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Frontier Tech Tracker: Q1 2019

Frontier Tech Tracker: Q1 2019

This piece marks the first in a quarterly series to track the progress of frontier tech, as measured by the Loup Frontier Tech Index. The index tracks the performance of publicly-traded companies that influence the future of technology including AI, robotics, autonomous vehicles, computer perception, and virtual and augmented reality.

Just as the Consumer Price Index (CPI) measures inflation and the Dow tracks the broader stock market, we believe the Loup Frontier Tech Index provides a benchmark for the emergence of frontier technologies.

In the first quarter of 2019, the Loup Frontier Tech Index was up 18.9%, compared to the NASDAQ up 15.9% and the S&P up 12.9%. Notable movers within the index included:

  • Universal Display – OLED (+67.7% in Q1): OLED reported strong Q4’18 results (including a one-time tax benefit), despite a 4.9% decline in smartphone shipments worldwide in the quarter. The company is benefiting from stability in Samsung’s business (OLED’s largest customer) and LG’s increasing emphasis on the OLED TV business.
  • iRobot – IRBT (+48.5%): In late Jan., iRobot announced a meaningful extension to its product line of robotic home appliances: an autonomous lawn mower. Unlike existing robotic lawn mowers, Terra uses mapping and navigation technologies that do not require boundary wires. iRobot also issued strong Q4’18 results in early Feb., which sent the stock up nearly 10% on the next trading day (Feb. 7th).
  • AMD – AMD (+35.5%): AMD continues to benefit from increasing demand for graphics processing units (GPUs), particularly their use in datacenters and gaming PCs. The company reported Q4 results essentially in-line with Street expectations and guided Q1 revenue 15% below the Street, but investors appear to be more excited about AMD’s secular, long-term tailwinds. In our view, PC gaming (e.g., Fortnite) and cloud gaming (e.g., Google Stadia) are undeniable themes, and AMD is well positioned to benefit.
  • Intuitive Surgical – ISRG (+22.4%): Intuitive Surgical is widely viewed as the leader in the robotic surgery space. In 2018, placement of the company’s flagship Xi system (which is five years old) accelerated to 35% y/y, the platform’s fastest growth rate since 2015. And utilization of these systems is also increasing, with growth in procedures at 32% in each of the last two years. In Feb., Intuitive announced that it had received FDA clearance for part of its new Ion system, which represents an entirely new product cycle, addressing new surgery types. 
  • Tesla – TSLA (-9.8%): Our long-term confidence in the Tesla story is unchanged. However, as we explained in mid-March, we expect the company to navigate a bumpy road over the next year. Concerns about Q1 Model 3 deliveries weighed on shares throughout the quarter, which turned out to be accurate. In Q1, Tesla delivered 63k total vehicles vs Street expectations of 75k. Read more about our take on Tesla’s disappointing Q1 here.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Artificial Intelligence, Augmented Reality, Autonomous Vehicles, iRobot, Robotics, Tesla
3 min. read Show less
Tesla’s Blitzscaling Efforts Continue

Tesla’s Blitzscaling Efforts Continue

Tesla recently published “An Update to Our Vehicle Lineup” on the company blog, making several tweaks to the Model 3 product line. Tesla is embracing the characteristics of blitzscaling — a net positive for the company.

Autopilot will now come standard, a new Model 3 lease payment plan is available, and some options have been removed from the online ordering process. Here are our takeaways:

