How LA Is Becoming America's New Industrial Tech Hub | Odd Lots

0:00 Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal and I'm Tracy Alloway, so we're doing our live show here at the Vermont Theater in Hollywood. And one of the things that I know very little about, but that I'm very excited to learn more about, is the attempts to, like, turn this in, this part of the country into a booming part of our industrial tech ecosystem. Yeah. So we hear about industrialization efforts in America all the time. But what does it actually take to try to do that? And what are the companies actually doing in this space right now? We have two very interesting ones for you. Yes, I'm very excited.

0:37 You're going to be hearing our chat with Chris Power. He is the founder of Hadrian, which is trying to build a new generation of factories, as well as Tom Mueller, founder of Impulse Space, also the first employee of space X. We're going to learn about these attempts to re industrialize Southern California. Take a listen. All right. Well, thank you so much for coming on all of us. Truly the perfect guests. I'm going to start with, I guess, the question I alluded to at the beginning, which is what is your narrative for the hollowing out, to use a cliche of U.S.

1:17 manufacturing? Why does it seem that we lost some sort of edge? Chris, do you want to start? I do, and, I think the first question is, do you want the, accurate answer that's going to take three minutes or the political one? How long does the political one take? I can't give you both. So here's what here's what happened. but it happens in context. So every great, every great power of all time, does for very simple things. they have some generative, generative population function. they have the best industrial capacity, and then they, win or prevent a war, and then they get incredibly lazy and they end up with the financial industry and they offshore.

2:10 What made them successful in the first place? And by the way, this function is represented in the trade of the reserve currency of the world. So the last three times this happened, the Netherlands, ceded power to the British Empire. And the British Empire ceded power to the American Empire. And in each moment of industrial power being retrained for financial power, you switched the reserve currency of the world. And the mistake that everyone makes, because you have 4 or 5 generations of softness, is that just because you have the reserve currency means you rule the world, and you forget the fact that the only reason you have the reserve currency is because you had the best shipbuilding capacity or manufacturing capacity. Mhm.

2:55 So this is also the founding story of Hadrian, which is if you track these things roughly every 150 years, the reserve currency of all changes. and the reason is because you, you think you, Mike Tyson in your prime and the other guy or gal thinks you're Mike Tyson before the Buster Douglas fight, and the pattern remains the same. So, well, the the founding story of Hadrian. And the answer to your question is the reason why it's important is because you've ultimately traded spreadsheet returns from a high affect and luxury of leave society. And if you've gotten that, the world is real and eventually that comes back to bite you.

3:40 We just did an episode with, Francis Fukuyama. And so we're very well acquainted with this fantasy that the world comes with the. Oh, you're in the fourth turning. Yeah. Okay. Wait wait wait, wait. Just out of curiosity, before we go to tell him on that question, how often do you think about the Roman Empire? Ha ha ha ha ha ha! I'm assuming a lot, a lot in the sense that I think that, America was so everyone knows, like, what a weird boo is. Yeah.

4:08 A lot. There's a lot of laughs. So America was founded by a lot of Roman Boos, which is, like, obsessive Roman. a lot of a lot of the fundamental infrastructure of the for the state. And the Congress was Roman. The flow that happened with Rome is eventually the elites lost the capacity to connect with reality. Mhm. so in a sense, what you what you outsource when you have, the reserve currency is reality and then you get bit in the ass and. Yeah.

4:44 Tom, what's your version of the decline of U.S. manufacturing story. And do you also think about the Roman Empire? Well, first of all, I'm going to put on my glasses to try and be as smart as this. Oh, yeah. my take on that was, you know, how being a founding employee at its base. We, you know, I still say we can. I still feel like I'm still at space. Actually, when I left there five years ago.

5:10 we launched a 165 rockets last year, more than any other country. and we put 10,000 satellites in orbit three times everybody else's number of satellites. So tell me again why we can't build in the US. Okay. Great answer. Optimistic. All right. I'm going to ask you this is I promise this will be the most cynical question that I asked tonight. I promise, but I'll ask it to both of you.

