View as web page here.
It's Sunday, August 11th, 2019. Please enjoy ARK's weekly newsletter curated by our thematic analysts and designed to keep you engaged with disruptive innovation.

Wright’s Law Suggests Tesla Could Double its Gross Margin on the Model 3 by the End of 2020

Follow Sam on Twitter @skorusARK


Applied to technologically enabled innovation, Wright’s Law states that for every cumulative doubling of production, costs fall by a consistent percent. As of the second quarter, Tesla reported auto gross margins of 17.2% excluding regulatory credits. Wright’s Law suggests that by the end of 2020, if its average selling price (ASP) were to remain at roughly $49,000, Tesla could make the Model 3 with a gross margin of over 30%.


The Model 3 appears to have an 85% learning curve, as shown below. For every cumulative doubling of its production, Model 3 costs fall by 15%. An important consideration in understanding this calculation is the word cumulative, meaning the number of Model 3s Tesla has produced since its launch.

Screen Shot 2019-08-11 at 7.12.27 AM

While 85% sounds like an outlier for a learning curve, it is not. In fact, as shown below, the Model T appears to have had exactly the same learning curve.

Screen Shot 2019-08-11 at 7.19.50 AM

Even if Tesla were to flatten the Model 3’s production rate through the end of 2020, according to Wright’s Law its average cost should fall to ~$33,000, suggesting a gross margin of more than 30% at the $49,000 price point. Instead, Tesla is ramping production, suggesting the cost to produce a Model 3 should drop to $31,500. As a result, Tesla should be able to absorb the last $1,875 tax credit reduction and increase margins. Alternatively, it could drop its ASP to ~$39,000 and increase the Model 3’s gross margin nearly 300 basis points to 20%.



Uber and Lyft Probably Will Lose Share of Ride-Hailing Revenues in the Future

Follow Tasha on Twitter @TashaARK


Uber’s and Lyft’s earnings reports this week were illuminating. Uber reported another quarter of slower gross bookings growth which has dropped from 44% on a year over year basis during the first quarter of 2018 to 22% last quarter. For some reason, Lyft does not report this seemingly important metric.


While ARK’s research suggests that autonomous driving will supercharge the adoption of ride-hailing, Uber and Lyft are unlikely to be the leaders. In fact, while their best shot at the market probably will be partnering with technology providers like Waymo or Cruise Automation, they are unlikely to sustain their current take rates in the 20-30% range. Indeed, in diminished roles as lead generators for their technology partners, they probably will garner fees in the low to mid single-digit percentage points.


ARK also expects both firms to face continued regulatory pushback. Traffic congestion will build as an issue, as will electric scooters which are causing serious injuries and littering the environment. Not only a political liability, scooters also will be another hit to profitability.


While Uber and Lyft will continue to play a role in mobility-as-a-service, their current valuations seem unjustified giving the looming and changing dynamics.



Is ‘Walmart Coin’ a Blockchain Revolution or a Next-Gen Loyalty Program?

Follow Max on Twitter @mfriedrichARK


Last week, Walmart filed a patent to launch a digital currency tied to a fiat currency like the dollar for Walmart and its partner stores globally. The patent lays out a number of use cases for the ‘Walmart Coin’ or ‘stable coin’, from a closed-loop payments ecosystem removing the need for debit and credit cards, to lending, rewards programs, and gig-economy style marketplaces.


For some time, Walmart has been critical of card fees which, according to our estimates, cost it roughly $8 billion in 2018. With control over a digital currency, not only would it avoid such fees but it also could capitalize on a data and information advantage by targeting customers more directly, predicting their shopping behavior, and reducing inventory costs.


As Facebook learned after announcing Libra, however, politics and regulation could hamper Walmart’s attempt to disengage from the traditional financial system. Many of the products named in the patent require a banking license or bank partners, diminishing the economic incentives to break away. In fact, in 2007 political and regulatory objections forced Walmart to abandon its 10 year effort to obtain a bank license. Today, even without a bank license, Walmart offers a range of financial services from reward cards to Walmart Pay, its mobile payment application.


Politics aside, we wonder how a ‘Walmart Coin’ would differ from a loyalty card tied to Walmart Pay and whether digital deposit fragmentation would limit its potential. As more brands launch their own digital currencies, deposits could fragment into company-specific wallets, potentially diluting the impact of any one of them. In that case, a neutral Digital Wallet like Paypal’s Venmo or Square’s Cash App could aggregate them, putting it in what we believe to be the most powerful and interesting position.


Until then, in our view, very little will differentiate Walmart’s stable coin from Fortnite’s V-Bucks, worth a penny a piece.



Blockstream Announces Two Mining-Focused Products

Follow Yassine on Twitter @yassineARK


This week, Bitcoin technology company Blockstream announced two mining-focused products. In an effort to help maintain the decentralized security of the Bitcoin network, Blockstream announced Blockstream Mining, a service providing mining equipment colocation services tailored to institutional and enterprise customers. To help them overcome the high barriers to entry, Blockstream Mining should enable prospective miners with the logistics and operational support to mine at scale.


The second product, Blockstream Pool, will be the world’s first production mining pool based on the BetterHash protocol. With the BetterHash mining protocol, individual miners will be able to control which bitcoin transactions are included in a newly mined block while still receiving the stable payout associated with traditional mining pools.


Based on both of these announcements, Blockstream seems determined to decentralize Bitcoin mining further, enhancing its security. Hopefully, BetterHash will attract individual miners, encouraging other mining pools to follow Blockstream and do the same.

ARK's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. 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.



3 East 28th Street, Floor 7
New York, NY 10016 United States

You received this email because you are subscribed to Research Newsletters from ARK Investment Management LLC.
Unsubscribe from ARK emails or choose the types of emails you want to receive. Unsubscribe from all.

This Newsletter is for informational purposes only and does not constitute, either explicitly or implicitly, any provision of services or products by ARK Investment Management LLC (“ARK”). Investors should determine for themselves whether a particular service or product is suitable for their investment needs or should seek such professional advice for their particular situation. All content is original and has been researched and produced by ARK unless otherwise stated therein. No part of the content may be reproduced in any form, or referred to in any other publication, without the express written permission of ARK. All statements made regarding companies, securities or other financial information contained in the content or articles relating to ARK are strictly beliefs and points of view held by ARK and are not endorsements of any company or security or recommendations to buy or sell any security. By visiting and/or otherwise using the ARK website in any way, you indicate that you understand and accept the terms of use as set forth on the website and agree to be bound by them. If you do not agree to the terms of use of the website, please do no access the website or any pages thereof. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with ARK with respect to any linked site or its sponsor, unless expressly stated by ARK. Any such information, products or sites have not necessarily been reviewed by ARK and are provided or maintained by third parties over whom ARK exercises no control. ARK expressly disclaims any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.