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ARK Disrupt Issue 133: AR, Cryptoassets, EVs, Drones, & Balloons

Please enjoy ARK Disrupt Issue 133. 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. Magic Leap’s Augmented Reality Headset is Set for Summer Release

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After years of hype and capital raises totaling more than $2 billion from investors such as GoogleGOOG, AlibabaBABA, and A16Z, Magic Leap announced that its much-anticipated augmented reality (AR) headset will ship this summer.

Magic Leap uses a form of AR that projects light directly into the user’s eye, making it possible to overlay digital information on top of the existing world. As a result, it opens AR up to a wide range of applications, such as gaming, design, and education.

Magic Leap’s livestream demo was much less impressive than earlier product concept demos, not surprising as AR technology is nascent. We believe its performance and price are unlikely to capture the consumer’s imagination or wallet for years.

Letting others ship first while it iterates behind closed doors, Apple also is working on an AR headset. It is unlikely to release it until silicon and display technologies catch up to AR’s demands during the next few years.

2. Litecoin Foundation Acquires a 9.9% stake in Germany’s WEG Bank

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In a new strategic partnership with TokenPay, Litecoin Foundation has acquired a 9.9 percent stake in Germany’s WEG Bank. In what started as a friendly Twitter exchange between Litecoin creator Charlie Lee and TokenPay CEO Derek Capo, the two entities agreed to a deal that will grant Litecoin an equity stake in WEG bank in exchange for marketing and technology services for TokenPay.

Litecoin Foundation believes that banking partnerships will help legitimize blockchain networks. Working with a bank should circumvent the problems that cryptoasset-related projects and companies have had in attaining banking accounts.

From WEG’s perspective, this partnership could give TokenPay access not only to Litecoin’s users but also to its technical expertise. In a recent interview, Charlie Lee highlighted that Litecoin could integrate TokenPay with the Lightning Network and help it develop its decentralized exchange.

As ARK has pointed out, WEG Bank’s decision to sell equity to a crypto-related company could “arrest the downward spiral of German bank stocks. During tough times consumers and businesses are willing to think about doing things differently.” Providing consumers and merchants with an on-ramp for both fiat and cryptocurrencies, WEG could point the way for other German banks to transform their businesses.

3. German Companies and Tesla Look to China, the World’s Largest EV Market 

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China is the biggest EV market in the world, as shown below. ARK’s research suggests that EV sales will be 17 million units globally, roughly 20% of the auto market, in 2022. Not surprisingly, this past week many companies, most from Germany, struck partnerships, signed contracts, and positioned themselves to take part in China’s EV market.

  • BMW and its JV partner, Brilliance Automotive Group, agreed to expand production capacity to 520,000 vehicles in 2019. BMW also agreed to source $4.7 billion worth of battery cells from Chinese battery maker CATL.
  • Daimler and Tsinghua University signed an agreement to extend their cooperation on sustainable transportation research.
  • Bosch and the Chinese startup NIO agreed to work together on sensor technology, autonomous driving, and electric motor controls.
  • VW announced plans to bring its Spanish “SEAT” brand to China in 2020 as part of an agreement with JAC to develop EVs.
  • Tesla struck an agreement for a new factory in China which will produce its first cars in two years.
  • In the other direction, Chinese EV startup Byton announced its intention to enter the US market, potentially producing locally, in 2020.

Interesting to note, Panasonic has stated that it is open to working with Tesla on the new factory in China. ARK would be surprised if TeslaTSLA chooses Panasonic over a local Chinese partner, particularly if it bases a decision to raise more capital on the enormous potential for EVs in China and even more so if Tencent is willing to increase its 5% ownership position in TSLA. ARK believes that Tesla should raise capital to expand in China as our research suggests that it will be the largest market for mobility-as-a-service (MaaS). The odds are high, however, that it will need a strong local partner in order to cement its position with the government.

4. Alphabet is More Comfortable with its Bets on Drones and Balloons 

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Alphabet graduated two of its X-division “moonshots”, Project Wing, its drone delivery effort, and Project Loon, its balloon venture to deliver internet to the masses, into standalone businesses this week. Clearly, it now is confident in the commercial viability of these two businesses. For perspective, AlphabetGOOGL graduated Waymo, its autonomous car effort, from X in 2016, and Waymo plans to start commercial operations later this year.

Drones should be able to deliver goods profitably to consumers for 10% of traditional costs today, or $1 for a five pound package over 15 miles, once regulators permit them to do so.  In addition to Alphabet’s efforts, AmazonAMZN is focused on Prime Air, but both have been hampered by the FAA’s slow-moving regulatory process which has prohibited testing in the US for quite some time. Interestingly, recently the FAA offered support for drone testing which included Alphabet’s Project Wing but excluded Amazon. Project Wing also has been conducting tests in Australia, which has more lenient policies than the US. Perhaps the country with the most advanced drone testing efforts is China, where is delivering packages to 100 villages using a system of 40 drones.

ARK previously estimated that Project Loon would be a cost effective way to deliver internet access via balloons for as little as $4 per month per user, and that internet access via drones would be less competitive. Alphabet’s Loon graduation coincided with Facebook’s announcement that it is discontinuing Aquila, its internet drone project, vindicating our analysis. Alphabet could dominate balloon internet access given the absence of any other serious competitors. Stay tuned to ARK’s research as we size the market potential for Project Loon.

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.