Introducing our new scenario, “Powering Up”

Danny Crichton:

Hey, it's Danny Crichton and this is the Riskgaming Podcast by Lux Capital. I'm joined by Ian and Laurence today to talk about China EV game that we've been hosting in New York, DC, Tokyo, London, and San Francisco, that great bastion of culture and nightlife. We have a lot to talk about today. We're going to talk about some of the news that's going around. Ian just published an op-ed in foreign policy, which we'll discuss, and then we're going to talk about the trends that we're seeing as we've gotten a bunch of policymakers, politicians, researchers, founders, technologists, CEOs, executives, all in these games over the last couple of weeks. So, let's dive in, but maybe we'll start with Ian. You just published this op-ed few days ago in foreign policy. Basically lessons learned from the China electric vehicle market and the risk gaming scenario that we've been doing over the last couple months. Why don't we talk about that first?

Ian Curtiss:

This came together as we were talking about launching the game, and okay, what should we do? What makes sense? And all of a sudden, we check the news is like, "Oh, wait a minute, EVs are everywhere. Right? Let's get out there." And essentially, the article was why is everybody so shocked? I remember in 2013 when I was in Beijing and the strategic emerging industries were out and all the China hands were publishing papers left and right about all this, and here we are 11 years later, and oh my God, apparently they were building strategic emerging industries for the last decade, and now we're seeing the results of that.

And so, yeah, I wrote the paper to just kind of have everybody understand that, A, we should have been talking about this a long time ago. B, luckily, we put this game together to let people kind of wrestle with the biases that they have that have impacted their ability to digest these things. And then, let's think about what actually we should do about this down the road, and I argue that's invest in future innovations and just kind of let the market win in our economies where we're just not great at doing huge top-down planning structures.

Danny Crichton:

Ian, you use Northvolt as the hook for the piece. Can you talk a little bit about that case?

Ian Curtiss:

Yeah. So, Northvolt is this incredible battery company that started about six years ago. Multiple executives from Tesla came over to help build it out, and as they got going, there was just a lot of hype. They got some $15 billion in investments from all sorts of governments and companies, including Science of Industry, Goldman Sachs and so forth. And then, here we are now, they're bankrupt. What happened? They had such difficult headwinds in an uphill battle, in a world that has already been taken over by Chinese battery makers.

Danny Crichton:

Part of what your game does is model how this happens in the US and in the EU. Literally as we were running the game, we got notifications on our phones that General Motors was doing a write-down of their China business by more than $5 billion, and most of that was because they were just losing so much money to China. They've lost $350 million in the region just in the first three quarters of this year. I think that part of what we model in the game and what I've seen now that we've run it a bunch of times is just how difficult it is for the US and for the EU and for automakers in both regions to actually compete with what China is offering in country.

Laurence Pevsner:

Well, and I think one of the most important things is also just how fast this has changed. We emphasize this a lot when we host these games, but GM and SAIC, the Chinese automaker that they did a joint venture with I think almost two decades ago, have been enormously profitable. GM made tens of billions of dollars of profit in the Chinese markets selling internal combustion engine vehicles. But then over the last three years, China has exponentially increased the number of EVs on the road, and all the top brands minus Tesla, and to some degree Volkswagen, are Chinese domesticated indigenous brands.

And so, seeing a company like GM who's just used to this flush profits coming in quarter after quarter almost for free, it's not free to build the stuff, but the IP is free, it's already been developed, so they're just redeploying it to another market that's very lucrative, and now those profits are just disappearing. And so, you're a GM and you're saying, "Well, what do I do next? I want my 5 billion and 10 billion dollars every year and it just comes in like clockwork."

Danny Crichton:

Yeah, and I think one of the things I really learned from seeing the game is that there's no one single reason why this is the case. It's actually from a ton of different angles that China is able to get strategic advantages in different areas. So, whether that's IP or whether it's the processing chain, at this point, China processes nearly 80% of the world's batteries and 80% of the critical minerals to make those batteries. I mean, that didn't always used to be the case, but that's just part of the equation for why China has leaped ahead.