5:40 We all love the sound of quote re industrialization. It makes us feel really good. There's a lot of imagery associated with re industrialization that we like. We like the image of factories, all these things. There's this very cynical part of me that when I hear, say, like VC's and founders talk about all of this stuff, that really what they want to do is they want to go on podcasts and give their theory about the decline of empires and that they're actually no offense.

6:11 That was and I believe you. But there and then I'm like, yeah, but where's the thing that you've built? So why don't we start with you and both of you and maybe give me. Why don't you tell me what you're doing and tell me why I should believe it's real, rather than creating good footage for a 92nd tweet. So my company is impulse based. I started it within, you know, 6 or 8 months after I left SpaceX in 2020 or 2021. Sorry.

6:39 And we do end space transportation. So we still use SpaceX and other rockets to get to space. Okay. Everything I build, operates in space. So we take over where launch vehicles leave off. So think of a launch vehicle, especially like Starship and, you know, a gigantic, launch vehicle that can take 100 tons to orbit. Think of it as like the container ship, coming into a port, the port being a certain orbit and all that cargo, it needs to go to different places.

7:12 So we provide the sprinter vans and the, you know, the, the, the trucks to move that cargo to other places. So we have 2 to 2 products. We have one that's a very precision maneuvering, satellite that has a lot of propulsion that can move very, very closely. We just had we had we have three of these on our boat right now. Two of them just came within 200m of each other. 200. There are two football fields, which is really close in space, actually. Yeah.

7:39 And then we have another product called Helios, which is basically a rocket on a rocket. It's a it's a giant tank of propellant with a very high energy engine. Okay. You can take your way out. It can escape Earth's gravity. It can improve the payload of a Falcon nine to the moon or to Mars by about a factor of five. so those are the two main products. And then there's other ones I can't talk about. And what are you actually building? so we build, design agnostic, autonomous factories, which means manufacturing is hard.

8:10 we will take any design. and build factories as a service with our software platform and our technician base that we train from scratch where we we are where we are an automated contract manufacturer. what we actually produce is everything from spaceflight components for the products that Tom said to, entire missile to 30% of a junior class submarine. so our job is to use technology to do process designs into a digital twin. Mhm.

8:47 Run that into factories as a service where we build software powered Factories combined with the workforce where we can operate. Lights out. 24 over seven. So we are incredibly more efficient and competent. but we are like, yeah, Foxconn to Apple. Yeah, we are Foxconn to every defense problem. But when you say autonomous manufacturing how autonomous are we talking about here. Could I, for instance, run one of your machines.

9:17 And then also one of the things I always wonder is when we talk about autonomous machinery, what are the humans who are actually running them doing? Just like pressing the button that says go and stop. So the first thing that people get wrong is if you look at a factory and you see a bunch of humans, moving things, you think it's a like, a humanoid robot problem. actually, what's happening in advanced manufacturing is there's an incredible amount of smart humans either at a desktop doing digital engineering, or they are at the factory floor, driving an incredibly dumb computer.

9:53 And that's 90% of advanced manufacturing. This is why we're a software company. Because it looks like to any robotics person, the like, if you could optimize a technician not loading the part on the machine or the assembly into the robot, that's going to save you money. It's not. It's actually all massive amounts of software engineering to tie everything together and make it autonomous. The reason why a welder or machinist has to stand in front of machine, yeah, is because it's not closed loop. They're genuinely doing trigonometry in their head, being like, oh, I think the tools are about to break and therefore I have to like stand in front of it. that's all actually a software problem. So we build software power factories to make sure that you can do a physical task, which is very hard for any robot to do, which is high judgement. set up something very fiddly and then loaded into a robotics and CNC or welding system and say go, it's done.

10:50 Walk away. And the power of the software is that you're able to walk away without being really scared that you're going to accidentally make a code change and crash that $3 million machine. I think the trigonometry point was a polite way of saying that no, I could not, in fact, run on one of these machines, which is fair. It's fair. I think fundamentally what humans who want out of factories is they have high judgment. They have control over there. What they are going to do, and they do very high dexterity tasks. Most of the load is on the software.

11:21 So I was in a I spent I was in Shenzhen earlier this year. And one of the things that people always talk about the Chinese manufacturing success is the ecosystem, right. You need some part or something like that that's custom fit, and there's someone a mile away and they can make it for you that afternoon and then you like have it there. And what's interesting or intriguing or why we wanted to have this, part of the conversation is. I know that there's actually quite a number of companies in the Southern California area building stuff.

