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- [00:01]
KPMG
KPMG makes the difference by creating value like developing strategic insights that help drive M and a success or embedding AI solutions into your business to sustain competitive advantage. KPMG make the difference. Learn more at www.kpmg.us insights.
- [00:22]
Canva
There are presentations and then there are Canva presentations. With Canva, you can use AI to take your presentation to the next level. You can generate Dyn slides and text with a simple prompt. You can drag and drop graphics and charts from Canva's media library and add interactive elements to plus up your deck. And with collaboration tools built in, the whole team can work together better. You'll love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with canva presentations@canva.com.
- [00:55]
KPMG
Bloomberg Audio Studios podcasts Radio News.
- [01:11]
Joe Wiesenthal
Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Wiesenthal.
- [01:17]
Tracy Alloway
And I'm Tracy Alloway.
- [01:18]
Joe Wiesenthal
Tracy, I think one of the most interesting dynamics going on right now is that you have a White House and a lot of people in both parties, but specifically the White House right now that are very set on re industrializing manufacturing in the US at the same time actually existing US Manufacturers are talking about. Wait, everything you're talking about is throwing our business into extreme chaos.
- [01:40]
Tracy Alloway
Yeah. And we've had a lot of anecdotal evidence so far of this happening. So we've already mentioned at this point the Dallas Fed Energy survey and a bunch of businesses in the oil patch saying that things are slowing down, they're having difficulty planning for long term capital investments. There was one anonymous company that basically said they were asked by a Canadian client if they could move production to Canada, which again, seems to be the opposite of what you would assume the Trump administration is trying to achieve here. We've talked to Ryan Peterson about factories slowing down production and things like that. And I think the big question here is, okay, tariffs are on pause, but are we going to see lingering issues? Lingering uncertainty? Because the assumption of business people is Trump could always turn them back on. He could always start threatening them. And then the other thing I would ask is there's actually so many questions that you could ask about all of this, but Trump keeps talking about how he wants to do both basic industrial manufacturing in the US but also every once in a while he talks about, you know, doing really advanced stuff.
- [02:53]
Joe Wiesenthal
Right, right.
- [02:54]
Tracy Alloway
And he wants to do everything, I guess. And it seems really difficult to me to thread the needle between like very exp. High tech stuff where you have to pay people a lot. And then very. I don't want to say it's cheap because factories still cost quite a lot, but less expensive, basic stuff. I don't know.
- [03:14]
Joe Wiesenthal
Here's the thing. I want to set up a factory in the United States that's at the cutting edge of production. But some of the tools I might need for my factory might be made in Germany or maybe they're made in China or Vietnam. And this seems like an issue. A couple days ago, we had headlines. A company called Haas, which I have to admit, I had not heard of. They make CNC lathes. Talking about how they were, like, canceling overtime, pausing all hiring, et cetera. Anyway, remember we were out in San Francisco and we visited Impulse Labs. They make that amazing stove. We had this great steak. It boils water in like two seconds.
- [03:47]
Tracy Alloway
Oh, it was so good.
- [03:48]
Joe Wiesenthal
Like, that stove seemed like one of those products that I would expect to see on TikTok from a Chinese propaganda video about how good they have it over here. But it's actually an American company. Like, that's the thing. It actually exists here. And I kind of want to know what building that stove is like in a world of tariffs.
- [04:06]
Tracy Alloway
Yeah. And looking back on it, now that we have Trump as president, there are a bunch of broader themes that it definitely touches on. So it's an electric stove. As you can see, electric versus gas.
- [04:16]
Joe Wiesenthal
Has a battery in it.
- [04:17]
Tracy Alloway
Yeah. Electric versus gas has been in the midst of the culture war at various times recently. But then also it feeds into green technology. We're not really certain how Trump feeds feels about green tech. He wants America to do cool stuff, presumably make cool products. But does that include electric things, batteries, green stuff? Again, I don't know.
- [04:40]
Joe Wiesenthal
Well, let's find out some more. He cooked us an amazing steak several months ago. But now we're not talking steak. We're talking about the reality of US manufacturing. Back on the show, Sam D'Amico, founder and CEO of Impulse Labs. Sam, thanks for joining us.
- [04:56]
Sam D'Amico
Yeah, good morning, everyone. It's been a fun week or so.
- [04:59]
Joe Wiesenthal
I'm enjoying it in the news business, if you're having fun, I'm at least relieved that someone in industry is also enjoying it. Let's start with this question. Listeners can go back and check out our episode where we ate this amazing steak. And like I said, you make this amazing stove and it has a battery in it and boils water in two seconds and it will never burn an egg, all this stuff. But just describe what do you build here and what Are the inputs of the stove, where do they come from? And then what do you assemble?