  • 2019 will be a bumpy year for Tesla as the company continues to experiment with the business model. Longer term, we believe the company will be successful at capturing the growth curves of EV and autonomy.
  • Tesla will no longer offer the $35k Standard Model 3. Tesla made the Standard Plus value proposition better than its take rate was 6x greater than Standard. The base Model 3 available on the online ordering menu is now the Standard Plus for $39.5k. Therefore, Tesla is effectively discontinuing the $35k Standard to improve manufacturing efficiencies.
  • Discontinuing the $35k Model 3 and making Autopilot standard will relieve gross margin pressure, given the incremental $4.5k is high margin software.
  • We believe the company will reintroduce a $35k Model 3 once China Giga gets up to speed. China Giga will likely enable a lower-priced Model 3 due to lower cap ex, simplified production lines, cheaper labor, local manufacturing incentives, and no overseas freight.
  • Tesla confirmed the Standard Model 3 is a software limited Standard Plus. This makes sense as Tesla listed both vehicle weights at 3,552 lbs, and the Standard Model 3 has a meaningfully worse rating in our Core Efficiency analysis.
  • Autopilot is now bundled with all Tesla Model 3 purchases for an extra $2k (previously $3k). As mentioned, the base Model 3 is now Standard Plus for $39.5k.
  • Tesla is now leasing Model 3. You can get a Standard Plus for $4,200 due at signing and $504 per month for 36 months. Leasing is a meaningful lever to creating demand given that most small luxury sedans in the US (60%) are leased. The drawback: leasing will measurably negatively affect GAAP financials and cash flow.
  • Customers that choose leasing over owning will not have the option to purchase Model 3 at end of the lease. We expect Tesla to make those vehicles self-driving and supplement the owner fleet in the Tesla Network, their ambitious autonomous ridesharing platform.

Tesla’s Autonomous Platform. In our view, the new Model 3 lease plan is a small part of Tesla’s determination to build a fully self-driving fleet with regulatory approval within three years. We believe it is more likely 5-7 years away. We expect to learn more details about the platform at Tesla’s autonomy event on April 22nd. The timing of this event may be designed to add a layer of complexity for investors considering the upcoming Uber IPO.

If LiDAR is not necessary for level 5 autonomy, the company has a technical advantage over competitors. Tesla could push OTA software updates to activate a fleet. Capital investment in the Tesla Network would be low, as Tesla would only supplement the owner fleet with company-owned vehicles in markets where supply does not meet ridesharing demand. If successful, Tesla would shift the transportation business from vehicle sales to a cost-per-mile model and generate a ~30% revenue cut on the platform, similar to Apple’s App Store.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Autonomous Vehicles, Tesla, Themes
3 min. read Show less
An Astronomer’s Thoughts on Elon Musk, NASA, and Humanity’s Fundamental Questions

An Astronomer’s Thoughts on Elon Musk, NASA, and Humanity’s Fundamental Questions

Dr. Kevin Luhman is a professor of astronomy and astrophysics at Pennsylvania State University and a renowned astronomer for having discovered both the third closest stellar system, now called Luhman 16, and the coldest brown dwarf star ever found, which too will soon bear his name.

Top 3 Takeaways

  1. Astronomy addresses the most fundamental questions of humanity such as the origins of life, the origin of Earth, the fate of life on Earth and whether or not we are alone in the universe.
  2. Sending humans to Mars won’t be as easy as Elon Musk makes it out to be. Elon is aiming for a 2024 arrival while NASA is expecting around 2034. There are many challenges, most notably deadly cosmic rays, that need to be solved before humans can safely travel to and spend time on the Red Planet.
  3. Earth is an oasis of life in the universe. Astronomy can help us appreciate the odds of a place like Earth existing and can provide a unique perspective on the importance of protecting it.

Show Notes

  • [0:58] Defining astronomy.
  • [1:30] The early influences that led Dr. Luhman to dedicate his life to the study of the universe.
  • [3:25] Why should the average person care about astronomy?
  • [3:55] Practical examples of how astronomy is used in our everyday lives.
  • [5:31] The past, present and future of satellites.
  • [8:26] Dr. Luhman describes the events that transpired to now have a stellar system bear his name.
  • [10:02] The status of NASA.
  • [11:40] What astronomers talk about after work.
  • [12:20] When are humans going back to the Moon?
  • [14:32] The challenges of sending humans to Mars.
  • [18:50] Is Elon Musk’s 2024 target of sending humans to Mars realistic?
  • [20:02] Dr. Luhman’s thoughts on SpaceX.
  • [20:43] One question Dr. Luhman would ask Elon Musk.
  • [20:57] Fun rapid-fire questions to conclude

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary

Loup Ventures Podcast
2 min. read Show less