The US vs. China Manufacturing Debate

0:00Aaron Slodov:I just got trolled. Why did I not learn Chinese? It's not just that you get a factory. You get a full engineering team that co-designs the product for you. And they co-design the product around their supply chain, around the tooling they've got.

0:10Sam D'Amico:If somebody else can make all the stuff that you want, that's not good. We have only so much tribal knowledge left. Once it's gone, it's gone.

0:18Aaron Slodov:In China, there are 20 Elons. Maybe their Elons are not as good. You can debate that sort of thing. But like if I'm an American entrepreneur that wants to build the most advanced device of its category, I can just go there and do it.

0:28Sam D'Amico:When you hear these analogies, you kind of want to just like hit your head against the wall. Like, yes, of course, they're great at doing all these things. But like, what are we doing? Welcome to this U.S. versus China manufacturing debate. In the 1980s, the U.S. produced roughly 30 percent of the world's manufactured goods. Today, it's roughly around 16 percent. Over that same time frame, China has gone from almost nothing to nearly 30 percent. This has created one of the biggest transfers of power in human history. And so today I'm talking with Aaron Slidov and Sam DiMiko. We're having a debate about what this means and more importantly, what comes next.

1:04Sam D'Amico:So Aaron, in five minutes, can you please explain how this decline happened? And please give a little introduction to yourself. Sure. So I'm a Rust Belt Midwest boy. Grew up in Cleveland, clawed my way out, eventually moved out here to San Francisco. uh lived in new york la india a couple other places strangely um but i have a background in like physics engineering most of my pursuits have been chasing like moonshot ideas basically and part of my early career was actually building waymo before it was waymo here and i have a pretty decent breadth of hardware projects the kind of like genesis of how I got to where I am is trying to make a consumer product by myself and I had no exposure whatsoever to manufacturing and you know the thing that I wanted to make ultimately was a stupid like plastic widget and I found out the hard way uh what like tooling was and how to find suppliers and all of my buddies who worked you know like still at Google and like other big tech companies on hardware teams were unanimously just like, yeah, go to China, like go find a supplier, get on Alibaba, get a WeChat, you know, like find somebody.

2:24Sam D'Amico:I tried that for a little while. And ultimately, the overwhelming kind of consensus was that I'd have to like fly there and live in a factory basically for a little bit. And this is kind of like a rite of passage. You know, I wasn't really that willing to do it at the time because this was just like a side project of mine. I was like, like, what is going on with this? Like, why do I have to go do this? And so So ultimately, I tried to go find American suppliers. And that was an even worse shit show because they don't care. I learned over time the reason they don't care isn't because they don't care about me or my product.

2:59Sam D'Amico:It's just they've been squeezed to the absolute margin on what they can do. And this is part of the global manufacturing world stage. This is something to me that I thought was an insane problem. because in my brain, what didn't compute was we became, you know, so wealthy and smart and powerful that we just kind of offloaded all this work. And, you know, obviously over time, China became very good at what they do. So in the beginning, they weren't, you know, this is like a whole train of people handing off skills and learning and undercutting and building capacity. So it's a fascinating story ultimately, but one that really hit me hard being from like a Midwest Rust Belt town, because growing up, you never think about why your city is like decimated, you know, and like, what happened?

3:52Sam D'Amico:This was the richest place in the country for like 100 years. So yeah, and like you do learn this stuff, obviously, like in high school, right in college, when you're taking economics classes and poli sci. So it's just it's fascinating to really see it all kind of like unwind in front of your face. And my answer to it was trying to build a response, right, with the company that I'm now building. And it's kind of like a, you know, a marriage of Silicon Valley engineering talent with Detroit world-class manufacturing talent. And so to me, I think that, you know, we can, we can do this. It's really going to come down to a matter of will ultimately so that's uh it's a quick background on how i'm sitting here now and uh sam so

4:42Aaron Slodov:hilariously we were we i think we both started our careers in different buildings in the google campus very close by each other um and it's actually really funny because so i i went to college for electrical engineering um i'm also i just saw i moonlight as a software engineer occasionally but um i was on the google glass team um which is a little different than waymo because you know it's a consumer electronics device versus a like at that point it was you know in some sense a research project basically and so the default assumptions were this is going to scale all this other stuff so i i graduate i graduated undergrad in electrical engineering and i'm about to start my master's program and i'm like an intern at google i'm google x and i'm like i just got trolled was the realization I had.

