Episode Transcript
[00:00:00] Speaker A: Our ability to make future facing products is only going to be limited by the tool set of like tools that we have to make those things.
So I think that we should be thinking long term about the types of specialized machines and tools that are going to be required to make future facing products and making investments in those tools.
[00:00:26] Speaker B: Guys, good morning, good afternoon, good evening. Before we get into all these things, I feel like this week has been a crazy bit of news. There's some manufacturing news, but first of all, I feel like there's something to do with a Pope coming from Chicago, place of industry. You know, we're talking Illinois, Midwest. There's something there, right? There's something, something to it. Will. Greg, what do you think?
[00:00:46] Speaker A: Let's go America.
[00:00:49] Speaker C: So I did see it. The Pope Twitter, I said was on fire yesterday and there was one tweet that said, I guess tariffs are working because we make popes in America now. Which, oh my goodness, he might not.
[00:01:01] Speaker A: Be entirely, but especially among my friend group, they're like our first black pope.
So he's got some lineage in there, some creole lineage, which I think is pretty cool.
[00:01:11] Speaker B: I love it. Well, guys, I'm super excited to dive right in. For those of you that are listening for the first time, welcome to the Movers and Makers podcast. My name is Blake Menezes. I'm head of marketing here at Diagon. With us today is Will Drury, the co founder and CEO here at Diagon and Greg Smythe, the vice president of business development and co founder at Diagon.
Gentlemen, there's been a lot of news, but let's just dive right in.
There was some PMI numbers recently about manufacturing decline from March to April. Now it was a small decline. Let's talk about it. Is this something we should be thinking about? Is this something that we should be over indexing on? Will, I'm going to go to you first. What's your take?
[00:01:51] Speaker A: There are a lot of reactionary things that we're seeing right now. The first few months of this year might have felt like an entire year has gone by.
I think we just have to keep in mind that it's only been like five months of this new administration.
We've just had the tariff announcements at the beginning of April with Liberation Day. And there are definitely some reactionary things that have been happening.
Some of the things that we saw really early on were just calls all over the place on social media and elsewhere. Order your consumer electronics now. All the prices are about to go up and there are definitely some motivations behind that.
For Companies like Apple, they saw a huge boom in their numbers. We definitely saw some companies pulling orders ahead and trying to get ahead of the tariffs. And so I think that there's just a lot of anxiety right now. So in the numbers, I think we might have seen a slight dip in April.
I don't think that it's really indicative of a long term trend that we're about to see. If anything, I think that the manufacturing numbers will probably go up a bit over the next quarter.
Yeah, we'll get into some of the longer term strategies that I've seen companies employing. But I want to get Greg's perspective first.
[00:03:06] Speaker C: What I start to see on the ground is this paralysis. I think there's just a lot with uncertainty becomes it's just difficult for business leaders to spend money. I think there's a lot of business as usual kind of continuing to do things, but kicking off huge projects. Whether it's like if there's government funding associated with it or just like what the economics of building, starting a new vehicle program for a car company or building a new factory, they just don't know what the rules of the game are. And so I think the stock market is actually pricing in because it's actually sort of rebounded a little bit from the initial pullback. And I think it's pricing in that Trump's going to make deals, that the administration's going to start cutting deals and that, that's my prediction. Maybe we can get into that later. But the first deals with the UK were announced yesterday and I think you'll start to see a cascading group of deals starting to happen that will help unlock it. But also business leaders can't commit capital until some of those things are more solidified. So I'm optimistic that a lot of these projects will get unblocked. But right now there's a lot of people just kind of sitting and waiting before they do something new.
[00:04:12] Speaker B: Greg, when you say projects, just for everyone listening at home, whether they're in a car or driving or whatever it might be, what does that mean? Does that mean factories? Is that new equipment in factories? What does that look like?
[00:04:21] Speaker C: It could be all those things. It could be someone build like, you know, the DOE has awarded $2 billion or more in capital projects. And so there's a lot of uncertainty whether that money can and will be spent. And so there's a lot and a lot of it likely will be from what we've heard. But some of it won't be. And so it's not super clear what that means. So that could be a big new factory, but then we work with a lot of people just buying a robot or buying a coding machine that costs $20,000 or whatever it might be. And I think on both those ends of the spectrum, there's just people that are waiting. So it could be that full range from building a whole factory to spending $50,000 on a new piece of machinery.
