How LA Is Quietly Becoming America's New Industrial Tech Hub

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1:28Tracy Alloway:Hey, Odd Lots listeners, the Odd Lots tour continues and our next stop is in Chicago. That's right. Joe and I will be at the City Winery Chicago on October 15th for a live Odd Lots recording. Tickets are on sale now at Bloomberg.com forward slash Odd Lots. And of course, a special thank you to Barclays for supporting Odd Lots Live. So that's October 15th at City Winery in Chicago. Get your tickets now.

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2:11Tracy Alloway:Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. So we're doing our live show here at the Vermont Theater in Hollywood. And one of the things that I know very little about, but that I'm very excited to learn more about, is the attempts to turn this part of the country into a booming part of our industrial tech ecosystem. Yeah, so we hear about re-industrialization efforts in America all the time, but what does it actually take to try to do that? And what are the companies actually doing in this space right now? We have two very interesting ones for you.

2:47Tracy Alloway:Yes, I'm very excited. You're going to be hearing our chat with Chris Power. He is the founder of Hadrian, which is trying to build a new generation of factories, as well as Tom Mueller, founder of Impulse Space, also the first employee of SpaceX. We're going to learn about these attempts to re-industrialize Southern California. Take a listen. All right. Well, thank you so much for coming on All Thoughts. Truly the perfect guest. I'm going to start with, I guess, the question I alluded to at the beginning, which is, what is your narrative for the hollowing out, to use a cliche, of U.S. manufacturing?

3:24Why does it seem that we lost some sort of edge? Chris, do you want to start? I do. And I think the first question is, do you want the accurate answer that's going to take three minutes or the political one? How long does the political one take? Can't you do both? So here's what happened. But it happens in context. So every great power of all time does four very simple things. They have some generative population function. They have the best industrial capacity. and then they win or prevent a war and then they get incredibly lazy and they end up with a financial industry and they offshore what made them successful in the first place.

4:18And by the way, this function is represented in the trade of the reserve currency of the world. So the last three times this happened, the Netherlands ceded power to the British Empire and the British Empire ceded power to the American Empire and in each moment of industrial power being retraded by financial power, you switch the reserve currency of the world. And the mistake that everyone makes, because you have four or five generations of softness, is that just because you have the reserve currency means you rule the world and you forget the fact that the only reason you have the reserve currency is because you had the best shipbuilding capacity or manufacturing capacity.

5:02So this is also the founding story of Hadrian, which is if you track these things, roughly every 150 years, the reserve currency of the world changes. And the reason is because you think you're Mike Tyson in your prime, and the other guy or gal thinks you're Mike Tyson before the Buster Douglas fight. And the pattern remains the same. So the founding story of Hadrian and the answer to your question is the reason why it's important is because you've ultimately traded spreadsheet returns from a high-effect and luxury of belief society, and you've forgotten that the world is real, and eventually that comes back to bite you.

5:46Tracy Alloway:We just did an episode with Francis Fukuyama, and so we're very well acquainted with this fantasy that the world comes... You're in the fourth turning. Okay. Wait, wait, wait, wait. Just out of curiosity, before we go to Tom on that question, how often do you think about the roman empire i'm assuming a lot uh a lot in the sense that i think that um america was so everyone knows like what a weeaboo is yeah a what there's a lot of laughs so america was founded by a lot of romaboos which is like obsessive roman So a lot of the fundamental infrastructure of the Fourth Estate and Congress was Roman.

6:32The flaw that happened with Rome is eventually the elites lost the capacity to connect with reality. So in a sense, what you outsource when you have the reserve currency is reality, and then you get bitten in the ass. and yeah. Tom, what's your version of the decline of U.S. manufacturing story and do you also think about the Roman Empire? Well, first of all, I'm gonna put on my glasses to try and be as smart as this guy.