5:30Aaron Slodov:And I'm like, why did I not learn Chinese? Because I didn't understand, like if you want to build like scaled consumer electronics, you're going to need to go to China if you want to run as fast as possible. And I actually encourage, you know, people still in college or if you've got a chance to, you know, change your grad school curriculum or whatever to like, you should take a year of Mandarin minimum if you want to get into this world, which is kind of an aggressive statement, but I think it's factually true. So I started going to China in 2013 after I had become a full-time employee there and got like kind of the download of like where to go in Shanghai, like what to go do and sightsee and all this other stuff.

6:09Aaron Slodov:And I basically realized like, okay, I actually like doing this. It's like pretty cool to go to world-class international cities and like – and you get to then have engineering meetings and stuff like that as well. And so there was actually this like travel element to it. And also people like rag on San Francisco for like not having great nightlife and all this other stuff. you can just immediately inoculate that if you're going to China like once every once every two months or something like that so basically basically I got picked up into this universe now where this really accelerated was Google Glass obviously was a little too early for its time um um Oculus was not and so I went and joined the Oculus team as they were getting bought by Facebook and well they had to they they was interesting is it's kind of the same thing that you mentioned which is like the transition of china from like a low-end manufacturer to a high-end advanced manufacturer i saw this at oculus so like oculus was the oculus dev kits were built by i believe the same contract manufacturer that made guitar hero and rock band and it was a toy it's a toy factory and so in some sense it's like yeah they can do injection molding of like let's call it cosmetically and you know sort of sort of i don't want to rag on them because I think it's like, you know, it's a different era, basically.

7:21Aaron Slodov:Basically, think like damp factory in Guangdong province, looked straight out of like the 80s, sort of thing like that. It's probably a pretty similar site to what you would see if you were like going to China in the 90s or something like that. And then the advanced electronics piece was kind of kept into a like, okay, they put a computer on the factory line that like does some of the advanced like software defined hardware stuff that like you need to do for a vr headset or whatever um so that was where they started when they got acquired then as soon as uh as soon as the acquisition went through i was involved with some of the initial contract manufacturer selection because i had worked on the google glass team on some of like the inside you know factory stuff there and so got to see kind of the next wave of chinese manufacturers and these folks are not mucking around like this is like it's not just that you get a factory a building with some operators that they go and recruit it's you get a full engineering team that co-designs the product for you and they co-design the product around their supply chain around their like like around the tooling they've got etc so it's not just that you get a room with some cheap workers it's you get a machine that effectively can build it for you i think the analogy for kind of the audience that you've got is like it's kind of funny to use the clod code for x sort of joke but like it's kind of like you have a llm that can build hardware and you communicate to it through google slides and in-person meetings and sometimes drinking some baijo at dinner but like that is how it actually works and you were essentially able to be the high level engineering input to that system now there's kind of the split brain because you do that but then you're also doing advanced r &d for like hey how does my computer vision system work how like a lot of that stuff ends up has stayed stateside and like you kind of see where why this is like you know this is the this is the same transition that you've seen kind of from like the united states still does the high value stuff they still do the industrial design they still do like like johnny ive didn't lose his job yet you know it's kind of the point like and that team at apple for instance has like one of every potential machine that they want to use and they they piloted different processes and they do it internally but like who scales it not them obviously um and so i got to see kind of this transition from like okay china is this like cheap labor toy factory you know there's lead paint in the you know whatever you know all this other people dismiss china with to like oh this is fundamentally changed and like in the past you know couple years as i've been building impulse i've seen a different thing which is like these guys are not just really good at building stuff and like you can you can scale like an arbitrary vr headset or product through them it's like they are leaders on the r d side as well and if you want the best battery cells if you want the best process engineering for like how you build a battery pack if you want like all this stuff it's like it's an email away from you getting it and not only that they are super eager to go and work with you um and they're super eager to go and work with you for a bunch of reasons and a lot of them are i would argue fairly like fairly well-intentioned it's like it's like well they see you know the united states as like the benchmark of you know especially bay area engineers and stuff like that is like this we can learn a ton of stuff from this um and this will mean that we're ahead of our crosstown rivals in a hyper competitive like like you could argue that it's like all these companies have been pumped up by state subsidies and it's like it's like in china there are 20 elons it's probably the way to think about it in the u.s there's one and the nimby's have basically tried to make it so that there's none there's there's none and and uh but in china there there there there's like 20 to 50 maybe that maybe their elons are not as good you can debate that sort of thing but like that that's how their hardware ecosystem and software ecosystem as well works.