[00:05:00] Speaker A: I've got some knowledge and context on this DOE funding just through some of my work with companies like mitrachem, who was a recipient of some of that Department of Energy. It's a bil. Bipartisan infrastructure law. I think the thing that's lost on a lot of people is that when these announcements are made like, hey, this company just was awarded 1 million of grant money, it seems to people like, you know, people like my parents, like, there's a huge bucket of money that just came from the government, when in reality this is mostly reimbursable money. So if you're awarded this hundred million dollars, what that means is that as a company, you need to go out and then raise a hundred million dollars so that you can spend it and then be reimbursed for it. And what the government gets to decide is which expenses are eligible and which are not to be reimbursed. And there are all types of strings attached to that money, like the equipment or the products have to be sourced from what they call non FEOC countries. And that FEOC is a foreign entity of concern.
So these would be countries like Russia and China and other just like trade rivals that are out there.
So it is really a complex landscape. And while a lot of companies have been awarded this money, there's still some jitters around, like, what's going to be awarded, what's going to be acknowledged and still blessed by this new administration. Because now we're also crossing over from it between administrations. The money was awarded by the Biden administration, and now the Trump administration is administering and distributing those funds. And so there's just generally a lot of anxiety and skepticism about which things are going to be blessed and moving forward and which things are going to be kind of recalled and reassessed, reevaluated. So that's just some, some general context. And I think it's. It's important to keep those things in mind.
[00:07:01] Speaker B: All right, so there's this game of hot potato, right, between the Biden administration and the Trump administration of grant funding. I won't even talk specific tariff numbers, because I think by the time we're Recording this, the numbers will have changed.
People listening to this are both the folks that are making the equipment. Maybe they're actually planning a factory. Maybe they're the OEMs that are thinking about the impact. I'm going to ask both of you, but will, I'm going to you first. Long term versus short term thinking, how should manufacturers be thinking about this or anyone that's sourcing equipment in 2025?
[00:07:31] Speaker A: The answer is pretty obvious to me. I think we have to have long term thinking. There is a long time horizon to making these types of investments work. You've got to put in the time and put in the work today to make those investments so that you can see that return in the future.
[00:07:46] Speaker B: Okay, well I'm going to go to you for another hot take. What is your perspective on the machines that are making the machines? How should we be thinking about this as we go into the rest of this year?
[00:07:56] Speaker A: Our ability to make future facing products is only going to be limited by the tool set of like tools that we have to make those things.
So I think that we should be thinking long term about the types of specialized machines and tools that are going to be required to make future facing products and making investments in those tools.
[00:08:15] Speaker B: Greg, I'm going to go to you. I've got to hear your hot take. I feel like we have talked about re industrialization and it consistently is cut in with clips from the 90s and the 80s and the 70s and even 100 years back of assembly lines. I got to hear what is your hot take on this?
[00:08:33] Speaker C: Yes, reindustrialization needs a rebrand because it does bring to mind these factory. It reminds me of like the Model T factories where there's just, you know, people turning wrenches. And I think automation is a big part of it. But I think we should talk and unpack it a little bit more. Why is it? What are the industries that will re industrialize that are strategic? What are the factories look like? I just saw like Amazon does these videos on robotics. They have 700,000 robots in their factories. You know, they have 2 million employees. But anyways, automation is a big part of it, but it needs a rebrand. It's not going to look like what it looked like 30 years ago and certainly not 100.
[00:09:08] Speaker B: You're both talking to battery manufacturers around the world daily. I think batteries are a great example. They're in everything that we use and consume at all varying levels of degree. What are the key things that you would point out to folks that are maybe listening for the first time to learn about how battery manufacturers should be thinking about making things in the US to bring some of this production closer, perhaps to final assembly and what they're ultimately doing for some of these products.
[00:09:33] Speaker A: Maybe most people have never seen a deconstructed battery, but inside the battery you have all types of powders. People know about lithium because they hear about lithium ion batteries, but then there's also things like nickel, cobalt, manganese, iron, and phosphorus. If you're talking about lfp, like kind of the newish chemistry version of these lithium ion batteries. And when it comes to processing, even like mining and processing these things, the vast majority of the materials come from all over the world.
