ARK Disrupt Issue 121: AI Chips, Payments, Autos, & Cells

Please enjoy ARK Disrupt Issue 121. 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. Facebook Wants to Build Its Own Chips for Artificial Intelligence 

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Following Google’sGOOG  strategy, FacebookFB wants to design its own chips for artificial intelligence (AI) applications. Facebook always has focused on building its own hardware, whether phones, cameras, and virtual reality (VR) headsets in the consumer space or custom servers in the data center. With the decision to build its own AI chips, Facebook could be aiming not only to improve Oculus’s computer vision capabilities but also to speed up its data center operations.

Facebook is joining nearly 20 other companies that are designing chips for deep learning applications, as shown below. Facebook’s strategy mirrors that of Google, AppleAAPL, and TeslaTSLA, which are designing chips in-house to increase control and ensure differentiation. If in-sourcing becomes the norm, chip suppliers like IntelINTC  and NvidiaNVDA will suffer, while foundries will gain more customers. In fact, almost every company in the list above is or likely will become a customer of Taiwan’s TSMC, the largest foundry in the world.

ARK Disrupt Issue 121 Graphic 1

2. GM Has Rolled Out a Payment Function for Buying Gas in Partnership with Shell  

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Payment platforms are evolving from credit cards to mobile devices and, now, auto dashboards.  Soon, Chevy drivers will be able to pay for gas at Shell stations with a Shell icon on their dashboard, part of General Motors’GM (GM’s) Marketplace, a “commerce platform for on-demand reservations and purchases of goods and services.”

In-dashboard payment platforms could become a source of advertising and lead generation revenues, as automakers direct customers to gas or electric charging stations, drive-through restaurants, and other businesses. According to GM, “Marketplace is designed to be used while driving. It leverages machine learning from real-time interaction data, such as location, time of day and a driver’s established digital relationships with third-party merchants, to offer highly personalized experiences.”

So, why not use a smartphone to find these services while in a car? The answer probably resides in the user interface and customer experience. Customers typically default to frictionless solutions, which car dashboards could serve as the point-of-payment.

3. Insurance Data Suggests That Tesla’s Vehicles Are Some of the Safest on the Road 

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Following the recent fatal crash, Tesla’sTSLA cars have faced increased scrutiny of their safety. Interestingly, data suggests that the Tesla Model S is one of the safest cars on the road for passengers and drivers in the unfortunate event of a crash.

ARK examined insurance losses for three different coverage types to understand how the Tesla Model S has performed relative to other vehicles involved in accidents. The three coverage types are:

  1. Collision, which insures against physical damage to the vehicle at fault in an accident;
  2. Property Damage, which insures against physical damage to other vehicles and property involved in a crash; and
  3. Personal Injury, which insures against all injuries regardless of which vehicle is at fault in a collision.

At first glance the Tesla Model S’s collision insurance losses are disproportionately high, perhaps because aluminum is more expensive to repair than steel. At the same time, the Model S is roughly average for insurance losses associated with property damage, probably because a higher percentage of its accidents involve one car instead of multiple cars. Perhaps drivers aiming to gun their Tesla S cars into “ludicrous mode” are more aggressive than others, or perhaps the Autopilot is better at identifying vehicles as opposed to other objects that are in harm’s way.

The most important take-away from ARK’s research is that the Model S has one of the lowest personal injury losses among vehicles // Tweet it, despite its high collision losses and average property damage losses. The chart below shows collision and insurance losses by make and model, with 100 representing the average loss for a given insurance coverage type. While the two Tesla Model S models shown in orange suffer more than three times the average collision loss, their personal injury losses are roughly 50% lower than average. While not a source of collision insurance cost savings, the Tesla Model S should save lives.

4. China’s New Auto Ownership Rules Will Benefit Tesla Uniquely 

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Last week, China announced that it will end the 50:50 rule which has limited foreign automakers to a 50% ownership position of joint ventures with Chinese partners. Effective this year for electric vehicles (EVs), the new law will allow foreign automakers to own 100% of Chinese companies. Without a manufacturing presence in China, Tesla should be a prime beneficiary of this change, while other US automakers with local Chinese partners probably will be subject to contracts that span decades.

Among the possible explanations for China’s decision to make this change are its willingness to negotiate now that the US is hyper-focused on trade imbalances, increased confidence in its competitive position now that the internal combustion engine which dominates the developed world is giving way to battery technology, and Tencent’sTCEHY ownership position in TeslaTSLA. Another explanation could be Tesla’s willingness to sign a potential supply relationship with CATL, a Chinese battery manufacturer that has become a government favorite. While beneficial to Tesla as a second source of battery cells, CATL could become a threat to Tesla’s current partner, PanasonicPCRFY.

Clearly, Tesla needs to perfect its manufacturing processes in the US before it can focus on a major ramp in China. That said, China probably senses that Tesla is on to something big, especially for China.

5. A Human Cell Atlas Could Redefine Disease Diagnosis and Treatment 

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What makes a cell tick? Cells are the fundamental unit of life; yet, we know little about them. A skin cell neither looks nor functions like a blood cell, but each contains the same sequence of 3.2 billion base pairs of DNA.

Founded in October 2016 and consulting 480 biologists as well as technology and math experts, the Human Cell Atlas Project (HCAP) is going back to basics. Its goal is to catalogue all 37.2 trillion cells in the human body by sequencing at least 10 billion cells in tissues, organs, and systems.

This week, HCAP released its first major sequencing data cataloging 500,000 immune cells derived from human cord blood and bone marrow. This study is orders of magnitude larger than the previous ones of 2,000 and 6,500 cell sequence data, respectively.

Thanks to single-cell sequencing techniques, the HCAP has three key goals in mind:

  1. Create a 3D map of the different cell types in the body.
  2. Identify which genes are active within each cell type.
  3. Discover new tissue types previously overlooked.

If it achieves these goals, the HCAP will have a considerable impact on the diagnosis and treatment of diseases. The instruction code of life, DNA, has myriad interpretations, key to the emerging field known as “Cellular Biology.” Understanding how a cell operates and what causes it to read certain genes and ignore others could help scientists and doctors identify diseases years before they manifest. Understanding cell mutations could help predict drug resistance and influence the course of therapy.

The Human Cell Atlas Project is ambitious. Tools and technology companies focused on single-cell sequencing, 3D biology, consumables, chips, and data analytics should be prime beneficiaries.

The information provided is for informational purposes only. It does not constitute any form of advice or recommendation to buy or sell any securities mentioned. It is intended only to provide observations and views of the author(s) at the time of writing, both of which are subject to change at any time without prior notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on ARK's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance is no guarantee of future results. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. 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.