And we must also note here that traditionally we've actually been quite good at demographic predictions because birth rates and death rates have followed very steady paths, other than in places like China where there was regulation to promote or restrain it. The UN data and population forecasts have been quite good. Also, let's remember birth rates have been falling for the past about 20 years, so there has been a very steady trend for all of these. So the forecasts are actually supposed to hold quite well. For instance, in Italy, they have been declining quite sharply and that has held true and the forecasts have been quite good in that. But the question is, how do we talk about this? And what do we mean by a demographic crisis? First of all, why do people call these things crisis?

Kai So quite obviously, there's an economic impact when, through taxes or transfer payments, less and less people have to sustain and support more and more elderly people who might be on a pension or who might retire. Retirement ages might have to be increased. Quality of life in old age might decrease as a result. So there's a real economic impact.

Sandra And we've seen this in the case of Australia, where we've had conversations about changing the pension age to account for this, even though Australia actually just hit 25 million people last year through a combination of childbirth and immigration. But for a country like Italy, pensions make up almost 17 percent of the GDP currently, and that's expected to rise quite dramatically in this sort of instance.

Kai Which brings us to the societal and cultural aspects. Countries like Italy will have to get used to integrating more and more immigrants into their societies, which in the current political climate is not always a straightforward debate to have.

Sandra Or the question is, could a country like Italy actually accommodate having a much smaller population? Because every single conversation that we've seen has revolved around the need to increase the population size.

Kai Which also raises the question, is there a positive to a shrinking population? And that, to me brings me to another almost disjointed conversation that we keep having around sustainability and how do we care for the planet? Because one of the solutions for fighting climate change is going to a maybe radical solution of a non-growth economy, but certainly to kerb population growth. And so when a country like Italy has a shrinking population, we talk about crises and how to grow the population, and all the rest of it. But at the same time, we keep having conversations about not growing the world's population. So maybe there needs to be a conversation about how we can help, and maybe support countries like Italy in shrinking the population because it's the right thing to do for the common good of the planet.

Sandra And to be fair, if we're looking at the world population trends, after having more than 200 years of really rapid growth, the population of the world is set to peak at around 11 billion. It's just that a lot of the European countries are seeing shrinking populations. It is places like Africa, which will be the major contributor to going from where we are now to the 11 billion. Africa is expected to have 25 percent of the world population by 2050. And this is one of the points we wanted to raise. Quite often, demographic crises are discussed at the level of countries or at the level of world population. And their impacts on whether it's economies or the environment is discussed as part of megatrends. And indeed, demographic change is also one of our megatrends here at the Business School. But there's also the on the ground conversation that is being had around the impacts of this. And we want to bring up another article that we came across in Forbes, where a scenic Italian town is offering free rent and zero taxes to any families with children who are willing to move there. So this is the village of Teora in the province of Avellino, which is in Italy's southern region, very close to the famed Amalfi Coast. But they're having a very serious problem. They're only having about two births a year. So what the mayor is offering is rent up to 150 euros a month for properties in the town, and also an upfront grant in case they do wish to buy a property in the town.

Kai And this is not unique to this one region. It happens elsewhere in Italy, it happens also in small towns in Spain. And I know for a fact that similar proposals have been made in some of the more rural areas of Germany, especially in Germany's east, which has seen a lot of population exodus over the years. And the proposal in Italy is actually not just to shift population within Italy, but to attract the children of Italian immigrants who have lived abroad and who might want to come back and rediscover the roots of their ancestries and live in the beautiful Italian countryside.

Sandra Which brings us to the last observation we had about how we have this demographic change conversations, because most stories talk about the sustainability side or the economic impact. And indeed the economic impact of this trend is enormous. But there's also a hidden cultural impact. And the cultural impact plays out, interestingly in towns like this, where third generations of Italians are being brought back to the country, so you've got a reverse immigration. It's also playing out in countries that encourage immigration, in places like Australia where we are actively encouraging people to come.

Kai We call it 'skilled migration', so we want people of a certain kind.

Sandra But it's having impacts on the way we think about multi-culturalism and how we think about integrating people. But an observation in the case of Italy was also that a lot of the discourse around this demographic crisis has been around women potentially staying at home to have more children.

Kai In fact, there's different kinds of cultural political narratives that are emerging, there's those who say women should stay at home, they should have more children. This will solve the problems. But there's also the observation that you need of course women in the workplace to not only sustain the aging population, but also to provide the income to actually raise more than just one child. So the fact in which these bigger demographic crises are often discussed in quantitative terms, in newspapers, around numbers and charts, have quite material impact at the local city and town level, and the kind of narratives that shape up in the political conversations in the country.

Sandra And that's almost all we have time for this week, except we do want to bring up...

Audio Robot of the Week.

Kai And our robot of the week comes from The Wall Street Journal, and has been reported elsewhere as well. And it's a giant robot. It's an automated block stacking crane robot that is being developed in Switzerland.

Sandra So the Swiss startup Energy Vault wants to store wind and solar energy by stacking these 35 ton bricks.

Kai And we've previously discussed that gravity is quite a neat force for storing energy. We've discussed in one of the earliest episodes on this podcast, how the Swiss pump up water during the night when they purchase cheap energy from Germany, pump it up the hills of their mountains, and then let it run down to recover the electricity, to sell it back to the Germans at a higher price. So similar ingenuity here where excess solar and wind energy is being used to lift these big blocks and stack a tower of these blocks, when the electricity is basically free, and then regain that electricity by using the gravity of letting down those blocks when energy is needed.

Sandra So pretty much a gravity-based concept bankrolled by SoftBank's Vision Fund, which invested over a hundred million dollars into the project.

Kai So basically large gravitational robot batteries. And that's all we have time for today. See you soon.

Sandra On The Future...

Kai Next week.

Sandra This week?

Kai Yes, but next week.

Sandra On The Future, This Week. Next week. Thanks for listening.

Kai Thanks for listening.

Outro This was The Future, This Week made possible by the Sydney Business Insights team and members of the Digital Disruption Research Group. And every week right here with us, our sound editor Megan Wedge, who makes us sound good and keeps us honest. Our theme music was composed and played live on a set of garden hoses by Linsey Pollak. You can subscribe to this podcast on iTunes, Stitcher, Spotify, YouTube, SoundCloud or wherever you get your podcasts. You can follow us online on Flipboard, Twitter or sbi.sydney.edu.au. If you have any news that you want us to discuss, please send them to sbi@sydney.edu.au.

Sandra Because that has to do with the second way in which Telstra...

Kai It's not Telstra dear, it's Tesla.

Sandra Thank you.

Kai Thank you. I make the same mistake.

Sandra So Telstra,Tesla!

Kai Telstra, for our listeners, is a large telecom company in the country.

Sandra We're talking about Tesla the car manufacturer.

Kai Yes, we did talk about mobile phones just then, but still, stick with the cars.

Sandra Tesla. And now I forgot what I was saying about Tesla, if we could take me back to my Telstra moment.