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i'm dr adam dorr a research fellow at rethinkx we are on the cusp of the most profound disruption of the energy sector in over a century this is a presentation about much more than just energy and about much more than just one disruption like others throughout history this disruption is the result of a convergence of several key technologies wait a minute i think i've heard this somewhere before these platforms cut across sectors they cut across geographies they cut across markets and importantly they are converging with each other to spawn new innovation let me set the stage here in november of 2020 rethink x an independent think tank focused on analyzing and forecasting the adoption of advanced technology and its impacts on society released a new report on the impending worldwide disruption of the energy sector in this video i'm going to show you the parallels between this rethink x report and archinvest's research methodology because dr dore is such a great speaker and the primary author of this report i'm going to let him do most of the talking what i'm going to do instead is move his presentation up a little bit and then show you ark invests research underneath but instead of showing you arkan best research on energy storage the topic of this rethink x talk i'm going to raise the stakes i'm going to show you ark's research for the seemingly unrelated topic of industrial robotics and see if rethink x's approach to analyzing disruptive technology still holds true my assertion is that rethink x and arc invest have both tapped into the same set of greater market forces and greater social forces that dictate the pace of technological innovation and adoption i'm not claiming that they're the same exact approach but i am claiming that they're similar enough that we can use rethink x's methodology to shed light on the disruptive technologies arc invest focuses on disruptive technologies like the ones they present in their annual big ideas report and if i can convince you of this then dr dor's explanation of the collapse of incumbent technologies in the energy sector can also serve as our guidelines to the collapses in other seemingly unrelated market sectors market sectors like the ones being disrupted by these same big ideas let's begin i'm dr adam dorr a research fellow at rethinkx we're on the cusp of the most profound disruption of the energy sector in over a century like others throughout history this disruption is the result of a convergence of several key technologies the costs of solar wind and batteries have been improving relentlessly for several decades and now incumbent coal gas and nuclear power technologies can no longer compete this makes the disruption inevitable because of economic forces alone the disruption won't happen everywhere at exactly the same time but for those regions that choose to lead the disruption a 100 solar wind and battery system is possible as soon as 2030. conventional coal gas nuclear and other power generation assets will be stranded by the disruption and so no new investments in these technologies is rational from this point forward in all technology disruptions cost is the fundamental driving force just since 2010 the cost of solar pv has fallen 82 percent or an average of nearly 16 percent per year we project that it will continue to improve at 12 per year during the 2020s and so by 2030 solar will be more than 70 percent cheaper than it is today the consistency is easier to see when the same data are viewed on a logarithmic chart and it's precisely this consistency that makes these trends so predictable in just two decades the cost of solar will have improved by a factor of 20. wind cost improvements are also substantial 46 since 2010 that's an average of almost 6 percent per year and we project 5.5 percent per year during the 2020s for another 43 percent by the end of the decade a 3x improvement in 20 years lithium-ion batteries are even more impressive 87 since 2010 averaging nearly 20 percent per year and we project 15 percent improvement during the 2020s totaling another 80 by 2030 for an astounding 45x improvement in two decades now conventional analyses almost always underestimate cost improvements during disruption costs improve as market supply and demand expand and the industry learns from experience but conventional analyses often make linear forecasts for market growth in reality disruption always follows an s-curve the first phase of which is exponential and this is what we're seeing now the global market for each of these three technologies shows a beautifully consistent exponential curve so why do disruptions follow an s-curve why do disruptions follow an s-curve not just battery technology not just wind not just solar all disruptions follow the same predictable pattern we need to change the way we talk about investing we need to reframe the conversation in terms of opportunities enabled by these disruptive technologies and the threats they pose to existing assets and before we can do that we need to develop the right vocabulary the good news is if i've convinced you that we can talk about all disruptions the same way whether we're talking about energy storage or robotics or genomics or blockchains or artificial intelligence then there's only one vocabulary that we as investors need to learn and luckily for us we have somebody willing to teach us the language right here so why do disruptions follow an s-curve the answer is that it's because they're driven by causal feedback loops for any new technology falling costs increase demand which attracts more investment in production that in turn expands supply and expanding supply lowers costs even further at the same time growing demand also triggers more infrastructure investment and government support which also increase supply as supply expands the technology itself improves the public becomes more accepting of it and network effects emerge around leading brands and platforms all of which drive demand growth even further so the entire process is characterized by acceleration with each feedback loop amplifying the others in a virtuous cycle in my opinion this is the same virtuous cycle that kathy wood talks about when she mentions the accelerating adoption of disruptive innovation in my opinion one way to measure this speed of this virtuous cycle is by wright's law which measures the relationship between supply production and costs which drive demand wright's law is