Laurence Pevsner:

And I think one of the most important things with risk gaming, I mean this is a good example where it's like, look, it's not just a this or that. It's actually an equation that includes so many different policies, so many different global macroeconomic factors, so many parts in the critical mineral supply chain, joint ventures policy. You have changes in tariffs that have happened because of elections that took place. All these factors coming together is something that you can't really model and you can't really predict. So, you have to experience it, experience it multiple times and get used to the idea of reacting to what's taking place and trying to prognosticate a little bit in the future without being able to predict it fully.

Ian Curtiss:

Yeah, what I like about the game and what it simulates out and what we've kind of hinted at here already is there's so many systems at play in the EV industry that people just haven't really wrapped their brains around. And while the game doesn't directly comment on those, it's built into the natural incentives that everyone's responding to, which is, naturally, like you mentioned Danny, just the battery ecosystem. What's been built out in China is just so immense that it creates so many secondary tertiary benefits to the Chinese companies that just naturally play out.

Laurence Pevsner:

So, let's talk about the game then. We've now run this game dozens and dozens of times in the lead up to our launch, right? Danny mentioned we've run it in New York. We ran, I believe seven simulations in New York. We ran it twice in DC, and then we're going to be running it twice in San Francisco as well. I mean, listeners might be familiar with the game, but do you want to just very quickly describe what the six roles are and how they interact with each other?

Ian Curtiss:

Yeah, and I'll note that I've run this game dozens of times and I still enjoy doing so, so that was a shock. It's still exciting to do so. So, the six players are, there's three automotive companies. There's a European company, an American company, and a Chinese company, and these are all modeled to be sort of long-standing legacy companies in the industry. Ones that are not any of these kind of new EV companies that people are reading about that pop up every day.

Laurence Pevsner:

And also critically though, it's not just the companies that are represented, but actually specific people that are running those companies.

Ian Curtiss:

Yeah.

Laurence Pevsner:

Specific roles.

Ian Curtiss:

Yeah. And so, to that point, what that models out specifically is the European and American companies are led by their country presidents. So, these are global companies that have presence all over the world, but in China, it's just the country presidents that are making all these incredibly important decisions that have global ramifications. While the Chinese company, while it only has presence in China, is run by its global CEO. That simulates out some of that friction that occurs, and when one critical economy plays such an important role on global outcomes, there's naturally this sort of gap or arbitrage in strategic capabilities. Those are the three automotive firms. Then we have two vice mayors of Shanghai and Chengdu, and they are trying to attract investment into their city, and we'll get into kind of how that plays out. But then finally, we have a foreign consultant who simulates kind of a number of roles that consultants can play in the Chinese market, but their job is to help make all these deals happen essentially.

Laurence Pevsner:

We can talk about a number of the trends that we've seen across the games. You mentioned the vice mayors. I mean, this to me was one of the headline trends that has surprised people is, if you're making just a board game for fun, you make all of the players roughly equal in their ability to win, that is not our job here, right? Our job is to try to simulate what it is actually like to be in these roles. And so, frankly, most of the time, the vice mayors lose, right? That's one of the things we've seen. We've had really smart, really adaptive people playing those roles and they just can't seem to figure it out.

Ian Curtiss:

Any sort of game has some sort of scoring system. And so, this one in regard is, the vice mayors are really focused on trying to get their tax revenues or the currency of social capital, which is like they're Quan Chi or their social network, the value in the social network of China's political economy. And it's just really hard because the line that they're trying to walk along is getting investment from those companies while also getting information from those companies in order to, what we have in the game is an information quota that they have to pay to the Chinese central government.

And so, they're trying to gain information from the market to inform their superiors of kind of what's going on in the market, what's going demographically, so on and so forth. This is a strategic emerging industry. The government's paying a lot of attention to it, so they want to know what's going on. And so, these mayors are always trying to negotiate and decide, okay, do I need to get a better more capital investment in my city or do I need to focus on getting information so then I can pay that quota to the central government and win more social capital? And so, they're just really, they're in a tight spot the whole time.

