The Electrification of Everything: From Sky to Sea

26:16So we are at the design stage and again, through the manufacturing process, designing out a lot of these maintenance burdens. An example is that we have a close up cooling system on the Arquant. It basically uses the hole itself as a heat sink to dissipate heat from the powertrain. And that means we're not ingesting raw water and clogging up filters or having pumps break. Software is also a way to make that experience better. You know, Garmin sells off the shelf sort of navigation maps and that's a billion -plus dollar business for them. We want to offer that for free to customers as a way to kind of incentivize adoption of the boats that we're selling which is still our core business.

27:01When we talk about providing backup power to your house, there's a multi -billion dollar business for backup generators for people's house that we want to go tackle by giving you a boat that you can use to back up your house. All of these are still in support of our co -product, which is selling better votes to people at, you know, customers put on your most at very good margins. That's kind of the core business that we think about. A lot of the investments we're making go back into driving sales around that core business. I would generally echo some of those themes. I think the market has historically operated in a way, such that OEMs are really good at making a product, making a vehicle, whether it's a plane or a boat or a truck, whatever it is, but they tend not to be in the fleet operations business.

27:53They tend to sell it to an operator, and that could be someone who buys a car who's just driving around town. It could be a waste hauling business. It could be Delta, right? So there are end users that tend to be fleet operators. The business model opportunity that we see is to create more performance -based guarantees around these new vehicle classes. There's a ton of sort of perception out there that it's new tack and so it's not going to be reliable. And there's also a perception that what is this fuel cost? It's electricity. I don't really understand it. My utility bill is very complicated.

28:30It's got all these line items that we don't really understand. And so, you know, Corta R business model, which we're confident has accelerated adoption in our category and driven the Highland business, is this concept of making it very simple and performance -based. So we will often get paid by the mile. We might charge a customer $3 .50 per mile and they get all the equipment, they get all the services, if the charging station breaks and the bus isn't charged, we just don't get paid. So there's very much an alignment of incentives. And then I think by making it performance -based, we tend to own the assets, and we can then bring on downstream services to increase utilization.

29:14Elon Musk wrote a great article recently about how he views autonomous electric vehicles as capable of taking utilization from single digits up to 50, 60, 70%. because all of a sudden you have autonomous vehicles performing tasks and you know that utilization changes dramatically. So we need fewer vehicles or we get more done with the vehicles that we have. But I believe that's a big opportunity. You know if you look at garbage trucks, school buses, parks and wreck vehicles, any vehicle out there that is not long hole trucking and you have this dynamic where you can start to piece together other ways to make money or make that asset useful.

30:00And if you can deliver it as a service and make it easy for the customer, I think that's where the market's going. That's really exciting, you know, just to maybe tack on the exact opposite end. I think there's an opportunity for people in the infrastructure development business to actually go and start selling solutions to bringing the right electrical services and layouts. Well, almost like an urban planning exercise. But to actually, you know, get the power lines, get the infrastructure set up for whether if the airport, the Marina, or the school yard or wherever you're going to do your charging, that's something that I think we all share.

30:34And right now I know that people come to me to ask, you know, where should I put my charging station at my airport? How much capacity should it have? And so the fact that people are coming to me is the aircraft manufacturer means that there's probably no place else for them to go to get that information right now. I think there's an opportunity for somebody listening to this who's looking to start a business to actually become an expert in doing that, you know, focus their attention on it and start delivering those solutions. On the note of opportunity, it feels like there are still some challenges in the industry that could be related to regulation.

31:05It could be related to the grid infrastructure that exists and needs to be upgraded. It could be the battery technology. Mitch, something you mentioned, is potential fear around range. Anxiety, depending on, you know, the product and its needed range or at least what consumers think they need in terms of range and so I'll just open it up to the group. What gaps are there for people to tackle and what would you love to see people tackle? Greg, I love that you've already mentioned one very clear opportunity but it feels like it's still kind of open range in a way where there's a lot of work to do in the next few years and I'd love to hear where the three of you are seeing the biggest opportunities.

