Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, I think one of the most interesting dynamics going
Speaker 2: on right now is that you have a White House
Speaker 2: and a lot of people in both parties, but specifically
Speaker 2: the White House right now, that are very set on
Speaker 2: reindustrializing manufacturing in the US. At the same time, actually
Speaker 2: existing US manufacturers are talking about, Wait, everything you're talking
Speaker 2: about is throwing our business into extreme chaos.
Speaker 3: Yeah, and we've had a lot of anecdotal evidence so
Speaker 3: far of this happening. So we've already mentioned at this
Speaker 3: point the Dallas Fed Energy Survey and a bunch of
Speaker 3: businesses in the oil patch saying that things are slowing down,
Speaker 3: they're having difficulty planning for long term capital investments. There
Speaker 3: was one anonymous company that basically said they were asked
Speaker 3: by a Canadian client if they could move production to Canada,
Speaker 3: which again seems to be the opposite of what you
Speaker 3: would assume the Trump administration is trying to achieve here.
Speaker 3: We've talked to Rian Peterson about factories slowing down production
Speaker 3: and things like that. And I think the big question
Speaker 3: here is, Okay, tariffs are on pause, but are we
Speaker 3: going to see lingering issues, lingering uncertainty because the assumption
Speaker 3: of business people is Trump could always turn them back
Speaker 3: on he could always start threatening them. And then the
Speaker 3: other thing I would ask is, there's actually so many
Speaker 3: questions that you could ask about all of this. But
Speaker 3: Trump keeps talking about how he wants to do both
Speaker 3: basic industrial manufacturing in the US, but also every once
Speaker 3: in a while he talks about, you know, doing really
Speaker 3: advanced stuff, and he wants to do everything I guess,
Speaker 3: and it seems really difficult to me to thread the
Speaker 3: needle between like very expensive high tech stuff where you
Speaker 3: have to pay people a lot, and then very I
Speaker 3: don't want to say it's cheap, because factories still cost
Speaker 3: quite a lot, but less expensive basic stuff.
Speaker 4: I don't know. Here's the thing.
Speaker 2: I want to set up a factory in the United
Speaker 2: States that's at the cutting edge of production.
Speaker 4: But some of the.
Speaker 2: Tools I might need for my factory might be made
Speaker 2: in Germany, or maybe they're made in China or Vietnam.
Speaker 2: And this seems like an issue. A couple of days ago,
Speaker 2: we had headlines a company called has, which I have
Speaker 2: to admit I had not heard of. They make c
Speaker 2: and see lathes talking about how they were like canceling
Speaker 2: over time, pausing all hiring, et cetera. Anyway, remember we
Speaker 2: were out in San Francisco and we visited Impulse Labs.
Speaker 2: They make that amazing stove. We had this great steak
Speaker 2: and boils water in like two seconds.
Speaker 3: Oh, it was so good.
Speaker 2: Like that stove seemed like one of those products that
Speaker 2: I would expect to see on TikTok from a Chinese
Speaker 2: propaganda video about how good they have it over here.
Speaker 2: But it's actually an American company like that, I said,
Speaker 2: think it actually exists here, and I kind of want
Speaker 2: to know what building that stove is like in a
Speaker 2: world of teriff.
Speaker 3: Yeah, and looking back on it now that we have
Speaker 3: Trump as president, there are a bunch of broader themes
Speaker 3: that it definitely touches on. So it's an electric stove,
Speaker 3: as you mentioned, electric battery in it. Yeah, electric versus
Speaker 3: gas has been in the midst of the culture war
Speaker 3: at various times recently. But then also it feeds into
Speaker 3: green technology. We're not really certain how Trump feels about
Speaker 3: green tech. He wants America to do cool stuff, presumably
Speaker 3: make cool products, but does that include electric things, batteries,
Speaker 3: green stuff? Again, I don't know.
Speaker 4: Well, let's find out some more.
Speaker 2: He cooked us an amazing steak several months ago, but
Speaker 2: now we're not tager steak. We're talking about the reality
Speaker 2: of us manufacturing. Back on the show, Sam Dimico, founder
Speaker 2: and CEO of Impulse Labs. Sam, thanks for joining us.
Speaker 4: Yeah, good morning everyone. It's been a fun week or so.
Speaker 2: I'm enjoying it in the news business. If you're having fun,
Speaker 2: I'm at least relieved that someone in industry is also
Speaker 2: enjoying it. Let's start with this question. Listeners can go
Speaker 2: back and check out our episode where we ate this
Speaker 2: amazing steak, and like I said, you make this amazing
Speaker 2: stove and it hits a battery in it and boils
Speaker 2: water in two seconds and it will never burn an egg.
Speaker 2: All this stuff, but just describe, like what do you
Speaker 2: build here? And what are the inputs of the stove,
Speaker 2: where do they come from? And then what do you assemble?
Speaker 5: So this is a really good question because you'll you
Speaker 5: might see how my brain works, because I'll like build
Speaker 5: it up from the base lego layer up. I'll try
Speaker 5: to avoid that because our listeners love this stuff.
Speaker 4: Yeah.
Speaker 5: Basically, think of this like you mashed a Tesla power wall,
Speaker 5: so like a Tesla home battery product with an induction
Speaker 5: stove with like a tablet computer, and then a bunch
Speaker 5: of sensor technology that requires us to do custom ceramic
Speaker 5: parts and other things that aren't in the normal induction
Speaker 5: stove supply chain.