- [05:26]
Sam D'Amico
So this is a really good question because you'll, you'll, you might see how my brain works because I'll like build it up from the base LEGO layer up. I'll try to avoid that because our.
- [05:34]
Joe Wiesenthal
Listeners love this stuff.
- [05:35]
Sam D'Amico
Yeah. Basically think of this like you mashed a Tesla Powerwall. So like a Tesla home battery product with an induction stove with like a tablet computer and then a bunch of sensor technology that requires us to do custom ceramic parts and other things that aren't in the normal induction stove supply chain. So that sounds like a lot. And what that means is the surface area of the types of stuff we touch as inputs is quite substantial. Is probably the best way to put it. It's like everything from lithium ion battery cells all the way to those custom ceramic parts in our temperature sensor, which lets you hold exact temperature in the pan to like chips, some of which are made in the United States, but most are not packaged in the United States, if that makes any sense.
- [06:24]
Joe Wiesenthal
Yep.
- [06:25]
Tracy Alloway
So where are you actually getting these things from? Yeah, like walk us through, I guess the evolution of your suppliers because I imagine it must have changed a little bit over time.
- [06:34]
Sam D'Amico
Yeah. So I'll go through kind of like the transition of the company because this is like key to kind of understanding how, how to build complex hardware. There's a Elon tweet. I think it's actually a reply, but it's buried in the replies. But basically it says the factory is the product. And this is incredibly true where basically your supply chain is how you build stuff. It's kind of like you're picking a bin of Legos effectively and those Legos may mostly already exist and you try to minimize the number of new parts you have to make because like making a new LEGO brick is complicated and requires you to make a new injection mold in that case. But if you've got a bin of Legos and that bin of Legos is expansive and cheap, and then there's a lot of experience with team knowing how to put those Legos together. You have huge tailwinds and advantages. So basically first year or so of the company, we essentially built prototypes of what we expected to need. And so the example there would be like we built like a single heating element, temperature controlled stove prototype that ran off a battery that we sourced from like some low volume battery manufacturer or built ourselves. We needed to get the architecture right, we needed to know how to build the product like from a, like it's almost like the specs you see and like Best Buy.com, you kind of needed to figure out what those were and maybe some of the high level stuff and also enough to tell like your industrial designer. And industrial designer is like the jony I've type character that like defines how the product looks and feels and kind of like the interaction model and stuff like that. So we needed to do that prototyping. But then at that point we basically were like, okay, we know what we're going to make. Roughly, we don't know how we're going to make it. Exactly. Let's go start talking to what I call contract manufacturers to help us basically bring this thing to production. And we're still like around 25 people as a small team. There's a couple different ways to actually go and design and build a product. And I think this is something that is not well understood even by hardware founders in many cases. So if you're a defense tech founder, your options are cut out for you because you can't go overseas and have a Chinese company or Korean company or a Taiwanese company co design the product with you because that violet export controls. So you see hardware founders talk about this. There's kind of a, I would, I would almost call it like a split between folks that can use the consumer hardware supply chains and folks who can't. And so basically we had kind of a choice. We go to like appliance contract manufacturer or we could go to a consumer electronics contract manufacturer. And we basically realized it was easier to teach the consumer electronics guys how to do the specific appliance stuff because a lot of the specific appliance stuff is handling large sheet metal parts in like big boxes and stuff like that. So we went to a consumer electronics manufacturer and then effectively co opted their entire R and D team to help us co design the product.
- [09:21]
Tracy Alloway
Wow.
- [09:22]
Sam D'Amico
But the advantage of this approach is that we got to essentially co design it through their supply chain and their existing supplier relationships. We did not have to boot up that from scratch, which would have taken us, I don't know, 50 to 100 people because we would have had like there's all these sub disciplines in hardware and even if you only need to fractionally use them, like use like 0.1% of them or something like that. Well, that would be one headcount if you did it in the United States or did it, or even if you did it in Mexico and just were going alone. And so that's how we've actually been able to Maintain a really small team.
- [09:53]
Joe Wiesenthal
So I'm guessing the. It sounds like the appliance manufacturer I'm guessing is in China. Talk to us about what is the. There is this existing manufacturing tech supply chain in the United States. As you said, it's centered around defense for good reason. You can't outsource that stuff. Talk to us about that capacity that exists in the United States currently or that could, like we hear the Gundo and all of these defense tech companies in Southern California that are doing cool stuff. Talk to us about these different options.