Places like Bolivia, Chile, the Congo. We even have large deposits of lithium in the US like right here in California, the Salton Sea. So where the materials come from is actually, like, pretty diverse and pretty well distributed around the world. The problem that we have right now is that most of that processing, the powder processing, happens in China.
So the making of the lithium hydroxide and like, the precursor materials to the battery powders, the making of the cathode materials, which is like the part of the battery that holds the charge, most of those things are processed overseas. So I think that we're going to see more processing happening in places like Europe and in the US where, like, that's a critical part of reshoring, that supply chain is gaining some independence and where. Where these things get processed. And then there's the actual, actual making of the batteries. So, like, once you have those battery powders, those battery powders then get, like, mixed and coated onto electrodes, spun up into batteries, or stacked into batteries. And a lot of that manufacturing has also happened overseas in places like Korea, Japan and China being the largest of them. And the US has really lagged behind in that as well. So what we're seeing is companies making big investments in these battery manufacturing, like cell manufacturing, as well as. And there's a lot of kind of disrupting factors happening. We've seen in Europe. There are companies like Northvolt that have gone out of business, they've gone bankrupt, and other companies that are kind of laying off people.
So there is a fair amount of disruption, but generally the trends still point toward huge amounts of capacity being required to support the EV industry, data centers, public utilities, and these other industries that are going to rely on having storage of energy that they can switch over to.
The flip of a switch.
[00:12:02] Speaker B: Greg, I'm going to ask you then over the next 12 months, what do you think are the one or two things that people listening to this, they're listening to it about battery manufacturing that people should keep an eye out for or they should be cognizant or aware of as they're thinking about how to make sense of it and make sense of the tea leafs of how we're making things more in the US or how we want to make things more in the US when it comes to batteries. Thinking about the larger macro shifts, like what are those one or two things that folks should be considering?
[00:12:28] Speaker C: Tariffs are an important part of it. I think the thing that we don't talk a lot about or is not as acutely, there's a tax credit that seems to be sort of at risk for making cells in the US that if that goes away or is kind of under threat, it has a huge economic. Like the economics of making cells in the US would change quite a bit. And so that certainly I'm sure the cell makers already know and are monitoring pretty closely. I think even maybe to talk about Apple for a second. You know, I think Tim Cook was ready for when this happened again. Like he was not surprised when this kind of tariff war restarted. And you can see within weeks they announced that all iPhones will come from India before the end of the year or something to that effect, at least for the US market. And so I think you need to have a strategy that de risks, if you didn't already, that de risks China, because I think one is that pricing will probably become parity, something close to it. At least that's like my estimation. And then I think there's just a risk that there could be export controls. Like, what if you just can't get the equipment out of there? Like, what if China puts export controls on it? What if the US doesn't allow import? What if the DOE doesn't let you spend your money on equipment from China? There's just a. I don't know what will happen, but the risk of depending on China as a sole source is just at least for a US company is very risky. And so I think thinking about how you de risk to, I still am optimistic that Vietnam, Japan, Korea will be very strategic trading partners. Even India will be. You know, there may be some renegotiation, but I don't think it's the same as the relationship with China. So I think de risking China will be a very important part of it. It's still an important partner and it's such a capable. You know, I just talked to a Chinese equipment maker literally just before I got here, and they're very capable. And so I still hope that these relationships, they've been building LFP batteries for decades and they've been doing it at scale and in some ways, not that it breaks my heart, but it's just like they are very capable and we need their expertise, we need their equipment. And I hope there's a way we can figure out a way to take advantage of that in a mutually beneficial way.
[00:14:36] Speaker B: All right, so Diagon is this marketplace for manufacturing equipment around the world, right? Premier marketplace. It has manufacturing equipment of all shapes and sizes. Is that key ingredient for someone who's honestly building any kind of manufacturing facility or factory? How is Diagon helping folks de risk? What is the one thing that listeners should know about how Diagon helps people de risk in this way?
