Note from Callum: The other week I got on the phone with futurist Tony Seba. He just released a new book called Rethinking Humanity.
Below is Part 4 of a transcript of our conversation. Anyone invested in the stock market should read this…(you can access the first three parts through the Profit Watch website).
Callum: What’s a typical day for you? Are you talking to the companies? Are you watching their R&D departments? I don’t presume you pick up The Wall Street Journal and go, ‘Oh, the oil industry is going to get disrupted’. How do you go about forming these insights?
Tony Seba: Yeah. I do speak with a lot of companies that are startup companies, students, basically folks within the existing technology companies and so on and so forth, and not just here in Silicon Valley, but China and Europe and so on and so forth.
Yeah. I do talk to them, but I warn you that just knowing where technologies are coming from does not mean that you have the ability to predict. Ability to predict is based on understanding the patterns of disruption.
For instance, understanding complex systems, which is essentially what happens in any disruption. It doesn’t give you the ability to time disruptions. The solar industry has been talking about disruption for 50 years. When do we really know that the disruption is going to happen?
All of these things have to do with understanding the patterns and studying that. That’s what I’ve done over the last 15 years, more than anything, understand the patterns of disruption.
How can you predict a disruption independently of everything else? Of course, all of these other things give me the knowledge to essentially say, you know what?
Batteries are going to keep decreasing at least at a 16% cost curve and at least over the next 10 years. When I said that in 2014, 16% cost curve, pretty much everybody said that was insane. Guess what? It happened. It’s been more than 20% per year.
Callum: That trend is important for us here in Australia because I presume you’re aware, there are a lot of lithium miners here and nickel and cobalt.
Tony Seba: Yeah.
Callum: Do you see that as a legitimate investment trend then, the actual resources that go into the batteries? We don’t have the value add of the chemical versions mostly.
Tony Seba: Yes, but. That’s the answer. Over the next few years, over the next decade, I don’t see any other technology that is going to disrupt lithium-ion. It takes seven to 10 years and in creating a new type of battery and so on and so forth.
A lot of the innovations that I’m seeing are within the lithium-ion value chain. I’m seeing solid-state lithium-ion. I’m seeing new types of cathodes and so on and so forth, but it’s all within lithium-ion.
Lithium-ion has, in my view, at least a decade of growth ahead, but the issue is; if you’re in mining, is what type of chemistry is going to win? Essentially over the last few years, it’s been a combination of lithium iron phosphate or nickel, magnesium, cobalt and so on. Right?
Tony Seba: Of course, because it’s been cobalt and nickel and so on over the last few years, your mainstream analysts would just draw a straight line that this is what’s going to be the cobalt. Cobalt is going to go up in demand by 10X over the next five years.
I don’t necessarily ascribe to that. I will say that lithium-ion batteries still have a decade ahead of disruption, but the chemistry, it’s hard to make a long-term prediction in terms of the actual chemistry that’s going to win. You can make a three-year prediction, but maybe lithium-sulfur is going to eat AMC or whatever.
Callum: Yeah. I know you may not…I don’t think the chemistry part of the battery is well understood.
Tony Seba: Yeah.
Callum: It’s just quite hard to understand. It’s not an easy topic.
Tony Seba: Yes.
Callum: I can’t remember exactly, but I think Tesla went their own way with one of the things. I can’t remember if they dropped out cobalt or something, one of them, they de-emphasised. It’s that simple. It’s like, OK, you think they’re going to do this, then they go, ‘No, actually we don’t want that. Cobalt comes from those dirty mines in Africa. We’ve got to get rid of it kind of thing’. I understand what you’re saying there.
Tony Seba: Yeah. I don’t think necessarily that…when I analyse things, basically on the supply side, it’s all about economics. Of course, there are all of these other forces, the social licence and so on and so forth, governments and so on that are feedback loops.
Primarily things need to make sense from a purely economic perspective. When you talk about cobalt and this and that, cobalt is expensive. Yes.
From a social perspective, it doesn’t make sense and whatever, but that didn’t stop companies from doing that in the past. I’m not ascribing motives to any one company here.
What I’m saying is that cobalt; it’s not just the fact that it’s an unstable supply source. It was the fact that 60% of it came from one country.
From a company perspective, you just cannot basically have that single point of failure, you know what I mean, of having your whole company pretty much depend on what the president of one country says and you shut down your whole company.