Speaker 4: So that sounds like a lot.
Speaker 5: And what that means is the surface area of the
Speaker 5: types of stuff we touch as inputs is quite substantial.
Speaker 5: It is probably the best way to put it. It's
Speaker 5: like everything from lithium ion battery cells all the way
Speaker 5: to those customer ceramic parts in our temperature sensor which
Speaker 5: lets you hold exact temperature in the pan, to like chips,
Speaker 5: some of which are made in the United States, but
Speaker 5: most are not packaged in the United States, if that
Speaker 5: makes any sense.
Speaker 4: Yep.
Speaker 3: So where are you actually getting these things from? Like
Speaker 3: walk us through I guess the evolution of your suppliers,
Speaker 3: because I imagine it must have changed a little bit
Speaker 3: over time.
Speaker 5: Yeah, so I'll go through kind of like the transition
Speaker 5: of the company, because this is like key to kind
Speaker 5: of understanding how to build complex hardware. There's an Elon
Speaker 5: tweet I think it's actually a reply, but it's buried
Speaker 5: in the replies, but basically says the factory is the product.
Speaker 5: And this is incredibly true, where basically your supply chain
Speaker 5: is how you build stuff. It's kind of like you're
Speaker 5: picking a bin of legos effectively, and those legos may
Speaker 5: mostly already exist, and you try to minimize the number
Speaker 5: of new parts you have to make because like making
Speaker 5: a new Lego brick is complicated and requires you to
Speaker 5: make a new injection mold in that case. But if
Speaker 5: you've got a bin of legos, and that bin of
Speaker 5: legos is expansive and cheap, and then there's a lot
Speaker 5: of experience with team knowing how to put those legos together,
Speaker 5: like you have huge tailwinds and advantages. So basically first
Speaker 5: year or so of the company, we essentially built prototypes
Speaker 5: of like what we expected to need. And so the
Speaker 5: example there would be like we built like a single
Speaker 5: heating element temperature controlled stove prototype that ran off a
Speaker 5: battery that we sourced from like some low volume battery
Speaker 5: manufacturer or build ourselves. We needed to get the architecture right.
Speaker 5: We needed to know how to build the product like
Speaker 5: from a like it's almost like the specs you see
Speaker 5: on like best buy dot com. You kind of needed
Speaker 5: to figure out what those were and maybe some of
Speaker 5: the high level stuff and also enough to tell like
Speaker 5: your industrial designer and industrial designer is like the Johnny
Speaker 5: Ive type character that like defines how the product looks
Speaker 5: and feels and kind of like the interaction model and
Speaker 5: stuff like that.
Speaker 4: So we need to do that prototyping.
Speaker 5: But then at that point we basically were like, Okay,
Speaker 5: we know what we're going to make roughly, we don't
Speaker 5: know how we're going to make it exactly. Let's go
Speaker 5: start talking to what I call contract manufacturers to like
Speaker 5: help us basically bring this thing to production. And we're
Speaker 5: still like around twenty five people as a small team.
Speaker 5: There's a couple of different ways to actually go and
Speaker 5: design and build a product, and I think this is
Speaker 5: something that is not well understood even by hardware founders
Speaker 5: in many cases. So if you're a defense tech founder,
Speaker 5: your options are cut out for you because you can't
Speaker 5: go overseas and have a Chinese company or a cream
Speaker 5: company or a Taiwanese company co design the product.
Speaker 4: With you because that violet export controls.
Speaker 5: So you see hardware founders talk about this, there's kind
Speaker 5: of a I would I would almost call it like
Speaker 5: a split between folks that can use the consumer hardware
Speaker 5: supply chains and folks who can't.
Speaker 4: And so base we had kind of a choice.
Speaker 5: We'd go to like appliance contract manufacturer, or we could
Speaker 5: go to a consumer electronics contract manufacturer. And we basically
Speaker 5: realized it was easier to teach the consumer electronics guys
Speaker 5: how to do the specific appliance stuff because a lot
Speaker 5: of this faciliar plant stuff is handling large sheet metal
Speaker 5: parts and like big boxes and stuff like that.
Speaker 4: So we went to a.
Speaker 5: Consumer electronics manufacturer and then effectively co opted their entire R.
Speaker 4: And D team to help US co design the product.
Speaker 5: But the advantage of this approach is that we got
Speaker 5: to essentially co design it through their supply chain and
Speaker 5: their existing supplier relationships. We did not have to boot
Speaker 5: up that from scratch, which would have taken us I
Speaker 5: don't know, fifty to one hundred people, because we would
Speaker 5: have had, like, there's all these subdisciplines in hardware, and
Speaker 5: even if you only need to fractionally use them, like
Speaker 5: use zero point one percent of them or something like that. Well,
Speaker 5: that would be one headcount if you did it in
Speaker 5: the United States, or did it or even if you
Speaker 5: did it in Mexico and just were going alone. And
Speaker 5: so that's how we've actually been able to maintain a
Speaker 5: really small team.
Speaker 2: So I'm guessing the it sounds like the appliance manufacturer
Speaker 2: I'm guessing is in China. Talk to us about what
Speaker 2: is the You know, there is this existing manufacturing tech
Speaker 2: supply chain in the United States, as you said, it's
Speaker 2: centered around defense for good reason. You can't outsource that stuff.