11:24Aaron Slodov:And the benefit of that is if I'm an American entrepreneur that wants to build the most advanced device of its category, I can just go there and do it.

11:34Sam D'Amico:Yep. So Aaron, I think Elon on a podcast recently basically explained that right now, most of the US's biggest companies effectively just export files that they send to China. And then those files are converted into actual products. With this like massive decline over the last 45 years, How do you actually think the U.S. can reverse this decline? So part of, you know, this story and building my company and seeing this stuff kind of firsthand led me to also, you know, try to start a national movement around this, which is re-industrialized, right? And the idea of that is we have only so much, you know, tribal knowledge left in terms of how these systems work, how you can ultimately, you know, create a machine like that.

12:24Sam D'Amico:But once it's gone, it's gone. And preserving tacit knowledge is very hard because it's not like the matrix where you just jump in and download. I know, Kung Fu.

12:36Aaron Slodov:Right. Yeah. No. there's a take on this that's like machine so i would also argue that like effectively you machine learn or you reinforcement learn how to manufacture stuff and china is incredibly good at this process and so basically it's like okay if i'm we can break this down to like a simple example of like let's build a lithium ion battery cell it's not really simple but there's all of these process steps where you're basically like laminating like laminating films on top of each other with different chemical processes and like the like the makeup of the the powders you're using and like the settings on the machines that do certain steps all of that stuff you can imagine again i'm assuming your audience is full of a bunch of aspiring ai engineers or whatever all those things are like implicit weights into a neural like a neural network basically and you can pre-train you know you can take all the knowledge in the world and design the best thing the best single widget but there is a reinforcement learning with factory feedback step that unless you build stuff at high volume you will never achieve and this is actually the thing that like i've been talking to a number of folks doing kind of like new manufacturing things and it's like that is the key thing that i think a lot of people who have not been close to the process they don't get basically um is this like implicit reinforcement learning aspect of it and the fact that like so much of the state of what makes advanced manufacturing work is not in the

14:00Sam D'Amico:spec yeah it's it's a if you think about it like a stateful system it's impossible to observe until you have high throughput which is mass production basically so you're gonna find you for that exactly um it's it's very hard to understand all the parameters basically until you do it so that's why you know the chinese machine is so efficient because they are just gathering more and more tribal knowledge and it's going to snowball out of control right until basically like we'll get to this later but the humanoid thing is an insane problem um if it actually plays out what do you mean by that well we'll get there we'll get there uh but my like basically the whole the whole purpose and mo of re-industrialize right is that like i would prefer if we could preserve as much of that knowledge as we can encapsulate it and then rebuild it here right and be able to have these kind of like reinforcement feedback loops because we're building better brains and like compute and it's in my opinion it's not necessarily that like we need to live in a unipolar world with a single industrial superpower but like there has to be another option and i also i don't believe that like autarky is a necessity, right?

15:23Sam D'Amico:Like you can't trade is actually a good thing. However, when you do actually have an adversary on the world stage, you cannot continually empower them. So part of my, you know, ethos about this is that we have insanely deep capital markets, like we have the talent, right? And it's just, this is where it comes down to a lot of people criticize this in terms of like, you know, communists, like central planning, basically, where you need, you're going to need this kind of capacity one way or another for, for medicine, for electronics, right? Chips, all of this kind of stuff. We, we scrambled to, to cover like EV supply chains and chips really fast because those were, you know, critical at that time.

