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welcome back to another episode of exponential Africa where we are fortunate enough to be with Cathy wood who's the co-founder and CEO of Ark invests at the exponential finance summit in Cape Town having a conversation about investing in disruptive innovation Cathy welcome to the show I'm delighted to be here great conference beautiful city I wanted to ask you you know why did you can you explain to us why you actually started or canvassed yes I started Ark for two reasons one was to focus only on disruptive innovation and part of the reason for that is I see a big void in that space right now because of all the move to index based investing and because a lot of large asset managers have are looking in the private space for innovation but in order to scale exponentially you have to be in the public space so that's one reason and the second reason was to open up our research we have an open research ecosystem to the point where we are now posting models like our Tesla model we've just posted on github so that we can collaborate with people out there who may feel differently or may know more than we do about certain things so it's it's pretty interesting that's pretty amazing I mean I read a lot of your stuff before before actually meeting you I've been following your your all your research for like two years so it's been been really helpful and valuable for for us even in South Africa and Africa fantastic I love it and I mean how have you seen these the things change from when you started your career in finance and you know and managing all these different funds to today so I started really more than 40 years ago in the business and we're a little bit Back to the Future now what we're doing is back to the future because the business has changed in the early days we were doing real research looking way into the future today there's a bunch of index based investing very short-term time horizons analysts looking at next quarter or next year but not five or ten years now so what we're trying to do is extend the time horizon to help people understand how many opportunities there are to capture exponential growth well so it's just changing Foster and Foster Foster and you're seeing this like in all these different industries absolutely absolutely we see five innovation platforms evolving at the same time you have to go back to the late 1800s Early 1900s to see multiple innovation platforms at the same time that we're going to transform everywhere in the world telephone electricity internal combustion engine today we have five but we haven't had multiple platforms between that time and today today we have DNA sequencing robotics energy storage artificial intelligence and blockchain technology each one of those is going to be multiple trillions of dollars in market capitalization in stock markets we think in the years ahead I mean that's exciting I think the economies are gonna grow at scales that we can't even really understand you we can't I mean I I showed in a presentation here this morning that mobile payments in China have gone from one trillion dollars in 2014 to 2016 dollars in 2018 that's up 26 times in four years and we're gonna see a lot more exponential growth like that some of it starting with the emerging markets and and China as they basically put in place infrastructure in this case financial infrastructure that wasn't there before now we can do it with technology just carry a bank in our pocket wellthanks incredible you know you talk a lot about Tesla in some of your research why why do you say Tesla's undervalued so Tesla is our highest conviction named as the most undervalued company in our portfolio we believe with the exception of some of the genomics companies and the reason is because the traditional world is is very siloed and analysts can only follow one thing in this case the auto analyst followed Tesla Auto analysts are following Tesla Tesla is a technology company not an auto company Auto analysts are very uncomfortable with technology right it's moves too fast and their world is very mature Tesla we believe is going to be the reason that electric vehicle sales go from 1.4 million units globally last year to what we believe will be twenty six million in five years in 2023 and what's what the the reason for this is battery pack system technology costs are falling so that an electric vehicle the average electric vehicle will be a lower in price in two years we believe than the average gas-powered car and will continue to fall in price in five years five to six years we see 15,000 US dollars as the average price for an electric vehicle whereas a gas-powered vehicle will still be at twenty five to twenty six thousand dollars that's the first reason and the second reason we think Auto analysts are getting this wrong is they do not believe in the concept of autonomous vehicles certainly not in the next two to three years we believe that Tesla is well on its way to delivering an autonomous vehicle and that autonomous vehicles are going to change cars from this one and done you purchase it upfront and there's no more business except for services to a recurring revenue model like ride-sharing that is a completely different model from the auto model recurring revenue models Transat transportation as a service software as a service models are hugely profitable companies auto companies are not so they're not even following this in the way we think they should as a very software centric high-margin model they've got a very hardware centric very low margin model so it's night and day what advice would you give entrepreneurs that are looking to start the next Tesla what's worked for me is you want to of course hire the talent that has one foot in the new world and buys into the mission and the dream critical right critical and then you want to give them a lot of responsibility make them accountable these people are usually very young people coming out of schools that are teaching them you know the leading edge of technology so you know let them use their energy and excitement to take the company to levels that it will not go without these young people and the other thing I think in terms of bringing in the right talent it must be multidisciplinary you can't have this siloed view of the world the world is going if you listen to this morning to the presentation either collaborative or cooperative and you need multidisciplinary people understanding you need the genomics analysts which knows the brain to work with the neural network technology guy who understands neural networks because they can help each other so I think that's a really important harness their energy harness their knowledge and let their creativity go what advice can you give Everett investors when they're looking to him well one thing to avoid are the indexes the indexes like in the u.s.
they be the sp500 global be MSCI world those indexes are populated today with what we believe are going to be value traps because they're going to be disrupted by all of the platforms that I just mentioned so do not put all your eggs in the indexed world in fact I have no eggs there I want to be in the innovation world it is not represented well by portfolios out there and I'm I don't think I'm supposed to be selling ours but that's all we do and that's why I founded the come it's because we know that the ground is shifting underneath us everybody knows that and they know they're not positioned correctly to capitalize on it so that's what we've tried to do at arc no thanks so much so interesting we could be we could be talking out for days thanks so much for your time and this is a fantastic talk on you know what to invest in what to look at the the new technologies hope you enjoyed this show and make sure to tune in and subscribe to exponential Africa and keep smiling
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