11:54 And I'm curious, like, is it becoming rich in the sense that you're complimenting each other and sort of like building on each other's successes? And each one of you is increasing the odds of you that the other succeed in some way. I think it's both. And we're stealing talent from each other, certainly. And we're competing for talent, for sure. There are so many, companies that, a lot of founders that were ex base like me and a lot of my employees are ex base.

12:23 Yeah. And other and then like, right across the street from me at Northrop Grumman, which was TRW, I worked there for 15 years. It's literally across the street from me. I look out of my office window and I was in that building. we still a lot of people from them. We steal from Boeing. it's just there's only so much talent in the area, and there's so many companies growing so fast. We're bringing it back. I was talking in the greenroom about this chant that I used to love that showed, aerospace jobs in the South Bay like this. And SpaceX started in 2002.

12:55 It took it took maybe 3 or 4 years and it started going up. And it's just going, well, that's that because there's this. And then and you think about that, like all the other, startups are not necessarily all SpaceX startups. There's there's nuclear companies, there's there's drone companies. There's, you know, defense companies, there's, 3D printing companies, all kinds of, new tech happening in the area. And if you go even further, like, not just it's not just South Bay, but, you know, like, and you know, down in Orange County and, and the general area is just I always say that like, software is done in, in Silicon Valley, hardware is done in LA where it can both of you say a little bit more about how you think about producing stuff in-house versus sourcing it externally, because you think about space X?

13:45 And one of the famous things about space is vertical integration, right? The idea that there were enough space manufacturers making vital components, so they brought everything in-house in order to do it, you know, to the speed at which Elon desires to put it, politely or mildly. How do you think about that tradeoff? I mean, that that's a great discussion to have, because Chris and I you know, it involves both of us because we're very vertically integrated at impulse, just like we were at space X, but also we buy a lot of parts from outside. Like I think it's really important to, to like you make your first development engine or spacecraft, you build it yourself and you learn all of the problems that you can have assembling it as machining it. If I if I gave a development thing to a machine shop and they had all these problems, the drawing and making the part and then we get it, we can assemble it like you learn it on your on your prototypes. And once you get that tight then you send it out. Like, I know Chris is getting ready to make Raptor parts, so even SpaceX is sending parts out.

14:48 we get to the point where you get into production. that's that's when you don't need to grow your facility to handle high production. Maybe, maybe you'll keep some of the really, super, secret parts in your house, but you'll send the easier to machine or stuff that his shop can make. Really great. out. All right. That's my take on that. I agree, I think every company should have 10 to 15% in-house. There's no amount of software or service in the world that, like, you got a hot pot, you need the one genius guy to make it in an hour to hit flight.

15:24 but scale has to happen externally. Mhm. For us as a contract manufacturer, you know, for some customers we make parts. For some customers we make the entire missile and for submarines we make somewhere in halfway even for us. What I, what I trade off is I think in manufacturing you sell and buy trust. So our vertical integration strategy is we want to outsource everything possible to every industrialized startup, every small business that we possibly can because we have so many programs to run, but we vertically integrate where we just don't believe you can get the job done.

16:05 Mhm. And it's not a financial trade. It's like I'll put a 2 million piece of CapEx, $2 million piece of CapEx in the ground and hire a team to do it, because I would rather spend more money making sure we're on schedule, then taking the risk that outsourcing it to a legacy casting facility that's been light for the last 30 years on every submarine program. For me, it's all about trust. It's not economics, it's not anything. It's just I need it to be on time.

16:32 And it most of America is incompetent in terms of trust, actually. Is that is that from manufacturing a machine shop or manufacturing house that you can trust is gold? You know, we did actually did an interview yesterday with the guy who's heading, the L.A. 20, 28, Olympics. But I recently saw the robot Olympics in China and all the humanoid Olympia, and they were, like, running. It was, like, really impressive. Let's be honest. In future Olympics, all Americans have a medal in the humanoid robotic Olympics.

