01:01:53 · John Coogan, Miles Arnone, Jordi Hays
[01:01:53] S1: and they [01:01:54] S7: were trying to figure out how to save these companies. Right? So what happens when you offshore production is you make some extra money for a while, but then you very quickly lose the ability to design the product effectively. And also very often your subcontract manufacturer, particularly if they're in China, will often use that intellectual property to develop products that compete with you. So after one or two cycles, as you know, in private equity, the companies often move from one shop to another to another. After a few cycles of that, usually you're facing a pretty difficult situation. [01:02:26] S0: Very cool. And so what's been the what's been the strategy? It sounds like you've been buying, not just building yourself. [01:02:31] S1: But also incubating. Yeah. There's a lot going on. [01:02:33] S7: That's right. Yeah. So to start, we bought 13 different businesses so that we had a very broad set of engineering capabilities because that's the core and likewise in production. So we can build metallics, composites, electronic systems, large scale assemblies, etcetera. And then we started to also instantiate businesses on our own. We built a battery business, a drone product business, number of other businesses in the aerospace and robotics areas particularly. And so, yes, we have a a multipronged strategy because frankly, there's a lot of work to do and we need to do it in many ways if we're gonna catch up. Right? We don't have four years to do this.
01:02:33 · Miles Arnone, John Coogan
[01:02:33] S7: That's right. Yeah. So to start, we bought 13 different businesses so that we had a very broad set of engineering capabilities because that's the core and likewise in production. So we can build metallics, composites, electronic systems, large scale assemblies, etcetera. And then we started to also instantiate businesses on our own. We built a battery business, a drone product business, number of other businesses in the aerospace and robotics areas particularly. And so, yes, we have a a multipronged strategy because frankly, there's a lot of work to do and we need to do it in many ways if we're gonna catch up. Right? We don't have four years to do this. [01:03:09] S1: Can we double click on drone drone manufacturing? I remember a couple years ago hearing from a lot of the defense tech drone companies that they didn't have a... An onshore supplier for small drone motors for little quadrotors. Everything had been offshored. There was one company I found in Washington that had been sort of hollowed out and offshore their manufacturing, and I was sort of loosely pitching, oh, someone should do, like, the American Drone Motor Company of America or something, one of those, startups specifically focused on that. But what have you seen in the drone supply chain that is interesting or tractable or the or the the biggest unsolved problem? Like, what is the state of that supply chain? Because a lot of the actual founders, you know, they they can't exactly go out and say, like, oh, yeah. We're particularly in trouble on this part because they have a business to run.
01:03:09 · John Coogan, Miles Arnone
[01:03:09] S1: Can we double click on drone drone manufacturing? I remember a couple years ago hearing from a lot of the defense tech drone companies that they didn't have a... An onshore supplier for small drone motors for little quadrotors. Everything had been offshored. There was one company I found in Washington that had been sort of hollowed out and offshore their manufacturing, and I was sort of loosely pitching, oh, someone should do, like, the American Drone Motor Company of America or something, one of those, startups specifically focused on that. But what have you seen in the drone supply chain that is interesting or tractable or the or the the biggest unsolved problem? Like, what is the state of that supply chain? Because a lot of the actual founders, you know, they they can't exactly go out and say, like, oh, yeah. We're particularly in trouble on this part because they have a business to run. [01:04:03] S7: It's a great point. So, actually, on the motors, which are called BLDC motors, which are used on these drones, that problem is largely being solved actually in a pretty short period of time. [01:04:12] S1: That's great. [01:04:12] S7: So it turns out you could import a lot of the machinery, the winding machinery, and so on, And a lot of the machining is quite conventional, and those are not ultra hard products to make. The actual trick there is the rare earth magnets in those motors. [01:04:24] S1: Oh, yeah.
01:04:24 · John Coogan, Miles Arnone
[01:04:24] S1: Oh, yeah. [01:04:25] S7: Today, that is still a very difficult supply chain issue. There are a number of companies looking to build that capability in The US, but the motors themselves [01:04:33] S1: Yeah. [01:04:33] S7: A whole bunch of companies ran into that space, and there's actually some danger there'll be overcapacity. [01:04:38] S1: Oh, interesting. Yeah. I remember looking up, like, how a drone motor is made, and it's, I I don't wanna say it's easy, but it's, like, a pretty simple to understand. Like, you wind the wire around the magnet. It spins, and it's something that if you had, like, any degree in engineering, you could sort of, like, work up to with the right machinery. So good to hear. That's gonna be solved. [01:04:59] S7: Well understood. And the capital needs to get into it are not ultra high. Right? [01:05:03] S1: That's great. [01:05:04] S7: Now as you get to bigger motors and bigger drones, like group three drones, larger drones, that changes. [01:05:08] S1: Mhmm.
01:05:08 · John Coogan, Miles Arnone
[01:05:08] S1: Mhmm. [01:05:09] S7: But the biggest challenge in drones is still that someone like DJI in China can make a group one. This is like a small quadcopter drone, and deliver it in The US for under $2,000, and a typical US made product is more like 5 to $8,000 using US based supply chain, electronics, etcetera. And as you can imagine, in a military context, it's all about affordable mass. So you want the maximum number of drones at the lowest possible price to win. And so that price difference is substantial. We've been developing actually what we call a drone core. Think of it as a platform that others can put various payloads on, whether those are energetics or various sensors or whatnot, that we think we can sell in The US wholesale for about $1,600 So the real radical change there is the development of the production system. How will it be manufactured? And developing that plant at the same time that you're developing the product. Because if you look at a traditional drone, again, even from China, they might have a 100 plus fasteners. And each of those fasteners requires a person or a robot or some kind of automation to make it. So if you can design a product that eliminates, for example, 100 plus of those fasteners, you can dramatically cut the production cost, the production time. That's the kind of thing that we need to do if we're going to compete with not just low labor costs, but everything costs less in China.
01:06:30 · Jordi Hays
[01:06:30] S0: How are you thinking about your supply chain? How much were robotics part of the pitch in 2020? Was that like, was that a core part of the first five years or was that always something that was a bit farther out? Because I'm thinking like, there's one situation where The US ends up and where we do sort of like, reshor manufacturing, but then we don't, we can't make the robots at scale, so then we have a new dependency. We have to... And we're, you know, so it feels like both those things, we need to have the manufacturing here, but also we need to make the robots here that will actually do the manufacturing.