what will the economy and the world in general look like in the future when we have thousands, millions, even billions of humanoid robots? Elon Musk, during Tesla's first quarter earnings call, said, If you've got a sentient humanoid robot that is able to navigate reality and do tasks at request, there is no meaningful limit to the size of the economy. Now, this is all from a new report from Arc Invest titled How Arc is Thinking About Humanoid Robots, and it is a fascinating report about what the future might look like when humanoid robots proliferate into every aspect of our lives. So, that's what we're going to be going over today. We're going to review this research report, and we're going to see what the future looks like when humanoid robots are everywhere. This video is brought to you by Vulture, the easiest way to deploy your generative AI applications. Go to getvulture.com/Burman and use the code Burman300 for $300 of credit right now. I'll drop links

in the description below. So, if you're not familiar with Arc Invest, it is an investment firm founded by Kathy Wood. And really, what they're known for is being hyper-futuristic in their investments, investing in technologies that might not come to fruition for many years down the line. They're huge investors and fans of Elon Musk and Tesla, and many other science and tech companies. Now, one thing that is unique about Arc Invest is they have an open research strategy, which means everything that they research, they publish. And that is why we are able to read this really great report. Here are some of the categories that they have actively managed: disruptive innovation, autonomous tech, robots, genomic revolution, next-gen internet, fintech innovations, and space exploration. They hold a lot of digital assets. They are just very much forward-thinking. So, let's dive into the report. So, back to the quote from Elon Musk. The point is Musk was sharing a vision that we believe is turbocharging the robotics industry, creating new robotics companies, and increasing venture investments focused on its promise. Now we already

know Tesla has their own humanoid robot in the works called Optimus. We know about the figure robot. We know there's a number of Chinese companies that are creating robots. Also, of course, Boston Dynamics, kind of the original robotics company, has a beautiful robot that just got a redesign earlier this year. Now, according to the report, even before humanoid robots can accomplish everything that humans can, they think that if they're just able to operate at scale, they can generate $24 trillion in revenue, split roughly equally between household and manufacturing robotics. So, that means household, helping you around the house, cleaning up, doing dishes, maybe security robots even, and then manufacturing. So, in factories, building things, basically taking over dangerous human jobs. So, here's how they figured out what the household robot market looks like: 2.3 hours of unpaid work per day, that's humans, times 2.8 billion working-age population, $1,075 weighted average hourly wage, half value attributed to free time versus paytime is $12.5 trillion opportunity. Manufacturing robots, we have the

productivity uplift scale here, and we have the take rate here. And then we can see this is kind of the middle ground where they think we're going to land, 12 plus trillion. So, according to the article, there are 12 million people in the US manufacturing sector right now. They work 23 billion hours per year and 785 billion in pay to produce output worth 2.4 trillion. These are huge numbers that we're working with here. In the unlikely event that it were to substitute robots for all human workers and put them to work for 16 hours per day, the manufacturing sector would need only 5.9 million robots, half the number of human workers employed today, to deliver the same level of manufacturing output. So, here is the breakdown: humans 40 hours per week, theoretical humanoid robots working 80 hours per week. I guess that sounds right because you need maintenance time and charging time for these robots. But if they're plugged in, if they have cords, then maybe you don't even need to charge them and you can get

more hours per robot, 50 weeks per year for both humans and robots, 2,000 annual hours versus 4,000 annual hours for robots, and 11.7 million human manufacturing employees versus 5.9 million humanoid robot manufacturing employees. So, we have a total amount of hours which is exactly the same. The payroll is about half, and the total output is the same. So, basically, we're paying half as much for humanoid robots, but we're getting the same output. In a more likely scenario, humanoid robots will debut at higher price points and be much less capable than their human counterparts. According to our research, humanoid robots will become more economically viable than human employees at tipping points in their Net Present Value that balance the cost of humanoid robots against the productivity gains they will enable, as shown below. At a cost of $116,000. Now, I've heard a lot of price points thrown out there for different humanoid robots, anywhere from the lower to mid-five-fig range. So, $116,000 is kind

of on the lower end of that. That is the price of an economy car, but at that price, humanoid robots would have to deliver a little more than a 5% gain in productivity relative to their human counterparts to become economically viable. For context, Musk has suggested that complexity per unit mass is much higher with humanoid robots, but still, I think it ends up costing less than half a car. So, here is a nice graph for the humanoid robot cost, and as we can see, as the price increases, we need a much bigger productivity uplift to have a return on investment. But still, I mean, even at $440,000, what we're seeing here, we need a 15% uplift in productivity, and that seems easily accomplished. As we put the Tipping Point model into real-world context, two variables in manufacturing are important to consider: company size and labor share, the share of revenue going to compensate labor. Labor then goes on to explain why company size is actually really important as a context for humanoid labor. Unlike in small firms where employees are likely

