Closing Its Stores Should Cut Tesla’s Costs and Increase Its Sales

Follow Sam on Twitter @skorusARK

On February 28, Tesla announced that it will be launching a version of the Model 3 that will cost $35,000 and that to do so it will close most of its stores and shift all sales online. While many analysts and investors concluded that Tesla is taking a big risk, the data suggests otherwise. Only 15% of U.S. car sales are at price-points above $47,000, the long-range Model 3’s MSRP (manufacturer’s suggested retail price). By dropping the price to $35,000, Tesla has doubled the Model 3’s addressable market, as shown below.

Also interesting to note, 78% of the Model 3’s sales last year were online. Assuming that it had lost the 22% of the Model 3 sales not on line, Tesla would have had a smaller share of a pie two times as large as it was in 2018, as well as sales roughly 60% higher than those reported for 2018, as shown by our estimated preliminary calculations below.

This announcement also suggests a rougher than expected competitive dynamic for other auto manufacturers in the electric vehicle (EV) space. The Model 3 served as a price umbrella, or benchmark, for other EV manufacturers. According to several reports, Porsche and Audi already were €3,000 over budget for the first version of their next generation EV platform, and Nissan announced a price point of $36,000 for its Leaf Plus just one day after Tesla announced the $35,000 Model 3. We believe Tesla’s competition is aiming at a moving target, one they are unlikely to meet.

Waymo Is Selling Autonomous Components, Not an Autonomous Car Service, For Now

Follow Tasha on Twitter @TashaARK

This week Waymo announced that it is selling its short range LiDAR unit, not to robo-taxi competitors but to robot, security, and agriculture customers. Apparently, Waymo already has customers willing to purchase units for $5,000.

Apparently, Waymo is trying to scale production and lower the cost per unit of LiDAR for its own cars. Every one of its vehicles is equipped with four short range LiDARs, suggesting perhaps that Waymo is having trouble justifying the $20,000 per car cost of LiDAR to Google, its parent, especially because short range is only one of three types of LiDAR that will be loaded on each of the 80,000+ cars it has ordered from Fiat and Jaguar.

Given its technological setbacks during the past year, we are surprised that Waymo isn’t focusing all of its attention on fixing left hand turns and other gating factors to its autonomous taxi service. Waymo’s core expertise is not selling and marketing components, nor does it have the infrastructure to service them.

Follow Your Gut

Follow Manisha on Twitter @msamyARK

While nascent, microbiome research - the study of bacteria’s impact on human health - will have wide-ranging implications on health care. As shown below, the number of GENES encoded in microbiota overwhelms that of the human genome, even though the number of CELLS in bacteria outnumbers that in the average human by very little.

Source: ARK Investment Management LLC, 2019

A diversity of gut bacteria is associated with good health, while its absence can cause a host of diseases and prevent the success of treatments. In 2015, the first paper linking microbiome health to cancer illustrated how permutations of gut microbiome can improve or hinder the impact of anticancer agents like checkpoint inhibitors.

Today, microbiome research is focused on the functions of various bacterial strains and manipulation of the gut microbiome to treat disease. Already, dozens of clinical trials are assessing microbiome medicines in the treatment of autoimmune, cardiovascular, oncology, gastrointestinal, CNS, dermatology, and infectious diseases—simply put, all disease.

While research in the field is nascent, ARK believes that microbiome medicines will become critical to health care in the next 5-10 years.

Facebook Is “Pivoting” to Privacy

Follow James on Twitter @jwangARK

According to a 3,000+ word essay penned this week by CEO Mark Zuckerberg, Facebook is shifting its focus from public content-sharing to private messaging secured by end-to-end encryption.

After the announcement, public debate centered on whether Zuckerberg is being disingenuous or blowing up Facebook’s business model. As illustrated by Ben Thompson, the reality is neither: Facebook is a pragmatic company with a fast-follow culture and will adapt its business models and services to changing norms.

Facebook is not pivoting but it is embracing privacy in adjacent products. Adding end-to-end encryption to its messaging applications will improve Facebook’s standing with privacy advocates and distance it from law enforcement. Nothing is changing, however, in its core Facebook and Instagram newsfeeds, which will continue to deliver targeted ads generating more than $50 billion in annual revenues.

That said, Facebook is making some hard decisions, as it has vowed not to store user data in countries with weak human rights records even if they threaten to ban it. In other words, China may not be in its future plans any longer.

Facebook’s real challenge will not be new privacy features but new revenue models as it attempts to scale its business further. Tencent’s WeChat has evolved from a messaging service to a platform involving e-commerce, payments, and travel. In the West other companies have captured those markets, throwing into question whether or not Facebook has a real role to play in them.

Coinbase Addresses the Controversy Surrounding Its Acquisition of Neutrino

Follow Yassine on Twitter @yassineARK

After a prolonged period of tension, the controversy surrounding Coinbase’s acquisition of Neutrino reached a head this week.

On February 19, Coinbase acquired blockchain analytics company Neutrino to further its “mission of bringing the open financial system to the world.” By analyzing public blockchain data, Neutrino and other such companies aim to identify bad actors and prevent the theft of funds from accounts.

After the announcement, news broke that the Neutrino team had a controversial past. Specifically, the CEO of Neutrino was the former COO of Hacking Team, a company that enabled “governments and corporations to monitor the communications of internet users, decipher their encrypted files and emails, record Skype and other Voice over IP communications, and remotely activate microphones and cameras on target computers.”

Outraged by the news, the crypto community urged users to delete Coinbase, promoting the hashtag #DeleteCoinbase on Twitter. Addressing the negative press, Coinbase responded that it was aware that Neutrino’s co-founders had worked at Hacking Team but did not condone or defend the actions of Hacking Team. It also disclosed that it acquired Neutrino to “migrate away from current providers who were selling client data to outside sources”.

Not anticipating the outrage that its inadvertent sale of client data would cause, Coinbase finally admitted the lapse in its due diligence process and announced that employees formerly affiliated with Hacking Team would transition out of Coinbase.

Demonetization in India Catapulted Digital Wallets into Popularity

Follow Max on Twitter @mfriedrichARK

According to researchers from Northwestern University, digital wallet usage exploded after India demonetized its economy. On November 8, 2016, India announced that it would void as much as 86% of circulating cash, forcing consumers to deposit cash into their bank accounts until they could withdraw new bills. The swap did not take place as smoothly as regulators had planned as the new bills did not appear for two months, leaving Indian consumers and businesses without their most-used transaction medium.

In response, they shifted to a new transaction medium – digital wallets. As shown in the charts below, mobile payment transactions surged after the announcement. Researchers learned that digital wallet adoption was strongest in the areas most affected by the demonetization and that, for most consumers and businesses, the shift was permanent.

Innovation typically gains traction during crises as consumers and businesses look for better, cheaper, and faster solutions to their needs. We believe that the temporary supply-side shock in India has led to the permanent adoption of a new technology.

Source: Crouzet, N., Gupta, A., & Mezzanotti, F. (2018). Shocks and Technology Adoption: Evidence from Electronic Payment Systems.