- [10:25]
Sam D'Amico
Yeah, so I'm a friend and investor with a number of these folks, so it's actually really interesting to be like, look, what they're doing is admirable, but the volumes here are different by orders of magnitude. Okay, so let's actually put startups on the shelf because I think some of these startups will need like substantial public private partnership money to really scale to volume. And some of that stuff is actually to my knowledge, like potentially forthcoming, which is pretty exciting. But I need capacity now, so where would I go in the US to do it? And it's basically, there's a couple different categories of contract manufacturer in the United States. The most famous ones are Jabil and Flextronics. And I actually, this is over 10 years ago, I worked with Jabil on a project that was a. I'll be ambiguous here, but you can figure it out if you poke a bit. But a ambitious, ahead of its time augmented reality project. Okay, but effectively like there was a decision to make something like this in the United States. Also Motorola successfully did a bunch of stuff in the United States as well and historically always did. The issue is into the 2000 and tens and this must be a. I think the great financial crisis was actually a much bigger story to this than any sort of like China trade policy decision. It was like the great financial crisis plus China blasting through with investment in manufacturing was the real story. But effectively none of these companies deal with startups anymore or if they do, it's specific kind of thing.
- [11:45]
Tracy Alloway
So I remember when we were in San Francisco and you were making that very, very good ste. We asked you about tariffs, right? Because they were already floating around given what was happening with election odds between Trump and his competitor. And now here we are. Well, I think at the time we were talking about 20% and you seemed kind of like confident that you could handle that. I think you said that that was your assumption that we were going to have tariffs and that if they came online you were going to be prepared and you'd already been doing some stuff to handle it. I know what we've seen on China is dramatically higher than 20% so far, but how well positioned do you feel for something like that?
- [12:35]
Sam D'Amico
Yeah. So I have a funny story is one of our key suppliers cut prices enough to almost compensate for these tariffs as is. So China's reaction to some of this, by the way, is like, I don't know if it's state subsidy or like they're viewing this stuff as temporary. And like some of these, let's call it well funded companies, like, know they can power through it and not upset their existing supply relationships. But my sense is like, there's something else that people aren't really factoring in, which is just how expensive the US Is versus everything else. So like, we got a lot of requests from consumers for like, they're like, I have a 36 inch stove, but I want to take it out and put an impulse in, which is 30 inch. How do you solve that problem? So we ended up designing and building an adapter that you can just put in and then you put our 30 inch stove in and it looks pretty nice too. And hopefully that goes on the website relatively soon. But I'm maybe spoiling this for our marketing team, but basically we quoted that out in the US because we're like, this is a stamped sheet metal part. We should just be able to do that in the US that's simple. $700 and it was like sub 200 in China. So from a tariff standpoint, I don't know, Trump needs to go up to 300 or 200% or something like that.
- [13:39]
Joe Wiesenthal
So this is the headline. American manufacturer who is heavily reliant on Chinese parts. Trump increased the tariffs to 300%. No, I'm just kidding. But anyway, go on, go on.
- [13:49]
Sam D'Amico
But that's, that's a simple sheet metal part. And you can imagine, simple.
- [13:52]
Joe Wiesenthal
She met.
- [13:52]
Sam D'Amico
Yeah. And then I kind of like was like, why? And this was a Bay Area vendor. I won't dox them because they're actually great. But who are their customers? And it's like if your customers are like Google Street View vehicles, medical device companies that make like, oh yeah, lipo, like not liposuction, but those like cool sculpting machines.
- [14:12]
Tracy Alloway
Oh yeah.
- [14:13]
Sam D'Amico
And like defense companies, you probably don't have cost sensitive customers. And the volumes and mix level, like when you get a big order from a customer, it's 100 units, not like 100,000 units. And so a lot of the US manufacturing capability is like exquisite and medium or low volume or if it's high volume, it's incredibly automated and not retooling. So like, yeah, there, there's giant injection molding firms in the US that make like lawn chairs or whatever. But like, good luck being able to call them up and being like, can you make me like the underside enclosure for my stove or something like that. They'd be like, no, go away. So that's the other point of like China being like extremely eager to take your business. Even if you're like a crank startup founder like me versus the US being like almost like actively dissuading you from talking to them.
- [15:05]
Joe Wiesenthal
I've heard this, like people will say like, you know, you can WhatsApp the maker of some factory owner at one in the morning. I saw some tweets about this at one in the WeChat.
- [15:15]
Sam D'Amico
Yeah, and you can, yeah, or you.
