• Square is making bitcoin transactions simple…
  • Why this carmaker is struggling to make enough electric vehicles
  • GM’s latest investment is too little, too late…

Dear Reader,

For technologists and those who want to understand the business of technology, it would be hard to recommend a better book than The Innovator’s Dilemma by Clayton Christensen. Even though it was written in 1997, it is still just as relevant today.

Christensen developed a framework for disruptive innovation. He explained how new companies could create new markets and disrupt incumbent players. Even to this day, I can remember how excited I was after reading his book.

It gave me a view into the future of how technological innovation would rapidly bring new products and services to market… things that would benefit consumers around the world. And that is precisely what has happened in the 20 years following his writing.

I had the great pleasure of attending a day-long class Christensen taught when I worked at Qualcomm. All employees could attend, but no more than 20 of us showed up. I was taken aback by how small the turnout was – the company should have filled the auditorium. It was a rare chance to spend time with such a great mind.

I’m pretty sure I was the only one who really knew who he was and had read everything that he’d published. He and I spoke several times throughout that day during breaks. He also asked me a lot of questions about Qualcomm, the industry, and how our business actually worked.

Even though I was deeply familiar with his work, it was such a fantastic day and one that I felt truly fortunate to have experienced.

Christensen passed last Thursday due to a fight with leukemia. I can’t help but think how close we are to curing diseases like cancer… just a few more years.

While we won’t have the pleasure of any new work from him, I’m absolutely sure that we’ll still be reading and benefiting from his writing for so many years to come.

Rest in peace.

Square is becoming a major player in the digital assets space…

Most people know Square as the leading payment processor for small- and medium-sized businesses. Square provides white credit card terminals for shops and local businesses to take payments. They are simple and easy to use. Square has built a great business around these terminals.

However, the company is much more than that. Square uses artificial intelligence (AI) to help companies run their business operations, manage inventory, and even assess creditworthiness for small business loans. Thanks to its AI, Square can underwrite a small business loan in seconds.

And very quietly, Square has been developing its Cash App to make itself a top player in the digital assets space.

Square’s Cash App is one of the best payment applications available today. The design is clean. It’s simple to use. And it enables users to send dollars back and forth, just like top competitor Venmo. But that’s only the beginning…

Square’s Cash App also allows users to buy and send digital assets like bitcoin. And it makes dealing with digital assets so simple that anyone can do it. The Cash App is much easier to use than many digital asset wallets out there.

And a new patent reveals that a game-changing upgrade is coming soon.

Just last week, Square received a patent that will allow Cash App users to mix and match assets and currencies at will. Here’s why this is big news…

Suppose one Cash App user holds bitcoins and wants to buy something from a person who only accepts U.S. dollars. Today, that’s a two-step process. The person would need to convert bitcoin to dollars and then send those dollars to the recipient.

Well, Square’s new technology will enable that person to pay with bitcoin directly. But the recipient will receive dollars. And, of course, it works the other way as well. The payer can send dollars, yet the recipient can choose to receive bitcoin in his or her wallet.

So Square is once again taking something complex and making it simple. And this technology isn’t limited simply to dollars and bitcoin… It will work for any currency or asset supported on the Cash App.

What’s more, Square just launched a Lightning Development Kit for Bitcoin’s Lightning Network. This is a payment channel designed to speed up transactions, lower costs, and help Bitcoin scale.

Right now, Bitcoin can only process about seven transactions per second. That’s because each transaction must be verified and then registered on the blockchain before the bitcoin changes hands. That creates a transaction queue… which is why Bitcoin is so limited.

And considering that Visa can process 20,000–30,000 transactions per second, this is a big roadblock for Bitcoin. But that’s where the Lightning Network comes in.

The Lightning Network will securely settle transactions as they happen, so bitcoin can change hands instantly. Then, each transaction is submitted to the blockchain after it has been settled. This will allow Bitcoin to process thousands of transactions per second as the network scales.

