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FULL ARTICLE WITH TAKE AWAY POINTS

By Vitaliy Katsenelson CFA

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Key Take Away Points

• The Consumer Electronics Show revealed that robotaxis are expanding beyond just Waymo, with multiple players entering the market – this fragmentation could actually benefit Uber’s switchboard system and transform sectors like school transportation.
• Chinese EV manufacturers have leapfrogged traditional auto manufacturing much like Africa skipped landlines for mobile phones – their fresh designs and cost advantages could seriously challenge Western incumbents if tariffs weren’t a factor.
• Autonomous and remote-controlled equipment is set to revolutionize traditional industries like construction, mining, and farming – transforming physically demanding jobs into office work and potentially reshaping immigration policy needs.
• The path to cracking the US market has fundamentally changed – companies no longer need traditional retail gatekeepers like Best Buy or Costco, just a product and Amazon advertising budget, as demonstrated by companies like Renpho.
• Brand value remains crucial in an era of rapid technology commoditization – your observations of the 15 Oura ring competitors and the GoPro story demonstrate that without strong brand differentiation, even good products can’t command premium pricing in today’s market.

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Full Article

I wrote this from Las Vegas, where my son Jonah and I were at CES (the Consumer Electronics Show). 

In investing and life, it’s very easy to get tunnel vision – doing what works and staying in your comfort zone. I wanted to attend CES to shake myself out of this pattern.

It’s hard to describe how massive this event is. It sprawls through five enormous pavilions at the Las Vegas Convention Center and takes up two floors of the Venetian Hotel. It is attended by over one hundred thousand people. 

Here are my initial, off-the-cuff, somewhat random thoughts from CES. 

Robotaxis There were several robotaxi companies here, in addition to Alphabet’s Waymo. Multiple robotaxis are going to hit the market over the next few years; it won’t be just Waymo. Most will start geofenced (they’ll work in specific areas), just like Waymo did. 

This is good news for Uber: The more fragmented the robotaxi market, the more players are in this market, the more valuable is Uber’s switchboard system (which will bring higher utilization to robotaxi operators). 

This will also hugely transform public transportation. Think about school buses – that market is primed for disruption since most buses follow the same route every day in a relatively small area.

Chinese EVs Chinese electric cars are awesome. This reminds me of what happened in Africa. Most of Africa skipped phone landlines completely and went straight to wireless phones. Similarly, Chinese automakers weren’t great at making regular gas-powered cars (everyone else had dominated that space), so they just leapfrogged straight to electric cars. And leapfrog they did – they’ll make even Tesla work hard. 

I can’t speak for their reliability, but their designs are fresh; and without labor unions mandating how many workers need to screw in a single lightbulb, they’re much cheaper than Western alternatives.

If they hit the US market without tariffs, they would decimate the incumbents – similar to what Japanese carmakers did in the early 80s to the Big Three.

Machines on Autopilot Autonomous and remote-controlled equipment is going to change construction, mining, and farming completely. Imagine excavators digging dirt on a project in the middle of nowhere, operated remotely from air-conditioned urban offices – maybe even by experienced operators brought out of retirement. 

Jobs that were physically demanding and that pulled workers away from their families are going to become regular nine-to-five office jobs. This means workers can have normal family lives and work longer – way past when they’d normally have to retire due to the physical demands of the job.

Or picture a colony of Caterpillar trucks working autonomously 24/7 at a mine site. The efficiency and safety gains would be huge. You’ll still need workers, but different workers, and fewer of them.

Think about agriculture. All those jobs that “Americans don’t want to do” will be done by tractors or other farm equipment going through strawberry fields, using AI to spray pesticides only where needed and collecting apples and oranges.

Here’s an economic observation with slight policy overtones: The nature of the job market will change. This is one of those turning points in history where our immigration policy should be forward-thinking, adjusted for the world where AI will be playing a larger role in it (that is inevitable), not just focused on the past and today’s needs.

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Cracking the US Market China has a significant competitive advantage in manufacturing; it has a very robust ecosystem and well-oiled supply chain – nothing new here. Its labor is no longer the cheapest, but Chinese manufacturing is getting more automated. 

We talked to one of the chief designers of Renpho, a Hong Kong company that makes digital scales (among other gadgets) and is the number one seller of those scales on Amazon. They outsource all manufacturing to China, and the factory that manufactures their scales is completely automated. 

What’s also interesting is that in the past, to break into the US market, you had to have relationships with Best Buy and Costco. They were the gatekeepers and also the quality-control testers. Today, all you need is a product. You have direct access to the US consumer through Amazon – you just have to be willing to spend on Amazon advertising to promote your product.

Brand or Bust It’s incredible how fast technology gets commoditized. There are literally fifteen (!) companies selling Oura-like rings (sleep-tracking biometric devices worn as a ring; I’ve been wearing one for five years).

In technology, you need to keep moving all the time or you’ll be eaten by the competition (true in life in general), but you also need a strong brand. I couldn’t tell the difference between my Oura ring and the fifteen replicas, most of them sold at a fraction of Oura’s price. But I trust Oura, and that’s the power of the brand.

I remember researching GoPro stock after it got bombed out (down 80%). During our research, I found that GoPro was selling their cameras for $300-400, while Chinese-made, no-name replicas were sold on Amazon for $40. These replicas didn’t have GoPro’s brand, but they had tens of thousands of five-star (hard to fake) reviews on Amazon. GoPro may have been exceptional (loved by pros), and these no-name cameras were just okay, but they were 10 times cheaper.

I put GoPro stock into the “too hard” pile and moved on – thank God I did; after declining 80%, the stock fell another 80%.

This brings me back to the value of a brand. GoPro wasn’t worth 10x more to consumers than Chinese no-name alternatives. Can Oura command 10x pricing over its no-name competitors? I don’t know. That’s the beauty of investing – I don’t have to have an actionable opinion on everything. With time I have become very comfortable saying “I don’t know.” Investing is one of the few professions where you don’t have to have an answer for everything. “I don’t know” should be the default answer, unless you do know. Which isn’t that often.

Global Tech Showdown Korean companies are really dominating screen technology. LG and several other Korean companies showed off transparent, glass-like LCD screens at CES. Imagine sitting in your self-driving car, and your windows are both regular see-through glass and LCD screens at the same time. Our lives are slowly becoming what we used to see in sci-fi movies, and these screens are definitely a leap in that direction.

CES is a truly global show, with technology on display that spans every aspect of our future. There were a lot of companies from Asia (especially China). In certain pavilions focused on consumer or business hardware, China completely dominated the exhibits. There were quite a few large American companies and many American startups, mostly focused on software (though all their hardware was manufactured in Asia). America still dominates in software.

A few, mainly Chinese, companies were showcasing their humanoid robots. One robot was slowly but accurately moving and stacking boxes in a defined area. Others were roaming more freely and were good at avoiding objects. At this point, these robots have the IQ of a smart dog, an average cat (now cat lovers will love me), or Siri. I bet in a few years this will have changed.

I was only mildly surprised by how few European companies were at the show. It’s a very broad generalization, but Europe seems to be running on fumes of past glory. Western Europe has become a pro at regulation and mastered the redistribution of wealth (activities that don’t help innovation or economic growth), and not much else. Yes, there are exceptions, but that’s the point – they are exceptions. If Europe doesn’t change course, eventually it will run out of fumes.

The beauty of learning is that you don’t always know everything you’ve learned at the moment of learning. Often, you’re just depositing data points that will crystallize into insights at a much later date. I don’t know if CES will become an every-year tradition or something I do sporadically, but it’s definitely fertile ground for learning.

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