Laurence Pevsner:

You used an amazing Chinese term here that anyone who's familiar with China knows about, what maybe some of our listeners don't. Can you talk a little bit about Quan Chi and why it's so important and how it plays into our game?

Ian Curtiss:

So, essentially, really in any political economy, but it's most present in the Chinese or has historically been most present in the Chinese economy of late, is that when the government is so involved in the economy, it's really important to know what people in the government think. And to do that means you have to build trust with individuals, and in order to build trust with individuals, you have to build some sort of social capital as we call it. And so, that can be built by just your reputation, that can be built by personal relationships, that can be built by your own power in the market or so forth, or forces others to just want to get to know you better and so forth.

And so, we simplified this in the game into a single currency called social capital, and it's like a chip you can pass around. And so, in the game, specifically what you want is you want to have as much of everybody else's social capital in your pot at the end of the game, and you want your social capital to be out in everybody else's pot, or pots, as much as possible. And what that simulates is, the more that my social capital is in your pot, the more that I am influencing what you're doing, the more about me and so on and so forth.

Laurence Pevsner:

Yeah. One of our players in the New York game, I remember he was playing as the General Motors, so the US company, and one of his first comments when we were doling out the different chips was, "I'm humbled by how little social capital I have."

Ian Curtiss:

Yes. Yeah, and that's real. I mean, the friction and the frustration that foreign executives have in China is always they find out later than their domestic competitors do about certain policies. They can't get invited to meetings, they don't get invited to dinners and these sorts of things. And so, this plays out very, very realistically in the game.

Danny Crichton:

Let's move on to the Shanghai Car Company because I think, at the center of them, which represents sort of the Chinese automaker and the sort of emerging startup car world is information, which is your third currency. And in the game, as you'd already described, information is sort of this open-ended intellectual property data, info in the widest possible way. But for some reason, in the way that this is designed, and maybe we can get into this, is Shanghai Car Company basically gets to acquire and absorb, by osmosis, all the information in the game, whether you sort of like or not.

Laurence Pevsner:

Yeah, and what I did there was two-fold, was one, there's a series of incentives in the game because everybody has a rating with the Chinese central government of how strong is your relationship there, and that rating is impacted by all sorts of things. But one of them is whether or not your firm chooses to give information to a vice mayor in that round of the game, and the more you do, the more it boosts your relationship with the government. Understandably, you would build trust with anybody by giving them information, right? And so, that's in the game, and people can find out about that, and so sometimes they play into that of, "Oh, I want a better relationship." Well, pay out information.

The secondary thing of that though is the Shanghai Car Company specifically knows, while anybody benefits in the game, the Shanghai Car Company specifically knows that if they use information that is foreign information, if they use that information for their R&N, they will not only get better returns in China, but they will automatically slowly grow market share internationally because they know that if they use somebody else's information as part of their R&D processes, they'll build better products that are naturally more valuable or interesting or so forth to consumers around the world.

While the foreign firms are not told that information right off the bat, they can find out this information by using their trustworthy consultant, but that's one of the key things. And so, as a result is, through all this process, the firm's giving out, slowly trickling out information to the vice mayors and the Shanghai firm proactively trying to get foreign information, they inevitably get really good products and grow their market share abroad.

Ian Curtiss:

I think one of the biggest challenges in this game for most players is understanding that you have an information edge, and early on, the American and European automakers have this huge advantage against the Shanghai Car Company, which is a startup. It's learning how to build a business, and so they are able to use that edge very, very effectively to build revenues, to have profits, to get access to Chinese markets because you're actually building a car that's better than everything else on the market. Unsurprisingly, consumers want to buy those cars. I think what's challenging for most folks is to actually transition though throughout the game and go, "My information is becoming less and less valuable over time. And so, at some point, I do have to give up kind of these jewels. I have to kind of negotiate that." And we've seen either people doing it way too early, so they get rid of their entire, think Ford going into the middle of the 2000s and just sort of like, "Here's all of our IP. Have at it," in some cases.