Speaker 2: Talk to us about that capacity that exists in the
Speaker 2: United States currently or that could you know, like we
Speaker 2: hear the Gundo and all of these defense tech companies
Speaker 2: in southern California that are doing cool stuff. Talk to
Speaker 2: us about like these different options.
Speaker 4: Yeah.
Speaker 5: So I'm a friend and investor with a number of
Speaker 5: these folks. So it's actually really interesting to be like, look,
Speaker 5: what they're doing is admirable, but the volumes here are
Speaker 5: different by orders of magnitude. Okay, so let's actually put
Speaker 5: startups on the shelf, because instantly the startups will need
Speaker 5: like substantial public private partnership money to really scale, so
Speaker 5: it's a volume and some of that stuff is actually,
Speaker 5: to my knowledge is like potentially forthcoming, which is pretty exciting.
Speaker 5: But I need capacity now, so where would I go
Speaker 5: in the US to do it? And it's basically there's
Speaker 5: a couple different categories of contract manufacturer in the United States.
Speaker 5: The most famous ones are Jabel and Flextronics, and I
Speaker 5: actually this is over ten years ago. I've worked with
Speaker 5: Jabel on a project that was a I'll be ambiguous here,
Speaker 5: but you can figure it out if you poke a bit,
Speaker 5: but a ambitious ahead of its time augmented reality project okay,
Speaker 5: but effectively like there was a decision to make something
Speaker 5: like this in the United States. Also, Motorola successfully did
Speaker 5: a bunch of stuff in the United States as well,
Speaker 5: and historically always did. The issue is into the twenty tens,
Speaker 5: and this must be a I think the Great Financial
Speaker 5: Crisis was actually a much bigger story to this than
Speaker 5: any sort of like China trade policy decision. It was
Speaker 5: like the Great Financial Crisis plus China blasting through with
Speaker 5: investment in manufacturing was the real story. But effectively, none
Speaker 5: of these companies deal with startups anymore or if they do,
Speaker 5: it's specific kind of thing.
Speaker 3: So I remember when we were in San Francisco and
Speaker 3: you were making that very very good stake for us.
Speaker 3: We asked you about tariffs, right because they were already
Speaker 3: floating around, given what was happening with election odds between
Speaker 3: Trump and his competitor, and now here we are.
Speaker 4: Well.
Speaker 3: I think at the time we were talking about twenty percent,
Speaker 3: and you seemed kind of like confident that you could
Speaker 3: handle that. I think you said that that was your
Speaker 3: assumption that we were going to have tariffs, and that
Speaker 3: if they came online, you were going to be prepared,
Speaker 3: and you'd already been doing some stuff to handle it.
Speaker 3: I know what we've seen on China is dramatically higher
Speaker 3: than twenty percent so far, but how well positioned do
Speaker 3: you feel for something like that?
Speaker 5: Yeah, So I have a funny story, is one of
Speaker 5: our key suppliers cut prices enough to almost compensate for
Speaker 5: these tariffs as it. So China's reaction to some of this,
Speaker 5: by the way, is like I don't know if it's
Speaker 5: state subsidy or like they're viewing this stuff as temporary
Speaker 5: and like some of these let's call it well funded
Speaker 5: companies is like, no, they can power through it and
Speaker 5: not upset their existing supply relationships. But my sense is
Speaker 5: like there's something else that people aren't really factoring in,
Speaker 5: which is just how expensive the US is versus everything else. So, like,
Speaker 5: we got a lot of requests from consumers for like
Speaker 5: they're like, I have a thirty six inch stove, but
Speaker 5: I want to take it out and put an impulse in,
Speaker 5: which is thirty inch.
Speaker 4: How do you solve that problem?
Speaker 5: So we ended up designing and building an adapter that
Speaker 5: you can just put in and then you put our
Speaker 5: thirty inch stoven and it looks pretty nice too, And hopefully
Speaker 5: that goes on the website relatively soon. But I'm maybe
Speaker 5: spoiling this from marketing team. But basically we quoted that
Speaker 5: out in the US because we're like, this is a
Speaker 5: stamped sheet metal part, we should just be able to
Speaker 5: do that. In the US, that's simple seven hundred dollars,
Speaker 5: and it was like sub two hundred in China. So
Speaker 5: from a tariff standpoint, I don't know, Trump needs to
Speaker 5: up to hundre percent or something like that.
Speaker 2: So this is the headline American manufacturer who is heavily
Speaker 2: reliant on Chinese parts. Trump increased the terriff for three
Speaker 2: hundred percent. Now I'm just kidding, but anyway, go on,
Speaker 2: go on.
Speaker 5: But that's that's a simple seat metal part and you
Speaker 5: can imagine simple shoot. Yeah, And then I kind of
Speaker 5: like was like why and this was a Bay Area vendor.
Speaker 5: I won't dox them because they're actually great, but who
Speaker 5: are their customers? And it's like, if your customers are
Speaker 5: like Google street view vehicles, medical device companies that make
Speaker 5: like yeah, LiPo, like not liposeection, but those like cool.
Speaker 4: Sculpting machines, oh yeah, and like.
Speaker 5: Defense companies, you probably don't have cost sensitive customers. And
Speaker 5: the volumes and mixed level like when you get a
Speaker 5: big order from a customer, it's one hundred unit, it's
Speaker 5: not like one hundred thousand units. And so a lot
Speaker 5: of the US manufacturing capability is like exquisite and medium
Speaker 5: or low volume, or if it's high volume, it's incredibly
Speaker 5: automated and not retooling. So like, yeah, there's giant injection
Speaker 5: molding firms in the US that make like lawn shares
Speaker 5: or whatever, but like, good luck being able to call
Speaker 5: them up and being like can you make me like
Speaker 5: the underside enclosure for my stove or something like that.
