TRUE OR FLASE

Autonomous vehicles are capable of sensing their environment and moving safely with little or no human input. Autonomous vehicles are also called 'self-driving' or 'driverless'. Autonomous vehicles are expected to be permitted by the regulators over the next several years. As with electric vehicles, every automobile company will need to sell autonomous vehicles within a decade. The investment required to develop autonomous vehicle technology is extremely large. The go-it-alone strategy for an automobile company is very challenging. Many automobile companies have begun collaborative efforts with others automobile companies. Many automobile companies are licensing technology from major tech companies who have developed autonomous technology. The automobile companies that are currently leaders in this initiative are: GM (Cruise) Ford/Volkswagen (Argo Al) Tesla (Autopilot) Audi (AID) The tech companies that are investing in autonomous technology to license to automobile companies are: Google (Waymo) Uber (ATG) Intel (Mobileye) Amazon (Aurora) Apple (Titan) Aptiv/Lyft Tencent (leading Chinese internet, gaming, Al company) Alibaba (China's Amazon) Baidu (China's Google) There is already a lot of competition in the autonomous vehicle/Taas markets and this competition is only expected to increase over time. While one could theoretically include an internal combustion engine in a autonomous fleet, this will not happen given the pace at which electric vehicles are capturing the market. Were autonomous vehicles to simply replace legacy automobiles on a one-for-one basis, you would not consider them to represent a disruption. However, the fact that the passenger(s) in an autonomous vehicle is not the driver and therefore does not need to be the owner of a automobile will result in a dramatic shift in the driving paradigm. For many markets (primarily urban but also impacting suburban markets) automobiles will not be owned by its 'driver' but will be made available as a fleet of shared automobiles. This would be similar to rental automobiles, however, for much shorter periods of usage. When a passenger needs transportation they will simply call for a ride and a driverless automobile will pick them up. You will not have to park your automobile - door to door service. This concept is often called 'transportation as a service' (TaaS) because transportation will not be physical automobile sold to and permanently owned by the rider but rather will be provided as a service on a per ride basis. This would be equivalent to a taxi or ride-hailing company (e.g., Uber, Lyft), but without a driver (one of the reasons that Uber and Lyft are competing in autonomous vehicles). Will Transportation as a Service (Taas) be a disruption? Test each of the criteria of a disruption Displaces incumbents Typically led by new entrants Attracts new consumers, in market segments underserved by incumbents or by opening new markets Often enters at the low-end of the market with low price points Introduces a new offering and/or new business model that makes solutions more accessible (more convenient, more affordable) Not simply a new technology that makes existing products better A process, not a product Raises the value of the entire business ecosystem as the innovation penetrates the market Not a guarantor of success for the 'disruptor'895 396 Required Homework Questions 397 398 Tesla's marketing and distribution advantage will protect it from new entrants in the electric vehicle market. 399 Tesla will benefit from Taas as it will expand the automobile market. 400 Tesla has had a virtual monopoly at the high end of the electric vehicle market, enjoying premium pricing and low marketing expenses. 401 On a per automobile sold basis, Tesla is attractively valued relative to Toyota 402 With higher automobile utilization and longer lives, U.S. sales of new automobiles will increase slowly. 403 The shift to fleet purchases of automobiles will undermine Tesla's current competitive advantage of its direct (rather than through dealer) distribution. 404 The 10-times increase in vehicle utilization will result in the number of registered automobiles decreasing from 250 to 50 million. 405 The electric car does not represent a disruption while transportation as a Service (Taas) is a disruption. 406 The majority of today's automobile assembly capacity will be excessed potentially resulting in marginal pricing. 407 408 109 $10 411 412 413The US Census provides data on the number of families in the U.S. with children under 18. We can use this data alongside the data above to forecast the target market size. Note: The census data finds each family with children has roughly 2 children, which is the higher cost for babysitting services. Because the rate of decline is increasing, we will forecast using this trend and apply the recent 3 year CAGR to our forecast. As a reminder a CAGR is a compound annual growth rate that shows the annual rate of return from the beginning to the end balance. When we look at the 3 CAGRs, we see this data demonstrates the number of families with children has been decelerating modestly. CAGRs 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 16 - 19 14 - 19 10 - 19 I amilies with Children 35,365 35,218 35,060 34,989 35,058 34,955 34,979 34,769 34,292 34,452 33,942 0.8% 0.6% -0.4% hildren per Family 1.86 1.88 1.87 1.88 1.88 1.90 1.86 1.89 1.90 1.90 1.93 0.7% 0.3% 0.4% urce: US Census rom the analysis above, we can formulate assumptions that will generate the data for our forecast. XHIBIT: INPUT DATA FOR YOUR FOREC 2019 2020 2021E 2022E 2023E 2024E 2025E verage Hours per Session 1.00 4.00 4.25 4.75 5.50 6.00 6.25 ar /Year Increase