31:44So in terms of aircraft in the United States there are 5 ,000 airports. About 3 ,600 of them, they have paved runways and avades, you can fly a small commuter aircraft like Alice from those runways as a commercial operation. But we don't use 3 ,000 something airports that way. We use a couple hundred airports with regular scheduled service. And that's actually something that's changed over the past 40 years. We used to be able to fly point to point much more often than we can. But the market, after the regulation, the market it went away. But even so, if you look at the breakdown of the world's air travel, and it's very similar whether you're in North America or Europe, half of all flights in the world are under 500 miles.

32:27And a full 30 percent or 250 miles or less. Watch planes fly by. There's a 30 percent chance the plane that you're looking at is flying a flight of less than 250 in all miles. And the proposition, I think Mitch was mentioning this, so I think on the same page on this one. It's a very different thing. Yeah, we're a to be, not necessarily a to a, but if you go back to the whole culture around the automobile, when you get in your car, you want to be able to get in your car and go wherever you want to go without any concerns, you go it's open road, it's freedom, you know, it's a great sensation. With an airplane, you want to take off from the airport, you wanted to take off from fly for exactly how long you wanted to fly and then land at the airport that you want to land at exactly when you want it to get there.

33:12So it's a very different prospect. And so there's a wonderful marriage here between what the technology is available today in terms of what we can achieve with range and payload for an aircraft and the way that people actually want to fly. So our plane today represents potentially 30 % of the total market for aircraft if you look at it and that's pretty outstanding. It's such a great point that there's this marriage between the technology and how people are using this. And I hadn't really thought about the culture around how you approach plane flights, but that's so true. I mean, you before the trip ever starts, no exactly where you're going, exactly the distance that you're going and see plan accordingly.

33:54If you get out on a gas boat today, it's stuck in the 1980s. your fuel gauge goes like this, they're super unreliable. Your spedometers don't work. There's no odometer on boats. The state of the arc in most cases is unscrewing the fuel tank and looking in and guesstimating how many gallons of gas you have left and then using intuition to think how far can I go on this many gallons. So it is common to run out of gas on a gas but I've done it personally, at least it does in times in my life. And when you think about what you get with an electric boat, suddenly you have down to the, you know, percent level precision on how much capacity you have left on that.

34:43And you have intelligent software that can tell you, this is how far you can go with that amount of battery capacity. And oh, by the way, something that's unique to boats is, if you're out of the middle of Lake Tahoe and you have 5 % battery, you can reach any other point on that lake as long as you're going five miles an hour. It's not a question of if you get back, it's a question of how long it takes. And that is something that's so novel and such a huge improvement from a customer perspective over where things are at with the gas industry today. So I guess going back to the opportunities, I think about it in three tiers.

35:21There's plenty of these product opportunities. We happen to be tackling the marine space and delivering much better boats to people that happen to be electric. You can look across all these industries and find those opportunities where the technology that exists today, the electric power train, delivers a better and more compelling experience to people. I think the three of us are all doing that. There's also supply chain opportunities. We want our battery prices to be lower. We want our high voltage electrical power chain components to cost us less. That helps us a lot. I think there's a tremendous number of opportunities at that kind of base supply chain level.

36:06And then there's this third category of what I call second order opportunities. You're going to have an electric future. Imagine what that looks like. Well, you're going to be towing around a bunch of electric boats in electric trucks, or you're going to be towing around an RV and an electric truck and what does that mean in terms of the new charging infrastructure you need to go support that or the new technology you need to go make that happen. Maybe it's powered trailers that can actually help the vehicle or there's just a ton of opportunities and if you cast your mind forward of two years and think about what are the new problems that are going to exist when the marine industry is going electric and the aviation industry is going electric and the bus industry is going electric.

36:48Yeah, and I think interoperability and standards industry standards is a challenge today. And we've left it largely to sort of standards making, you know, traditional industry associations to drive standards. And in my opinion, it's been too slow. We've done integrations with 15 to 20 utility companies in the last 12 months. And every single one of them has been discrete and different. Do you just have to put the right team on it to know how to navigate the system and get through to the other end, but putting better standards in place would allow for what Mitch is describing. Your boat is charging your house when the power grid is down or for four hours every afternoon when the grid is strained and demand charges are kicking in.