[00:14:59] Speaker C: Finding the suppliers. It sounds simple. Like I mean I know Google exists but like finding a capable supplier is still shockingly difficult. And so I think coming to us to help you find the most capable suppliers, in short, you know, I met a buyer that was looking for coding lines about year ago and they, they told me they spent four months just doing pre qualification, maybe even more like putting NDAs in place, searching Google, asking people in their network, putting NDAs in place, just figuring out like who can make the thing. You know, this was a coding line.
[00:15:28] Speaker B: And Greg, a coding line. Is this something that's $10,000 or is.
[00:15:32] Speaker A: This something that maybe 10 million.
[00:15:34] Speaker B: Okay, got it. So, so yeah, just, just to start over then tell me again. So it's $10 million that we're talking about.
[00:15:40] Speaker C: So yeah, and you think like, and you think if you're gonna go spend $10 million it would be easy to Google and sometimes I've searched for companies like the best coding equipment companies in the world and they're not ranked on page 10 of Google. And so like that is shocking to me. But like it honestly like as in a very simple, we're doing lots of more sophisticated things but finding the suppliers you want, especially for this industry and we're going to make it, that's just a starting point. I think after that it's going to be to find the equipment so you can, in a digital way, you can find their catalog, the pricing and lead time, the at least the high level specifications and then to reach out to them. So that buyer that took six months to do pre qualification like our vision, he can do that in an hour or at least an afternoon where he can come to Diagon and put a bunch of inputs, browse favorite, like search for capabilities and then by the time he's done that day, he has. He or she has like the list of suppliers, the general equipment, and then is in contact and started threads with each of those companies.
And that should take three or four hours, not three or four months, certainly.
[00:16:44] Speaker B: All right, so Greg's going with demystifying the whole process, I think is his ingredient to de risking this Will anything you would add?
[00:16:51] Speaker A: Yeah, I'd say in addition to de risking, it's also just simplifying the process. This is a really high context industry in a lot of ways. Like, if you don't already know what you're looking for, when you go out to the market, you've got to ask for help. Like, there are companies that their only job is to help the battery manufacturer understand what type of equipment they need to make their products. And it sounds kind of crazy, but it's a real thing. And these companies make tens of millions of dollars per year. So I'm not going to knock their hustle. I think it's a great business. We talk about designing batteries, but they come in all shapes and sizes. There are cylindrical batteries, they're shaped like a little canister. And there are prismatic batteries shaped like a prism, like a box or something.
These batteries have different tab configurations. Sometimes the tabs are on the top, sometimes one on the top, one on the side.
Sometimes they're made using iron and phosphorus, like these LFP batteries I talked about. Sometimes they're made using nickel and manganese.
So there's all these. There are all these variables. And you can imagine that if you're a cell manufacturer or a cell engineer trying to decide what type of battery is going to best suit your customer, you're going to be iterating on a bunch of things. Like you've got different permutations of that product that you want to try to get right. And that's great. Like, as an engineer, you want degrees of freedom so you can figure out what's going to be the best for your customer. As a process engineer or a manufacturing engineer that's trying to build a high capacity manufacturing line to make that product, those changes can be maddening.
You're every day dealing with a different change. Like, okay, now that these tabs are going to be reconfigured, that's actually going to throw off my entire battery assembly process.
Or depending on the type of electrode that we want to put together, that's going to change my coding configuration. And these aren't just like small changes. If you've already locked in a Design that can cost you a few hundred thousand dollars or, you know, millions of dollars in change orders.
So part of this demystification and simplification that I think we can do is helping from the cell design process to designing your equipment and then also simplifying this process for the suppliers. So if you are a battery equipment manufacturer, in taking those requirements and figuring out what's the best proposal to put together for that customer is also very difficult. We're working on some pretty cool things to make that a much simpler process.
And so the goal here is to help this design to production process go from several months to maybe even years and shorten that into something that's more like weeks. So I think it's going to be pretty cool when these things come to life because it's going to change a lot of things and even I think unlock some potential with the types of products our customers are going to be able to make.
[00:19:47] Speaker B: So we got into this topic of de risking. We got into this topic of how Diagon's helping people do that. But I just to take a step back for a second, Greg brought up earlier this idea idea of buying equipment is an investment. It's not something you're just doing frivolously in the short term. This is a five to ten year investment.