in Session Hours 0.00 0.00 0.25 0.50 0.75 0.50 0.25 usage rate increases as price falls amilies with Children 33,942 33,671 33,402 33,135 32,870 32,607 32,347 population you are targeting = fundamental driver or independent variable ar / Year Growth Rate in Families with Children -0.8% 0.8% -0.8% -0.8% 0.8% -0.8% verage Price per Hour $19.26 $19.00 $17.33 $10.40 $8.11 $6.33 $5.06 pricing falls as demand soars ar / Year Growth Rate in Pricing 0.0% -8.8% -40.0% -22.0% -22.0% 20.0% at launch, novelty raises price; as demand soars, pricing falls to capture a larger share of the market Innual Babysitting Sessions Per Family 40.2 40.2 99 bysitting Sessions Per Week 0.77 0.77 1.00 2.00 3.25 4.50 5.00 usage rate rises as pricing falls = elasticity of demand 00 1 sing the available data above, forecast the target market size. 02 ints: 03 Many of the consumption statistics for babysitting above are expressed per session, per hour or per week. Below, all the data must be expressed as an Annual total. 6 XHIBIT: ANNUAL FORECAST OF US BABYSITTING MARKET 2019 2020E 2021E 2022E 2023E 2024E 2025E 08 abysitting Sessions 09 10 abysitting Hours demand for babysitting in a saleable unit 1 nplied Annual Hours per Family 2000 hours is a full time employee so this approaches a full time employee S Babysitting Market (Revenues $) demand for babysitting in dollars 14 nplied Babysitting Cost / Family / Year so sol sol sol so so so In 2010 And/ of fami EXHIBIT NewCos CASE GOOGL EXCEL Graphing DATA ANALYSIS Automobiles DATA Automobiles CASE TSLA A CASE Robots A SUMMARY +US Babysitting Market (Revenues $) demand for babysitting in dollars Implied Babysitting Cost / Family / Year so SO $0 $0 $0 So SO In 2019, 40% of families spent more than $1,000 per year Year/Year Growth in Babysitting Market Implications for the worldwide market opportunity: The US represents just 4% of the worldwide population, very good news. The US has a relatively low population growth rate. Combined, this would suggest a quite sizable worldwide market opportunity. However, a global forecast would have to take into account the income per capita in the rest of the world (far lower than the US) and how that might impact demand and pricing for babysitting. Financial analysts always look for a way to analyze the market a second way, to verify the reasonableness of the results. Therefore we will evaluate what these numbers mean for the market share of robot-based babysitting and, if unreasonable, the forecast appears unlikely. Assuming the market for people-based babysitting continues to be priced at $19.26 per hour, the average price of $5.06 by 2025E implies a market penetration rate for robots. If we assume Robot-based babysitting falls to $2.50 per hour, we can use our weighted averages to solve for market penetration. This implies robot based babysitters get 88% market share in 5 years time, in good part because it is so darn inexpensive. (Fun Extra: Take a look at our formula in cell F136 which uses algebra to solve for the market percentage based on the weighted average formula.) Therefore, we find market penetration of robot-based babysitting reaches 85% by 2025E. EXHIBIT: SOLVING FOR MARKET PENETRATION USING THE WEIGHTED AVERAGE PRICE FOR 2025E Weighted People Based Robot Based Average Price per Hour $19.26 $2.50 $5.06 Percent of Market 15% 85% 100.0% Contribution to Weighted Average $2.94 $2.12 $5.06 What is the demand curve for robot-based babysitting? Apply judgement to forecast the S-curve of Demand for the Walking Talking Robot Hint: Robot market share will reach 85% by 20205E. 2019 2020E 2021E 2022E 2023E 2024E 2025E Babysitting Market So so So SO so So Year/Year Growth Apple Robot Share 1% 85% Robot Babysitting Sales so So $0 SO Walking Talking Robot SalesThis analysis is our forecast for market penetration of robot-based babysitting by year. 2019 2020E 2021E 2022E 2023E 2024E 2025E Price per Hour People-based Babysitting $19.26 $19.26 $19.26 $19.26 $19.26 $19.26 $19.26 Price per Hour Robot-based Babysitting na $15.00 $10.00 $5.00 $4.0 $3.00 $2.50 Implied Market Share of Robot-based Babysitting 6.1% 21% 62% 73% 80% 85% What does this forecast say about Robot-based babysitting market? It has surged very fast, a 'Big Bang' Disruption as described by Accenture in the 'INTRO Disruptions' Sheet. Pricing was very aggressive and captured significant market share very quickly with the market reaching saturation in about 5 years. 6 Given the success it enjoyed with the Walking Talking Robot, Apple decides to pursue an adjacent market opportunity in tutoring The Tutoring market is a large, very lucrative market in the billions of dollars. Let's assume Apple pursues the domestic online tutoring market before going after the broader tutoring market. Step 1. Use the Year/Year growth rate to forecast the US Online Tutoring market. Step 2: Predict the market penetration for the Robot in 2023E and 2024E. We have already given you the 0% starting point in 2022E and the fabulous 40% share by 20125E. Step 3: Examine the change in the S-curve CAGRS 2015 2016 2017 2018 2019 20208 2021E 2022E 2023 2024E 2025E 16 - 19 14 - 19 10 - 19 ($ Millions) 6% 7% 7% US Online Tutoring $468,200,000 $506,500,000 $545,200,000 $583,200,000 $608,100,000 $633,300,000 Year/Year Growth 7% 8% 8% 7% 4% 4% 4% 4% 3% 3% 2% Walking Talking Robot Share 0% 0% 0% 0% 0% 0% 0% 0% 10% Robot Tutoring SO so so so SO so SO SO Source: IBIS World Let's see how your forecast impacts the S-curve demand graph. This is comparable with the overlapping S-curves displayed earlier. Essentially, Apple is launching a new high growth market before its first market peaks so as to sustain growth. Walking Talking Robot Sales 0.9 0.8 07