Speaker 4: They'd be like, no, go away. So that's the point
Speaker 4: of like China.
Speaker 5: Being like extremely eager to take your business even if
Speaker 5: you're like a crank startup founder like me, versus the
Speaker 5: US being like almost like actively dissuading you from talking
Speaker 5: to them.
Speaker 2: I've heard this, Like people will say, like, you know,
Speaker 2: you can WhatsApp the uh maker of some factory owner
Speaker 2: at one in the morning. I saw some tweets about
Speaker 2: this at one in the chat.
Speaker 4: Yeah, and you can't.
Speaker 2: Yeah, you can chat the factory owner like one in
Speaker 2: the morning and they'll get back to you with a
Speaker 2: quote in like five minutes.
Speaker 4: Yeah.
Speaker 5: I've gotten battery vendors email me cold being and these
Speaker 5: guys like represent fairly large scale battery vendors. They're like
Speaker 5: email me cold and they're like, what's your spec? And
Speaker 5: I just like email them back like three lines and
Speaker 5: then I get like a quoted design from them.
Speaker 3: It's weird, okay, just on the pricing note, I mean,
Speaker 3: it does feel like the outlook for American inflation certainly
Speaker 3: depends on how companies decide to pass on or not
Speaker 3: pass on all these additional tariff costs. Do you get
Speaker 3: the sense that some of that depends on your relationship
Speaker 3: with your supplier and how important you are for that business.
Speaker 3: So I imagine, for instance, we've had news this week
Speaker 3: saying that Walmart is trying to negotiate even lower prices
Speaker 3: with its Chinese suppliers. I don't think it's been successful
Speaker 3: just yet, but you can imagine Walmart is a huge, huge,
Speaker 3: gigantic business and a really important one for a lot
Speaker 3: of Chinese companies. So maybe they'll end up being successful
Speaker 3: at it versus a startup that's only making a limited volume.
Speaker 3: Maybe the suppliers don't care about that business that much
Speaker 3: and we'll treat it differently.
Speaker 5: Yeah, So, I mean I think there's a couple questions
Speaker 5: going on too, because again, China runs a different industrial policy,
Speaker 5: Like there's kind of this debate on the tariff side,
Speaker 5: but it's like what is trying to actually do? And
Speaker 5: could we rerun their playbook? And it's like China has
Speaker 5: the equivalent of like state level champions. It's almost like
Speaker 5: bid is like Guandong Province's champion, so you can be
Speaker 5: like that's California's champion, and then c ATL is like
Speaker 5: Texas is champion kind of thing, and the money flows
Speaker 5: from this national government into the provincial governments. The provincial
Speaker 5: governments actually like are the ones helping boost a lot
Speaker 5: of these things because there's almost like delegated control. But
Speaker 5: what this means is there's an aspect of competition here
Speaker 5: where in China. It's not just like especially at the
Speaker 5: Walmart level, like you're in competition with your rival province
Speaker 5: to get that business.
Speaker 1: Oh yeah, yeah.
Speaker 2: This is a really important aspect of Chinese capitalism that
Speaker 2: I think people don't really realize is how intensely the
Speaker 2: province levels compete with each other. And you know we
Speaker 2: have that here right like you.
Speaker 3: Know, I think we'll have more of it here.
Speaker 5: But the thing but people don't understand the way the
Speaker 5: works there different. It's like because it's a single party system. Yeah,
Speaker 5: it's almost like Gavin Newsom's boss is Donald Trump, vers
Speaker 5: is their arrivals with different systems.
Speaker 2: This is a really important point. The governors of American
Speaker 2: states are incentivized to win re election. The provincial leaders
Speaker 2: in China are incentivized to rise up within the Chinese
Speaker 2: Communist Party, and they do that based on various goals
Speaker 2: that are set. And so even though you have some
Speaker 2: analogy of state versus state competition with exists here and
Speaker 2: on service that might have looked like provincial competition, the
Speaker 2: reality is that in the US system, it's not obvious
Speaker 2: that any given governor is actually optimizing for economic performance
Speaker 2: as opposed to reelection. And of course sometimes that might
Speaker 2: be correlated good economy more likely to be reelected, but
Speaker 2: certainly not at all. And I think this is like
Speaker 2: a very interesting difference. But let's say we accept this
Speaker 2: premise and I kind of do that is not great
Speaker 2: for the world to be so dependent on China for
Speaker 2: manufactured goods, et cetera, Like is there a middle path here?
Speaker 2: Like what would you're Okay, someone hears this from the
Speaker 2: White House, Like, Sam, you're into manufacturing, You've worked with
Speaker 2: all these companies. We want to be able to have
Speaker 2: a competitive stovemaker here in the US that doesn't have
Speaker 2: to rely on a sheet metal company in China or
Speaker 2: a final assembly in China. Like give us some outlines
Speaker 2: of what you think needs to be fixed here or
Speaker 2: dressed addressed here.
Speaker 5: So let's actually look at who has solved this problem. Okay, Yeah,
Speaker 5: what BS he had to deal with. It's funny that
Speaker 5: when I say who and then I use.