7:05My take on that was, you know, being a founding employee at SpaceX, we, you know, I still say we because I still feel like I'm still at SpaceX even when I left there five years ago. We launched 165 rockets last year, more than any other country. And we put 10 ,000 satellites in orbit, three times everybody else's number of satellites. So tell me again why we can't build in the U.S.? Okay.

7:35Tracy Alloway:Great answer. Optimistic. All right. I'm going to ask you, I promise this will be the most cynical question that I ask tonight. I promise. And I'll ask it to both of you. We all love the sound of, quote, re-industrialization. It makes us feel really good. There's a lot of imagery associated with re-industrialization that we like. We like the image of factories and all these things. There's this very cynical part of me that when I hear, say, like VCs and founders talk about all of this stuff, that really what they want to do is they want to go on podcasts and give their theory about the decline of empires and that they're actually no offense that was it and i believe you but that and then i'm like yeah but where's the thing that you've built so why don't we start with you and both of you and maybe give me why don't you tell me what you're doing and tell me why i should believe it's real rather than creating good footage for a 90 second tweet so my company is impulse space.

8:39I started it within six or eight months after I left SpaceX in 2020 or 2021. Sorry. And we do in space transportation. So we still use SpaceX and other rockets to get to space.

8:53Tracy Alloway:Okay. Everything I build operates in space. So we take over where launch vehicles leave off. So think of a launch vehicle, especially like Starship, a gigantic launch vehicle that can take 100 tons to orbit. Think of it as like the container ship coming into a port, the port being a certain orbit. And all that cargo needs to go to different places. So we provide the sprinter vans and the trucks to move that cargo to other places. So we have two products. We have one that's a very precision maneuvering satellite that has a lot of propulsion. It can move very very closely we just had we had we have three of these on our right now two of them just came within 200 meters of each other 200 or two football fields which is really close in space actually yeah and then we have another product called Helios which is basically a rocket on a rocket it's a it's a giant tank of propellant with a very high energy engine they can take you way out it can escape Earth's gravity it can improve the payload of a Falcon 9 to the moon or to Mars by about a factor of five so those are the two main products and then There's other ones I can't talk about.

10:06And what are you actually building? So we build design-agnostic autonomous factories, which means manufacturing is hard. We will take any design and build factories as a service with our software platform and our technician base that we train from scratch, where we are an automated contract manufacturer. Got it. what we actually produce is everything from spaceflight components for the products that Tom said to an entire missile to 30 % of a Virginia-class submarine. So our job is to use technology to do process designs into a digital twin, run that into factories as a service where we build software-powered factories combined with the workforce where we can operate lights out 24-7 so we are incredibly more efficient and competent.

11:09But we are like Foxconn to Apple. We are Foxconn to every defense prime. When you say autonomous manufacturing, how autonomous are we talking about here? Could I, for instance, run one of your machines? And then also one of the things I always wonder is when we talk about autonomous machinery, what are the humans who are actually running them doing? Just like pressing the button that says go and stop? So the first thing that people get wrong is if you look at a factory and you see a bunch of humans moving things, you think it's a humanoid robot problem. Actually what's happening in advanced manufacturing is there's an incredible amount of smart humans either at a desktop doing digital engineering or they're at the factory floor driving an incredibly dumb computer.

12:00And that's 90 % of advanced manufacturing. This is why we're a software company, because it looks like to any robotics person that, like, if you could optimize a technician not loading the part on the machine or the assembly into the robot, that's going to save you money. It's not. It's actually all massive amounts of software engineering to tie everything together and make it autonomous. The reason why a welder or a machinist has to stand in front of a machine is because it's not closed loop. They're genuinely doing trigonometry in their head, being like, oh, I think the tool's about to break, and therefore I have to stand in front of it.

12:36That's all actually a software problem. So we build software power factories to make sure that you can do a physical task, which is very hard for any robot to do, which is high judgment, set up something very fiddly and then load it into a robotics and CNC or welding system and say, go, it's done, walk away. And the power of the software is that you're able to walk away without being really scared that you're going to accidentally make a code change and crash a$3 million machine. I think the trigonometry point was a polite way of saying that, no, I could not, in fact, run one of these machines, which is fair.

