- I miss the old Silicon Valley
- When massive demand meets limited supply
- Great synbio company, bad time to buy…
Dear Reader,
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here.
The Silicon Valley “old guard” …
I fully agree with your fears for Elon Musk.
One way to assuage such risks is for many more highly influential people in the industry to step up in support. It’s not enough to do this within their own sphere of influence as the foremost challenge is that of mainstream media censorship. Most people are simply not hearing, nor do they have habitual access, to everyday critical goings on.
How does this terrifying situation get solved? More importantly, who, within highly respected institutions, will solve this problem of mass censorship to assist Mr Musk in a way that will reach both sides?
– Belinda K.
Hi, Belinda. Thanks for writing in with your question. Your comment reminded me of something that has been on my mind lately: How the culture of Silicon Valley and the high-tech industry has changed. I’ll share my thoughts and hopefully answer your question.
I remember when I first started out in tech. It was an incredible time. There was so much opportunity everywhere and the industry wanted to open everything up, connect everyone and everything, and create even more opportunity. And hard work and sacrifice was respected and celebrated. No matter what it took, we wanted to get the job done. Anyone who was willing to put in the time and effort was welcomed with open arms.
If you had to work seventy hours a week, that’s what you did. If you had to sleep in your office for a few weeks, you did that. And if you had to fly across the globe at a moment’s notice, you did that too.
And that’s exactly what I did. All of it. I even worked 100-hour weeks when I had to.
It was a grueling culture. But it was incredible experience that made me a strong executive and a strong analyst.
It’s like accelerated learning, the more effort we put in, the more value and learning we get out. And this kind of commitment is so often the cost to making some of the greatest breakthroughs in history.
Musk and his team—just as an example—didn’t create the world’s most successful EV company (or artificial intelligence company) or build the most innovative aerospace company in history by working 9 to 5 and taking off early on Fridays.
That’s why I rolled my eyes when the mainstream press was up in arms over Musk’s “work hard or leave” memo to the Twitter staff.
Back in the “old days,” it wouldn’t have needed to be said. It would have been understood by all. And the truly mission-driven employees wouldn’t need reminding.
And I was disappointed—though not surprised—by the reaction from much of the corporate press over the “Twitter Files.”
I can’t count the number of proclamations that I read about how much worse Twitter would get because of Musk, and how much democracy itself was now at risk. An uncountable number of journalists turned against one of their own—Matt Taibbi— the journalist that shared the story. They blamed him for “selling out” and “running PR” for Musk. Absurd.
Those same journalists threatened to leave Twitter. Yet, they haven’t. And Twitter’s new accounts recently grew on average by 2 million a day. Hate impressions have dropped significantly. And Musk and his team have done incredible work already taking down accounts linked to pedophilia and child trafficking. But the journalists won’t talk about that.
They are protesting that some of the world’s leading epidemiologists, virologists and cardiologists are going to be allowed to return to the platform. The whole thing is insane.
The high-tech industry has historically had an anti-establishment and a libertarian bent to it. Early innovators were skeptical of government interference and eager to build products and services that disrupted the status quo.
A story like the Twitter Files—where government entities are coordinating a censorship regime—would have shocked these early innovators.
And if we understand this, then Musk’s actions and ideas start to make more sense. In many ways, he represents something of an “old guard” in Silicon Valley. And though the media would have us believe he’s alone, there are many who still agree with his decision to release the Twitter Files.
He’s Marc Andreessen, one of the creators of Netscape and general partner of VC firm Andreessen Horowitz:
Source: Twitter
And here’s David Sacks—the founding COO of PayPal:
Source: Twitter
So, to answer your question, Belinda, I would say Musk is not alone in his ideas to unveil the corruption, censorship, and efforts to influence the outcome of elections at Twitter.
I believe that most still believe in free speech and that Twitter should be an open platform as it was originally designed. If people didn’t like what Musk and his new team were doing, I’m sure that the number of subscribers would be declining, not increasing.
Twitter presented a unique opportunity. After all, Google and Facebook are simply too large for Musk to acquire. Google and Facebook, while incredible businesses, are so corrupt, I doubt they can be recovered.
As owner of a private company, Musk can do things that would have been impossible at a public company. His success turning around and recovering Twitter will be a model for other businesses. It will give them cover to make similar changes that will result in greater success.
As for companies like Google and Facebook, their corruption and collusion with certain parts of the government runs too deep. It’s hard to imagine that changing. The more likely outcome is that competition steps in to fill the market need for censorship free access to news and information. Alternative search engines and social media platforms can easily fill that gap.
Musk is a national treasure. He should be protected at all costs. And fortunately, he has enough money to hire the very best security detail possible. I’m sure he’s well taken care of.
And to your point, I hope that many more in the tech industry like Andreessen and Sachs step up in support of Musk’s efforts to restore the diversity of thoughts and opinions. That’s exactly what made Silicon Valley the success that it became in the first place.
The EV revolution’s big problem…
Jeff,
With the push to eliminate fossil fuels in vehicles by 2050 (no new vehicle sold after 2050) that relies on fossil fuel, it is my understanding that the world does not even come close to mining the metals needed–lithium, copper, aluminum, nickel, etc. If this is correct, isn’t the outcome significantly higher prices for these EV metals?
Maybe the one industry that is more reviled than oil and gas is mining, but doesn’t the world need huge expansion of mines and mining capacity and without this the world has no chance to come close to eliminating fossil fuels for vehicles?