16:11Sam D'Amico:And it really just turns out that it's all, it's all critical. If you forget how to make anything, it's bad, right? So ultimately, my whole worldview is that like the toolbox is here. We need the people to actually like do it while we're still kind of, you know, working with China and other industrialized nations to produce the things that we want to build. And Sam, same kind of question of with this massive decline, do you think like, A, it's reversible and how do we do that? And then if you had$100 million to invest in a factory today, where would you decide to put it and why?

16:49Aaron Slodov:That's the great set of questions. So first thing is, is this reversible? I think there's a silver lining to like some of this stuff. And actually, I'll disagree with your point of like it's all important. It's I think you can distill kind of all of the next set of devices into what I would call like the electric stack. And so this is and if you want a 200 page reading on this, Paki and I put together a really long article called The Electric Slide. but basically it's lithium ion batteries power electronics embedded compute and then electromagnetics and i would also add a fifth column which is like computer vision hardware so like i've worked on camera modules and image sensors and stuff like that so like but basically anything from a waymo to a robot to a stove of all things you can use those those those technologies and actually make stuff stuff happen and so basically the idea is like pick devices that kind of give you let you exercise all of those key like those four to five key muscles make sure there's a portfolio of them some like a portfolio of them that you can then selectively onshore and that and make sure the volumes are high enough that you can get at least one of every process machine needed in that entire supply chain on short and at 100 capacity because the problem is like if if if i need like five different types of injection molding machines and i'm using each one of them for like you know 10 000 parts a year well i'm not gonna be able to fund those like it's not gonna it's not it's not gonna actually make sense the flip side is like the only industrialist in the united states that has actually successfully done this recently well one he doesn't share it doesn't in his own ecosystem But two, he actually can bring the volume to bear to actually go and do this.

18:31Aaron Slodov:Like Starlink has enough customers that they can fully do a lights out manufacturing line for that system. And it makes financial sense to do so. That said, how did he actually do it on shore at the beginning? It was like pandemic era, probably a pain in the butt to go to Vietnam or China or something like that to go and do this. they went and did it in the parking lot in in la and i think that goes back to where i what i put my factory and it's like it's incredibly important and i said this earlier it's like it's incredibly important to tie the like the factory and the engineers need to basically be in sync and this is the superpower that companies like byd bring to bear like literally the factory and the engineering office are like in the same facility in most cases like maybe it's a couple buildings away but it's not it's not across town it's in the same campus it's in the same campus and there's all of that tacit knowledge of like yeah you can't really design it that way because this doesn't fit kind of thing well that's like immediately short-circuited and the context is already present and in the u.s we decided oh you gotta like go do a bake-off with a bunch of governors and like i mean you're gonna watch me you know be a hypocrite on this when i whenever i open a u.s factory at some point but it's like okay i gotta go um i gotta go i'm trying to make a stereotypical republican governor name but basically like i gotta base i gotta basically like go to some red state tell them how much i love donald trump you know all this other stuff and then i get my tax breaks and i get my free campus and i get all this stuff meanwhile my engineers are over in hipsterville in california and they don't want to move over there they don't want to move to you know real midwestern small town that i am trademark re-industrializing um and so this is actually i think this is actually a problem so it's like i think there's like two solutions one of which is like we should convince some smart engineers to go move to move to move to these actually kind of awesome midwestern towns in ohio and like if we can basically rebuild those it's like they're gonna be great places to live for smart people because those smart people lived there before like these were walkable communities with like you know with great amenities and like and again the engineers were next to the factory um the flip side is like where would i do it today well we're the smartest engineers on the planet right now the bay area so you should put it in the bay area how do you do that um well there's a guy who successfully expanded a factory in the bay area by putting a tent in the parking lot because that was the only way you can get around all the permit constraints and all this other stuff of like needing i need to expand facility in Fremont.