Speaker 4: This single, we all know it's Elon.
Speaker 5: We know we all know it's Elon, And so how
Speaker 5: the ever living crap this guy pull us off? Yeah,
Speaker 5: and I think I've spent way too much time thinking
Speaker 5: in reverse engineering this because it's really important. But I'll
Speaker 5: use a very simple example. Do you all remember when
Speaker 5: people were making fun of him for building a factory
Speaker 5: any tent in the Fremont parking lot.
Speaker 2: I do remember the tent. People shouldn't made fun of him,
Speaker 2: especially in retrospect.
Speaker 5: I mean it was it worked, so to refresh this
Speaker 5: for the list. This was like during the Tesla Model
Speaker 5: three ramp. They realized they like over automated and over
Speaker 5: complicated the factory with exquisite shit. They then were like,
Speaker 5: this line is misconfigured and we can't fix it because
Speaker 5: there's not enough room in the building. But the problem
Speaker 5: is if you wanted to build a building next to it,
Speaker 5: Let's just say that California is a den of vipers
Speaker 5: and those vipers' names are Nimbi's and you would not
Speaker 5: be able to permit a new building in the time
Speaker 5: that it would take or in Tesla's remaining time left,
Speaker 5: if that makes any sense. Yeah, and you probably couldn't
Speaker 5: get it done in three years, even just because we've
Speaker 5: essentially made building in the built world next to engineers
Speaker 5: illegal effectively, because like if it's a rich area, there
Speaker 5: are nimbi's, and the nimbi's have infinite power. And so
Speaker 5: what Elon did was he realized, you know what those
Speaker 5: like graduation tents or like the tents they.
Speaker 4: Put over the.
Speaker 5: Football stadiums in like the Winner, like you go one
Speaker 5: of the and they basically just put it in the
Speaker 5: parking lot, and they moved all the factory and they
Speaker 5: set up a mostly manual line to continue producing model
Speaker 5: trees and ended up working. They ended up reconfiguring the
Speaker 5: line inside, and the company didn't die. But there's a
Speaker 5: million examples of this where it's kind of like Elon
Speaker 5: versus the built world, where he just decided to say
Speaker 5: no and figure out some sort of like I wouldn't
Speaker 5: call it illegal, but like almost illegal loophole. And then
Speaker 5: he also assembled probably the best team in litigation in
Speaker 5: terms of like permitting and all that type of stuff.
Speaker 5: So he's gotten an advantage versus everyone else in terms
Speaker 5: of busting through all this stuff.
Speaker 3: Hey, an almost illegal loophole is still illegal loophole, right, yeah.
Speaker 5: I mean it's like you have to be kind of
Speaker 5: like a goblin here, right, Like you gotta be like, okay,
Speaker 5: let's figure out this tension of parking lot thing that
Speaker 5: a mere mortal wouldn't have gotten that dring. It's like
Speaker 5: you basically have to be out in space where like
Speaker 5: these ideas would just be laughed at by like a
Speaker 5: mere mortal here.
Speaker 4: Right. Wait.
Speaker 3: So the other thing that Elon is kind of well
Speaker 3: known for doing is a lot of vertical integration over
Speaker 3: the years, so you know, not just sourcing supply from
Speaker 3: overseas and particular companies, but actually controlling all those different
Speaker 3: stages of production, having investments in some of those companies
Speaker 3: so that he can order whatever he wants at the
Speaker 3: scale he wants, however fast he wants. Is that something
Speaker 3: that could potentially happen as some of these tariffs get
Speaker 3: ratcheted up, or is the concern for companies that, you know,
Speaker 3: maybe you invest in a Chinese supply, well, I don't
Speaker 3: even know if you could buy a Chinese supplier. I
Speaker 3: don't think you could buy it wholesale. But let's say
Speaker 3: you invest in, I don't know, a Mexican company, Suddenly
Speaker 3: Trump changes his mind on something. There's a lot of
Speaker 3: uncertainty over how he feels about international capital flows. All
Speaker 3: of that is that a risk or is vertical integration
Speaker 3: one possible solution to some of the pressures we've been
Speaker 3: talking about.
Speaker 5: So I mean, I'll always blunt and say that I'm
Speaker 5: not sure if anyone's going to make any decisions in
Speaker 5: this direction within the next ninety days unless they've got
Speaker 5: insider information.
Speaker 4: Yeah, So that's that's for one.
Speaker 5: Like I think, I think basically, like the frothiness of
Speaker 5: the current situation makes it hard to plan ahead. And
Speaker 5: I'll say that, like you know from my position as well.
Speaker 5: But yeah, vertical integration is clearly I mean, there's like
Speaker 5: two different types of vertical integration. And I think what
Speaker 5: I would caution people is like a lot of tech
Speaker 5: founders take after Elon literally but not understanding why, like
Speaker 5: the real reasons why. So I'll say, where you can
Speaker 5: get screwed by vertical integration is like it's I was
Speaker 5: hinting at this earlier, but basically, let's imagine I build
Speaker 5: something like the stove and I obviously there's metal parts
Speaker 5: in there, so I need like a metal tooling designer
Speaker 5: to like design the stamping tools that like end up
Speaker 5: stamping at metal parts. But let's imagine I only need
Speaker 5: that tooling designer for like a month for the whole
Speaker 5: program for two years, and so if I vertically integrate,
Speaker 5: like I go and hire that person to work on
Speaker 5: my team, there's no way that someone's going to go
Speaker 5: work for me for two months. And if I end
Speaker 5: up stocking up every discipline I would need to basically
Speaker 5: be fully self sufficient, I might have one hundred to
Speaker 5: two hundred people and be burning hundreds of millions of
Speaker 5: dollars on a program, which is fine if I'm building
Speaker 5: stuff at the scale of Elon, right like if I
Speaker 5: If I'm doing it that way, it's like SpaceX can
Speaker 5: likely fill that tooling engineer's time with a million different things,
Speaker 5: not just like one model of starlink dish, But me,
Speaker 5: as a much smaller startup, cannot do that.