37:39or your trailer is charging your vehicle because it's got extra power. That's all interoperability that needs standards. I would flag one other challenge, Mitch mentioned it, but it is one of our greatest pain points, which is supply chains. That's not just about getting the cell cost down so we can deliver cheaper product. It's being able to deliver product full stop. The last couple of years have been really tough on supply chains. It's led to soaring costs, but also poor reliability. We're one of the largest buyers of medium and heavy duty truck platforms in an electric format right now. So we're talking hundreds of millions of dollars per year of equipment purchases.

38:25We're not billions yet, but we will be quite soon. And even as a large buyer, it's tough to get product. And so you've got manufacturing sites that have thousands of completed vehicles and they are all short an air compressor. So they can't complete these vehicles and deliver them to customers. And so, preach. Yeah, we are buying Switch Gear 18 months in advance for projects we don't even have in our contract yet. Because if we don't have Switch Gear, we're not getting the infrastructure completed and we can't get up and running. We don't get paid. And so, we're solving problems that we shouldn't have to solve, in my opinion.

39:04And so I think For some entrepreneurs, there could be big opportunities in streamlining supply chains and creating better standards. I heard a very creative description of the supply base over the past couple of years and it was called the surprise chain. That's all you need to say. Perfect timing for what we're doing. You look at the outlook on the aerospace industry right now, particularly aircraft manufacturing. And a lot of the major aircraft manufacturers have already launched their next program. So they're into entering the service, they're delivering them. And if you take a look around at the large and company aircraft manufacturers, there's no new programs on the docket right now.

39:46And the Tier 1 supply base, and even the Tier 2 and Tier 3 supply base, they're all hyper aware of what they're going to be working on. And it gives us an opportunity to show, hey, we've got an aircraft, we've got a market, We've got good orders. The utility of the product is there. And I think what's going to happen is that the new technologies that we're bringing and our new products are actually going to garner the attention of the forward -looking supply chain. So I think we're going to disproportionately benefit us in the aviation industry, but I think the same is probably broadly applicable.

40:16The new technologies, the new companies are actually going to benefit from obtaining the focus of the established tier one tier two supply base. So I don't want to say the problems are behind us yet, but I think the other look is is actually quite sunny shiny. I'm curious how you two think about this. I know for us, there are incredible advantages for bringing the battery pack in -house, and that's why we vertically integrated our battery pack. It is structurally integrated with the boat hull. In the same way that, you know, electric cars didn't become that compelling until you built the car around the powertrain under one roof.

40:52I think the opportunity that I see at least is, on some of the other atomic components that go into a high voltage electrical system. An example might be a DC -DC converter that when we started ARC, there was one on the market and we did not have much choice. They're now 30 of those and that's exciting because you can use those across the applications more so than you can just drag and drop an entire battery pack. And so when I think about supply chains, it's actually that some of those more atomic components or connectors are a big one for us that are just historically that a nightmare. Those are examples of things that work across application and are not necessarily so tailored to your application.

41:37So I wouldn't necessarily encourage people to go after, say, building an entire battery pack and trying to make that battery pack work for both boats and airplanes because Because that's going to be really hard. We have very different objectives out of what we want from those battery packs. But you might be able to find components that factor across those. That agree. You want the keel and the ballast to be replaced by battery packs I'm guessing. Yes. We actually don't mind weight on about. It allows you to throw a bigger weight and mix about more stable. So we're not as weight constrained as some other people.

42:10Certainly for us, you know, that's a prime example of the difference in some of the design criteria that we've got in the aircraft side versus the marine and land -based applications. But what we've seen in terms of technology evolution is, you know, talking to people, DC -DC converters is, by the way, the perfect example for a shareable component that has an important role to play. But I'd like to take it one step further, which is why do we need the DC to DC converter? Why don't we just get the subsystems made to operate at the same 800 volt system level is the rest of the equipment, right? And so we're seeing high -voltage applications of peanutritionally lower voltage electric components coming up about environmental control systems that operate at 800 volts now, looking at other actuation and so on that operate at high voltage, reduce your wire size, and so I mean that's what we're pushing on.