21:00Aaron Slodov:So I think that basically the way I'm approaching it from my perspective is the YIMBY movement was a good start for like, let's unlock housing production to like make it so it's actually affordable to live in places like the most popular places to live on the planet. But there's going to need to be an industrial movement that is kind of its counterpart. If we want to be able to like, you know, make this stuff work and that that movement is going to need to be kind of like a yeah it's okay to build a factory now and the contrarian take is that like okay we basically built up scaffolding of like environmental laws from the 60s onward that have basically made it illegal to do stuff um i'll give you an example of like california bit by bit has restricted what i would basically call chemistry at like a foundational level where it's like basically illegal to do chemistry with metal um and if it's illegal to do chemistry with metals you can't build anything with the electric stack because fundamentally electric stack that's batteries um also if you want to coat any metal like you want to anodize anything yeah good luck you got to do that and you got to do that over in reno um can you explain what you mean by california made chemistry with metals illegal yeah so basically california was an industrial superpower we built like i don't know what like half the world's battleships at one point we built like the like kaiser shipyards like we had all this awesome stuff going on also this whole facility by the way like this was all this is the center of like manufacturing of like like the bridge superstructures for aircraft carriers were built like right around here and stuff like that awesome awesome you know industrial you know industrial spot but obviously if you do chemistry with metal it does cause pollution and so um there are sites throughout the bay area and this is like within human memory um that have like trichloroethylene um contamination um like the google campus there are um i think teflon barriers below some of the buildings because essentially they're like the like the polluted pollution from both metal like metal working and semiconductor production because we also used to have tons of fat all the most of the fabs were here too and effectively that pollution is still with us today um and you see controversies ranging from like hunter's point hasn't put new housing in where the old naval shipyard because they keep finding like little radium painted markers that were like on, like if you worked on an aircraft carrier at night, you'd basically put these little glowing green dots on you so that you don't get hit by, you know, you know, like a plane landing or whatever.

23:26Aaron Slodov:They go find one of these. And then like that shuts down housing production for like five years. And so, but basically because of the past memory of like, you know, I would argue kind of reckless environmental stuff, we put in a bunch of scaffolding of new laws and these are all well-intentioned and we built them over many years but now it's effectively illegal to do chemistry with metal and so and if you and and so that seemed fine you know back you know you know back into the 90s and 2000s it's like hey we're we're there still was consumer electronics manufacturing in the bay area like the like google glass for instance was like a consumer device manufactured in california and they had flex that said they'd have flex on the box it was like designed by google assembled in california to basically tell apple like you know you know a little bit we know ball um and i've been in that factory it was pretty cool to actually see an american factory building the most advanced consumer electronics device at the time and they did a good job but where were the plastics injection molded i think it was china yeah where were uh where were the flex circuits made i think that yeah like it's like you think of like you think of all the core components where was i going for camera module manufacturing yantai china so like you could already see the component the the most advanced pieces of that were getting pulled out where were the chips packaged probably malaysia and so we built these global supply chains over the years for you know again well-intentioned reasons but like then when the ev revolution hit when like basically it became very obvious that like everything will be built like a smartphone everything will be with the electric stack it'll be like it doesn't matter if it's an iphone or a byd han ev or a uh or even like most of the like actuators and stuff in like starship you could argue starship is like a much more an electric vehicle than any rocket prior to it and so all of these things use the electric stack and california really prides itself on being in the forefront of well it was in the forefront of the ev revolution it was in the forefront of the solar revolution it was like like all of these technologies were kind of like really scaled here and we've like built scaffolding of environmental laws over the past 50 years that have effectively banned us being able to compete at a vertically integrated level um with these technology like on these technologies despite you know a lot of the best engineers in

25:41Sam D'Amico:these technologies being here Aaron the first like two factories I believe with Tesla were here in the United States and then when Elon went to China the Shanghai factory was like the fastest ramp of any factory that he'd ever built and i remember him saying that the chinese were just significantly better at basically producing these cars in that factory like that factory is just fundamentally more efficient so what does that kind of say to you and like how do you think about that i mean you can't refute it really uh the the way that i think about that is uh you hear him kind of talking in most of his appearances about manufacturing about you know just like the level of urgency and seriousness that they have about what they do.

