Please enjoy ARK Disrupt Issue 123. 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. The Drama on Tesla’s Earnings Call Obfuscated Big News on Its Battery Breakthroughs
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On Tesla’sTSLA first quarter earnings call, Elon Musk cut off two analysts who were asking “boring, bonehead questions,” and shifted the interview to a retail investor on YouTubeGOOG who, thankfully, introduced a much more productive line of questioning. While the drama captured headlines, ARK Invest spotted news in Tesla’s earning release which seemed much more important: “The cobalt content of our Nickel-Cobalt-Aluminum [NCA] cathode chemistry is already lower than next-generation cathodes that will be made by other cell producers with a Nickel-Manganese-Cobalt ratio of 8:1:1 [NMC 811].”
As illustrated by the battery chemistry chart below, the NCA 18650 battery captures the cobalt content in Tesla Model S and X battery cells and the NMC 811 that of the Model 3. Interesting to note from a competitive point of view, equipped with a NMC 111 battery today, the BMW i3 is not scheduled to shift to a NMC 622 battery until 2021 and a NMC 811 battery until 2025.Other players have more aggressive timelines that are several years away.
Apparently, Tesla has solved the biggest challenge associated with NMC 811 chemistry, thermal stability at lower levels of cobalt and higher nickel content, giving it a structural cost advantage. At a spot price over $90,000 per metric ton, the raw cost of cobalt is roughly $35/kWh for an NMC 111 battery, the efficiency of which could be meaningful if, as ARK forecasts, Tesla’s battery cell costs will be at or below $100/kWh by 2020.
2. China Plans to Invest $47 Billion in the Semiconductor Industry
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China plans to invest $47 billion in its domestic semiconductor industry to enable disruptive technologies like artificial intelligence (AI) and autonomous driving. Focused on chip manufacturing and design, this state backed fund adds to a $22 billion fund raised in 2014.
Chip manufacturing requires large capital outlays and deep materials science expertise, creating formidable barriers to entry. Because a state-of-the-art chip fab costs billions of dollars, only three companies in the world –IntelINTC, Taiwan SemiconductorTSM, and SamsungSSNLF – can manufacture chips using the latest 7-10 nanometer (nm) process.
That said, Moore’s Law is slowing down, so semiconductor companies are manufacturing more chips using older processes, giving China a chance to catch up. Taiwan’s TSMC, for example, plans to open a 16nm fab in Nanjing this June, catapulting China’s chip manufacturing to a generation just short of the latest process.
Chip design demands software expertise. Startups in China seem to be making good progress in this arena: with just $100 million in funding, Cambricon has designed a number chips aimed at accelerating artificial intelligence applications. Last week, it unveiled two new AI chips that offer higher performance, at least on paper, than counterparts from NvidiaNVDA and GoogleGOOG. Real world performance and software support likely will tell a different story.
While China probably will find success in the manufacturing of more commoditized semiconductors, if history is any guide, it will find competing on the world stage to prove much more challenging.
3. Real Estate Technology Creates New Buzzwords and, Potentially, Frictionless Transfers
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While ZillowZG, RedfinRDFN, and LendingTreeTREE introduced online to real estate transactions, MReport describes other concepts like “broker-tech,” “agent-tech,” “rental-tech,” and “eClosing” that could prove more transformational. According to MReport, eClosing is the “name given to the elimination of paper from the real estate and mortgage closing through the use of technology.” Remote online notarization, for example, should enable housing transactions to take place in digital settings, perhaps after virtual reality home or apartment tours.
Any company able to verify identities with digital signatures should be able to benefit from this new paradigm. AppleAAPL, for example, seems well placed with the biometric technology in its Apple Pay system, as do other companies and projects in the evolving cryptoasset arena.
The housing market also could benefit if the friction associated home transfers were to diminish. If housing transactions were to become faster and cheaper, the market would become more liquid and efficient.
4. Project Recode Could Create Virus Resistant Cells
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Scientists responsible for the Human Genome Project and the sequencing of the first full human genome convened again this week to discuss progress on their next project, Human Genome Project-Write (HGP-write). Established in 2016 to synthesize a human genome de novo, HGP-write announced its first tangible milestone with “Project Recode,” which aims to recode the human genome to create cells that are resistant to all viruses.
Recoding the human genome will be no simple feat, as Harvard’s George Church estimates that it will take up to 400,000 edits and 10 years to recode a virus-resistant cell. Our 3.2 billion base pairs of DNA are comprised of four nucleotides, represented by the letters ATGC, and read in sequences of three known as codons. Scientists are hypothesizing that if we remove all redundant code such that one codon expresses a unique amino acid, then viral invaders will be unable to hack into the human genome with viral proteins.
While scientists have been successful at recoding a bacterial genome, virus-resistant human cells represent an order of magnitude of complexity, with major ramifications for research and development during the next five to ten years.
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