42:57Great point. I would love to see some of these low -voltage components actually come up and support high -voltage ranges. That would be awesome for us. Maybe as a follow -up question there, Mitch, you mentioned whether or not you design your own battery packs, given that every single one of these claims boats, school buses have many components. How do you think about what is inherent to your business and that you build on your own versus buying or borrowing? And then I guess, tacking on to that, what I really am trying to get to is this idea of what boats might arise in these industries. Like, I imagine, let me know if you guys disagree, but like let's say 10, 20 years from now, we're going to be seeing a lot of electric Boats, a lot of electric school buses, a lot of electric planes.

43:40And so where does the differentiation come from? We're just over two years old and we are delivering the most advanced electric boat in the world to paying customers. That's exciting. The way that we've been able to do that is by leveraging a lot of the research and development that has gone into the automotive industry over the past decade intelligently and apply it and adapt it to the unique challenges in the marine industry. We're very careful to integrate the things that become the platform for all future boats we develop and try to not integrate the things that do not give us a unique advantage over time or that are more marginal improvements.

44:23So the battery packs are core to that mode and that's hard. It is hard to build your own battery when we talk about mode, we have an incredibly talented team. We have top talent for SpaceX and Tesla and Rivian and other EV companies and Marine companies. And it still took us two years of working around the clock to integrate those battery packs and get them production ready for customers. I just was wondering, do you aspire to be in commercial boating applications? Or does all that IP you're describing, which sounds very cool? doesn't it all apply when you get into fairies that may have predictable routes?

45:04Maybe not long -haul shipping, but I don't know. Our aspirations are that everything on the water eventually becomes electric. And the playbook that we're taking is to start on the recreational side. What we're doing is building a strong brand, we're building a technological node. We are building an extremely talented engineering team. And along the way, we're driving down our cost of capital because boats are a very good business. And the more boats we produce, the more working capital that we have. And those are the ingredients that ultimately set you up to more efficiently go after larger craft, which I'm not necessarily ready to talk about that part.

45:44We have our hands full on the recreational side, but certainly there are aspirations to go there. I heard yes. Thank you. We found the sweet spot for making an electric plane. The size of the aircraft, it's nine passenger aircraft. It's nine passengers on purpose because in the United States you can actually fly nine paying passengers with a single pilot. We have two pilot seats so you can also use that other pilot seat to train a new pilot, which will help address the overall pilot shortage that we've got. And we didn't do that in isolation. We've come up with this approach based on interacting with real customers and figuring what they need and what the market needs.

46:20The other thing is we're building, you know, it's an electric airplane, but it's just an airplane. So it's a part 23, it's a commuter category aircraft. That means that we're building it to be certified under the existing standards. The pilots who fly it will be able to fly it with their existing pilots licenses, they get trained the same ways, they would for any other aircraft that size, likewise with the mechanics and people who operate the aircraft on the ground, and maintain it, the same system that we've got today, flies from existing airports, season, the existing aerospace, right? So we've got this product that's being fit so that we don't have to go and change the way that aircraft are certified and see other way around what we're able to do is say, look, we've developed an electric airplane that meets all of these standards, right?

46:58So our plane meets the same standards as any other airplane in its category. And to the point of mass adoption, 100%, I firmly believe in the next 10 to 15 years, we will all be flying regularly on electric airplanes. I have aspirations to get my pilot's license. And one of the things that clicked for me is the biggest risk to being a pilot in flying you know, a Cessna is reliability of those vehicles. And the number of check downs that you have to do on an aircraft before it gets into the air. In my mind, like electric aircraft make a ton of sense because you get that extra reliability you know almost free that you're no longer worried about the whole class of problems you I'm working about with mechanical engine failure on an aircraft.

47:43So I am personally excited for that future. I wanna fly an electric plane. I aspire to visit Greg and have him take me for a flight in his plane. Me too. You guys can all rotate. You can do that. You can do that. I love that. I'm going for a boat demo. Everyone's going to the concert. I can ski a little bit. Awesome. Great. Yeah. You know, Steph, your question on differentiation. These guys obviously have products that have had a ton of IP investment that's truly a technical IP behind the product. We're a really different business. We buy a finished product for the most part from leading OEMs and the business model that we're running is really bundling and packaging of services and financing.