13:12It's fair. I think fundamentally what humans do in our factories is they have high judgment, they have control over what they are going to do, and they do very high dexterity tasks. Most of the load is on the software.

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16:24Tracy Alloway:So I was in Shenzhen earlier this year. and one of the things that people always talk about the Chinese manufacturing success is the ecosystem, right? You need some part or something like that that's custom fit. There's someone a mile away and they can make it for you that afternoon and then you have it there. And what's interesting or intriguing or why we wanted to have this part of the conversation is I know that there's actually quite a number of companies in the Southern California area building stuff. And I'm curious, like, is it becoming rich in the sense that you're complementing each other and sort of like building on each other's successes and each one of you is increasing the odds of you that the other succeed in some way?

17:11I think it's both. We're stealing talent from each other, certainly, and we're competing for talent, for sure. There are so many companies that a lot of founders that were ex-SpaceX like me, and a lot of my employees are ex-SpaceX. Right across the street from me is Northrop Grumman, which was TRW. I worked there for 15 years. It's literally across the street from me. I look out of my office window, and I was in that building. We steal a lot of people from them. We steal from Boeing. It's just there's only so much talent in the area and there's so many companies growing so fast. We're bringing it back.

17:50I was talking in the green room about this chart that I used to love that showed aerospace jobs in the South Bay like this. And SpaceX started in 2002. It took maybe three or four years and it started going up and it's just going like that. And you think about all the other startups are not necessarily all space startups. There's nuclear companies. There's drone companies. There's defense companies. There's 3D printing companies. All kinds of new tech happening in the area. And if you go even further, like not just South Bay, but like Anduril, down in Orange County and the general area. I always say that software is done in Silicon Valley.

18:38Hardware is done in L.A. Wait, can both of you say a little bit more about how you think about producing stuff in-house versus sourcing it externally? Because you think about SpaceX, and one of the famous things about SpaceX is vertical integration, right? The idea that there weren't enough space manufacturers making vital components, so they brought everything in-house in order to do it to the speed at which Elon desires, to put it politely or mildly. How do you think about that trade-off? I mean, that's a great discussion to have because Chris and I, you know, it involves both of us because we're very vertically integrated at Impulse just like we were at SpaceX.

19:17But also, we buy a lot of parts from outside. Like, I think it's really important to, like, you make your first development engine or spacecraft, you build it yourself, and you learn all of the problems that you're going to have assembling it, machining it. if I gave a development thing to a machine shop and they had all these problems with the drawing and making the part and then we get it and we can't assemble it. You learn it on your prototypes. And once you get that tight, then you send it out. I know Chris is getting ready to make Raptor parts. So even SpaceX is sending parts out. We get to the point where you get into production.

19:55That's when you don't need to grow your facility to handle high production. Maybe you'll keep some of the really super secret parts in your house, but you'll send the easier to machine or stuff that his shop can make really great out. That's my take on that. I agree. I think every company should have 10 % to 15 % in-house. There's no amount of software or service in the world that, like, you've got a hot pot. You need the one genius guy to make it in an hour to hit flight. but scale has to happen externally. For us as a contract manufacturer, for some customers we make parts, for some customers we make the entire missile and for submarines we make somewhere in halfway.

20:44Even for us, what I trade off is I think in manufacturing you sell and buy trust. So our vertical integration strategy is we want to outsource everything possible to every re-industrialized startup, every small business that we possibly can because we have so many programs to run. But we vertically integrate where we just don't believe you're going to get the job done. And it's not a financial trade. It's like, I'll put a$2 million piece of CapEx in the ground and hire a team to do it because I would rather spend more money making sure we're on schedule than taking the risk that outsourcing it to a legacy casting facility that's been late for the last 30 years on every submarine program.