26:24Sam D'Amico:And, you know, that's honestly kind of like a moral dilemma in some ways for Americans, because we really like to, you know, with like environmental laws like this, these are all reactionary snapshots of something that happened in time, and we don't revisit those things. And we don't do it in like a more proactive way it's everything is always reactive and this is like and it's also how our legal system works exactly yeah like americans are they don't really do anything until they have to and we do it the best exactly so this this is kind of like the way i think about this is like yeah elon is very like enamored by how good they are at this because we we aren't doing the same right like we don't have, we don't have that same level of urgency, right?

27:18Sam D'Amico:And financialization of everything has really driven us to chase, you know, the higher levels of this. And I think that where I don't necessarily disagree with the electric stack, but I think in a lot of my work, right, we work with a lot of the largest like OEMs and manufacturers on the planet and it's it's a constant like whack-a-mole game of where do you want to do your final assembly of the thing and then it's kind of like now I need to assemble you know a bill of materials of what's going into this and then I have to go like build a supply chain and chase all those components around so that I can assemble it efficiently somewhere and all of the like everything that's you know kind of like ramping to a higher level of technology requires all these components that we have just you know totally shit the bed on hands down everywhere and so my job now at atomic is finding right like all of these places where the lower level componentry like metals and plastics have to chase the electric stack components around to get assembled somewhere else so i've seen delays on on modules where it's

28:37Aaron Slodov:like we we need the enclosure for our battery pack was a was a long lead tight end versus the welding

28:41Sam D'Amico:of the cells which is like crazy yeah and like in cars the two longest lead time single components on a car are the bumper and uh like where your doors close into the car the sheet metal piece um those come out of molds so one comes out of a sheet metal stamping die and the you know the bumpers injection molded. There were stories back in the early days of Tesla of them getting their bumper molds cut in Japan and flying them to California on 747s just to cut two weeks off of production time. If that gives you an indication of just the lower level components and how urgent they are to get something final assembled somewhere.

29:24Sam D'Amico:So yeah, I mean, it's like supply chains are a game of whack-a-mole because of the way we've constructed them like this and we are to kind of blame for that because we built them intentionally that way i mean you go to byd

29:37Aaron Slodov:and then you have a very integrated campus where it's like oh like they have much of the dependencies of the electric stack all in-house in a lot of cases now they they also go to sub suppliers they also do do all this other stuff but like you have the optionality of being able to go full vertical and then you see like the the like you see what elon's been doing lately especially with like Starlink and stuff like that. And you're like, okay, this guy is trying to go full vertical where he has his own industrial concern. Now, I would argue you need to start from demand and pull everything up because you can't finance this with venture dollars.

30:09Aaron Slodov:I don't think you can... Some of our friends have successfully financed large manufacturing concerns with venture dollars, but that's not the way that the capital markets work in the United States. And there's actually, I think one of the other pieces of deindustrialization that people forget is we didn't have national bank branches in 1900 or whatever, like when this facility was built. But if you had a local bank in your town, it could only invest in the crazy people in the town. And so it was actually in some ways easier to get capital because the markets weren't as mature. So I guess we have to invest in stove guy and injection molding guy because they're the only game in town doing stuff that actually can you know make me returns now we've replaced some of those systems with ever bigger venture funds that are kind of more like private equity firms especially at the top level but like i i think that you see like what palmer lucky's doing with erebor and all this other stuff it's like there's definitely a reaction to to like we we we forgot how to do the capital market side of this thing um but there's another thing that i think is really important to just highlight is we're in an ai boom right now um and i think it's like there's an enormous opportunity from the ai boom and people are missing what it is so the the missing piece is people think oh we can onshore stuff because we can get humanoid robots and like it's going to magically solve these things and it's like you can just automate the factories whatever like you know you know honestly that's stupid because if you look at what how starlink onshore their consumer electronics line into the millions of units it was a manual production line that they later automated like elon's little algorithm or whatever he says the last step is automated and like he learned that the hard way because he laid out an automated line at tesla the wrong way and almost killed the company almost killed the company and so but the point is like you you can actually start manual with final assembly and be totally fine um and this stuff works so so going back to the ai boom we're missing what we're clearly missing currently we are building like the hyperscalers are ordering tens of thousands of units of like let's call it three to four million dollar data center racks and these things have like you know hundreds of gpus in them in some cases um like 100 gpus something kind of crazy um they've got all of the various pieces they've got energy storage built in they've got like they've got all of these different like they've got advanced power supplies they've have the full electric stack at the most advanced node they have all this photonic stuff they have like all of these key technologies and the demand is there and the demand is there installing it in