Speaker 3: You know, you mentioned how you don't think anyone is
Speaker 3: making major decisions right now, and we started out this
Speaker 3: conversation talking about whether or not all this back and
Speaker 3: forth on tariffs was going to generate long term uncertainty,
Speaker 3: and we know that the one thing both the business
Speaker 3: industry and markets actually hate is a lot of uncertainty.
Speaker 3: What would it take for you to, I guess, feel
Speaker 3: better about making some long term plans.
Speaker 5: Yeah, so, I mean this also goes to I can
Speaker 5: also mention the vertical integration side of this for a
Speaker 5: little bit as well, which is like the level of
Speaker 5: vertical integration we did was basically like we control every
Speaker 5: aspect of our supply chains. It's not like if we
Speaker 5: go and move stuff, we still know how like all
Speaker 5: the subcomponents are designed, which is very different from how
Speaker 5: like stoves are normally assembled, which are closer to like
Speaker 5: pre Testla cars, And so our ability to kind of
Speaker 5: like have control and micromanagement of the whole of everything
Speaker 5: that goes in the product is unique, despite the fact
Speaker 5: that there are layered sub suppliers and stuff like that.
Speaker 5: But yeah, that said, like my senses, as soon as
Speaker 5: there are deals going in place in like cell the East,
Speaker 5: Asia or Mexico, like we're not realizing that there's gonna
Speaker 5: be some random Mexico tariffs or something like that, this
Speaker 5: gets a lot easier in terms of constraints because like
Speaker 5: we were very conscientious to select our suppliers to make
Speaker 5: sure that we were able to locate manufacturing somewhere that
Speaker 5: was lower zero tariff. But yeah, the big issue too
Speaker 5: is like I think the fact that the tariffs were
Speaker 5: seen as while accomplishing multiple goals, meant that they couldn't
Speaker 5: succeed in any way. And the example I would give
Speaker 5: is like, why are we taxing inputs for domestic manufacturers.
Speaker 5: I went and actually looked at this right now, and
Speaker 5: I'm like, I want to manufacturing the United States something.
Speaker 4: I'm like dead set on doing that at some point.
Speaker 5: If I imported my bomb build of material, so like
Speaker 5: the list of crap that's in your product, if I
Speaker 5: imported that to the US and started manufacturing it right now,
Speaker 5: it's like I'm sub just that China one and twenty
Speaker 5: five percent tariff. I'm not magically going to get a
Speaker 5: ceramics vendor that knows how to make our temperature sensor tomorrow.
Speaker 5: It's going to take probably six months to figure out
Speaker 5: and qualify vendor. Plus, like you're not guaranteeing the same process.
Speaker 5: So like standing up a factory takes like eighteen months
Speaker 5: for the stuff and it's sort of recursive down the
Speaker 5: supply chain. So like if I was suggesting some of
Speaker 5: the administration, it would be like, we should figure out
Speaker 5: a way where you can basically get all of the
Speaker 5: input tariffs refunded and then maybe figure out like how
Speaker 5: to move the levels of abstraction down over time, because
Speaker 5: like doing final assembly of our stove is like it's
Speaker 5: not something where like we need to rely on cheap
Speaker 5: labor or anything like that. It's like it's like the
Speaker 5: hard steps are mostly automated. The expensive subcomponents assemblies is
Speaker 5: almost completely automated, like the circuit boards and stuff like that. Like,
Speaker 5: this is not something that is like hard, like impossible
Speaker 5: to move to the US, if that makes any sense.
Speaker 2: This actually strikes me as a very interesting phenomenon, which
Speaker 2: is that when people think about the constraints to US production,
Speaker 2: they say, oh, our labor is more expensive. What you're
Speaker 2: saying is so many which more interesting. What you're saying
Speaker 2: is that it's not that the labor is expensive. It's
Speaker 2: not that there's like a bunch of expensive assembly line labor.
Speaker 2: It's that what little labor there is are well paid people,
Speaker 2: and well paid people are Nimbi's and Nimbi's don't like
Speaker 2: new factories, and that that is the dynamic, not on
Speaker 2: the floor wage costs, but the political economy of the
Speaker 2: people running advanced plants preventing the production of the advanced plants.
Speaker 4: Yeah.
Speaker 5: Actually, I would even be like, you're like, why can't
Speaker 5: we have Shenjin in the United States? Yeah, well you
Speaker 5: would need to put it in the Bay Area because
Speaker 5: that's where that's where the engineers that are like the challenges.
Speaker 4: Yeah, and Dean Preston's going to block you is the story.
