Manufacturing in the US, Building in Open Source… and more | E2154

Key Concepts

• EV Chassis: The underlying structure of an electric vehicle, including the battery, drivetrain, steering, and brakes, upon which a customized body or application-specific upfit is mounted.
• Medium Duty Commercial Vehicles: A segment of vehicles used for commercial purposes, smaller than heavy-duty trucks but larger than light-duty vehicles, often customized for specific applications like delivery or RVs.
• Price Parity: Achieving a similar price point between electric vehicles and their diesel counterparts, crucial for widespread adoption.
• Battery Module and Pack Manufacturing: The process of assembling individual battery cells into modules and then combining modules into a complete battery pack, often outsourced but done in-house by Harbinger.
• Poverty of the Spirit: A lack of ambition or willingness to innovate and build components in-house, hindering the progress of electrification in the trucking industry.
• Product Analytics: The process of collecting, analyzing, and visualizing data about how users interact with a product or service.
• Open Source: Software with source code that is freely available and can be modified and distributed by anyone.
• Business Autonomy: Automating every process that happens across every major function that relates to a customer.
• Engineering Velocity: The speed at which a software development team can deliver new features and updates.
• Brokerage Infrastructure: The underlying technology and services that enable companies to offer brokerage services to their customers.
• Self-Clearing Broker Dealer: A brokerage firm that handles its own clearing and settlement of trades, rather than outsourcing these functions to a third party.
• Payment for Order Flow (PFOF): Compensation that a brokerage firm receives from market makers for directing customer orders to them for execution.
• DTCC (Depository Trust & Clearing Corporation): A central securities depository and clearinghouse that provides clearing and settlement services for the U.S. financial markets.
• Stablecoins: Cryptocurrencies designed to maintain a stable value relative to a reference asset, such as the U.S. dollar.

Harbinger: EV Chassis for the Medium Duty Commercial Market

Market Opportunity and Strategy

• Harbinger focuses on the medium duty commercial vehicle market, a low-volume, high-mix segment often overlooked by major OEMs due to its smaller scale (approximately 350,000 vehicles per year in the US).
• The company builds electric vehicle stripped chassis, providing the batteries, drivetrain, steering, and brakes, while customers add application-specific upfits (e.g., delivery vehicle bodies, RV bodies).
• This approach aligns with the existing norm in the medium duty segment, where chassis and bodies are typically sourced from different companies.
• Harbinger aims to achieve price parity with diesel vehicles, believing that commercial viability is essential for widespread adoption of EVs.
• John Harris states, "If you don't have revenue, you're not making an impact."

Competitive Advantage: In-House Manufacturing

• Harbinger differentiates itself by building its own battery modules and battery packs in-house, unlike most other EV truck manufacturers that buy components from catalogs.
• This vertical integration allows Harbinger to control costs and compete on price, avoiding the margin stacking that occurs when purchasing components from multiple suppliers.
• Harris explains, "This is the only place in the United States where a truck OEM is building their own battery modules and battery packs."
• The company purchases commodity battery cells and assembles them into complete battery packs on its production line.

"Poverty of the Spirit" and Market Dynamics

• Harbinger believes that a "poverty of the spirit" hinders innovation in the trucking industry, with many companies unwilling to invest in building their own components.
• The medium duty segment is not a priority for major OEMs like GM and Ford, as it represents a small fraction of their overall production volume.
• The market is dominated by Ford, but it's only 0.2% of Ford's production.
• Electrification makes more sense for trucks than passenger cars due to the significant fuel and maintenance cost savings.

Market Size and Margins

• Harbinger had $400 million in binding pre-orders as of May of last year.
• The company's Model S524 (class 5, 158" strip chassis with a 140 kWh battery) has an MSRP of $103,000.
• The medium duty segment offers higher margin potential due to its difficulty of access and smaller size.
• Costs for diesel vehicles in this segment have been rising by approximately 15% per year for the last four years, increasing the attractiveness of EVs.
• Rising input costs, labor costs, and tariffs contribute to the increasing cost of diesel vehicles.

US Manufacturing and Content

• Harbinger's vehicles are 100% US-built and assembled.
• Approximately 50% of the components are US-sourced, which is considered high by EV standards.
• The company aims to reduce Chinese content to between 5% and 10% to mitigate geopolitical risk.
• Building battery packs in-house significantly reduces reliance on Chinese suppliers, as battery packs represent about half the cost of an EV.

Growth and Future Plans

• Harbinger started delivering production units at the beginning of this year and projects revenue in the $100 million ballpark for this year.
• The company plans to expand within the class 4 through 6 segment and add cab chassis to its product line.
• Harbinger is also gaining traction in its components business, supplying battery packs, drive units, and HV systems to other manufacturers.
• The components business is expected to be higher volume but lower margin than the vehicle business.

IRA and Government Policy

• Harbinger offers an IRA risk-free guarantee, ensuring customers will receive the expected tax credits regardless of policy changes.
• The company believes that the IRA credits have not been as significant a tailwind as initially expected.
• Harbinger advocates for more targeted tax credits that incentivize both electrification and US manufacturing.

The Future of American Manufacturing

• American manufacturing is returning, but it is focused on high-value-add activities with low health and safety risks.
• Harbinger focuses on manufacturing battery modules and packs, rather than raw materials like steel.

PostHog: Product Analytics and Business Autonomy

Funding and Background

• PostHog raised $70 million from Stripe at a $920 million valuation.
• The deal originated from a tweet by Patrick Collison, who praised PostHog's website design.
• The company has been very efficient, with an average CAC payback period of two months.