Then in others, people hold onto it almost the entire game and sacrifice the entire market even though they don't have sort of that edge at all, but they're still hermetically sealed and they don't want to negotiate with anyone. And so, there's sort of a Goldilocks principle of here sort of analyzing what is my market position, how do I get edge, when do I have and when have I lost it? And being able to be kind of facile around that as opposed to being, "I have one policy and I'm going to hold for the entire game on it."

Laurence Pevsner:

One thing we should say is that, in most of the runs that we've played so far in this launch, Shanghai Car Company has been the most common winner of the entire game. And it's not that other companies can't win. We have seen US General win, for example, but to your point, there's this very narrow path they have to follow, and whereas I think Shanghai Car Company has a lot of different ways they can win, right? They can win by securing a joint venture early on and then leveraging that information. They can win by doing a lot of R&D themselves and then growing their market share abroad. There are a bunch of different paths for them, whereas I've really only seen basically one or two paths for the foreign car companies to actually get ahead.

Ian Curtiss:

Interesting thing about that for me is twofold, is the people who most successfully navigate that are the ones that have had the broadest background and experience. And so, we've seen China hands play this game, people who they just read about China every day,.all day, every day. They read, they write about China, but then in this game, they haven't performed as well as they may be could have. But what we have seen is people who either lived in China and worked in China, that's a different outcome. And then, the people who have had a diverse background of working in consulting, working in finance, working in policy. If they've hopped across these different sectors, they entered the game and they're able to think, "Maybe this isn't everything that's going on right now." And they're a little bit more careful about what they do, they're a little bit more thoughtful and wait to get more information from different sources. And that's always really interesting to see is it's those people who are able to really win as the foreign firms, or who really squeeze out all the value as being the consultant.

Laurence Pevsner:

The other thing that's been surprising for me as we've run these simulations is how often it's not just one player playing optimally that requires them to win. It's also maybe other players not playing optimally. US General is more likely to win the US car company if Shanghai Car Company doesn't make all the right moves, right? If they don't understand, "Oh, I've got this information, I need to use it now." Or, "Oh, I should try to secure that joint venture and then over time squeeze out my competitors." If they don't act in those optimal ways, then there's an open window here.

Ian Curtiss:

It's really interesting because when you look at Silicon Valley as a model, we always talk about how important execution is. It's always about execution. It doesn't matter about the idea, it just matters what you do. And if you build a great company, you have a mediocre company, and I think that has always be tempered with the fact that sometimes it can be a lot easier to build a great company or a lot harder to build a good, great company. The institutions matter in the game that is designed as is a reflective of reality. The Shanghai Car Company in our game is designed to win. It has the policy support, it has the central government backing, has local government backing. So much is going in its favor. Now, if you have an incompetent CEO who is crap, doesn't know what they're doing, then yes, there is an alternative universe in the quantum metaverse where GM and Ford are the leading automakers in China and will be for the next 50 years.

Clearly, the CEOs of a lot of the local car makers have done just fine and have taken advantage of the situation, but I do think there is that spread. And so, we have, as Laurence pointed, we have had games in which the foreign automakers have won, usually either because the Shanghai Car Corp didn't take advantage of certain things, or, frankly, the joint venture just got kind messed up. But I feel like in that game, Autobauer, our European automaker worked with Shanghai Car Corp in a joint venture. And so, Ford ended up just maintaining a kind of information edge throughout the entire game that sort of protected it from that sort of foreign competition.

Laurence Pevsner:

Right. They needed to know both, okay, they've done a joint venture, so I need to hoard my information, right? You need to figure that out in order to take advantage of it.

Ian Curtiss:

The other thing I'll point out on the vice mayors because we already started with them, but one of the things that's been interesting, we have this mechanism around tax cuts. They can give a tax rebate essentially back, which is also built from the headlines or built from reality. And one of the interesting things is, in some games, the vice mayors actually negotiate very, very carefully. There's only two of them in the game. So, if they agree and say, "Look, we're never going to give a tax cut or tax break larger than 20%," you sort of put a floor on this and now the vice mayors are in much better shape.