- [15:17]
Joe Wiesenthal
Can WeChat the factory under like one in the morning and they'll get back to you with a quote in like five minutes.
- [15:21]
Sam D'Amico
Yeah, I've gotten battery vendors email me cold being and these guys like represent fairly large scale battery vendors. Like email me cold and they're like, what's your spec? And I just like email them back like three lines and then I get like a quoted design from them. It's weird.
- [15:38]
Tracy Alloway
Wow.
- [15:55]
KPMG
KPMG makes the difference by creating value. Like developing strategic insights that help drive M and a success. And embedding AI solutions into your business to sustain competitive advantage. Or deploying tech enabled audits to deliver more accurate and transparent outcomes. Brighter insights, bolder solutions, better outcomes. It's how KPMG makes the difference every day. KPMG make the difference. Learn more at www.kpmg.us. insights.
- [16:29]
Canva
People endure presentations, but they engage. With Canva presentations, you click through a normal presentation. You impress with a Canva presentation. With Canva, you can use AI to instantly elevate your presentation, generating slides and text in seconds with a simple prompt. Dynamic, visually imaginative difference making slides. Canva Presentations provides everything you need to build your deck. So you never need to switch between apps. Just focus on what you're doing. You can drag and drop images, graphics, charts and data from Canva's media library, or add animations and interactive elements to engage your audience. It's all right there for you. Canva makes collaboration simple too. And everyone knows presentations are a team effort. Comments, reactions and version control are designed to help teams work together better, working from stunning templates. You don't need to be a designer to make it look great. It's just a smarter way to build a better looking deck. You'll love the presentations you can easily design with Canva. Your clients and co workers will too. Love your work with canva. Presentations@canva.com okay, just on the pricing note.
- [17:32]
Tracy Alloway
I mean it does feel like the outlook for American inflation certainly depends on how companies decide to pass on or not pass on all these additional tariff costs. Do you get the sense that some of that depends on your relationship with your supplier and how important you are for that business? So I imagine, for instance, we've had news this week saying that Walmart is trying to negotiate even lower prices with its Chinese suppliers. I don't think it's been successful just yet, but you can imagine Walmart is a huge, huge, gigantic business and a really important one for a lot of Chinese companies. So maybe they'll end up being successful at it versus a startup that's only making a limited volume. Maybe the suppliers don't care about that business that much and will treat it differently.
- [18:25]
Sam D'Amico
Yeah, so I mean, I think there's a couple questions going on too because again, China runs a different industrial policy. Like there's kind of this debate on the tariff side, but it's like what does China actually do and could we rerun their playbook? And it's like China has the equivalent of like state level champions. It's almost like BYD is like Guangdong province's champion. So you can be like that's California's champion and then Catl is like Texas's champion kind of thing. And the money flows from this national government into the provincial governments. The provincial governments actually like are the ones helping boost a lot of these things because there's almost like delegated control. But what this means is there's an aspect of competition here where in China it's not just like, especially at the Walmart level, like you're in competition with your rival province to get that business.
- [19:10]
Joe Wiesenthal
Oh yeah, yeah. This is a really important aspect of Chinese capitalism that I think people don't really realize is how intensely the province levels compete with each other. And you know, we have that here. Right.
- [19:24]
Tracy Alloway
Like, you know, I think we'll have more of it here.
- [19:26]
Joe Wiesenthal
But the thing but people don't understand.
- [19:28]
Sam D'Amico
The way the government works there is different. It's like because it's a single party system.
- [19:34]
Joe Wiesenthal
Yeah.
- [19:34]
Sam D'Amico
It's almost like Gavin Newsom's boss is Donald Trump versus they are rivals with different, with different systems.
- [19:40]
Joe Wiesenthal
This is a really important point. The governors of American states are Incentive Incentivized. To win reelection. The provincial leaders in China are incentivized to rise up within the Chinese Communist Party. And they do that based on various goals that are set. And so even though you have some analogy of state versus state competition which exists here and on service that might have looked like provincial competition, the reality is that in the US system, it's not obvious that any given governor is actually optimizing for economic performance as opposed to reelection. And of course sometimes that might be correlated. Good economy, more likely to be reelected, but certainly not at all. And I think this is like a very interesting difference. But let's say we accept this premise, and I kind of do that. It's not great for the world to be so dependent on China for manufactured goods, et cetera. Like, is there a middle path here? Like what would your. Okay, someone hears this from the White House, like, Sam, you're into manufacturing, you've worked with all these companies. We want to be able to have a competitive stove maker here in the US that doesn't have to rely on a sheet metal company in China or a final assembly in China. Like, give us some outlines of what you think needs to be fixed here or addressed here.
