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The future of automotive technology

Gary Silberg, KPMG Global Head of Automotive joins the Yahoo Finance Live panel to discuss the latest with the automotive technology.

Video Transcript

ZACK GUZMAN: And electric vehicles, not just manufacturers here in the US, but those in China as well, perhaps so much so you might be thinking that the internal combustion engine might be going the way of the dinosaur, as all of these companies put in hundreds of billions of dollars into research. But that's not the case.

And one industry expert with more than 20 years of experience in the automotive industry is joining us now to warn maybe why those fears are overdone. KPMG global head of automotive, Gary Silberg joins us now. And Gary, appreciate you taking the time to chat here. Because in your guys' new report, you kind of break down why the internal combustion engine can't go anywhere when you think about constraints. So talk to me about maybe where the right way to think about this in this evolution is right now.

GARY SILBERG: Yeah, I think that that's great, Zack. The world sometimes seems to have things in binary. They're 100 and they're 0. And there's not enough nuance in the world. And I think, as you've hopefully read the paper, you'll see that essentially for 80 to 100 years, it's, the auto industry has created incredibly sexy, cool products and had great change. But the one change they've never had is the change in the power train. You know, it's Ford Motor Company. It's General Motors. It's the ultimate driving machine.

And the thesis of our paper [INAUDIBLE] was, essentially, this King ICE, internal combustion engine-- or as my wife likes to say, queen ICE-- is going to be dethroned, but it is not going away, just like you said. And there is a plethora of reasons why it's not going away. But what we think will emerge, instead of being 100% bad or 0% ICE or et cetera, good or bad, is what will emerge is what we call a mosaic of power trains.

So you're going to have in the future battery electric. You will have hydrogen fuel cells. By the way, there's been billions and billions of dollars spent on that. You're going to have hybrid vehicles. You're going to have even natural gas. I've seen some sexy, cool solar companies in very specific applications. And absolutely, just to be clear, King ICE this is not going away. The internal combustion engine is going to be here for a long time, for the next 10 or 20 years. And this world of mosaic, as we've outlined in the paper, is going to have profound, profound implications for the industry and has what we titled it, place your billion dollar bets wisely.

AKIKO FUJITA: Gary, so much of this conversation, though, if we want to talk about the demise of the internal combustion engine, has been driven by these ambitious goals that carmakers have put forward. If you look at a company like GM, they've said they're going to go all net zero by 2035. So does your thesis suggest that they're not able to get there with the operational structure that's in place right now?

GARY SILBERG: Well, I would-- so just, let's take some macroeconomics here for this. So today on the planet, there are 4 billion people on the planet today. If they wanted to plug in and just have a battery electric vehicle, they don't have the infrastructure around the world to do it, OK?

Moreover, there are, if you look at the GDP per capita around the globe, if you add that plus GDP per capita of people making less than $25,000 a year, America is a fabulous rich country, but there are 6.6 billion people between the two of those that make less than $25,000 a year. And this is not a comment on GM, by the way. I don't want to talk specifically about GM, but others who have gone all in, to think about this, is that for the next 10 to 20 years, you would potentially be giving away the opportunity to sell other types of powertrains to 6.6 billion people.

Now, you can make that call and go all in. Or, you know, it may be needed to be more nuanced. And this mosaic will occur that you're going to probably have to sell a plethora of a mosaic of powertrains to the consumer. So that's the dilemma. And, you know, these are billion dollar bets. And that's why we, again, go back to it, wisely. These are big risks, big bets.

ZACK GUZMAN: Let me ask you this question, though, Gary, because we talk about these traditional automakers coming after what was spearheaded by Tesla. And I think the one thing you can't take away, they made the electric car sexy, right? I'm not sure a lot of people out there were really lining up to get into the Leaf, no offense to the Leaf.

But when you look at maybe what they're chasing, it does seem like in your notes, you're highlighting that there's a very narrow kind of 50 grand and up slice of the market that's only about 17% that a lot of automakers are chasing in kind of the luxury space. So talk to me about how that's going to look and whether or not Tesla can hold up if that's kind of where a lot of these manufacturers are looking to target.

GARY SILBERG: Yeah, exactly. So in the paper, we broke down-- I think this is a big finding of our paper. We broke down, how do people-- what are the price points where people buy cars? And as you alluded to, Zack, 2 point in 2020, albeit it was a COVID year, but the percentage was about, say, 2.4 million people bought vehicles in the United States over $50,000. So the other 13 million or so or 13 point whatever that is bought cars under that price point.

So what we did in the paper, just like you said, is we looked at all the pricing, the MSRPs, that we believed will be for the new vehicles. The Hummer is sold out. I think it's $100,000 or more. The Teslas, the Model S, the Model Y, the Model X. You look at the Porsche Taycan, the Rivian, the-- I mean, they're all focused in on 2.4 million consumers. So our view is that there are probably too many players chasing too few customers.

Now Tesla is-- I love Tesla. I've loved Tesla since the very beginning. And they've got a huge head start. But if you add all those up, I just think logically, not all of them can make it. There's got to be a shakeout in that group, at least in the near term, in our view.

AKIKO FUJITA: Yeah, consolidation in the EV space, a whole other conversation. Gary, we're going to have to have you back on. Unfortunately, we're out of time, but Gary Silberg, KPMG global head of automotive, thanks so much for your time to--