Dear Reader,
I wanted to offer a quick reminder before we get to today’s insights.
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Now on to The Bleeding Edge…
News came out late last week that General Motors (GM) and South Korean conglomerate LG Corporation (LG) are teaming up to build a plant to produce lithium-ion battery cells for electric vehicles (EVs).
The two are investing $2.3 billion into the plant, which will employ 1,110 workers in Lordstown, Ohio. This is the same town that housed GM’s vehicle assembly plant that closed last year. That plant closing was a part of a larger GM layoff of about 4,000 workers. So the new plant won’t be as big, but it will likely hire back many employees who lost their jobs.
I consider GM and LG to be slow followers with this move. They are following the model that Tesla pioneered when it partnered with Panasonic to build the Gigafactory in 2014.
For context, Panasonic is the largest lithium-ion battery producer in the world. And Tesla’s Gigafactory in Nevada is the largest manufacturing plant for lithium-ion battery cells for electric vehicles in the world.
This joint venture with Panasonic has been a competitive advantage for Tesla in the auto industry. The two developed a new lithium-ion battery that requires less cobalt. That reduces battery costs and improves performance.
So GM and LG are copying this model. For the record, I do not think highly of GM as a company or as an investment. But this is a smart move.
And that’s because EVs are the future. Don’t worry – for those of us who still like to drive a car or truck with a big engine in it, we’ll be OK for the next 15 or 20 years. It will come at a price, though.
The rapid shift toward emissions-free EVs will be faster than most are predicting, and it is easy to see additional taxes levied on those who don’t make the shift.
The investment behind this shift is impressive. Automakers will spend about $225 billion developing new EVs over the next several years. And every automaker is already moving this direction.
So this is the second joint venture for EV battery production in the U.S., but it won’t be the last. We can expect to see other major automakers making similar deals and picking sides… just out of necessity.
Having a stable supply of lithium-ion batteries is critical to the ability to mass-produce EVs. Yet building these plants is so expensive that a single company would be hard-pressed to take it on. Having battery products near the EV production makes a heck of a lot of sense. It vastly simplifies the supply chain. After all, it is expensive to ship heavy products like battery cells around the world.
The EV industry is a place that I’ll be looking for investment opportunities next year as EV production hits an inflection point for exponential growth.
Big news on the 5G front…
Qualcomm just launched two new 5G semiconductors. Its new Snapdragon 865 chip will power high-end smartphones. And its new Snapdragon 765 chip will be for lower-end products.
Believe it or not, the 765 chip is what’s most interesting to me. As we talked about yesterday with augmented reality glasses, low-end products are what stimulate a mass market. And they enable a wider range of consumer options. That’s especially true of smartphones.
Last week, we talked about MediaTek being a fast follower with its 5G system-on-a-chip (SoC) launch to stimulate 5G adoption. And I just read this morning that MediaTek will be announcing its second 5G chip in the coming weeks. Well, Qualcomm is doing the same thing with its 765 chip.
And current predictions are that the 765 will enable producers to sell 5G smartphones for less than $300. That’s huge. The moment phones get down into the sub-$300 range, wireless carriers are willing to subsidize the entire cost of the phone.
They do this by giving the phone away for free to customers who sign up for long-term plans. They just work the phone’s price into the subscription plan. This removes the obstacle of an up-front cost for the consumer in their buying decision.
So once 5G phones get down into this range, anyone with a job will easily afford one. That will lead to mass adoption.
That said, this is not a recommendation for Qualcomm.
While the 765 chip will stimulate the market, it won’t be picked up by the top-tier manufacturers. In fact, Samsung and Apple have already ditched Qualcomm’s chips. They produce their own.
The loss of the top players caused Qualcomm’s market share to plunge. Plus, MediaTek is eating into Qualcomm’s low-end market share as well. It’s facing fierce competition from all sides.
So the 765 is great for the 5G smartphone market as a whole. But it won’t move the needle for Qualcomm.
(Remember, this is more proof that we are entering Phase 2 – the devices phase – of the 5G rollout. Hundreds of millions of 5G devices will be sold in 2020. Buying Qualcomm is not the way to get exposure to this trend. Instead, I recommend investors take a stake in my No. 1 Phase 2 5G company for 2020. Details here.)
The U.S. Justice and Treasury departments are pursuing a Russian hacking group that stole at least $100 million from banks using sophisticated malware.
The hacking group’s name? Evil Corp. You can’t make this stuff up…
The feds are targeting 17 individuals associated with the heist. They used malware known as “Dridex” to pull it off.
Dridex can evade antivirus software to penetrate computer systems. Once in, it steals the login credentials of bank customers and employees. With those credentials, the cybercriminals were able to wire over $100 million to offshore accounts owned and controlled by Evil Corp.
And I can say with confidence that we will continue to see cybercrime on this scale in the years to come. There are IT specialists out there who have built entire careers out of working for companies involved in these dirty deeds.
We’re not talking basement hackers here. Companies like Evil have human resources and finance departments. They function just like real companies. Cybercrime is a large and profitable “industry.” In fact, it is now a trillion-dollar industry. That’s why I am so bullish on a select group of cybersecurity companies.
Cybersecurity is an interesting industry where the companies that reach a certain size and scale tend to fall behind. So the industry’s best innovators start up new ventures where they can be fast and flexible. That’s the only way to fight cybercrime.
Then, once these ventures have proven themselves by scaling, they get bought out by larger companies at a nice premium. We’ve had this happen to Carbon Black (CBLK) and CyberArk Software (CYBR) in our Exponential Tech Investor portfolio, enabling us to book gains of 55% and 113%.
So 2020 will be an exciting year in the cybersecurity space. Given the rise of cybercrime and the upcoming presidential elections in the U.S., this is a space to watch next year.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
