00:16:54 · Ty Morse, Soren Monroe-Anderson
[00:16:54] S1: Are you just basically like living, I don't know, six months or twelve months in the future, and then you're having to ship the twelve month, you know, six twelve month old product simply because of that? [00:17:03] S0: Most of the time, yes. Yeah. But this is... I mean, this is quite normal. I think it's just like learning learning it as we build up the sort of suite of products in the company and and improve our... The way we design products and the way we validate products and move them over to production. So there's a lot of like learning here, but, you know, many many companies deal with this. It's just kinda funny to to see it. [00:17:28] S1: One of the things that you're most focused on is you want to be like the first drone that is just fully made in America with all the components and like sub assemblies and everything. How close are you to that? And like what are the key constraints to actually getting there? [00:17:42] S0: I mean, if... It's just about how far down the supply chain you go. There there's just every level is is hard work. [00:17:54] S1: Do you wanna talk about each of those levels?
00:17:54 · Ty Morse, Soren Monroe-Anderson
[00:17:54] S1: Do you wanna talk about each of those levels? [00:17:55] S0: Yeah. I mean, you know, we we've gone... So the the biggest supply chain hurdle we've had to clear so far is getting all of the quote critical components China free, and then we've gone beyond that definition as well. So we, you know, we we go down to things like motors as well. And then also we've gone down to the neodymium that goes into the magnets that goes into our motors, but that's not work that we can always do directly. I mean, most of it's not. Right? It's actually just finding the right supplier and building a partnership with them, building a relationship with them. And so when I say it's like just how far down the supply chain you go, you know, Neros is not gonna be the company that can solve like neodymium mining and refining in America, at least not for a long time. [00:18:43] S1: Not gonna go full Tesla where you're like building the lithium plant?
00:18:43 · Ty Morse, Soren Monroe-Anderson
[00:18:43] S1: Not gonna go full Tesla where you're like building the lithium plant? [00:18:46] S0: Not yet. We can't, you know, we we we have to build we have to build high rate assembly and tests, then we have to build high rate component manufacturing, then, you know, certain sub components, but you you start to get to the like, you know, chips and magnets and those things are obviously insanely hard. You don't you don't get to do those until you're you're just hugely scaled. So a lot of this stuff is a is a team effort for for America and for allied countries. To go back to your original question, you were quite far away from a from a drone that is fully made in America, because if you if you want to do that, you're talking about every microchip, every, you know, mineral. It's just like it's such an impossible list. Actually don't think Made in America is, you know, fully Made in America is the most important stat though. It's it's can we build drones with an allied supply chain with certain, like, biases towards America or other regions depending on who the customer is. But, like, you know, could the allied world build a number of drones that is competitive with China, and, you know, countries like Russia? That's what we care about more than anything, but then for for each customer, there is a a bias towards having, you know, very domestic supply chains and and manufacturing, which is is understandable. So over time, we'll figure out how to do that.
00:20:27 · Ty Morse, Soren Monroe-Anderson
[00:20:27] S1: One of the things that you talked about with me right before we started was this idea of there's part of it, which is you want to be able to have, you know, there's building a million drones a year, and then there's also the capability to build a million drones. And right now, we just don't have the capability. So how are you thinking about basically making sure as quickly as possible we have that capability even if you're not necessarily producing a million? [00:20:51] S0: That's why we're focusing really hard on the factory and and also thinking about if we are building a factory that's capable of peaking at a million drones per year, what rate can it run at that is sustainable, which is much lower than a million per year? And also, you know, what what are the effective ways of of financing and selling capacity versus just drones? So those are some of the questions that that exist for for that, right, like the... We can't control the demand side, and there is no program for a million drones per year yet. And so we have to think about what is the most existential thing, which is the capacity, and then and then build around that. And we're very very willing to invest our own capital into that vision well before the government is is paying for a million drones. [00:21:50] S1: Just like you did on the first factory.
00:21:50 · Ty Morse, Soren Monroe-Anderson
[00:21:50] S1: Just like you did on the first factory. [00:21:52] S0: Yeah. But the, you know, the CapEx investment in the first factory is not that significant. The... Really, like the team and the engineering costs are... And the inventory, the working capital costs have been the biggest have been the biggest factors so far. The investment into component manufacturing and automated assembly and test at millions per year scale, like that's where the that's where it becomes a serious financial question, but we're willing to take a good amount of that risk ourselves because we're fundamentally a mission driven company, we know this thing needs to exist, so it would be somewhat silly in my opinion to wait around for for the government to to say, okay, yeah, we're gonna buy all those drones. You have to operate on some level of uncertainty. [00:22:49] S1: Yeah. This is a little bit more like the SpaceX situation with just figuring out launch cost to orbit and, like, mass to orbit and how do we just scale that as quickly as possible. And it turns out, you know, at least in their case, the best customer was just themselves for that mass to orbit. Right. And if you just listen to the government, you wouldn't scale it.
00:23:08 · Soren Monroe-Anderson
[00:23:08] S0: Yeah. Absolutely. And and, you know, the government doesn't need to be our only customer for, forever. It it shouldn't be, actually. But we have to start... If we're trying to fix the drone industrial base, we have to start in defense because right now... Or, you know, in defense is where the regulatory environment and the customer exists that that just totally excludes the Chinese competitors because it's not possible to go head to head with the Chinese competitors in the, you know, consumer enterprise market right now, but that's shifting, and it's shifting in America, especially with the new ruling by the FCC on DJI and just the the direction that we are... The country is pushing in. It's clear that we're gonna have to have a... Or really should have a domestic drone industrial base that supports all of the applications, not just defense. And that's where the, you know, millions per year volume is also just extremely reasonable. You know, if if we're talking about millions per year just for defense, you know, that means we're probably doing some significant stockpiling, we're using a lot in training. I think we should be doing both of those things, but if you look at the number of drones that DJI sells in America every year, you know, millions makes a ton of sense. So we just have to build a, you know, competitor to that, and and the government seems to be pushing in the direction of just not allowing DJI to operate here long term, which is the right decision. So that that creates opportunity for actually fixing an industrial base, not just building sort of a, you know, a one off factory that then just sits unutilized.