fundamental to arc invest's overall investment thesis not only in how they pick their stocks but also in how they time their picks when they talk about technologies and companies riding declining cost curves they're explicitly saying they expect an exponential increase in demand to follow because of this virtuous cycle what simon sinek is talking about in his seminal ted talk about the law of diffusion of innovation and what malcolm gladwell is talking about in his book the tipping point both of which i'll link in the description below is the point at which enough people adopt or demand a technology that it hits escape velocity and becomes mainstream but this is only the positive half of the story remember these are disruptive technologies we can use the same vocabulary to target the technologies and companies being disrupted and at the same time growing demand for the new reduces demand for the old revenues for the old technology decline which causes supply to shrink a smaller supply means loss of economies of scale and so costs increase at higher costs which translate into higher prices demand falls less demand also means less profit less investment in production and infrastructure less government support all of which cause supply to contract further and that in turn reduces public acceptance and weakens network effects and so for incumbents the process is also an accelerating one where each factor catalyzes the others but in this case it's a vicious cycle of decline and less demand for the old drives all the more demand for the new now we've seen this pattern again and again for technologies of all different kinds throughout history and in each case the outcome is not a slow incremental transition but rather a rapid and total transformation of the market that takes place over the course of just a decade or so let me again show you that we can use this framework to understand arc invest's stock picks here's that s-curve of jobs fulfilled by autonomous robots again and you can see that most of the exponential growth occurs over roughly one decade before starting to slow down here's arkhanvest's estimates of crispr's penetration into agriculture we're in 2021 so let's look out one decade you can see that penetration will increase from the 5 to 15 mark today to 50 to 75 percent penetration of its biggest addressable markets in 2031. same thing here's the transition from horses and mules to motor vehicles in the u.s in 1915 barely any market penetration of the automobile by 1925 it has just as much as horses which was the primary method of transportation at the time you can even see the disruption take place on this chart as motor vehicles continue to penetrate their total addressable markets horse-drawn carriage companies faced serious disruption here's the decline in carriage companies from 1915 to 1925. the same period that automobiles saw their exponential growth what this shows us is that these virtuous cycles that help disruptive technologies take off are accompanied by equally drastic vicious cycles that force incumbents to either adapt or die out this is an absolute collapse of carriage companies so how come conventional wall street analysts don't see collapses like these coming now because the rate of change is slow in the early years it almost always takes conventional analysts and observers by surprise when disruption gets going we have every reason to expect that this disruption of energy by solar wind and batteries will follow exactly this same historical pattern the history of technology shows us that the exponential growth phase tends to continue until the new technology comprises about 75 percent of its global market ultimate size now because most disruptions make their markets expand this means that the new technologies often grow well beyond the size of the old system so the reason we can be so confident that the costs of solar and wind and batteries will keep falling through the 2020s is because the global markets for these technologies will continue to grow exponentially in the decade ahead conventional forecasts get disruption wrong major industry forecasts have made simple linear projections for the growth of solar for example year after year for 20 years now at the same time that disruption creates a new system it also wipes out the old system and this isn't theoretical it has already begun with coal in the united states year after year these same industry forecasts have been desperately trying to save coal from collapse with wishful thinking year after year these same industry forecasts have been desperately trying to save incumbent technologies like coal from collapse with wishful thinking in my very first video i said this hello and welcome to ticker symbol u the channel that invests in you my name is alex and in this video we'll be talking about how arc and vest will keep making history because they understand it better than anyone else and in my previous video on the collapse i showed you this in arkhanvest's view any company not investing aggressively in one or more of five major innovation platforms and 14 technologies evolving today run the risk of collapse the new world order is coming and we may not be ready for it we believe that there are five innovation platforms evolving at the same time this has never happened in history you have to go back to the late 1800s to see three innovation platforms evolving at the same time back then electricity telephone and the internal combustion engine for the 50 years through 1929 because of those innovation platforms we experienced a booming economy and very low inflation we see that happening with these five platforms which are already we believe for prime time the five innovation platforms upon which we base all of our research are dna sequencing robotics energy storage artificial intelligence and blockchain technology dr adam door has shown us the last piece of this puzzle that each virtuous cycle of a disruptive technology is accompanied by at least one vicious cycle of an incumbent technology being disrupted that means that this plot isn't just showing us the explosive growth of these new technologies it's also showing us the size of the collapse of the old ones conventional analysts and forecasts are getting it wrong because they don't understand exponential curves whether those curves are going up or down they aren't preparing for what's coming are you this is ticker symbol you my name is alex reminding you that the best investment you can make is in you