21:30For me, it's all about trust. It's not economics. It's not anything. It's just I need it to be on time, and most of America is incompetent in terms of trust and schedule. Is that fair? A manufacturing machine shop or a manufacturing house that you can trust is gold.

21:46Tracy Alloway:You know, we actually did an interview yesterday with the guy who's heading the LA 2028 Olympics, But I recently saw the Robot Olympics in China and all the humanoid Olympics, and they were, like, running. It was, like, really impressive. Let's be honest. In future Olympics, will Americans ever medal in the humanoid robotic Olympics? Not yet, but I'd take a roided-up Midwesterner versus a communist robot every day of the week.

22:20Tracy Alloway:I would, too. That's a good answer. But this is a serious question, because future warfare could be... No, it is. It is. And I would not want to put up a roided-up Midwesterner against a robot that, like... Well, I was glad to know that you're full of clankers, but... But no, seriously, like, how anxious should we be about the robot gas? So, in terms of... So, let me go back a step. Netherlands, British Empire, American Republic the next trade is the CCP versus America. America has a lot of flaws. We like to debate because we are so rich that we get to debate the culture of the country instead of fighting for survival out of a famine.

23:04Ultimately hard power wins politics because at some point you don't want to be polite and you can just be like well f*** you I have 2 ,000 warships. We have our current missile inventory in any war game we expand everything in the warehouse and we run out in seven days. China produced 2 ,600 ships and we produced six, etc, etc, etc. And the thing that you need to realize is in Germany versus America, which is the proxy of World War II, we actually sucked at engineering. The German engineers destroyed us. We just McDonald's the f*** out of them. We were China in World War II. No, no, No, no, it's not a laughing matter.

23:49We were China in World War II. We just outproduced them. We had better logistics. We made more stuff because we weren't rich, but we're the industrial superpower, and we became rich because of Bretton Woods. You're in the same situation. So it's incredibly serious because you're in the fourth turning where you are, like, we spent the last 10 years in COVID trading cat pictures on JPEGs on the internet, and we've forgotten why we're successful in the first place, which ultimately was we were the largest industrial superpower in the world. So the reason why it's serious is you can have the best engineering in the world, like you've got the best Raytheon missile, but if you literally can't just make mass, which is ultimately a production issue, there's no choice.

24:39So we are so far behind and no one realizes this It's purely because you're in a cultural time where America currently is IBM. And you go to the board of IBM and you say, hey, guys, would you like to invent Claude Code? And the board and the CEO says, yes, sir. And you look back at your 500 ,000 employees and you go, we're f***ing. And the good thing is America's got a lot of dynamism. America's got people like Tom Mueller and Elon and the nuclear stuff. It's possible to correct, but we are so far behind that ultimately robotics is how good are we as software, but ultimately most of software, especially AI, is now determined on what is the velocity of your training data, which means physical world deployment, which means mass manufacturing.

25:29So it's a real civilizational fight. And it's not this like fun game between American companies where like, hey, if Tesla ships more optimists versus Google, the consumer is going to end up in a better product. No, no, no, no. No, they're going to kill you. And people are not tracking this at all. And Tom, I know you're much more of a space guy than defense guy, but I'd love your opinion on this. Well, I have a pretty – I've been thinking about robots a lot lately. And I think that the resources of the moon are going to be needed. to do what we want to do in space and How do you do that like having people on the moon like a lot like an army of people working on the moon?

26:12It's just not sustainable. It's too dangerous. It's too expensive. It's just it's not a good environment for humans maybe a few but you want an army of robots to build on the moon and eventually Mars and What do you need to make a really good robot? I think you need three things you need dexterity, you need a human hand basically and people are working on that. You need great vision which is already pretty much solved and you need a brain, AI. Once those pieces all come together you have the capability of a human plus superhuman. Of course that can be used in war also but for me I always think about what you can do in space because it's such a harsh environment.