The ones we've done in the last week or two, no one has really put in, to a point that in some cases cities are giving 100% tax breaks to sort of win on the negotiation, and they're not holding the line of competition. It's interesting because in real life, there are actually dozens of provinces, so it's actually relatively hard to go do this. In our game, there's just two and they're not holding the line, and I've been very fascinated by that.

Laurence Pevsner:

This is what's so fun about these games, right, is these emergences of different outcomes based on the culture that you're playing in and so forth. My hunch is what caused that was the teams that we've been playing with are not used to this sort of concept of a quota that they have to pay into at the end of every scene. And so, they've really focused in on that of like, "Oh God. I what? I have to pay this currency at the end of every scene, and if I don't, it's going to hurt me." I think...

Ian Curtiss:

And to be clear, they're playing it to the Chinese central government. That's the idea.

Laurence Pevsner:

Right. Yeah, yeah. And that's why, that's my hunch of why that's taken over is, so as a result, in order to ensure that they get their information to pay their quota, they give away all of their tax breaks to the companies. Letting the companies win bigger revenues in the end.

Danny Crichton:

Yeah, I think this shows how they're scared of the CCP, right, and this is a real thing that vice mayors are quite scared of. They have personal ties with the party. They're worried about what Xi Jinping is going to think of them. And I think that models that successfully, right? And, yeah, to your point, if it only happens with two, it's really impossible to coordinate among dozens. And you've said, Ian, that the time you have seen the vice mayors win, it is because they coordinated, right? It is because they banded together and figured out that we're just not going to give any tax breaks away. Maybe we won't even meet our quotas. Who cares? And we're going to collect the stuff that's valuable to us.

Ian Curtiss:

Yeah. I mean, if they really play the game to the degree that you're saying is, yeah, so they essentially collude to ensure that they protect their value, which is always the advice that I give them is know your value and protect it. They colluded to make sure that they don't give away the tax breaks, and then they make sure that the companies give them information in order to gain any sort of tax break. So, they set some sort of price for the tax break of, "Okay, yeah, I'll give you tax break if you give me an information."

And they force that kind of equivalence of the two things into one negotiation with the firm so that the firm still bleed away the information without gaining the tax breaks because they have to go somewhere essentially. Because particularly the foreign firms, they can't win as much global market share as Shanghai Car Company, right? Because they already have market share. It's harder to go from 15% to 16% than zero to one, right? And so, when they send capital back home, they get less exciting returns or outcomes. And so, they really rely on the vice mayors to grow their points.

Danny Crichton:

And that, because those players are the China heads that are returns a broader cut by two-thirds, right? So, that's also a huge factor for them as well. So we've talked about the vice mayors, we've talked about the car companies. The one role we haven't really gotten to is the foreign consultant. Ian, how does the foreign consultant play into the game?

Ian Curtiss:

Yeah. So, I love the consultant. It's you in the game.

Laurence Pevsner:

That's right. Yeah, yeah, exactly.

Ian Curtiss:

And me in an alternative life. The consultant is kind of represents your traditional big, well-known legacy GR firm, as well as sort of your Big 4 MBB kind of type of consulting firm.

Danny Crichton:

Can you spell out those acronyms for audience?

Ian Curtiss:

Yeah. So, what is it? Big, gosh, what are the Big 4? MBB stands for McKinsey, Bain and Boston Consulting Group. Big 4 is the big four accounting groups. What is that?

Danny Crichton:

EY.

Ian Curtiss:

EY, PWC. Exactly, yep. And so forth.

Danny Crichton:

And then, GR is government relations.

Ian Curtiss:

Government relations. Thank you. Yeah. Thank you. Yes. You're clearly a consultant already. Throwing enough acronyms of people, they're like, "I'm being shot at." Warning. You spend too much time in DC, you will start [inaudible 00:22:41].