Tesla had to go get away from cobalt for many reasons, technical, economic and so on and so forth. You need to take a look at all of those, but yeah, they essentially…I think the next generation is using cobalt as they used before, which is really incredible when you look at it.
Callum: Just to tie up this whole thing because Tesla is such a great example, I think, (a) of your forecasting ability, but also of the challenge of investing. If you help Tesla from 2014 to now, you have gone through (a) people screaming at you that Musk is mad, that he’s unreliable, that he’s a liar that his company is going to go broke. The stock price has gone all over the place.
Originally, it went way up and way down, then it went sideways like in a big volatile range. Well, then now it’s broken out. You have to really have the courage of your convictions to hold a stock like that. Right?
Tony Seba: Yeah.
Callum: Really, it’s the insight to say this trend is so powerful that I’m just going to hang on and ride it all out. Right?
Tony Seba: Yeah. When you look at the emergence of new industries, I look at essentially at the main forces driving those disruptions and those industries.
Over the last six years, yeah, you have to differentiate between Twitter chatter thing and reality. The reality of Tesla was that their costs kept decreasing in terms of batteries, manufacturing costs. They get learning. To name more importantly, their software capabilities kept improving.
Callum: The data, yeah.
Tony Seba: Their social capabilities. People talked about all the things that you talk about, but I looked at how good their software was and I compared it with last quarter and last year and so on and so forth.
Basically, I draw a curve to see how good it’s getting. It’s improving exponentially. That’s something that the market had not priced in, I don’t know, until recently. I don’t even know if it’s fully priced in.
Whereas, the other conversation is autonomous technology, for instance, and you still hear the, ‘Oh my, God. I’ll never use a robotaxi. They need to be 10 times safer than a human being and so on and so forth’.
That’s not going to happen in 15 years. Well, guess what? Tesla with autopilot is already six to nine times safer than a human driver, already in 2020, six to nine times safer than a human driver. When do you think, at which point do you think, what multiple of human driver do you need to disrupt that market? You know what I mean? It’s getting better.
I’ve been following that curve, and it’s getting better by about 40% or so per year. You draw that curve and you say, ‘You know what? Boy, I don’t know if that’s priced into the stock, but certainly’, by the way, I’m not in any stock in any public company so that I can freely talk about what I talk about. You know what I mean?
Tony Seba: I do invest as an angel in startup companies and so on, but not in public markets because I don’t want-
Callum: The conflict of interest.
Tony Seba: Yeah, exactly. I do follow all of these stocks. I get what you are talking about. When I look at the basics, it’s all going up into the right in all these industries, in solar and batteries and autonomous technologies and so on and so forth. It’s just basically a little jump from there to saying, you know what?
Here’s when the disruption is going to happen. Is there going to be volatility? Oh yeah, there’s going to be a lot of volatility, but the whole world is going to be very volatile over the next decade. What is your investment timeframe? Is it a month? Is it a year? Is it 10 years? You make your decisions on that basis.
Callum: Well, I want to bring it back to the book just for two more questions.
Tony Seba: Yes.
Callum: Is it actually going to be available? Is it like a hard copy book or is it a report released?
Tony Seba: It is going to be available on Amazon and so on over the next few weeks. I don’t know exactly when, but it is going to be available.
Callum: What’s the one thing you want someone to take away from…released this thing, what’s the one thing, someone sits in front of you, what’s the one thing you’d tell them?
Tony Seba: Yeah. What’s the one thing out of all of this? Yeah. I would say that humanity is at a crossroads. We’re essentially in the 2020s. We see two pathways.
One is we can elevate humanity to new heights to use all of these new technologies to fundamentally and all intractable issues in humanity, poverty, inequality, social unrest, resource conflict and so on and so forth at 10X cheaper cost and resource utilisation compared to anything else, or we can choose to preserve the status quo and collapse and descend into another dark age like every civilisation before us.
Whether we choose emergence into this great elevation of humanity or collapsed is essentially our choice. That’s what I would want anybody to get out of this book.
Callum: Great. Well, as I say, I read it, and I thought it was a fantastic piece of work. There’s not too many investing books that are really grabbing me anymore, but I’ve read so many of these, but that was one of them.
More importantly for me and for my guys listening, how can we keep track of your latest thoughts and thinking? Is it just regular books that you do or reports or are you active on Twitter and that stuff?
Tony Seba: Yeah. You can follow me at Tony Seba or follow RethinkX, our think tank on Twitter, RethinkX or go to rethinkx.com and download the reports, our blog and so on and so forth.
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