48:28And if you look at the big solar operators, companies like SunRun and other utility -scale businesses, they drove commercial adoption. And that's because they very elegantly bundled and packaged a whole bunch of services with capital, and they made it very easy for customers to adopt. And so we were very much in that business. It's lots of little things from training mechanics to training drivers to building a technology backbone that's scalable so that we can actually operate these fleets relatively efficiently. But I think one of the things that we've identified as a core differentiator for us right now is simply scale.

49:16We're the largest provider in this space. We have more contracts and bigger contracts than anyone else. And when you look at scale, especially in the early days of the market evolving, we have better access to capital, cheaper capital. We have more miles under our belt to prove to that capital that we're a reliable operator. We can buy product at scale and get better terms in buying everything from charging stations to switch gear to construction services. And then because it's local, we have operators on the ground that are responsible for actually delivering some of those services. Some of them are really technology driven, but some of them are people on the ground who actually have to turn some wrenches.

50:00And we have scale in places like Maryland, Michigan, New England, where it's much cheaper for us to operate and add that next customer than it is for our competitors. And so I think those are some of the moats we're building, but very much believe that it's a more challenging bundle of services than operating a solar farm and That's going to continue to be difficult for others in order to replicate Absolutely my summary of Duncan's point there is Ideas are cheap the hard part is execution Mm -hmm I'm sure there are a million people in the US that have thought somebody should make a Tesla for votes The hard part is how do you go build a product that can actually deliver that vision?

50:46How do you go package enough battery on a boat to make it compelling in such a power hungry market? Yeah. Totally agree. How do you do that without, you know, spending incredible amounts of money on CAPEX or R &D? That's the hard part. And I think that speaks to the boat here is it is hard to go do this. That's amazing. I couldn't have said it better. I completely agree with that. But I also just want to pick up on one point the Duncan just made which is very very important. It's the order book Right, you know having a real order book where you've gotten sat in with the customer and they've said yes We want your product we aviation recently passed by the 3 .5 billion dollar pre -order mark right for the aircraft more than 400 airplanes on L .O .Y.

51:29That we have with our customers now and their real customers these customers that are signed on early are are committed to working with us on the program. They're giving us feedback. They're giving us information about how they're going to actually operate the planes. And then they're there to work with us to be our long -age partners when we actually put those planes in the service with them in the next few years. So I just want to emphasize that. That order book says so much about what your market is saying. And then recently we just announced a deal with the leasing company. And the leasing company doesn't just bet on our aircraft.

52:00The leasing company is betting on the market. And so it's telling you that there's a market for your entire product line, where at least a company buys it. It's very, very important to look at that mix. I should share that we chose the three of you to contribute to this conversation is because we did do our research and check that all three of you have orders booked. That was really important in terms of like you're actually on the ground, you have relationships and to all of your points, it shows that this is not just an ideal where we want to electrify and eventually people will buy into this.

52:31the market is actually participating in this. They're saying, okay, you know, the cost combined with the other benefits that we're seeing in this industry now are actually better to the point that we're ready to put our wallet down. And so that was really important in terms of us determining, you know, there are many participants in all three of these spaces. And so that was essential for us. But I also want to just quickly note that all three of you spoke to so many different opportunities for Melbourne. like there was technical modes, there was operational modes, there's even potentially like regulatory modes.

53:07And so I think it's fascinating to imagine how this develops, right? Because there's not just one single mode, each one of you are figuring out where your business tied with your custom base, whether it's B2B or B2C, like what they're really looking for. I think one great place where we can end this conversation is we've already kind of spoken to this idea that this is where these industries are moving in five years, 10 years, 20 years, we do expect these set of industries to change and to be electrified. And so I'd love to hear the three of you just comment on what that really means, like contextualize the impact of let's just say like maybe not all aircraft, but like most aircraft being electric, most boats being electric.

53:49I know this will take time, but I'd love for the audience to just understand maybe the second, third order effects or the implications of that shift once it's fully manifested. I think something that some people don't necessarily think about is the next generation of boaters will not be allowed to use gas bobs on our lakes and rivers. They are very unpopular because they're huge polluters. Semi -trucks out on the water except a lot of them don't even have catalytic converters on them. So, you just see these fuel slicks behind boats as they take off and all the noxious fumes around there, CO2 poisoning warnings on the back of these boats.