- [20:53]
Sam D'Amico
So let's actually look at who has solved this problem and what BS he had to deal with. And it's funny that when I say who and then I use the singular.
- [21:02]
Joe Wiesenthal
All know it's Elon.
- [21:03]
Sam D'Amico
We know we all know it's Elon. And so how the ever living crap did this guy pull this off? Yeah, and I think I've spent way too much time thinking and reverse engineering this because it's really important. But I'll use a very simple example. Do you all remember when people were making fun of him for building a factory and a tent in the Fremont parking lot?
- [21:22]
Joe Wiesenthal
I do remember the tent. People shouldn't have made fun of him, especially in retrospect.
- [21:26]
Sam D'Amico
I mean it was, it worked. So to refresh this for the listeners, this was like during the Tesla Model 3 ramp, they realized they like over automated and overcomplicated the factory with exquisite shit. They then were like, this line is misconfigured and we can't fix it because there's not enough room in the building. But the problem is if you wanted to build a building next to it, let's just say that California is a den of vipers. And those vipers names are NIMBYs. And you would not be able to permit a new building in the time that it would take or in Tesla's remaining time Left, if that makes any sense. Yeah, and you probably couldn't get it done in three years even, just because we've essentially made building in the built world next to engineers illegal, effectively. Because, like, if it's a rich area, there are NIMBYs, and the NIMBYs have infinite power. And so what Elon did was he realized, you know what, those, like, graduation tents or, like, the tents they put over, like, a wedding or football stadiums in, like, the winter, like, he got one of those, and they basically just put it in the parking lot, and they moved all the factory equipment, and they set up a mostly manual line to continue producing Model 3s. It ended up working. They ended up reconfiguring the line inside, and the company didn't die. But there's a million examples of this where it's kind of like Elon versus the built world, where he just decided to say no and figure out some sort of. I wouldn't call it illegal, but, like, almost illegal loophole. And then he also assembled probably the best team in litigation in terms of, like, permitting and all stuff. So he's got an advantage versus everyone else in terms of busting through all this stuff.
- [23:08]
Tracy Alloway
Hey, an almost illegal loophole is still a legal loophole, right?
- [23:13]
Sam D'Amico
Yeah. I mean, it's like you have to be kind of like a goblin here, right? Like, you got to be like, okay, let's figure out this tension, a parking lot thing that a mere mortal wouldn't have gotten that drink. It's like, you basically have to be out in space where these ideas would just be laughed at by a mere mortal here. Right?
- [23:31]
Tracy Alloway
Wait, so the other thing that Elon is kind of well known for doing is a lot of vertical integration over the years. So not just sourcing supply from overseas in particular companies, but actually controlling all those different stages of production, having investments in some of those companies so that he can order whatever he wants at the scale he wants, however fast he wants. Is that something that could potentially happen as some of these tariffs get ratcheted up? Or is the concern for companies that, you know, maybe you invest in a Chinese supply. Well, I don't even know if you could buy a Chinese supplier. I don't think you could buy it wholesale, but let's say you invest in, I don't know, a Mexican company. Suddenly Trump changes his mind on something. There's a lot of uncertainty over how he feels about international capital flows, all of that. Is that a risk? Or is vertical integration one possible solution to some of the pressures we've been talking about.
- [24:32]
Sam D'Amico
So I mean I'll blunt and say that I'm not sure if anyone's going to make any decisions in this direction within the next 90 days unless they've got insider information. Yeah, fair. So that's for one, I think basically the frothiness of the current situation makes it hard to plan ahead. And I'll say that like you know, from my position as well. But yeah, vertical integration is clearly, I think there's like two different types of vertical integration. And I think what I would caution people is like a lot of tech founders take after Elon literally but not understanding why, like the real reasons why. So I'll say where you can get screwed by vertical integration is like it's. I was hinting at this earlier, but basically let's imagine I build something like the stove and I obviously there's metal parts in there, so I need like a metal tooling designer to like design the stamping tools that like end up stamping these metal parts. But let's imagine I only need that tooling designer for like a month, for the whole program, for two years. And so if I vertically integrate, like I go and hire that person to work on my team, there's no way that someone's going to go work for me for two months.
- [25:36]
Joe Wiesenthal
Right.