to wear more than one hat. Large manufacturing firms are organized by specialized and automated tasks. Now, this is really important. This is analogous to startups. When you work at a startup, when you work at a small company, let's say less than 50 people, everybody does whatever it takes to win. They're all wearing multiple hats, from building tables to writing code to answering support emails. Now, at larger companies, because you kind of have to as you get larger, roles become more specialized and more verticalized, and that is what they're comparing here. As a result, over time, their productivity has been more than twice as high as the smallest firms. Specialization and automation give large firms the wherewithal to scale significantly and, in turn, lower labor costs as a share of revenue. Large companies typically pay higher wages than small firms because automating specific tasks typically boosts the productivity in large firms more than in small firms, as illustrated in the two charts below. So, let's look at the small firm right here. We have revenue of $1,000, 40% labor share of

Revenue: $200 per employee because, as we can see here, each person is doing a bunch of different jobs. So, $200 per employee times 25% is a $50 benefit, and that is showing the improvement with humanoid replacement. Then, let's say we have a revenue of $5,000, the larger company, 20% labor share of Revenue because that's what happens when you grow. $250 per employee, each one of them, as we're seeing here, is doing a specific role. So, we have $250 per employee times a 50% increase in productivity is a $125 benefit. So, that is very telling right there that the size of the company is actually really important to the productivity gain from the humanoid robot. And as we can see here, a chart just showing as the employee base grows, the total number of employees, so does the annual payroll per employee, exactly what we just talked about. And why is that the case? Well, it says so right here because generalized automation solutions, those for multiple tasks, have not evolved as quickly as automation.

solutions for specific tasks. Small firms typically have a disproportionate number of automatable but not yet automated tasks that would benefit from generalizable solutions like humanoid robots. And it's the same thing we're seeing with software-based AI. The generalized model that can just accomplish everything, AKA AGI, is not quite here yet, but we have models that are specialized that can vastly outperform human counterparts. That is exactly what we're talking about with humanoid robots. Here's a chart that shows the labor share of revenue by firm size. Basically, the larger the firm, the less percentage of total revenue that goes towards compensating the workers. That is essentially what all of this means. And because of that, thanks to their more specialized employment positions, large manufacturers typically benefit more than small companies from single-task automation solutions and enjoy lower labor costs relative to revenues, as shown below. With less job specialization, small manufacturers are burdened with higher labor costs and therefore are likely to benefit disproportionately from more generalizable humanoid robotic solutions.

and so on the flip side, the smaller you are as a company, the more of your revenue goes towards compensating employees. Thus, if you're able to have a generalized humanoid robot taking over a lot of the roles, then you're actually going to get a disproportionate gain versus a much larger company. According to their research, 40% of US manufacturing employees work in small firms. In the illustration below, small firms employ fewer than 500 people. So here we are, we're seeing the vast majority in the US are small businesses, and that's what we've always known. Politicians talk about boosting small business, small business being the lifeblood of our economy, and definitely agree. Now let's talk about some potential tailwinds for humanoid robots, meaning what is pushing this trend along more quickly. In the aftermath of COVID-related supply chain shocks, onshoring, and labor shortages could provide meaningful tailwinds for humanoid robots. Basically, all of the issues that we had coming out of COVID, the shutdown of manufacturing, and onshoring, and all of

that basically makes humanoid robots that much more valuable, lowering management sensitivity to their price and thereby accelerating the transformation of manufacturing. So, what I believe they're saying is management realized how at risk their business is to big world-changing issues like COVID. And if you can't actually have humans in the factory, your entire business shuts down. And of course, with humanoid robots, that is not a thing. So, that's it. That's the report. At the beginning of this year, one of my predictions was that 2024 was going to be the year of humanoid robots. And it seems like we are well on that path, three-fourths of the way through the year now. We have new robots coming from a number of different robotics companies. In my opinion, there are really three in the US that are dominant right now. There's Tesla with the Optimus robot, there's the Figure 2 robot, and Boston Dynamics humanoid robot. All three of those companies are making incredible progress. I will keep covering them 'cause this is a fascinating mix of hardware and AI software, and I love talking about

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