Please enjoy ARK Disrupt Issue 119. This blog series is based on ARK Brainstorming, a weekly discussion between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders, and investors. It is designed to present you with the most recent innovation takeaways and to keep you engaged in an ongoing discussion on investing in disruptive innovation. To read the previous issue, click here.
1. Waze’s Shortcomings Highlight Tesla’s Autopilot Data Advantage
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In Los Angeles, WazeGOOG has been sending unsuspecting drivers up one of the steepest streets in the US, causing accidents and confusion. While choosing the quickest route, the Waze app does not warn about the risk of driving up a 32% grade. Such warnings are not available on any of today’s navigation apps, probably because the mapping companies do not use deep learning and algorithms to assess such variables.
ARK believes that TeslaTSLA may be one of the only firms in the market today able to offer a multidimensional view of navigation. Using its installed base of more than 200,000 vehicles, Tesla regularly collects detailed driving data, including near accidents and driver behavior.
Tesla faced scrutiny this week as we learned that its Autopilot was activated during the fatal Model X crash in California a few weeks ago. Tesla announced that the driver in the fatal accident had his hands off the wheel for 6 seconds.1 before impact, suggesting that it is not liable technically for the crash.
Since the accident, a number of Tesla car owners have recreated the scenario leading up to the crash and found that the Autopilot does tend to steer cars toward the barrier in the highway. Clearly, it will have to send an over-the-air software update to its Autopilot system to guard against this risk in the future, which should give it a competitive advantage relative to most other auto manufacturers that do not have this capability yet.
2. Cobalt and EVs
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In the past year cobalt has appreciated from roughly $55,000 per metric ton to over $91,000 per metric ton. Prices have risen dramatically because of the increasing demand for electric cars and the perception of supply constraints. The largest cobalt mines in the world are in the Congo, accounting for roughly 58% of global cobalt production in 2017, and subjecting the market to significant geopolitical risks.
Since 2001 global cobalt production has increased from nearly 37,000 metric tons to 110,000 metric tons while reserves have remained fairly flat at roughly 7,000,000 metric tons. As shown below, at today’s production levels, the reserves of cobalt would last for 64 years, in line with or better than most other commodities except for lithium. Moreover, higher prices should encourage increased exploration.
Source: ARK Investment Management LLC, 2018; USGS Minerals Information2
Cobalt is a by-product of nickel and copper mining. Consequently, its mining and reserves are tied more closely to the price of those primary metals than to cobalt. Even if the prices of copper and nickel were to disappoint during the next few years, newer batteries are becoming less cobalt dependent. In an upcoming blog ARK will do a deeper dive into the different factors affecting cobalt supply and demand.
3. Apple Wants to Bring All of its Chip Design In-House
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AppleAAPL plans to ditch Intel and use its own chips in Macs starting as early as 2020, according to Bloomberg. Currently, Apple’s product line is bifurcated: iOS products use ARM CPUs3 while Mac products use IntelINTC CPUs. Apple custom designs ARM CPUs for the iPhone and iPad, often leapfrogging its competition. Intel’s CPUs cross PC platforms and cannot be custom designed. By switching to ARM, Apple would gain full control of its Mac platform, just as it has for the iOS platform.
While device makers rarely make their own chips, Apple already is the exception. Its goal is to make highly differentiated products that are easy to use. By designing its own processor, hardware, operating system, software, and services, Apple should be able to make all of its products work together in a way that others can’t.
Intel processors aren’t the only components facing replacement, as Apple also is designing its own GPUs4 and cellular modems. By 2020, Apple devices all could be powered by its own CPUs, GPUs, and modems.
4. China Issues More Fintech Regulations
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Over the past few years, China has enjoyed rapid growth in mobile payments, asset management, and online lending, as shown below. Now, fintech giants like Ant Financial are encroaching upon traditional banks with innovative business models and go-to market strategies. Consequently, Ant’s consumer lending hit a new high of $95 billion in the first quarter and its share of money market funds jumped to 28% through its Yu’e Bao platform.
Source: Financial Times
This week, the PBOC issued new regulations to lower risks to the Chinese economy, including capital outflows and other illegal drainage. The regulations include:
- New ceilings on asset management products.
- No guarantees on the rate of return from asset managers.
- A ban on unlicensed lending.
- No violence, intimidation or insults as micro-lenders seek to collect payments.
- The privacy protection of customer information.
- No online micro-loans unless proceeds are earmarked for a specific purpose
Following these changes in regulations, fintech companies have been moving cautiously by limiting subscriptions and capping the investable amount. While potentially slowing growth in the short term, these regulations should weed out nefarious and unreliable players in the financial services industry, adding confidence and stability to the industry.
5. CRISPR Has Another Bumpy Week, but Research is Pointing the Way Forward
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Last year, a study published in Nature Methods claimed that CRISPR-Cas9 caused thousands of off-target snips in the genome, sending CRISPR-based stocks into somewhat of a tailspin. Less than a year later, the authors from Stanford University retracted their findings, claiming that “the genomic variants observed by the authors in two CRISPR-treated mice cannot be conclusively attributed to CRISPR–Cas9.” The full retraction notice can be found here.
When first released, the study attracted much criticism, primarily because of its flawed design. It included only two mice of questionable genetic lineage and then questioned CRISPR technology’s viability for in vivo therapeutic applications. After the study was published, ARK highlighted the key flaws in the study in its June mARKet update webinar and reiterated our contention that CRISPR will transform health care as we know it today, curing many diseases.
Another study in pre-print this week purported to have found a potential solution for immunities that patients might have to CRISPR-Cas9. The study’s scientists contend that their “results shed light on the T cell mediated immunity towards the much-praised gene scissor SpCas9 and offer a possible solution to overcome the problem of pre-existing immunity.”
- Source: Tesla blog linked in this piece. ↩
- Shedd, Kim B. “Cobalt Statistics and Information.” USGS Minerals Information: Cobalt, 07 Mar. 2018, https://minerals.usgs.gov/minerals/pubs/commodity/cobalt/. ↩
- A CPU, or central processing unit, is the computer component that is responsible for interpreting and executing most of the commands from the computer’s other hardware and software. For more information, click here. ↩
- A GPU is a graphics processing unit used to accelerate computational workloads. For more information, click here. ↩
ARK's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.