17:05 not yet, but I take a, ride it up. Westerner versus a communist robot every day of the week. oh, I would too. That's a good answer. But no, but this is a serious question, because future warfare could be real. No, it is, it is. And I would not want to put up a roid it up midwesterner against a robot that like. Well, I'm just glad to know that you're for the Clangers, but, But no, seriously, like, how anxious should we be about the robot?

17:40 Yes. So in terms of. So let me let me go back a step. Netherlands. British empire. American republic. The next trade is the CCP versus America. America has a lot of flaws. We like to debate because we are so rich that we get to debate the culture of the country, instead of fighting for survival out of a famine. Ultimately, hard power wins politics because at some point you don't want to be polite and you can just be like, well, *expletive* you.

18:07 I have 2000 warships. Yeah, we have our current missile inventory. In any war game, we expend everything in the warehouse and we run out. In seven days, China produce 2600 ships and we produce six, etc., etc., etc.. And the thing that you need to realize is in Germany versus America, which is the proxy of World War two, we actually sucked in engineering the German engineers destroyers.

18:41 We just McDonald's the *expletive* out of them. We were China in World War two. No no no, it's not a laughing matter. We were China in World War two. We just out produced them. We had better logistics. We made more stuff because we were the we weren't rich, but we the industrial superpower. We became rich because of Bretton Woods. You're in the same situation. So it's incredibly serious because, you're in the fourth Turning where you are like, we spent the last ten years in Covid trading cat pictures on JPEGs on the internet.

19:14 Yeah, and we've forgotten why we're successful in the first place, which ultimately was we were the largest industrial superpower in the world. So the reason why it's serious is you can have the best engineering in the world, like you got the best Raytheon missile. But if you literally can't just make mass, which is ultimately a production issue, there's there's no choice. So we are so far behind in on realizes this purely because you were in a cultural time where America currently is, is, is IBM, and you go to the board of IBM and you say, hey, guys, would you like to invent Claude code and the board and the CEO says, yes, sir. And you look back to your 500,000 employees and you go, "We're *expletive*." And the good thing is America's got a lot of dynamism. America's got people like Tom Mueller and Elon and, the nuclear stuff. It's possible to correct.

20:11 But we are so far behind that ultimately robotics is how do we a software. But ultimately most of software, especially AI, is now determined on what is the velocity of your training data, which means physical deployment. Yeah. Which means mass manufacturing. So, is a real civilizational fight. And it's not this like fun game between American companies where like, hey, if Tesla ships more Optimus versus Google, the consumer is going to end up in a better product.

20:40 No no no no no, they're going to kill you. And people are not tracking this at all. And, Tom, I know you're much more of a space guy than defense guy, but I would love your opinion on this. Well, I, I have a pretty I've been thinking a lot about robots a lot lately, and I think that the resources of the moon are going to be needed to do what we want to do in space. And how do you do that?

21:04 Like having people on the moon. Like a lot like an army of people working on the moon is just not sustainable. It's too dangerous. It's too expensive. It's just it's not a good environment for humans. Maybe a few. But, you want an army of robots to build on the moon and eventually Mars. And what do you need to make a really good robot? I think you need three things. You need dexterity. You need a human hand, basically.

21:30 And people are working on that. You need great vision, which is already pretty much salt. And you need a brain AI. Once those pieces all come together, You have the capability to be human plus super human. of course that can be used in war also. But for me, I always think about what you can do in space. because it's such a harsh environment. Humans. Humans should not have to be there. We should choose to go there.

21:57 but but but to try and work and build there is is a losing game, I think. and we don't need to do it because robots are on the cusp of being ready. What is the actual key constraint to your respective businesses then? Because when you when you say these things, everything is couched in these existential terms like, you know, war and death and I'm sure we all want to survive. So why aren't we cracking this particular problem, is it?

22:25 I've seen your respective valuations, so it's probably not a question of money, but is it a question of labor or materials or what's going on? Here you go. you know, the, the last two weeks, I think the discussion has been, will I just kill us outright before we even get to war? Right. Like. yeah. Technology is a great thing. It's a super dangerous thing. I think there's been no greater example that than I. And, I read, Superintelligence by Ben Bostrom. Like one.

