It seems like the Warren Buffett and Elon Musk innovation versus moats debate is about a couple of billionaires having fun publicly splitting hairs. Musk, CEO of Tesla Inc. (TSLA), stated, during his May 2 earnings call, “what matters is the pace of innovation.” Whereas, Buffett, head of Berkshire Hathaway (NYSE: BRK-B), believes that successful companies should have a moat, which is some level of competitive advantage that acts as a protective barrier.
While moats can come in many forms, like Coca-Cola’s (NYSE: KO) name brand awareness, they’re usually about an inherent advantage, like Apple’s (NASDAQ: AAPL) innovation and integration combo that motivated Buffett to snatch another 75 million shares, for Berkshire Hathaway, last quarter.
A perfect example of the innovation moat scenario is Kraig Biocraft Laboratories (OTCQB: KBLB), the leading, and only peer reviewed, Spider Silk technology. Because Spider Silk is believed to have so many high-end applications, including potential anti-ballistic and medical uses, many efforts have burned through over $1 billion, collectively, in trying to solve the mass production of Spider Silk riddle and Kraig Labs has not only solved the riddle, but it created an ingenious and very cost effective solution.
By creating, with the University of Notre Dame, transgenic silk worms that produce recombinant spider silk, Kraig Labs built a very deep moat. However, Kraig Labs didn’t believe its moat was wide enough, so it accepted an invitation from the Vietnamese government to set up production and, after several years of working through that country’s bureaucracy, it was just awarded an Enterprise Registration Certificate (ERC), which it will use to green light operations in that country.
Since Vietnam already has the infrastructure to support the biotech’s spider silk production needs, Kraig Labs believes that the issuance of the ERC is the most significant event in its commercialization process, because that allows Kraig Labs to widen its very deep moat.
Whereas it’s thought that Kraig Labs’ current competitors, which collectively raised about $300 million are looking to commercialize fibers that are projected to cost $35,000-$50,000 per kilo to produce, as opposed to Kraig Labs’ fibers that can be produced at price points much closer in line with traditional silk pricing, due to their transgenic silkworms and the existing silk infrastructure in Vietnam.
While Kraig Labs could have established production in other lower cost countries, by setting in Vietnam, Kraig Labs is better positioned to accelerate its pace of future innovation to further widen its moat.
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