Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: My guest today is Palmer Luckey. Palmer is the Founder of Defense Company Anduril Industries, which makes the next-generation military technologies for the U.S. and its allies. Since bringing the company to life in 2017, Palmer and Anduril have disrupted the established order in the defense industry. Prior to Anduril, Palmer founded Oculus VR, a virtual reality business that he sold to Facebook for $2 billion. This is one of my favorite interviews in a long time. Palmer is only in his early 30s, but he's already experienced more than most people will in a 40-year career. We'll talk about innovation, invention, differentiated thinking and so much more. Please enjoy this great discussion with Palmer Luckey. And if you're interested in learning more about Anduril, you can listen to my business breakdown from last year with the company's CEO. You'll find a link in the show notes. Palmer, I always like starting somewhere of recent passion, you started to give me some amazing materials, so we stopped and we restarted the recording here. And maybe we'll just begin with this idea that you were telling me about I'm always interested by major changes that might happen in the world that nobody is really talking about. And until you said the word synthetic long chain hydrocarbon fuel to me 5 minutes ago, I'd never heard that combination of words before. So maybe you can start there and explain why that topic is of interest to you today.
· Palmer Luckey
[00:00:00] S1: Well, it's of interest because there's a lot of money being bet by companies, but also governments on a handful of specific technological pads for electrifying vehicles, battery electric vehicles, hydrogen electric vehicles. If you can make synthetic long chain hydrocarbon fuels, in other words, synthetic gasoline, synthetic diesel synthetic jet fuel using carbon from the atmosphere in particular, there's a lot of ways to do it. Boiling it down, one of the ways to do it. You take water, you crack it into hydrogen and oxygen using some kind of energy source like a nuclear power plant and then you bond it with carbon to make hydrocarbons and then you've got artificial gasoline coming out the other end. If someone can figure out how to do that, cheaply enough. First of all, it's an incredible carbon capture mechanism. Two, if you can do it cheaply enough, let's say, $1 per gallon, then all of these trillions of dollars in investment into battery electric vehicles and hydrogen electric vehicles become really a waste of money and a waste of time. There are, of course, some advantages to battery electrical vehicles, hydrogen electric vehicles that wouldn't apply. But for the most part, especially on the aviation side, the ability to make fuels to just plug into existing fully known, fully optimized, fully understood and even fully certified systems that are better than the ones that cost hundreds of billions of dollars to develop. That also aren't as good electric planes spend most of their energy hauling around their energy storage, not people or payload, which, of course, means you need to put more energy into them in the first place than even synthetic fuels with a pretty low conversion efficiency. The reason it's so interesting to me is that the bet seems so mis-apportioned, you have so much money going into battery electric vehicles and electrification of electrical infrastructure that's not moving. And almost nobody betting that you can build systems that make dollar per gallon hydrocarbon fuels using either biological processes like algae farms or mechanical processes, however you're making the synthetic fuels. And of course, if someone figures it out, they're going to really knock a whole bunch of stuff sideways.
· Palmer Luckey, Patrick O'Shaughnessy
And we talked about this before, but it's especially interesting because lots of companies make poor technical decisions and they decide to go down a product path, it doesn't make sense. I personally feel like this is a case where you have dozens of governments around the world have decided to commit to a particular product path that isn't optimal. It's not the optimal end state or the optimal near term, and they're dumping hundreds of billions, maybe trillions of dollars into that bet. It's something that I'm worried about. [00:00:00] S0: When you find an idea like this. First of all, I'm curious how you found this one in particular, but the world has just gone through the superconductor craze, which for a week there it was like, well, if this is real, it changes everything. And then very quickly realize, oh, it's not real, and it seems like, again, a remote possibility and not terribly likely. So maybe there won't be loads of dollars trying to create superconductors. With something like this, how do you weigh the potential against the odds of us being able to do it with your own time and investigation?
· Palmer Luckey
[00:00:00] S1: Well, in this case, it's 1950s era Department of Energy documents regarding potential energy futures for the United States, accounting for what they assumed would be a nuclear future. I always find it interesting when I go into an area that I don't understand to try and understand it better. Even -- if I want to understand what's going on in the modern day, you want to go back to the future and say, what were people saying, back then, what are the ideas that people aren't even discussing right now? Because I don't want to be too pessimistic on present, but if you look through a lot of the academic literature and government literature today on energy solutions for the United States, they're really, really narrow minded. They are really, really politically driven, it's all about what is aligned with the current debates going on between political parties. The people in these agencies are largely tied to the things that have already been deemed important. And if you go back on the other hand, to let's say, post-World War II America, where we were really thinking from first principles, what do we want the world to look like? What do we want the United States to look like? And what are all of the ways we could get there? They were thinking very expensively. And so this idea of extremely cheap synthetically manufactured biofuels that would get rid of strategic dependence on limited oil supply or allow us to sell off our oil supply to make money in the near term while still having a robust renewable base of energy to power our industrial machine, our war machine, you name it. That was an idea that was of interest to people in the '40s, the '50s, the '60s. I think mostly all of this fell apart when it became clear that we were not going to be a nuclear economy mostly in for political reasons, not practical or technological reasons. So this was the case, right? I didn't actually have to be a big thinker. I just had to go say, what were people thinking when they were allowed to think whatever they wanted and when they could think really, really big things? And it's not even just on fuel. There's other interesting things they were thinking about back then, like today, if you say, what's the best way to help the environment in the United States? It's actually very calcified.
· Palmer Luckey
There's very little consideration for things that are better than what currently exists. You kind of preserving the status quo as the ultimate good. There's very little consideration for what is better for people, what would be better for more animals. And if you look back again the earlier parts of the United States history, there were serious proposals by the Department of Interior to say, what should the United States ecosystem look like if we could make it whatever we wanted? What animals would we have? Would we have hippos? Would we have rhinos? Why not? Why don't we put hippos in Louisiana? There was just this endless possibility, big thinking. But what's crazy is it's not even big thinking in the way that we would think of today. When people think a big thinking, they immediately jump to really hard ideas, fusion power and what if we could bio-engineer ourselves? The ideas they were having, they would have a big impact, but they're actually easy ideas. Just what if we brought some hippos, put them over there on that swamp? The big idea is what could we do economically? Would that be a good meat source? Could we use that as a better protein source that is less damaging to environments that we're trying to preserve than what we're currently doing with cows? And those types of ideas, they're not taken seriously today. People treat you like a crank if you step outside the orthodoxy.
· Patrick O'Shaughnessy
[00:00:00] S0: When you think about, I'll call it, the soil of, let's just use the United States to keep it local, the soil and the quality of the soil for potential innovation and you had to rank that today 1 through 10, what score would you give our soil today?