32:44Sam D'Amico:the united states and until until all these states shut it down well then well the enemy of

32:51Aaron Slodov:manufacturing is nimby's but yeah um and uh you know some of them could be i'll go into conspiracy years later but basically basically the the point is like there is massive demand for the most advanced computers in the world and these are in some sense electromechanical systems like they've got you know they've got all of the they've got injection molding they've got stamping they've got all of this stuff and why is why aren't there not american supply chains spinning up to service this demand at scale like it seems very straightforward to be like this is possible instead what's happening and this is a very spicy take is there's no tariffs on this stuff so meanwhile like you know meanwhile like i gotta pay the full full tariffs on you know stoves or whatever but uh the other like you know the other sam you know down the street he doesn't have to pay anything and so um and i think this is actually like i i don't think people won't like have talked about this in like a in a in a very clear way but like i just see this immense opportunity to use the data center boom to pull on shore a bunch of these advanced capabilities um just like how the ev revolution and like and like the the automotive companies going ev has been able to pull some of the battery technologies and other things on shore um and we're just not doing it and i think i think i think that's going to be a big regret that we'll have five to ten years from now um because it's like cool there's this immense capex boom that we could muster we could muster to basically

34:16Sam D'Amico:onshore advanced manufacturing how do you think about that because if right now we're in the early stages of basically putting in all the weights and training you know this this new supply chain how do we basically reverse that so that we do actually end up with the you know most advanced

34:28Aaron Slodov:manufacturing i mean i mean if you had me run industrial policy it would be things we a little different but like um but basically i don't want to nominate myself you know in future administration but basically i want to run businesses but basically basically i i think that we need to be thinking about this from the systemic level of like you need to have a baseline capability of being able to do this stuff and to and military demand is not enough to sustain like i got someone was yelling at me about like um like how i didn't understand american pcb manufacturing and there's like there's one company that basically makes like all the u.s military's pcbs and i'm like i actually have never heard of this company because they don't do anything for consumer electronics except for huawei apparently which is a little interesting um and so we basically don't work that muscle at all now for the reasons that like i think you've described which is like the american vendors are like have been squeezed so much they don't want to play ball with like crazy stove guy or whatever yeah and frankly like then you go go to china and it's like red carpet rolled out hey do you want to work on some cool stuff it'd be really cool to build that because it's just cool there's a south park clip about that and and it's like it's like and it's awesome and also also also like it's such a flex when these companies go and like pick you up in a car or whatever and it's literally a car they make um i mean there's another company the only other company can do this is basically like you know in the elon universe obviously obviously that's that that exists but it's kind of like oh but in china there's 20 of these and there's 20 of these and you can hire them to do advanced manufacturing projects for you so like if i could go hire tesla to go build the best induction stove in the world and they gave me their bay area engineers to do it would it be worth it probably i think it would actually i think it would actually work great now are they set up as a business to do that absolutely not and um that's the other missing piece of the u.s ecosystem is like i don't think that's a venture scale business or maybe it is but like maybe i need to be more thoughtful about what the financial structure ends up looking like but we don't have the incentives in the capital markets for businesses like byd or gore tech or like long cheer or uh um i'm thinking of a couple or or yeah to exist basically um i i can

36:51Sam D'Amico:push back on this a little bit just because i've been trying to make a case that this level basically like let's just build chinese level capacity here right um good take it it's so it like the venture backwell piece is really interesting right because this is where the rubber really meets the road so it is it's really challenging if your narrative is i just need a factory right um in america you like we're going back to the systemic level here so you can't walk into a bank and just say oh yeah i want to go get like a machine shop you know like hook me up with 10 million years ago you could totally do that exactly now no you can do that yeah and it's just like the kind of time and place of the shop and the SMB, we might be looking at like the end of that, right?