Danny Crichton:

You drink from the alphabet soup, right?

Ian Curtiss:

Yeah. As I always joked with my dad, it was like my brother wanted a job where he got to have really fancy tool names, or he was a carpenter and he went into a building and construction stuff. I wanted a job with lots of acronyms. Give me acronyms, please. I can't wait. So, yeah, the consultant can do three forms of research in the game. That's essentially their core transaction. And so, that lets them look behind the curtain of the game and literally see the spreadsheet at times. And so, what that is, one, they can look at the actual financial calculations for the firm's investments. And so, it's a big long calculation, murky on purpose, but essentially they can see, okay, this is actually how it is calculated the firms get revenues back for their investments.

Secondly, they can look at where everybody stands with the Chinese central government. So, instead of it being this sort of vague ranking that's in front of the players the whole game, they can actually see a very detailed impact on their relationship, the central government, and understand what impacts their relationship. And then finally, they can see the upcoming events. And so, there's injections in the game and events that set the scene for every round of the game, and the consultant can go forth and find out what's coming down the pipeline and tell everybody. And so, the consultant that wins is the one that essentially does the research and then goes and sells it to everybody around the room. It really hits the streets in the sales role. But what's so fun about it is different communities leverage the consultant in completely different ways, and they never really get sideswiped one way or the other.

Laurence Pevsner:

Yeah. Like in DC, we saw that they tended to want to know what's happening politically, right, in the future, right? Versus in New York, they were much more financially minded, right? They wanted to know how revenue was actually calculated.

Ian Curtiss:

Exactly. And so, what's always fun is to see that happen, and well fun or maybe depressing depending on your perspective, I guess. But, so yeah, the DC communities, or the policy communities I should say more broadly, they're always very interested in the events and the GR, the government relations ranking. And so, the companies go to them and they say, "Okay, hey, can you find this out for me?" Consultant finds out, but it's only a piece of the whole puzzle. And so, more often than not, they never ask about the financial calculations. And so, they know about the upcoming events, they know their ranking is supposed to be really good because they've been giving away their information to the Chinese government. But gosh darn it, they keep investing and the returns are almost nil. And then, that just happens again and again and again and again, almost every scene in the game, and I've seen this happen many, many times.

And so, that's interesting about that sort of policy community. On the other side then is these sort of business tech kind of side. They're far more likely to ask about the financials, almost every time they do. And so, they get the calculation, but then they mysteriously keep getting just pummeled by political events that they don't research. And so, they either don't research their events or they don't research their relationship with the government, and therefore an event happens and it's like, "Oh, guess what Autobauer, you have the worst relationship with the Chinese government, therefore you need to enforce a labor law more effectively, and your revenues are cut because you're too focused on improving labor relations in your company." Something like this.

Danny Crichton:

So, Ian, is the point that we need to hire all three kinds of consulting firms? Or...

Ian Curtiss:

Well, I will say mean, the thing that always surprised me is also there are a bunch of consultants that we've had in games that just never researched at all, which is first of all, a terrible strategy. Second of all, as your main action, it's amazing that even though we explained the importance of the research, that people don't take advantage of it. But to me, the key here was there's certain timing when the research is particularly valuable. So, understanding the mechanics of your GR or finance should be done very early.

Trying to collect information. Well, what's the structure of this market? How does it work? What goes up, what goes down is extremely valuable because it could help guide everyone else in the game longer term. And sometimes people start researching at the end of the game, and someone will be like, "Oh, I kind of want to know how the revenues get calculated." I'm like, "Well, this is the last scene. Why are you asking now?" At this point, you might as well do something else because nothing you learn is going to change kind of the outcome of this game at this point. So, it's been interesting because I don't know if we're not explaining it correctly. I feel like we do a decent job, but I feel like so many times the consultant is just not used effectively, and I don't really have an answer why.

Laurence Pevsner:

I mean, my best guess, playing it so many times and so forth.

Ian Curtiss:

And if you're one of our players who played the consultant, we're not talking about you.

Laurence Pevsner:

That's right. It was somebody else.