- [25:37]
Sam D'Amico
And if I end up stocking up every discipline I would need to basically be fully self sufficient, I might have 100 to 200 people and be burning hundreds of millions of dollars on a program. Which is fine if I'm building stuff at the scale of Elon. Right? Like if I'm, if I'm doing it that way, it's like SpaceX can likely fill that tooling engineer's time with a million different things. Not just like one model of Starlink Dish, but me as a much smaller startup cannot do that.
- [26:21]
KPMG
KPMG makes the difference by creating value like developing strategic insights that help drive MA success and embedding AI solutions into your business to sustain competitive advantage. Or deploying tech enabled audits to deliver more accurate and transparent outcomes. Brighter insights, bolder solutions, better outcomes. It's how KPMG makes the difference every day. KPMG make the difference. Learn more at www.kpmg.us insights.
- [26:56]
Canva
People endure presentations, but they engage with Canva presentations. You click through a normal presentation. You impress with a Canva presentation. With Canva you can use AI to instantly elevate your presentation, generating slides and text in seconds with a simple prompt. Dynamic, visually imaginative difference making slides. Canva presentations provides everything you need to build your Deck so you never need to switch between apps. Just focus on what you're doing. You can drag and drop images, graphics, charts and data from Canva's media library or add animations and interactive elements to engage your audience. It's all right there for you. Canva makes collaboration simple too. And everyone knows presentations are a team effort. Comments, reactions and version control are designed to help teams work together better, working from stunning templates. You don't need to be a designer to make it look great. It's just a smarter way to build a better looking deck. You'll love the presentations you can easily design with Canva. Your clients and co workers will too love your work with canva presentations@canva.com you.
- [27:57]
Tracy Alloway
Know you mentioned how you don't think anyone is making major decisions right now. And we started out this conversation talking about whether or not all this back and forth on tariffs was going to generate long term uncertainty. And we know that the one thing both the business, industry and markets actually hate is a lot of uncertainty. What would it take for you to I guess feel better about making some long term plans?
- [28:27]
Sam D'Amico
Yeah, so I mean this also goes to, I can also mention the vertical integration side of this for a little bit as well, which is like the level of vertical integration we did was basically like we control every aspect of our supply chain. So it's not like if we go and move stuff we still know how like all the sub components are designed, which is very different from how like stoves are normally assembled, which are closer to like pre Tesla cars. And so our ability to kind of like have control and micromanagement of the whole of everything that goes in the product is unique despite the fact that there are layered sub suppliers and stuff like that. But yeah, that said like my sense is as soon as there are deals going in place in like Southeast Asia or Mexico, like we're not realizing that like there's going to be some random Mexico tariffs or something like that. This gets a lot easier in terms of constraints because like we were very conscientious to select our suppliers to make sure that we were able to locate manufacturing somewhere that was lower, zero tariff. But yeah, the big issue too is like I think the fact that the tariffs were seen as accomplishing multiple goals meant that they couldn't succeed in any way. And the example I would give is like, why are we taxing inputs for domestic manufacturers? I went and actually looked at this right now and I'm like, I want to manufacture the United States. I'm like, I'm like dead set on doing that at some point. If I imported my BOM bill of materials, like the list of crap that's in your product, if I imported that to the US and started manufacturing it right now, it's like, I'm subject to that China 125% tariff. I'm not magically going to get a ceramics vendor that knows how to make our temperature sensor tomorrow. It's going to take probably six months to figure out and qualify the vendor. Plus you're not guaranteeing the same process. So standing up a factory takes 18 months for this stuff. And it's sort of recursive down the supply chain. So if I was suggesting something to the administration, it would be like we should figure out a way where you can basically get all of the input tariffs refunded and then maybe figure out like how to move the levels of abstraction down over time. Because like doing final assembly of our stove is like, it's not something where like we need to rely on cheap labor or anything like that. It's like, it's like the, the hard steps are mostly automated. The expensive subcomponents assembly is almost completely automated, like circuit boards and, and stuff like that. Like, this is not something that is like, like impossible to move to the US if that makes any sense.
- [30:54]
Joe Wiesenthal
This actually strikes me as a very interesting phenomenon, which is that when people think about the constraints to US Production, they say, oh, our labor is more expensive. What you're saying is so much more interesting. What you're saying is that it's not that the labor is expensive. It's not that there's like a bunch of expensive assembly line labor. It's that what little labor there is are well paid people. And well paid people are NIMBYs. And NIMBYs don't like new factories. And that, that is the dynamic. Not the on the floor wage costs, but the political economy of the people running advanced plants, preventing the production of the advanced plants.