Product and Vision

• PostHog provides customer infrastructure, aiming to ship every single product that relates to customer data.
• The company offers about 14 products, including product analytics, session replay, error tracking, feature flags, experimentation, and a data warehouse.
• PostHog's goal is to provide all these tools in one platform for perfect first-party data and to automate everything using AI.
• The long-term vision is to achieve business autonomy, automating every process that relates to a customer.
• James Hawkins believes it will be possible to build a better product manager than a human product manager with better understanding from just how effective the models now are are really enabling this when you have this wide range of data.

From FinTech to AI-Driven Automation

• James Hawkins' previous experience selling compliance software to large banks led him to believe that enterprise software should be more focused on the end user.
• The company started with product analytics and has expanded to AI-driven business automation.

Open Source and Product Market Fit

• Starting with an open-source posture was critical for gaining early attention and finding product market fit.
• Open source helped PostHog differentiate itself in a competitive market for product analytics.
• The company initially focused on self-hosting to keep data inside customers' infrastructure.
• PostHog iterated its way to a successful strategy by spotting things that were working half-hazardly along the way.

Customer Feedback and Roadmap

• PostHog uses customer and user reactions (e.g., upvotes) to inform its roadmap.
• The company is currently experimenting with building a CRM and support platform, even though it has other features with more user demand.
• PostHog prioritizes being quick to release new products and see what happens.
• The company avoids setting deadlines or offering roadmap dates to customers, focusing on engineering velocity.

Product Breadth and Scalability

• PostHog aims to offer 50+ products, potentially a couple hundred, and believes it is possible to manage this breadth effectively.
• The company hires product engineers who decide what to build, which makes it feel ultra scalable.
• PostHog draws inspiration from AWS and Y Combinator in terms of managing a large number of products or companies.
• AI is expected to accelerate the commoditization of software, making it easier to build and offer a wide range of products.

Competitive Advantage and Market Share

• PostHog has been able to grab market share from incumbent companies by focusing on engineering velocity and doing counterintuitive things.
• The company has been forced into being different to everyone else because the market is so saturated, which has worked out really well.
• PostHog prioritizes going wider rather than upmarket, focusing on smaller customers and a product-led approach.

Pricing and Customer Friendliness

• PostHog offers side hustle insurance and has implemented price cuts, which are counterintuitive but have increased revenue growth.
• The company's core principle is to ensure that it doesn't need to fundraise, which allows it to take a long-term view on decisions.
• Cutting prices increased retention, usage, and growth, offsetting the initial revenue impact.

Key Takeaways

• PostHog's success is attributed to its lack of burn, which provides flexibility, and its multi-product strategy.
• The company found an alternate path by building a successful business off the back of self-hosting and then transitioning to a cloud product.
• PostHog's branding and developer focus have allowed it to gain traction even when its products were not as good as competitors.
• The company invests in long-term marketing efforts, such as a newsletter with 75,000 subscribers, which may not have an immediate impact but will be important in the future.

Alpaca Markets: Brokerage Infrastructure for the Fintech Era

Core Business and Services

• Alpaca is a brokerage infrastructure company and a FINRA/SEC-registered self-clearing broker dealer.
• It provides embedded brokerage products that fintech applications, broker dealers, and banks can use to add investing and wealth services to their end customers.
• Alpaca handles the mid-office, back-office, compliance, and reporting requirements, providing a white-labeled solution through its API.

Revenue Model

• Alpaca's core business is securities clearing and custody.
• The company generates revenue from transactions and interest.
• In the US, Alpaca also receives payment for order flow (PFOF) from market makers for directing customer orders to them.
• Alpaca splits the PFOF revenue with its partner broker dealers.

Self-Clearing Broker Dealer

• Alpaca is now a fully self-clearing broker dealer, which means it handles its own clearing and settlement of trades.
• Trade clearing involves the exchange of securities and cash after a trade is executed.
• Being a self-clearing broker dealer reduces fees and allows for tighter spreads.
• Alpaca is a member of the DTCC (Depository Trust & Clearing Corporation), a central securities depository and clearinghouse.
• Membership requires meeting compliance, risk management, capital, and personnel requirements.

Market Trends and Growth

• Alpaca has been more than doubling revenue in the last several years.
• The company benefits from the maturity of B2C fintech applications, as they add more service verticals.
• Alpaca also benefits from the growth of Robin Hood-like applications outside the US.
• There is strong demand for access to US equities, which represent 65% of the global equity market cap.

Product Expansion

• Alpaca has expanded its product offerings to include options, high-yield savings accounts, ISAs, and fractional shares.
• The company is focused on adding features that support long-term saving and wealth management.

Stablecoins

• Stablecoins are relevant to Alpaca due to their potential to facilitate faster money movements.
• Alpaca is closely following developments in the stablecoin space to determine how to best serve its partners.
• The company has not yet decided whether to build its own stablecoin, but it is considering the possibility.

Navigating Market Cycles

• Alpaca has gone through a period of time in which fintech was out of favor, but it has emerged as a more mature and stable company.
• The company reacted quickly to market changes and focused on becoming more organized and efficient.
• Alpaca's Series C funding and the recent fintech IPOs indicate renewed investor interest in the sector.

M&A and IPO Potential

• Alpaca receives a lot of inquiries and conversations about potential M&A.
• The company is focused on building a strong and independent business, but it is open to exploring opportunities that could accelerate its growth.
• Alpaca is a potential IPO candidate in the back half of 2026 or later.

Key Takeaways

• Alpaca's success is attributed to its focus on providing a comprehensive brokerage infrastructure solution, its self-clearing capabilities, and its ability to adapt to changing market conditions.
• The company is well-positioned to benefit from the continued growth of fintech and the increasing demand for access to US equities.
• Alpaca is exploring opportunities in the stablecoin space and is considering building its own stablecoin.
• The company is a potential IPO candidate in the coming years.