Ian Curtiss:

It was someone else.

Laurence Pevsner:

It was that other person in the other world playing down at the other end of the table.

Yeah. My best guess gets back to the individuals who play the game, and their sort of most primal kind of assumptions that they approach the world through, which is oftentimes either like, "Okay, I need to wait for more information. I need to keep waiting. So, maybe I'll play the game or the scene, let a couple more scenes play out before I take an action." Well, the world keeps going, so you need to be a little bit faster, right? Or it's, "No, companies make money and governments do government stuff." We've seen people come in with that mentality. And no, in political economies, that is the exact opposite of what happens, is everybody's in it all together at the same time, and people just wrestle with that, in this game, reality, and frankly, I would argue real reality as in what's happening with EVs today.

Ian Curtiss:

I think the reason the consultants struggle, even though by the way they actually do well in the games, typically, right? They tend to win the second most often after Shanghai Car Company. So, it's not that the role is disadvantaged, but it is hard to play. And I think the reason it's hard to play is because it's the only role in the game where you have to see everything. You have to understand how all of the pieces fit together, right? If you're just the vice mayor or if you're one of the car companies, you have your own very specific set of incentives and you know what you care about, and you in some ways don't even need to always be paying attention to what everyone else cares about because you're in it for yourself, right? But the consultant has to advise everybody else, and they have to understand everybody else's incentives, and that's a lot to take in.

Laurence Pevsner:

I think the other answer is the strategic use of information, which is most of these people are in journalism, intelligence where they're used to just sharing it to everyone, connecting dots, going to a seminar and just putting everything on the table. Here, you have to be selective and say, "Well, I need something from you in exchange for something that I happen to know." And I think that transactional bit about, it's kind of close-sourcing information that most people think of as open source, but that's what consultants do. The way you make money is you have to know something that no one else knows, then charge for access to what's in your brain. And that's not normal for a lot of the folks who are playing the game to give them the best optimistic take on why people are not playing the role well.

But I want to know, overall, we've launched this everywhere, we've just finished up in SF. What are sort of the broader insights? Because when I look at this, we've now played across the world on multiple continents. We've played across the United States, different cultures, different communities, different professional backgrounds, and what's sort of the big, big takeaways that we're seeing, not just with the game, but maybe wider in terms of the industry as well?

Ian Curtiss:

Yeah, I'll speak culturally, and we already spoke to the different industries, but also nationality wise is that's always fun is, Americans love to go big early. As we play the game in American cities, the players, like scene one, they're making big investments. That is quite common. Not always, but quite common. While as I saw in other markets, Japan, the UK, elsewhere in Europe, people were much more hesitant to dive in, particularly in Japan. There was a lot of very small trades consistently made throughout the game. And a couple of the firms didn't even invest until the second and third scene of the game, which was shocking for the American, compared to the American experience.

A highlight of that is Japanese firms are far more used to, Japanese leaders are far more used to working in China and with Chinese firms and in these political economies, and I propose that they do that because they know that it's a complex place. You have to play the game, so they made deals to build trust and kind of work the mechanisms to understand what's going on, but then they would go in with really effective investments at key points in the game. And then, I will say in the Japan games, the foreign firms won. And so, that was quite interesting to see.

Danny Crichton:

Yeah, I mean, one thing I'm interested in hearing, thinking more about is, in some ways this game, it's already over, right? Many of our risk games, we're looking to the future, right? We're thinking about what's around the corner. This is actually a game where we are modeling something that's already happened and something that the reason it's in the headlines right now. And we're trying to explain people, well, how did this happen? Why did this happen?

And so, I think that, at this point, there's policy talking about tariffs, but that's kind of, if our players did the tariffs now in the game, they would be experiencing, well, it's too little too late, right? You've already given away the information that was valuable. So, you're actually kind of doing it maybe at the wrong moment. But one of the things, Ian, you wrote about in your foreign policy piece was, what we really should be thinking about is what is the next industry that is going to be like this? Is it about our alternative battery structures? Is it geothermal? Is it some new emerging tech? This is going, if we've already learned this lesson with EVs, how can we apply it going forward?