And by facilitating the Lightning Network’s growth, Square is putting itself in a position to be a prime player for Lightning Network payments. This is very much a strategic move since each payment would result in a small transaction fee.

Square is a perfect example of disruptive innovation. It has replaced the need for expensive point-of-sale machines that have no intelligence built-in and serve only one purpose.

Square completely disrupted the payment processing space for small- and medium-sized businesses. It rapidly expanded into lending, payroll, benefits, marketing, digital assets… and now money transfer.

And for curious investors… yes, I do like Square as a large-cap tech investment. Any investors looking for exposure to an innovative fintech – and now digital asset – company should take a close look at Square.

Mercedes Benz cuts its electric vehicle production targets…

Mercedes Benz – one of the most powerful car brands in the world – reportedly just cut its electric vehicle (EV) production target in half. Mercedes originally said it would produce 60,000 EVs this year. Now it’s down to 30,000.

This is the second year in a row where Mercedes has had to cut EV production targets. Last year, the company was targeting 25,000 EVs… but could only produce 7,000.

Why is such an iconic car company struggling to produce EVs?

Well, Mercedes just can’t get enough lithium-ion batteries to make the cars. It hasn’t planned out its supply chain well enough. And it doesn’t have control over its own battery manufacturing facilities. That makes it dependent on others.

Mercedes’ parent company Daimler has since denied that it is having a battery shortage. It’s saying that it is now targeting the production of 50,000 EVs this year… not too far off from its original 60,000 target.

But we’ll have to take a wait-and-see approach. Daimler said the same thing last year… and only hit 28% of its targeted production.

This is one reason why I’ve been so bullish on Tesla (TSLA). Tesla has complete control over its own battery production. In fact, it produces its own batteries through a joint venture with Panasonic.

And Tesla developed a unique form of lithium-ion battery that does not use as much cobalt. This results in higher-performance batteries at a lower cost.

This is why it is critical to be objective when looking at any investment opportunity. Had I looked at Tesla as a traditional car company, I would have missed the opportunity. But because I dug deeper into what its real assets were, I saw a different picture.

Every time I mention Tesla, I get feedback from people telling me that it’s an awful company… that it doesn’t “make any money”… and that I’m wrong… “It’s a terrible investment,” people say.

We should keep in mind that Amazon didn’t make any money for years… and we can see what happened there. And the part of Amazon’s business responsible for nearly all its profits has nothing to do with e-commerce.

Tesla is not a traditional car manufacturer. It is truly a technology company. In fact, it is one of the largest and most successful artificial intelligence companies in the world. And the fact that TSLA is up 218% since last June speaks for itself.

The bottom line is, we can expect Tesla to dominate the EV market for years to come. This is another fantastic example of disruptive innovation…

GM’s electric vehicle investment is too little, too late…

Sticking with the topic of EVs… General Motors (GM) just announced that it will invest $3 billion into the production of electric trucks and SUVs. That includes the work it’s doing with the Cruise Origin autonomous vehicles, which we talked about last week.

About $2.2 billion of this investment is going into the Detroit-Hamtramck facility that was previously scheduled to be shut down. EV production should start there in late 2021.

While this is a nice story, GM is grossly behind on the EV trend. I believe Tesla’s Cybertruck is what prompted GM to finally make this move. Tesla has received over 250,000 orders since announcing the Cybertruck, proving that there is a market for its electric trucks… and electric trucks in general.

But for perspective, Tesla has poured nearly $5.7 billion into research and development (R&D) over the last decade. And its R&D investment continues to grow year over year.

So in reality, GM’s investment is not that large considering it’s already a decade behind. I don’t see it catching up anytime soon… especially since Tesla has full control of its own battery production, as I mentioned above.

As I said, we can expect Tesla to dominate the EV market for years to come. GM’s move into the space is too little, too late.

This is a perfect example of an innovator disrupting an incumbent. And it shows in its share price… GM is trading slightly lower than where it was exactly 10 years ago…


Jeff Brown
Editor, The Bleeding Edge

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