23:03 Well, that came out like ten, 15 years ago. Yeah. And Elon read it too. And we were scared, like, it was just like that book was so comprehensive and it's like, well, at least, you know, the futurists think this is like, you know, 20, 45, 2050. This is going to happen. It's because of Llms. Nobody knew that. And let me we just study human language and do these, these neural networks. How much could be in there.

23:31 Right. We still understand. So it happened much sooner than we thought and we're not ready for it. And, here we are. We can't slow down too much. I think we're ahead of China so we can slow down. But we can't slow down too much and let them get ahead. Because whoever has the superintelligent AI could possibly rule the world. I think that's probably true. So we're at a really important place in history right now. You know, when I asked that question about the Robot Olympics, I was really hoping your answer is going to be something like, yeah, that's just show. We're really not that far behind, like I was I was trying to set you up for like, an optimistic spin.

24:10 And I thought, oh no, don't get fooled by like, those videos you see of robots. But everything since then there's been unfortunately. You think I thought you were good. By the way, I understand we're a nicotine fueled empire. Or I heard the great. The great powers are fueled by nicotine. Every great company or empire is fueled by one drug tribe was an admirable company. Everyone in manufacturing is in nicotine. Alcohol fuels. So caffeine. So you, Tom, you said something really important. Actually, I think at the beginning, which is, you know, you mentioned the number of, rockets that we've launched, and we always say, oh, you can't build an America, but it is evidently provably false, because there was this one individual who actually built the biggest car company in the world.

24:56 And as the build, built the biggest rocket company and build a satellite company, etc., which he they're they're not multiple of him, but it was clearly in retrospect possible to build big things. And it was about to build the biggest data server company in the world. Right. So I don't know, you know, in what is, as SpaceX X employee number one, what was it? How would you characterize to a broad public what Elon was capable of doing, which so many people presume cannot or could not have been done in the U.S.

25:29 in the first half of the first two decades of the century. I mean, you know, I went through, I couldn't hire when I, when we first started, there was like, four of us, and I couldn't. All the people I worked with, the TRW, all of them, like, rolled their eyes, would not come work with me. All the Rocketdyne guys, Rocketdyne did all the engines. They got us to the moon. Back to being back in the 60s. none of them.

25:53 They like only governments and big money can can build a rocket that can get to orbit. So we had at every step people saying, you can't do it. Like you can't build an engine that can do this. You can't. A pump, that engine, you can't get to orbit, okay? You can get to orbit the little single engine, rocket. You can't get to it. but with the nine engine, you know, Falcon nine orbit, we did that. You can't get you can't get a space capsule to work. We did that.

26:22 You can't go fly humans to the space station. Dragon right now is the only in the Western world. The only way to get to our space station is the SpaceX Dragon capsule. We did that. And so, the biggest rocket in the world is Starship. No way can you do that. It's flying. It's about ready. Not ready to become, aircraft, like, operational. So when Elon's people still call it hype, and I don't because I've been through it for 20 for almost 25 years.

26:51 It's not hype. He's going to build it. It's if it's I believe if it's possible, it will be solved. And, it might take longer than Elon. Thanks. But he will solve it. And what's the most surprising thing you ever saw Elon do? I've talked about this. I think the one thing I was in the meeting when they presented the landing legs for Starship and it was super heavy, you know, it's just, you know, Starship is stainless steel. It's a heavy machine.

27:19 And anything that's secondary structure, like landing legs is just we need to get rid of it. He said we're going to get rid of the landing legs. We're going to we're going to catch it in the air on these, on chopsticks, like like catching a flight with chopsticks. And we all just roll their eyes like, this is crazy. There's just no way. Did you see it? That starship is the biggest rocket in the world. Came in and landed on the chopsticks. And none of us are.

27:44 I wouldn't say none of us, but some of us did not believe it could be done. And it was done. And it's like, if it's possible, it's solvable. I have a sort of a nuts and bolts question maybe, I guess literally, but, Trade policy. So obviously there is a view. Okay. Like one way to accelerate demand for American production is tariffs and so forth. I have also heard, however, from talking to other people in the industrial space, that it cuts both ways because there are certain components that must be imported and therefore it raises the cost of certain input goods into this.

