00:06:01 · Ethan Thornton, Ty Morse
The downside is they auto ignite when they touch, and then they're they're quite carcinogenic and other things, mutagenic. And so we... We're also... We have, like... The number's increasing rapidly, but right now, four different test stands where we do hypergolic testing. We'll do a lot of the hypergolic testing for Golden Dome as well. That's part of our helping other companies part of the business. But anyway, so that was a lengthy answer, but that's what's happening out there. [00:06:25] S0: If you had to, like, go through the process of from scratch on the drawing board, you have nothing to, like, fully spinning up not only the design and process and supply chain and everything to where you're actually producing maybe hundreds of thousands of units a year, what does that actually look like for something like this?
00:06:42 · Ethan Thornton
[00:06:42] S1: Yeah. So solid rocket motors are a bit unique compared to the rest of our supply chain because this was actually an acquisition. I'm generally somewhat bearish on acquisition, and I'll keep saying this. It's an excellent tool that you should use on occasion. Engines, we've built ourselves, and so I can explain that one. That's been a fun one. Basically, we started at the platform level as a company with stuff like this. We're now in the process of marching very, very... Hard very down into sort of the supply chain, because a lot of the stuff we just don't make is the West. And so jet engines is an excellent example. We're ramping into production on these things. The engine quality was not what we expected from a lot of the vendors in the space. And then more importantly, right now is the West would make, like, 300 of these a month. And you've got customers trying to buy tens of thousands of these things over the next two years. And so it it becomes somewhat non optional to vertically integrate this thing. Now traditionally, a jet engine takes, like, four years to design. In the process of development, you can't start as a company by boiling the ocean. So there's always this, like, throttling function of, like, I need to ship products, but how much of the supply chain do I actually wanna bite off? It it turns out you wanna bite off as little as you possibly can while still ending up with an excellent product. So on a lot of things, if it touches automotive or consumer electronics, you generally want to buy. Now that is not... I think people view supply chain wrong. It's not like you walk up with, like, a... An RFQ and, like, say, hey, can I buy this thing now? It's like a deep relationship build. In many cases, they're building factories for you. You're investing in these companies. That's a supply chain effort. But sometimes that is just, like, physically not enough. So on jet engines, there was just not a path to doing that. So I said, okay. There's usually a four year process. We have really, like, a year, year and a half to get this done. And if we don't build our own jet engines on that timeline, our products just fundamentally won't ship. And so we actually start with two jet engine teams. So... And I I rarely do this, but this was a great kind of derisk given how existential this was. So we had one led by a guy, Jeremy Clyde.
00:08:40 · Ethan Thornton
We actually went and built a jet engine facility in San Luis Obispo. We can't test jet engines in this factory, which is incredibly lame. LA Air Quality Management District was not gonna allow that to happen, so we had to go to slow. Jeremy also had fantastic connections in slow to, like, get this done quickly. But we... Yeah. We opened a factory probably a third this size in San Luis Obispo and actually build a giant test cell for the engine in the office and build a factory that can make, like, a 150 engines a month. Small factory in that office. Now keep in mind that is 50% of what we do today, but you'd be shocked how easy when you get the bomb right. It is manufactured. It's only a handful of CNC machines. And so they go off on a path that is high risk but high performance. So that engine is meant to look very different than other engines on the market today, and you're really optimizing for two things on that engine. You're optimizing for it to be a lot more efficient than the engines that currently sit in our aircraft, and you're optimizing it to have a, like, a a bill of materials that's, like, 30 to 50 items long. That does include bolts and stuff, but, major components. You want it to be insanely simple, and that one is just designed for, like, true rate manufacturing. In that process, though, you're asking for something to be good, cheap, and fast. And anytime you're asking for all three of those things, you generally are probably not gonna get it typically? Yeah. You can maximize across all three of those things. You just drop your chances of success a lot. And so we set up another jet engine team here. It's two folks, like $200,000 budget, and their job was to go and build an engine that looks a lot more like existing engines on the market. And so set both of them running, the latter engine, the low risk engine fired in about seven months. The higher risk engine fired in about eight months. That was this January. So now building towards rate here in about a year. Rate, for the record being, like, thousands and thousands a month will be in production that is much higher than the rest of the West combined a lot before them. But, yeah, the the first good, fast, cheap option worked. We ended up with something that's a lot cheaper than what's on the market today.