- [31:31]
Sam D'Amico
Yeah. And actually I would even be like, you're like, why can't we have Shenzhen in the United States? Yeah, well, you would need to put it in the Bay Area because that's where the, that's where the engineers that are like the challenges.
- [31:41]
Joe Wiesenthal
Yeah.
- [31:42]
Sam D'Amico
And Dean Preston is going to block you is the story. Because also, by the way, like, if you go look at kind of like the Sierra Club breed of nimby, like those folks are starting to actually get more favorable towards housing construction. But when they hear the word factory, they assume like the river has turned yellow. Not like.
- [32:00]
Joe Wiesenthal
Right.
- [32:00]
Sam D'Amico
Yeah. We make some trash and it gets trucked out into a landfill like a consumer electronics factory. It's like an Amazon warehouse. Like in terms of. Basically the thing is these factories are more like Amazon warehouses in terms of industrial emissions than like, probably less actually because there's no vehicles than the like heavy industry plants of yore. And the labor situation looks more like again, like an Amazon warehouse than a, than the Triangle shirtwaist factory or whatever. And we clearly allow Amazon warehouses in our communities, so why not this? But basically the thing is, if you go to BYD or similar places and you go to the HQ and you see all their lineup of amazing vehicles and like you go inside their showroom, there's just like they literally build everything. Yeah, you walk outside and directly across the street there are high rise apartment buildings for the workforce. Contrast that with Tesla where they're a Fremont factory. You walk outside and it's all low rises. The Tesla does not control. And then you go and ask the factory workers where they're coming from. And they're all coming from like the Central Valley. They're commuting two hours a day plus to work at a factory because there is not enough housing that is affordable for those factory wages.
- [33:09]
Tracy Alloway
Well, Elon also wants his workers to sleep in the office in the factory. Right. And also, I mean in America, I would assume we're kind of talking about company towns here, like corporate compounds for employees in America. That's, I think a lot of people might push back on that.
- [33:28]
Sam D'Amico
Well, so I'll give an example of this where if you want cheap, the problem effectively is like, so Shenzhen actually has an interesting conundrum that is worth discussing here because in China the primary savings vehicle is also real estate.
- [33:43]
Joe Wiesenthal
Right.
- [33:43]
Sam D'Amico
Almost to a fault. And they almost have like, let's call it like Universal Prop 13, like they don't really have property taxes. You buy the thing and it just like you hold it. And because of that home prices are really expensive. Like we're talking million plus in Shenzhen, no problem. And so how do you actually get workers, some of which are paid like. And by the way, the engineers at these factories 10 are not paid super well. But you can imagine with purchasing power, parity, whatever, it's going to like 60, 70K in the United States kind of thing is probably the way to put it. But imagine I wanted to get a 60k junior engineer working at Tesla's factory in Fremont. Today there's a housing price issue convincing them to move to the Bay Area. In a sense, it's like The US needs to solve housing near where the top technical talent is. And then one way to solve that housing problem without running into, let's call it people being upset their home prices have gone down is to do this factory town, factory compound approach where you have to work at Tesla to get the Tesla housing, which then means that the Tesla housing doesn't necessarily deflate Palo Alto households or whatever.
- [34:55]
Joe Wiesenthal
I just have one last question, which is you talked about how in, you know, in the burgeoning defense tech sector and other areas, public private partnerships. I don't know if this new administration has any interest in that. It doesn't seem like it, but maybe on defense I wouldn't be surprised. But talk to us about like VC funding and their demands and their willingness or unwillingness to sort of fund basically where does the funding come from for real risky upfront capital outlay if we're talking about U.S. manufacturing.
- [35:29]
Sam D'Amico
Yeah. So I mean I think some folks successfully raised for this in like 2021, 2022. But there's like it's honestly there's a missing piece here. Right. So the problem is the US has an awesome stock market. Well, until this week. But basically if I want a 3x return on something, there are a million different competing things to do. So I have to be uniquely obsessed with re industrialization to kind of do something like that. Like basically build a plant that may be three X's or something like that. It does not have VC shaped returns is the problem. And their LPs are folks that are allocating into other types of businesses or other types of investment vehicles, not just VC that have those return profiles. So it's this weird game of like the VC mandate is to basically fund advanced technologies with disproportionate return. But hey, I want to build a lithium iron phosphate battery plant. We seem to keep not succeeding at that because you don't have an advantage versus a Chinese plant. But if I had went and invented a new type of battery material, that 3x is my energy density, a VC would love to back that. But even then it's like you invent that. How do you actually get enough funding to build a plant to supply that to all the automakers? You end up in this missing what I think it's called like a missing middle situation. And maybe this is more of an ask of private equity, but like we need to get a little more ambitious here. And maybe the right answer is like the government plus private equity plus the banks need to get together and figure out how to address some of These gaps. Basically, Elon, again, I'll go pick on Elon because again, he's the only guy who figures this out. It's traditionally been the case where you need to figure out increasingly growing lily pads to hop to when you're a frog and eventually you get to a big one. But this is not how we built giant factories in World War II. This is not how we did this sort of scale out in the past, requiring you're almost not doing the thing you eventually need to do and you have to kind of keep growing. Again, I think Elon has solved this by being his own fund. In a sense he raises from vc, but in some sense he's like an aggregation point where he's like the general partner of Elon Industries effectively. And That's a hybrid VC PE fund.