Speaker 5: Because also, by the way, like if you go look
Speaker 5: at kind of like the Sierra Club breed of Nimby,
Speaker 5: like those folks are starting to actually get more favorable
Speaker 5: towards housing construction, but when they hear the word factory,
Speaker 5: they assume like the river has turned yellow, not like, yeah,
Speaker 5: we make some trash and it gets trucked out into
Speaker 5: a landfill like consumer ly trins factory. It's like Amazon
Speaker 5: warehouse like in terms Basically, the thing is these factories
Speaker 5: are more like Amazon warehouses in terms of industrial emissions
Speaker 5: than like probably less actually because there's no vehicles driving
Speaker 5: through it. Then the like heavy industry plants of your
Speaker 5: and the labor situation looks more like again like an
Speaker 5: Amazon warehouse than the Triangle shirtwaist factory or whatever. And
Speaker 5: we clearly allow Amazon warehouses in our communities, so.
Speaker 4: Why not this.
Speaker 5: But basically the thing is if you go to Byd
Speaker 5: or similar places and you go to the HQ and
Speaker 5: you see all their lineup of amazing vehicles, and like
Speaker 5: you go inside their showroom, there's just like they literally
Speaker 5: build everything. Yeah, you walk outside and directly across the
Speaker 5: street there are high rise apartment buildings for the workforce.
Speaker 5: Contrast that with Tesla where they're Fremont Factory. You walk
Speaker 5: outside and it's all low rises. The Tesla does not control.
Speaker 5: And then you go and ask the factory workers where
Speaker 5: they're coming from, and they're all coming from like the
Speaker 5: Central Valley. They're commuting two hours a day plus to
Speaker 5: work at a factory because there is not enough housing
Speaker 5: that is affordable for those factory wages.
Speaker 3: Well, Elon also wants his workers to sleep in the
Speaker 3: office in the factory. Right. And also, I mean in America,
Speaker 3: I would assume we're kind of talking about company towns here,
Speaker 3: like corporate compounds for employees in America. That's I think
Speaker 3: a lot of people might push back on that.
Speaker 5: Well, so I'll give an example of this where if
Speaker 5: you want cheap, the problem effectively is like, so Shanzen
Speaker 5: actually has an interesting conundrum that is worth discussing here
Speaker 5: because in China the primary savings vehicle is also real estate,
Speaker 5: right almost to a fault, and they almost have like
Speaker 5: let's call it like universal prop thirteam, Like they don't
Speaker 5: really have property texts.
Speaker 4: You buy the thing and it just like you hold it.
Speaker 5: And because of that, home prices are really expensive, like
Speaker 5: we're talking million plus in Shanzhen. No problem, And so
Speaker 5: how do you actually get workers, some of which are
Speaker 5: paid like and by the way, the engineers at these
Speaker 5: factory detention are are not paid super well. But like
Speaker 5: you can imagine with purchasing power parity whatever, it's like
Speaker 5: it's even like sixty seventy K in the United States
Speaker 5: kind of thing is probably the way to put it.
Speaker 5: But like, imagine I wanted to get a sixty K
Speaker 5: junior engineer working at Tesla's factory in Fremont today, there's
Speaker 5: a housing price issued convincing them to move to the
Speaker 5: Bay Area, right, And so in a sense, it's like
Speaker 5: the US needs to solve housing near where the top
Speaker 5: technical talent is.
Speaker 4: And then one way to.
Speaker 5: Solve that housing problem without running into let's call it
Speaker 5: people being upset their home prices have gone down, is
Speaker 5: to do this factory town factory compound approach, where like
Speaker 5: you have to work at Tesla to get the Tesla housing,
Speaker 5: which then means that the Tesla housing doesn't necessarily deflate
Speaker 5: Palo Alto households or whatever.
Speaker 2: I just have one last question, which is you talked
Speaker 2: about how in you know, in the versioning defense tech
Speaker 2: sector and other areas public private partnership. I don't know
Speaker 2: if there's new administration has any interest in that. It
Speaker 2: doesn't seem like it, but maybe on defense I wouldn't
Speaker 2: be surprised. But talk to us about like VC funding
Speaker 2: and their demands and their willingness or unwillingness to sort
Speaker 2: of fund Basically, where's the funding come from for real
Speaker 2: risky upfront capital outlay if we're talking about US manufacturing.
Speaker 5: Yeah, So, I mean, I think some folks successfully raise
Speaker 5: for this in like twenty twenty one, twenty twenty two,
Speaker 5: but there's like it's honestly, there's a missing piece here, right,
Speaker 5: So the problem is the US has an awesome stock
Speaker 5: market well until this week.
Speaker 4: Yeah, But basically, if.
Speaker 5: I want a three x return on something, there are
Speaker 5: a million different competing things to do, So I have
Speaker 5: to be uniquely obsessed with reindustrialization to like kind of
Speaker 5: do something like that, like basically build a plant that
Speaker 5: maybe three x's or something like that. It does not
Speaker 5: have VC shape returns, is the problem. Yeah, and their
Speaker 5: LPs are folks that are allocating into other types of
Speaker 5: businesses or other types of investment vehicles, not just VC
Speaker 5: that have those return profiles. So it's this weird game
Speaker 5: of like the VC mandate is to basically fund advanced
Speaker 5: technologies with disproportionate return, But hey, I want to build
Speaker 5: a lift the m myron phosphate battery plant. We still
Speaker 5: we seem to keep not succeeding at that because you
Speaker 5: don't have like an advantage versus a Chinese plant. But
Speaker 5: if I had went and invented like a new type
Speaker 5: of battery material that three x is my energy density,
Speaker 5: a VC would love to back that.