28:22 And I'm curious what you've seen in your own world, the degree to which some of these policies can perhaps cut in both directions. So I this is a very nuanced answer, and both administrations have gotten it slightly wrong. Okay, so let me set the macro, which most people don't understand. fundamentally, fundamentally there's there's four inputs to manufacturing. Okay. There's energy. there's labor, there's CapEx financing costs and there's export tariffs. Okay.

29:00 In most circumstances, you know, and I've done this exercise if you dollar factory down to 0% labor cost, service and energy whatever. Chinese imports are still three I can I can make a component for a customer. I can buy the raw material in the United States, and it's three times the cost of the component in imported from China for some of our commercial customers. Yeah. If I dial my business model down to zero. So fundamentally, what the tariffs meant to prevent is first principles.

29:32 The CCP is subsidizing energy, labor, capital, and export tariffs. To draw competency out again to the fourth turning command to generate industrial power subsidized by the American consumer. Same with drones. The reason why we are bad at drones is because, not because DJI is the best software drone company. But those things cost 60 bucks and they sell them to American consumers for 20 bucks. This is an explicit understanding that China has always treated industrial policy like national security.

30:12 And since 85, the Americas traded industrial policy like, financial spreadsheet returns for hedge funds. That's point number one. The intent of every Biden or Trump subsidy or economic policy was to give Americans an even playing fields against a country that is operating their industrial base, like national security. That's point number one in terms of tariffs. It's complicated. the reason why it's complicated is for two reasons.

30:43 One is you have to ring fence everything around China. And in practice, what happens is if you only ban China, but you don't ban Singapore. some Chinese company will ship something to Singapore. They'll call it Singapore. And it's the same impacts on the American workforce or industrial policy. The third thing is, is that there's a definition issue here. So as an example, raw materials from China on the like they're on the tariffs. If you if you have a little bit of human labor in it, it's an assembly. And that's negative against American businesses that are trying to import assemblers from Mexico.

31:21 So there's no there are trade offs all over the place. The principle was correct, which is provide Americans an even playing field Against a company that has a fake balance sheet and projects 6% GDP growth and draws American capital and American consumer capital, and that has to get solved. It's not American manufacturing or software engineers not good at manufacturing autonomy. You're subsidizing from 30% to 60%. Every implementation is like really tough to do in terms of the nuance. Sure, the correct thing to do, in my opinion, is what we just did with drones and robots, which is it's a terrible idea that every American, police drone or military drone can have any Chinese circuit board in it, because obviously you can then turn them into if we go to war, you're going to zap the guy in the head.

32:15 Same thing with robots. I would like a 0,000 laundry folding robot. But industrial policy means that you're going to buy a $30,000 laundry folding robot, because otherwise it's going to kill you eventually. And that's bad leverage for the country. No, I'm serious because they don't actually make them for 0,000. They make the $30,000. But the national policy says I would much rather have every laundering folding robot in America cost 0,000 because the American consumer is the largest capital allocators in the world, much bigger than Blackstone and Blackrock.

32:47 So the banning of components and assemblies to say, you've got to buy American American allies and let the market correct for cost is correct. Tariffs are a. Imperfect way to do that. But the core principle for any administration of leveling the playing field is correct. But each side has gotten this materially wrong because it's complicated. And there's many ways to commit fraud inside any regulatory system. Christian.

33:21 Tom. Oh, oh, I was going to say we could go on for a long time, but we're going to have to leave it there because we've run out of time. But Chris and Tom, thank you so much for coming on Odd Lots really appreciate it. That was our conversation with Chris Power and Tom Mueller, recorded live here in LA. I'm Tracy Alloway you can follow me @tracyalloway and I'm Joe Weisenthal. You can follow me @thestalwart. Follow our producers Carmen Rodriguez @carmenarmen, Dashiell Bennett @dashbot.

33:52 Cale Brooks @calebrooks and Kevin Lozano @kevlloydlozano. And for more Odd Lots content, you should check out our daily newsletter. You can find that at Bloomberg.com/oddlots. And you can chat about all of these topics 24/7 in our discord, discord.gg/oddlots. And if you enjoyed this conversation then please like the video or leave a comment. Or better yet, subscribe! Thanks for watching and listening.