– James D.
Hi, James. Your analysis is correct. And until very recently, many in the automotive industry have either been oblivious or simply ignoring this simple fact. Let’s use lithium as just one example. It’s a critical input into electric vehicle batteries. The below chart shows the whole story.
What we’ll see is lithium demand compared to supply. And what we’ll notice is that in 2020, demand began to outpace supply. And the margin between demand and supply is projected to widen through 2030. That’s a major problem for the industry.
And it’s not a surprise that demand began to outpace supply in 2020. That was the first year we really saw the adoption of electric vehicles climb noticeably higher. In 2020, there were about three million EV sales worldwide. By 2021, there were close to 7 million. And 2022 is likely to be even higher.
If the world has any hope of hitting the aggressive EV adoption goals that you referenced, we need more supply of metals like lithium. And we need them quickly.
The answer seems obvious. Just mine more lithium. The problem is that a new lithium mining project can take five to 10 years to come online. And that’s if everything goes well. It then takes another six months for EV battery makers to approve the lithium quality – and another two years to ramp up production capacity.
The result of these dynamics is there for everybody to see. Electric vehicles are getting more expensive to build.
What we’ll see is that the cost to produce an electric vehicle—measured in price per kilowatt hour (kWh)—declined from 2013 to 2021. But something surprising happened in 2022. The costs increased. And it has everything to do with the commodity constraints you referenced. This really is the “long pole” of the industry. And this has important investing implications.
Last week, I recommended my favorite lithium miner in the pages of The Near Future Report. Out of respect to paying subscribers, I won’t name it here. But subscribers can feel free to catch up right here. And if any readers would like to join us, feel free to learn more right here.
And one final point, mining for this metals is a very energy-intensive business. Mining and excavation equipment doesn’t run on electricity produced by solar energy. It runs on fossil fuels. And it destroys the natural environment.
Even worse, in some developing markets like the Congo where two-thirds of all cobalt comes from, child labor is rife. Children are used to mine cobalt under very dangerous conditions to find the metal to be ultimately used in electric vehicle batteries.
Ironically, Musk is the only one who made a concerted effort to design a Li-Ion battery for EVs that has little or no cobalt, and what cobalt he needs is sourced from non-conflict areas that don’t use child labor.
The rest of the industry doesn’t seem to care much, nor do the consumers who use their EV to virtue signal that their car is “sustainable” and “clean”. Yet almost everywhere, an EV’s electricity comes from burning fossil fuels.
My hope is that industry executives and politicians have more honest discussions about the entire process of producing EVs, including batteries and the metals required to make them. This includes the necessary mining that will be required to achieve those ambitious goal.
And better yet, we need to get serious about technology that will provide 24/7 clean energy around the clock, the kind that comes from nuclear fusion technology. If we want to be “clean” we are going to need to “fuel” our EVs with electricity that comes from a 100% clean energy source. Otherwise, what’s the point?
Thanks for your question, James.
Is this synthetic biology company a bargain?
Hi Jeff,
I wanted to know your opinion of the company Ginkgo Bioworks (DNA) from a management, technology and investment standpoint. Look forward to hearing your feedback as always.
Thanks.
– Chukwuemeka O.
I’d be happy to share my thoughts on the company. Longtime readers might recognize the name Ginkgo Bioworks. We’ve been covering its progress in The Bleeding Edge for years.
Ginkgo is one of the leaders in an area of biotechnology called “synthetic biology.” The company creates custom-built organisms designed to perform specific functions. They do this by programming DNA as if it were software.
Ginkgo can create organisms designed to act as a living medicine. Or clean up oil spills by consuming the oil. It can create custom yeast for food products. The list goes on.
What’s more, Ginkgo also operates a synthetic biology foundry. It has a facility dedicated specifically to manufacturing various synthetic biology applications.
And this foundry isn’t exclusively for in-house products. Ginkgo also makes synthetic biology products on behalf of its customers.
Oddly enough, this is very comparable to Taiwan Semiconductor Manufacturing Company (TSMC) in the semiconductor industry.
The company went public last year. And the stock has gotten caught up in the volatility we’ve experienced this year. Shares of Ginkgo are down about 80% from the IPO levels.
This begs the question: Is it now a “bargain”?
I continue to be bullish on Ginkgo in the long-term, but I caution against buying into this company right now. Ginkgo is currently trading around five times sales (EV/Sales), but it is burning through cash. It will have a negative $250 million free cash flow this year with an even larger burn in 2023.
It has plenty of cash to make it through the current tough conditions in the biotechnology industry, but it will likely be volatile well into next year. And the current sales are expected to drop significantly for the full year of 2023.
Growth stocks like this that aren’t growing their revenue and burning through cash are great examples of stocks that can get punished and pushed down to even lower valuations.
In fact, I wouldn’t be surprised if Ginkgo fell another 40 – 50% before the markets returns to growth stocks and valuations recover. The only wildcard is if a larger biopharma company comes along and acquires Ginkgo on the cheap.
In a tough market like this, I don’t like these kinds of investments. They have large downside risk and limited short-term upside. I’d much rather be recommending stocks that have limited downside risk, while still preserving some upside potential.
Our time to jump back into high growth small cap stocks will come. I expect that window will open up in the second half of next year. I can’t wait as it will be a buying opportunity of a lifetime, and the next bull run for high-growth stocks.
That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here.
Have a great weekend.
Regards,
Jeff Brown
Editor, The Bleeding Edge