00:10:36 · Ethan Thornton, Ty Morse
That is about twice the range on our vehicles of what's on the market today that actually executed on that one year timeline to, like, actually make meaningful success and get into a vehicle. And so then we spun down the other engine effort. So that's an example. And you're constantly doing this across the business. And it looks a bit different, Isham. So that was jet engines. We're doing that on radar. We're doing that on solid rocket motors and warheads like I talked about. [00:11:00] S0: This is an interesting idea that you brought up earlier where in the defense industry, there's kinda like this boom bust cycle. And what you want to do is you wanna almost like smooth out that cycle by innovating a whole bunch on defense and then, like, incorporating those innovations into commercial use. How does that actually work inside this business? [00:11:18] S1: Yeah. Absolutely. And I wanna be clear, that's like a ten year thing. [00:11:21] S0: Yeah.
00:11:21 · Ethan Thornton
[00:11:21] S1: So, like, defense today is very boom bust. It's very different than any industry... Any other industry and and most other industries, and that it is insanely insanely lumpy, but it is also very CapEx intensive. And I also don't control my fate. So, like, to win a contract, I have to build a factory capable of producing for that contract. But also, like, if you're building cars, you could say, I'm gonna enter production at this date. I can't do that. Like, I'm waiting on the government to, like, let me enter production on the thing. And then also, it's not like you have, like, 200 deals and, like, a 60% win rate. You have, like, three deals with a 60% win rate, at least at our stage in the process for big production contracts. I'm talking, like, multibillion dollar production contracts. It's very easy to get contracts to develop stuff, you can make money doing that, but it is lumpy today. The best way to derisk that is our approach to design the platform, but to do the platform very, very, very well, you have to vertically integrate it. In the act of vertically integrating it the right way, you end up being excellent in a lot of these things, like we talk about on solid rocker motors or engines and other things. Your your components have to serve the platform. You don't want to be operating like two different, like, product roadmaps, but I'm marching down the the the platform product roadmap. And along the way, I have these excellent components, so I sell them. That is the first thing you can do to really levelize the curve. Right? Because about half of our revenue is not actually tied to the government, and it's also a lot more of a meritocracy. Like, if you have a contract to build aircraft and my engine is faster, cheaper, higher rate... Or the higher rate cheaper and and better performance, like, you'll likely end up buying my engine. And so in that way, there are ways those two things feed on each other. Right? Like, I'm really, really good at building components because I build platforms and I know what types of components will be needed in the future. I'm very good at building platforms, and I say I, like we as a company, I actually end up doing very, very, very little of the actual work because the team's excellent, but we are good at platforms because we can afford to deeply vertically integrate.
00:13:19 · Ethan Thornton
If I was having to buy down all of the risk on building a 100,000 unit a year solid rocket motor facility on just let me go sell darts and pikes, it'd be very hard to do so from a capital perspective. And so they kind of feed on each other in that way because then I can afford to build excellent components for my platforms, and it... It's positive feedback loop. And then you're also double dipping on an investment into the product, and you're also hitting rate using one of the two. So if I hit rate on components, my platforms get better, and I can afford to sell cheaply. If I hit rate on my platforms, I can also then afford to go and out compete the folks that haven't hit rate yet on on the component side. So that's the first thing. And then I think over time as a business, there will be a very, very similar thing for us that I don't talk about publicly publicly yet. I have a reputation for for distraction. I think that is, like, very, very fair for anyone who, like, objectively looks at the business. I'll say on that front, like, we're doing well. Like, we ship products. I think you earn the right to do more things as you deliver, and we're delivering on time at cost. But I do have a reputation for distraction. Not now, but at some point in the future, there's a lot to be said for taking the excellent industrial base and the excellent technology that you've developed through defense back into commercial. It is where I will sound like most ethereal and probably nonsensical. I I do think it's important that I say this early on. I expect people to not really believe me or think I have a plan right now. But when you look at technology, really since the start of humanity, a lot of the best technology that ends up defining, like, epochs of tech come from defense. Like, there's this famous Elon quote, like, I don't do science. I do engineering. And that is that is unfortunately true of most businesses. Most of the science that actually leaves the lab and gets productized happens for defense. This is like a bold claim, but you can go as far back as iron. You can go as recently as rocketry, fixed wing air travel. In in some ways, semiconductor, lithium ion batteries for aerospace, like, a lot of stuff comes from here. And so my job is to be the absolute best company at developing technology to give the West asymmetry.