54:31Fast forward several years, you're looking at marinas that are quiet, that have clean water around them because these boats are not polluting into them. We'll take an arc one out into a marina and we'll pass a sailboat and the sailboat will be louder than our boat. So just this ability to suddenly appreciate and enjoy water so much more than you're able to today with kind of this drum of engine noise kind of drowning everything out. It's an exciting vision that we're driving towards. When you look at urban areas around the country, the EPA, you go to their website and look up who's in attainment of air quality that's fit for being healthy for human life is effectively the way they describe it.

55:15And most of our major cities do not meet the threshold. And it's because we have tailpipes from vehicle traffic. We've essentially moved all of our power plants further outside of urban areas. We don't run coal plants in cities anymore. And so that air quality is a function of tailpipes. And cancer rates, rates of pediatric asthma are high in cities where tail pipes and vehicle traffic is high and areas where the airflow does not wash those fumes out quickly and easily enough. And so there are places in California where we're engaged with municipal leaders where pediatric asthma is over 30%. And so our vision is tackling air quality at the local level, tackling climate change at the same time, creating a very clean, quiet, urban future.

56:14And you know, Mitch said, quiet, we would say the same thing. Our bus depots are silent and the buses operate almost entirely silently. Trash pickup could happen earlier in the morning because you don't have the loud rumbling noises of a diesel engine. and the grid is not utilized to the tune of 36 % or 38%, it's utilized to 55, 60, 65, 70%. And so we can integrate more renewable energy, not less. We can reduce demand charges and just charges to ratepayers and create an ecosystem where transportation of all forms, whether it's flight, marine, or road, is really integrated into an energy ecosystem that's more efficient, cheaper, and better.

57:08In the near future, you're going to be able to take a 10 -minute trip to your nearest airport, get on an airplane, and fly for an hour to do a day trip that previously would have been an overnight trip. We're a trip to an airport half an hour 45 minutes away and going through security, you're going to be able to conveniently move from point to point to go do the trips that you want to do. There'll be more time effective. It'll be good for the economy in terms of enabling more trade but also in a social perspective. You know just being able to go and see people that you want to be able to see. We thrive in connectivity.

57:40This type of connectivity will disproportionately benefit small rural communities. Communities that previously have not had the benefit of having air travel which is a real economic motivator. These flights will be much more cost effective than the flights we have today because they eliminate aviation fuel and replace it with a much cheaper, electrically -drived energy from the grid. As with those other forms of transportation, electric aviation is very quiet, which means that not only will you be able to increase the frequency of flights or even ad -previous flights that just haven't existed in decades, you will be able to do it not worrying about polluting the environment, but also not worrying about irritating your neighbors because the flights will be so quiet that nobody will complain.

58:22In fact, you will want to have that airplane next to you so that you can take advantage of it. It's going to change the way that we fly. And really, this is the future. I'm just picturing this summer day in my head where you wake up, you go to your nearby airport, you fly to your friend who lives in your lake, you go out on an electric boat. After that, you go to a concert powered by an electric school bus and I'm just, you know, this is obviously an extreme scenario. The perfect day. You know what? It's the perfect day that is hopefully enabled by technology in the coming years, so. It's not so far off.

58:57Let's make it happen, yeah. We're counting on you guys. Let's make it happen. I think that's a great place to end off. Thank you so much for sharing. The amazing things that all three of you are building in your respective spaces, and I think it was fascinating to just see the overlap. And also some of the differences that are unique to your industries. Thank you for the excellent questions. It was really inspiring and thought -provoking and Duncan and Mitch. I was really enjoyable, thank you both. Yeah, yeah, I would echo, Steph, thanks for getting us together and Mitch, you know, Greg, love to stay in touch with you guys.

59:26Love what you're doing. You're the pleasure. Yeah, thank you for having us. And it's an awesome and inspiring conversation. I look forward to it. Thanks for listening to the A16z podcast. If you liked this episode, don't forget to subscribe, leave a review, or tell a friend. We also recently launched on YouTube at youtube .com slash A16z underscore video where you'll find exclusive video content. We'll see you next time.