ARK Disrupt Issue 97: Electric Vehicles, Artificial Intelligence, Bitcoin, and CRISPR

Please enjoy ARK Disrupt Issue 97. 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. EV News Proliferates

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  • Ford surveyed its employees to learn if they would buy electric vehicles (EVs) if it placed more chargers in its parking lots. In response to the survey, FordF plans to triple its EV charging stations within the next two years, which is somewhat of a disconnect given its lackluster commitment to EV manufacturing. Hopefully, it will take the hint and move more rapidly towards an electric future.
  • Consumer reports named the Bolt EV Chevy’sGM most reliable car, while ranking the hybrid i3 BMW’sBMW3.DE least reliable car. As ARK and others have observed, EVs are more reliable than cars powered by an internal combustion engine, while hybrids, encumbered both by an internal combustion engine and by an electric drivetrain, require much more maintenance and service. ARK believes hybrid sales will fall to zero as electric vehicles gain traction.
  • Traditional auto dealers will face significant headwinds as EVs proliferate. More reliable EVs will challenge their business models which rely on maintenance for nearly 50% of their profits. Perhaps more ominous, over the air updates will obviate the need for service visits, especially as EV manufacturers respond to maintenance alerts even before owners know anything is wrong.
  • This excellent piece explains why Tesla is more vertically integrated than its peers. Not only does vertical integration allow it to iterate faster with new technologies, but it also gives TeslaTSLA leverage over its suppliers. By producing a part first in-house and then outsourcing it to achieve scale, Tesla understands exactly how much it costs and guarantees a reliable second source, itself.

2. AlphaGo Zero is a New Breed of AI That Learns Without Data

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Last year, DeepMind’s AlphaGo defeated the world’s best players at the game Go. This week, the GoogleGOOG subsidiary unveiled an improved version, AlphaGo Zero, that crushes the original program as shown in the chart below. AlphaGo Zero beats AlphaGo nine out of ten times which, given the latter’s 60-0 record against the best human players in the world, is remarkable.

ARK Disrupt Issue 97 Deep Mind GraphSource: DeepMind

Unlike its predecessors, AlphaGo Zero learned to play Go without help from any human examples. AlphaGo trained first by integrating thousands of expert human moves into its algorithms, then by playing against itself. AlphaGo Zero trained only by playing against itself and, in just three weeks, it surpassed AlphaGo’s performance.

Dominating artificial intelligence (AI) today, deep learning needs thousands of human examples to train. As a result, data aggregators like Google, FacebookFB, and BaiduBIDU are the leaders in AI.

AlphaGo Zero trains with reinforcement learning, a subset of deep learning that requires repetition but does not require data. As reinforcement learning proliferates, data aggregators will lose their primary competitive advantage, and new entrants should enjoy a more level playing field.

Reinforcement learning could be a game changer for robotics. Combined with Open AI’s recent work, it could give robots some semblance of common sense in the real world.

3. Bitcoin Is Replacing Cash in Hyperinflation-Plagued Zimbabwe

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In the 1990s, land “reforms” caused a collapse in agricultural production and an economic bust in Zimbabwe. Monetary policy mistakes compounded its problems, culminating in hyperinflation that devalued its currency almost completely in the middle to the latter part of the last decade, as shown below. Out of desperation in 2009, Zimbabwe made the US dollar its legal tender.

Inflation, Consumer Prices (Annual %)

ARK Disrupt Issue 97 Zimbabwe Graph

Source: World Bank

Unfortunately, Zimbabwe did not reinforce the monetary discipline of dollarization with fiscal discipline, and once again it is in desperate trouble. Capital outflows have accelerated, forcing its central bank to import ~$10 million per week to keep the economy afloat. Nonetheless, acute cash shortages are forcing its banks to ration dollar withdrawals daily.

In the face of this cash crisis, Zimbabwe’s consumers and businesses have resorted to the use of bitcoin, pushing its price on the local exchange to $10,000, more than a 60% premium to the price of bitcoin elsewhere in the world. That premium seems to indicate that the dollarized monetary system in Zimbabwe is unraveling and that bitcoin is the preferred store of value, if not means of exchange.

Zimbabwe dollar borrowers should be thrilled that hyperinflation is eviscerating their debt burdens and would do well to transition into the bitcoin ecosystem.  Zimbabwe dollar lenders are getting crushed by worthless fiat currency. Somewhere in this saga, could we be getting a glimpse at the next global banking crisis?

4. CRISPR Could Advance Faster in Agriculture than in Humans

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CRISPR genome-editing has applications beyond curing human diseases. Because it is cost-effective, flexible, and easy to use, CRISPR applications are proliferating in agriculture and are promising higher yields in crops, livestock, and farmed fishing.

This week, Dupont Pioneer and the Broad Institute, along with collaborators at MIT, Harvard and Rockefeller University, agreed to an unexpected licensing arrangement that could accelerate the creation of genome-edited crops. Now companies will be able to license the intellectual property necessary to make drought- or bug-resistant plants, avoiding the risk of patent suits. Originally, Dupont had licensed CRISPR from Caribou Bioscienes and ERS Genomics, putting it in the crosshairs of the CRISPR-Cas9 patent war. This open, non-exclusive licensing agreement allows CRISPR users to develop agricultural products without concern about the ultimate CRISPR-Cas9 patent ownership decision.

ARK’s research reveals that, even if it penetrates less than 20% of the space, CRISPR edits could increase the global value of agricultural production by more than $110 billion by 2025.  Aquaculture could be the biggest beneficiary in terms of growth, but the larger $1.2 trillion global crop market should enjoy the largest dollar boost.

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.