37:41Sam D'Amico:And so the idea that you could, if you actually do this in an intelligent way where you have, you know, you might start in a more manual capacity kind of setting, but the like the dollars that you need for the R &D and for market capture is very well suited for venture, especially if you just bum rush it right like this it's probably the only hope that venture has at building these companies at any scale because otherwise it's like you're hopping on one leg with your arms tied behind your back you know and you have to kind of like build a little factory and show some good progress in unit economics when like the bigger prize is just like building you know multiple hundred million dollar factories and like can founders actually you know do that so i have i have i have

38:34Aaron Slodov:there's a spicy take that is like hiding in plain sight um which is like related to like anderal for instance and so anderal has announced a lot of like hey we're gonna build this like advanced manufacturing campus in ohio we're gonna do all this other stuff i think like you know like by the way like they'll ipo and be very successful so like they're like so i'm gonna lead with that piece we'll leave with that piece like i i i'm very bullish on andrel the stock but the uh there's a there's a flip side of it that i think they even know like they they like they know this um based on kind of you know this is not confidential information or anything like that but like the the spicy thing is if you build a business that is essentially like designed to service the u.s government as a customer the u.s government until very recently has not been the customer that would incentivize Andrel to build base level capacity of like the base capabilities.

39:22Aaron Slodov:There are much more of a like, okay, SOCOM wants this type of drone helicopter. The Marines want this type of anti-drone interceptor. There's some high volume, but really low end requests coming from Ukraine. There's like, you know, like basically that you end up being a product portfolio company. And in some sense, like, and it matches venture in a way because it's like, they're not you're not building an advanced factory you're building you're building a like you're basically building a bunch of options that could turn into the next f35 program or whatever but what that means is you have a company that's almost 10 years old that like hasn't ramped volume production of any one item and then use that to teach itself to do the next thing um and you can contrast this with like spacex for instance which is like much more limited in terms of product scope now SpaceX found a very deep market that they uniquely could dominate um which I don't think the DoD has provided um yet but I do think that like this is a really important thing of like this is where I'm also getting obsessed about the data center things I'm like that's a very high volume deep market that you could just go and you could go and just do and so I think I think that's something that's kind of worth describing where like Andrel now has to learn this muscle now because okay we've got the drone dominance program we've got all these other things where it's like oh will dod order or dow i'm sorry order order a million of one a million of anything and yes they order millions of bullets but they only only until the ukraine war were they ordering millions of artillery shells um and now they're going to be ordering millions of drones which again use the electric stack and so you then have to be good at that and then if i go have an fpv drone and put it on the hypothetical table here um the lithium-ion battery no one really makes in high volume yet um high discharge rate lithium-ion batteries pouch cells um in the us um at scale um you could argue you could you know repurpose the tesla panasonic line for something like this but again not current like elon's not going to share um necessarily you then look at the the PCB probably doable in the US but the chips there are those packaged in the United States no probably packaged in Malaysia um the uh uh the camera module on that thing I believe there's basically zero camera module manufacturing in the United States um if you wanted a cheap thermal camera that sensor is probably made in China not made by Fleur um you can go down the list and basically be like okay there's a lot of tech that's gonna have to land stateside um to kind of you know you know or or french word basically to to do this the us can totally do this with with their allies like you know you know like like us plus japan plus singapore gets you a good chunk of and plus south korea gets you most of this but i don't think like my point is like i i think the like defense procurement world has been so separate from the consumer electronics world for like 30 years basically like since the end fall of the soviet union these have been like we've been split brand here um that i think that it's going to be a challenge i posted about this this morning

42:35Sam D'Amico:i think where it's just like you know less than five percent of everything in defense is produced at higher than 10 000 of anything per year and this is actually going to cause reinforcement