Laurence Pevsner:

Well, I don't think we've learned the lesson. I mean, I once worked in an autopsy clinic, and we should do the autopsies now on Northvolt, on GM and what's going on in China today, because I don't think we've learned the lessons at all. I don't think anyone in DC has learned the lesson. I mean, people came up and were like, "I wish I had known this five years ago." And I was like, "Well, why do you not know it now?" It's actually a crazy thing to say. We've lost entire industries and we're still like, "Whoa, what went wrong? Oh, well, it was very flush for a long time. And we sort of petered out." And it's like we could have kept owning the edge here. We could have kept owning the future. In some cases, we gave up. In some cases, I mean, frankly in this particular context, we just never invested in EVs, and GM does not have an EV strategy, and most western automakers outside of Tesla have no real coherent EV strategy.

In many cases, we went up market, and this is a story particularly for US automakers where our cars just got way more expensive and they just are not attractive to a global middle class. They can't afford a $60,000 pick-up truck. They want a $10,000 sedan that's EV with low parts, low maintenance, a low total cost of ownership. We're just not building products for a global consumer anymore. And that's okay. That doesn't mean GM and Ford are going to go bankrupt. They're not going to disappear. They're going to be here in America, but they will be shrunken shells of their former selves because they're going to target a much smaller audience than they did in the past. And I just don't think when you go to the finance world or even Silicon Valley or DC, I just don't think people recognize that. That that scale down as opposed to scale up really changes the feel of these sorts of companies.

And then, you can go to Intel. I mean, Pat Gelsinger just resigned from the board and from the company a week or two ago, which we haven't talked about on the podcast, but we've obviously talked about in the newsletter over the last couple of years. But we're seeing that same story repeat again and again. Go over to Boeing. We're seeing that same sort of story. And so, at some point, we have to take a look around and be like, look, it seems to be repeating. Why are we not learning these lessons over and over again?

So, I actually think that even though we normally look to the future of new technologies, how that's going to open up, that's why we did deep fakes in AI election security, that's why we looked at climate and climate tech and climate security, with Hampton, the crossroads. To me, we also have to look backwards and be like, we still haven't learned the lessons of things that already took place. Wouldn't be super valuable not to make the mistake again.

Ian Curtiss:

I mean, the basic thing that I say in the foreign policy article is, look, there's an entire national ecosystem that supports an industry, and people forget that. Tesla started at the Roadster and everybody thought it was a joke, and it was like the cute thing that whatever tech billionaires drove. And Tesla was able to make it seen because it's a niche product, right? It is not the average product in America. So, when you actually talk about the American automotive industry, it's not very useful to talk about Tesla because it is the outlier. You read the news about we need to get control of critical minerals and so forth to support battery production and so forth. Timelines are real. There's a trade-off. You want critical minerals? Let's talk about environment. Let's talk about how long it takes to build a mine. Let's talk about where that mines going to go. NIMBYism is real, right? That's why, proposed in the article is like, let's just go where we know we can have a chance of winning, which is the next big thing.

Danny Crichton:

Well, and then, I think on that final note, I mean, the next big thing, what are you working on in terms of the next risk gaming scenario?

Ian Curtiss:

Yeah. So, the next thing, really excited about this is looking at onshoring in the semiconductor world and nearshoring, and what does that actually look like on the ground, and what are some of the complications that come into play? And so, as we look at all these huge investments that have been coming into the US in the semiconductor world, it's largely in the Sun Belt regions, or at least just consistently regions that are under pressure in terms of water availabilities or water infrastructure. When a new plant wants to come in down the road, in the near future, in one of these water pressured regions, how do the local politics play out when its local interests playing on equal level as global geopolitical interests? So, I'm building out a scenario that wrestles with that.

Danny Crichton:

Thank you all for joining us.

Laurence Pevsner:

Thank you, Danny.

Ian Curtiss:

Absolutely.

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