Speaker 4: But even then it's like do you invent that? How
Speaker 4: do you actually get.
Speaker 5: Enough funding to build a plant to supply that to
Speaker 5: all the automakers, you end up in this missing what
Speaker 5: I think it's called like a missing middle situation. And
Speaker 5: maybe this is more of an ask of private equity,
Speaker 5: but like we need to get a little more ambitious here,
Speaker 5: and maybe the right answer is like the government plus
Speaker 5: private equity plus the banks need to get together and
Speaker 5: figureigure out how to address some of these gaps. Basically
Speaker 5: Elon again, I'll go pick on Elon because he's again
Speaker 5: he's the only got.
Speaker 4: To figure this out.
Speaker 5: It's traditionally been the case where like you need to
Speaker 5: figure out the kind of like increasingly growing lily pads
Speaker 5: to hop to when you're like a frog. Yeah, and
Speaker 5: eventually you get to a big one. But this is
Speaker 5: not how like we built giant factories in World War Two.
Speaker 5: It's like, this is not how we did this sort
Speaker 5: of scale out in the past, requiring sort of like
Speaker 5: you're almost like not doing the thing you eventually need
Speaker 5: to do going you have to kind of.
Speaker 4: Keep growing again.
Speaker 5: I think Elon has solved this by being his own
Speaker 5: fund in a sense, like he raises from VC, but
Speaker 5: in some sense he's like an aggregation point where he's
Speaker 5: like the general partner of Elon Industries.
Speaker 4: Effectively, and that's a hybrid VCP fund.
Speaker 2: Yeah, Sam Demiko, perfect guest to talk right now. Thank
Speaker 2: you so much for coming back on odd Lunch.
Speaker 4: That was great. Thanks for hosting Tracy.
Speaker 2: In that conversation, we talked about Nimbi's and Yimbie's provincial
Speaker 2: competition between China and how that compareson contrast versus state competition,
Speaker 2: the limits to VC funding models in terms of domestic reindustrialization.
Speaker 2: We hit a lot there that was a very like
Speaker 2: that was a media Odd Lots conversation.
Speaker 3: There was so much there. I really thought, you know,
Speaker 3: sound was going to come on and be like, oh, yeah,
Speaker 3: we're looking for a new supplier in a country that
Speaker 3: is not China, or we're thinking about maybe switching some
Speaker 3: production domestically. That didn't come up, which kind of tells
Speaker 3: you something. But yeah, he hit some pretty big structural
Speaker 3: themes I think.
Speaker 2: Yeah, I mean, this is just the thing, like a
Speaker 2: lot of people accept this premise that the US should
Speaker 2: not be so dependent on China for various manufactured.
Speaker 3: Goods, right and others as well.
Speaker 2: Yeah, I mean this was big under the Biden administration,
Speaker 2: is obviously big under Trump.
Speaker 4: One.
Speaker 2: Many people are concerned about this, but like when you
Speaker 2: just look at the reality of actually existing supply chains,
Speaker 2: that doesn't exist, and like, okay, like these immediate tariffs
Speaker 2: go into plays, they don't exist, and I think, you know, look,
Speaker 2: we're recording this right now, April tenth to eleven forty seven.
Speaker 2: We see the Nasdaq it's down four point eight percent
Speaker 2: again after Wednesday's big rally. It's sort of I think
Speaker 2: today is about syncing in. Even with all else aside,
Speaker 2: this gigantic tariff on China is massively disruptive and there
Speaker 2: is no short term path for reshaping supply chains, right.
Speaker 3: And I think the other interesting point that Sam brought
Speaker 3: up was this idea, well, you know, there is an
Speaker 3: adjustment cost, and there's a certain amount of time you
Speaker 3: need to actually make that adjustment to your point, And
Speaker 3: it would be helpful if the administration maybe a sempted
Speaker 3: certain things that it thinks are important to the kind
Speaker 3: of American manufacturing that it wants to actually see that
Speaker 3: hasn't happened. I don't know why not. I thought it
Speaker 3: was kind of funny. Did you see, So the US
Speaker 3: has been importing more eggs because of egg prices, egg shortages,
Speaker 3: and apparently those are going to be tariff too, so
Speaker 3: kind of kind of weird.
Speaker 2: The Elon tenth story, I did not realize so interesting
Speaker 2: that actually was. I thought I sort of thought it
Speaker 2: was like, Oh, they didn't have space in the factory,
Speaker 2: so they're like throw this, And I did not realize
Speaker 2: that that was actually a story about zoning, permitting, et cetera,
Speaker 2: and that that was really about finding some loophole in
Speaker 2: the law to stand up a manufacturing facility rather than
Speaker 2: go through like a multi year process. That's fascinating to me.
Speaker 3: Did you never have to like be in a sort
Speaker 3: of outflow like trailer while you were at school, Oh,
Speaker 3: because they were working on something or there wasn't any
Speaker 3: more room, they couldn't build any new space. That happened
Speaker 3: a lot to me. Yeah, So I kind of imagine
Speaker 3: Elon doing the same. On that note, shall we leave
Speaker 3: it there?
Speaker 4: Let's leave it there.
Speaker 3: This has been another episode of the Audlots podcast. I'm
Speaker 3: Tracy Alloway. You can follow me at Chracy Alloway and.
Speaker 2: I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guest Sam Dimico, He's at s Dimico. Follow
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