- [37:51]
Joe Wiesenthal
Yeah. Sam D'Amico, perfect guest to talk right now. Thank you so much for coming back on Odd Launch. That was great.
- [37:57]
Sam D'Amico
Thanks for hosting.
- [38:10]
Joe Wiesenthal
Tracy. In that conversation we talked About NIMBYs and YIMBYs, provincial competition between China and how that compares and contrasts versus state competition, the limits to VC funding models in terms of domestic reindustrialization. We hit a lot there. That was a very like, that was a meaty, Odd Lots conversation.
- [38:30]
Tracy Alloway
There was so much there. I really thought, you know, Sam was going to come on and be like, oh, yeah, we're looking for a new supplier in a country that is not China. Or we're thinking about maybe switching some production domestically. That didn't come up, which kind of tells you something. But yeah, he hit some pretty big structural themes, I think.
- [38:52]
Joe Wiesenthal
Yeah, I mean, this is just the thing. Like a lot of people accept this premise that the US should not be so dependent on China for various manufactured goods.
- [39:04]
Tracy Alloway
Right. And other administrations as well.
- [39:06]
Joe Wiesenthal
Yeah, I mean, this was big under the Biden administration. It was obviously big under Trump. 1. Many people are concerned about this, but like when you just look at the reality of actually existing supply chains that doesn't exist and like, okay, like these immediate tariffs go into place, they don't exist. And I think, you know, look, we're recording this right now, April 10th, it's 11:47. We see the NASDAQ, it's down 4.8% again after Wednesday's big rally. It's sort of, I think today is about sinking in. Even with all else aside, this gigantic tariff on China is massively disruptive and there is no short term path for reshaping supply chains.
- [39:47]
Sam D'Amico
Right.
- [39:48]
Tracy Alloway
And I think the other interesting point that Sam brought up was this idea well, you know, there is an adjustment cost and there's a certain amount of time you need to actually make that adjustment to your point. And it would be helpful if the administration maybe exempted certain things that it thinks are important to the kind of American manufacturing that it wants to actually see. That hasn't happened. I don't know why not. I thought it was kind of funny. Did you see? So the US has been importing more eggs because of egg prices, egg shortages, and apparently those are going to be tariff too. So kind of kind of weird.
- [40:29]
Joe Wiesenthal
The Elon tent story. I did not realize how interesting that actually was. I sort of thought it was like, oh, they didn't have space in the factory so they like threw up this. And I did not realize that that was actually a story about zoning permitting, et cetera, and that that was really about finding some loophole in the law to stand up a manufacturing facility rather than go through like a multi year process. That's fascinating to me.
- [40:52]
Tracy Alloway
Did you never have to be in a sort of outflow like trailer while you were at school because they were working on something or there wasn't any more room and they couldn't build any new space? That happened a lot to me.
- [41:06]
Joe Wiesenthal
Yeah.
- [41:07]
Tracy Alloway
So I kind of imagine Elon doing the same. On that note, shall we leave it there?
- [41:11]
Joe Wiesenthal
Let's leave it there.
- [41:12]
Tracy Alloway
This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
- [41:18]
Joe Wiesenthal
And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest Sam D'Amico. He's at SD'Amico. Follow our producers Kerman Rodriguez at Carmen Armand, Dashiell Bennett at dashbot and Kalebrooks at Kalebrooks. For more Odd Lots content go to bloomberg.com oddlots where we have a daily newsletter and you can check out all of our episodes and you can chat about all of these topics 24. 7 in our Discord Discord GG oddlots.
- [41:43]
Tracy Alloway
And if you enjoy Odd Lots, if you like it when we check in on the manufacturing of electric stoves in the face of sweeping tariffs, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.
- [42:40]
KPMG
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- [42:59]
Thrivent
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