It will be interesting to see whether the Welsh Government is more broadly changing its approach. The key decision in any organisation, especially for governments, is prioritising using scarce resources to deliver the best outcomes. The 20mph policy never felt like it met that basic criterion.
The other lessons I see are that:
The Welsh Government needs to place greater emphasis on economic and not just social outcomes – increased prosperity is the only real solution to many social issues.
What is suitable for Cardiff is not necessarily right for the rest of the country; one-size-fits-all policies rarely work.
The policy decision-making process does not look like it works very well.
The Welsh Government is well aware of the country’s critical issues, but this doesn’t always translate into policies that address them. It will be interesting to see if a similar review takes place with Welsh farm subsidies – not all land is the same, and not all farms are the same.
FTSE 100
The next thing that grabbed my attention was the FTSE 100, which reached all-time highs. A lot of headlines apportioned this to expectations of rate cuts and renewed faith in the UK economy growing. I am sceptical these are the reasons. After last week’s inflation data, markets reduced their expectations of interest rate cuts this year, so it seems highly unlikely that this triggered a rally in stocks.
The FTSE 100 has underperformed all other developed markets, so even new highs are not particularly exciting. There are many theories as to why UK stock markets have underperformed. Still, the answer is probably simple – investors are global, so why put more money into UK stocks when you can get the same investment exposure in other markets without the political craziness and currency risks?
The FTSE 100 is driven by institutional investor asset allocation – in simple terms, the percentage mix between bonds and stocks and between exposure to different countries. We are likely seeing some investors switching from bonds to real assets. The FTSE 100 is a stodgy index with many real assets and banks. Far from being a bet that inflation will remain low, interest rates will fall, and the UK economy will pick up, the current rally looks more like institutional investors reallocating funds into real assets as a hedge against inflation and rates remaining high – the opposite of what many have been reporting. Real assets are good to own if there is stagflation.
Tesla
Finally this week, I am a big fan of YouTube – I rarely watch terrestrial TV or streaming services. As long as your BS antenna is finely tuned, there is much good content, particularly on business and economics. This week, my “recommended” feed is filled with bullish commentary on how Tesla will destroy the car industry and take over the world. The “source” of this was Tesla’s Q1 2024 earnings call, which I gave up an hour of my life to watch back. Tesla is an incredible story – breaking into an established market and the speed at which they built out production capacity. However, Tesla stock is currently valued not as a car company but as the next Apple.
This week, Elon Musk repeatedly advocated that Tesla should be viewed and valued as an AI and Robotics company, not a car company and that Tesla would do to the car what Steve Jobs did to the mobile phone.
His main argument centres on self-driving. My BS antenna went haywire. Even ignoring the fact that self-driving and robo-taxis are still a long way off, self-driving does not fundamentally revolutionise cars the way the iPhone changed almost everything we do. The iPhone put a computer in our pocket and enabled us to change how we communicate entirely, access information, shop, play, socialise, work and manage our daily lives. A self-driving car is still just a car. You still have to get in it to go where you want to go. It will still take the same amount of time. It is not a teleportation machine. Self-driving doesn’t change the reason we own cars, or why we buy the vehicles we do or how much we are willing to spend on them.
To support his argument, Elon cited that self-driving would mean cars that are currently only used for 10 hours a week will be used 50 hours a week. Possibly – but only if everyone stops owning their own vehicles. If true, then car ownership would have to fall 80%, destroying Tesla’s own market. Otherwise, you just end up with five times as many cars on the road and total gridlock.
Most journeys are short, so the productivity benefits of being able to sleep, read or work while driving will be minimal to non-existent. Online shopping and delivery are more revolutionary than self-driving. I guess you will be able just to send your car to pick up and drop off your kids, but how many parents will send young children off on their own or give their teenagers free rein of their car? In my youth, we had perfectly good autonomous transport, such as buses.
The technology behind autonomous vehicles could improve freight transport (which won’t be electric) and public transport, but otherwise, self-driving strikes me as a gimmicky toy for the few, which just makes car ownership more expensive. And people don’t like just owning the same car as everyone else. There is possibly a future where we don’t own cars, and instead, a fleet of automated transport drives us around, but that is a long way off; I don’t see an overnight revolution like the iPhone.
The human brain has almost perfectly evolved for driving – spatial awareness, movement coordination, risk assessment, communication, and behaviour prediction. Most potential accidents are avoided because we can see and predict other drivers’ actions. Eye contact with other drivers is difficult or impossible for AI to replicate. The risk is that accidents may be fewer but more dangerous without human reactions and responses.
A big hurdle is the issue of liability. Insurance works on the principle of driver liability, not car manufacturer liability. Insurance liability and lawsuits would cripple most car makers and add to the cost of buying a car while taking away the ability to price risk premiums individually.
Maybe a premium to Tesla’s share price is warranted by the fact many governments have set dates after which combustion engine cars will no longer be sold, but if that happens, expect a huge boom in combustion engine car sales first. I can see most people buying up petrol and diesel cars and then keeping them running as long as possible – look to Cuba for inspiration. Far from being the death of mechanics, a ban on sales of combustion engine cars will lead to mechanics being busier than ever for the next 20 years. Tesla is an impressive car company, but nothing more. I think buying spare car parts now could be a better investment in the long term.
*This piece has been written by our Chief Executive and does not necessarily represent the views of the firm.