So for those listening, in a very brief point from both of you, what is the one bit of advice that you would give to someone who's buying equipment in 2025 as they think about making that investment decision? One bit of advice.
[00:20:17] Speaker A: Start early. Oh my God. I can't tell you how many times as a buyer I would get pulled in at the very last minute. And then there were like very fatal flaws that were built into the design of the things that we wanted to build. So I think starting early gives you more options and gives you more ability to make changes that are going to save you lots of money in the long run.
[00:20:40] Speaker C: Mine is going to be will said the word option. But to have options and don't like engineers have their favorite thing, favorite equipment maker piece of equipment, which I talked to an engineer.
Exactly. Those damn pesky engineers which I'm one of. But they, yeah, we, they like engineers get hung up on typically exper equipment they have experience with. You know, and part of what Diagon can do is help you find other companies that can make comparable equipment. But you know, to have options. Because what happens often is you get married to one company and you go down this technical route and then you get to the end and it's like, oh man, there's this other non technical reason why they're super risky. Maybe they are making equipment in China. Maybe the price is twice as much as you thought. Maybe, maybe there's some other risk that comes up. We did something similar with an early customer and the regulatory cost, like double the price of the piece of the equipment. And luckily we had a backup supplier but otherwise that would have cost $400,000 more. And so like having options, you know, that's like negotiations one on one. It is more work up front but it can save a ton of money and a ton of time if you've got options.
[00:21:53] Speaker B: All right, we're running out of time here, so I'm going to ask you just a couple of final lightning round questions. Let's go to hot takes. I feel like we're talking about manufacturing, we're talking about procurement. I want to hear what is the hot take of the week from each of you or one of you, whoever's feeling spicy to kick things off. But what is that hot take that you feel like you'd want to share with folks as you're thinking about it, as you're meeting with manufacturers around the world daily? What is that one hot take without breaking any confidentiality agreements, of course, the.
[00:22:21] Speaker A: Companies that are making decisions today are going to be the ones who will benefit from the tailwinds the most. There's a general hesitance to make big decisions right now. And I think that almost like Greg mentioned, in the VC market, the companies that the probability of success for companies that start during downturns and these kind of tumultuous times in the market or in the economy, they tend to do really well. So companies like Google that started during the dot com bubble, companies like Airbnb that started during the financial crisis, those companies ended up doing really well because they were able to take advantage of the turmoil and volatility in the market. I think that that same thing is happening right now in this kind of, in this kind of environment, this VUCA like volatility and uncertainty. And my hot take is that companies that are really willing to take a bold stance on a long term vision that is strategic and well informed are going to do exceedingly well over the next few years.
[00:23:31] Speaker B: I like it. Will's take is make a big swing right now.
There's opportunities for those big, big swings. Greg, anything to add on the hot take side?
[00:23:41] Speaker C: My hot take is probably that there's going to be a domino of deals happen quickly that I think even in Q2, I think I'm going to say a dozen deals get announced before the end of the quarter. I don't know how they do it, but UK have like maybe the first dominoes this week. But my prediction is that there'll be a dozen trade deals announced before the end of Q2. I think the China one's going to be protracted, but that's my prediction that it will sort of unfreeze at least the non China trade. And I think you'll see a ton of deals happen in the next two.
[00:24:12] Speaker B: Months before we close things out. Any other final thoughts, predictions, perspectives that you both want to share?
[00:24:19] Speaker A: We talk a lot about these manufacturing equipment investments that companies need to make in order to take advantage of where they want to be two or three years down the road. One of the things that we're just kind of in a privileged position to see is just how much of the equipment itself comes from overseas and how little of it is actually manufactured in the US And I think that there is a massive opportunity for companies to do more of their manufacturing in the US of making the equipment. So this is kind of a meta thing that's hard for people to wrap their heads around. So I'll give an example. You have companies that make drones. Think companies like Anduril. Anduril is very well funded, you know, defense contractor. A lot of people are calling them the next Lockheed Martin. They're investing billions of dollars in building new drone technology. So these companies are going to need motors. And there are companies out there that make motors specifically for the aerospace and defense industry.
I'm not talking about those companies because by and large there are many companies around the US that make motors for this industry.
What I'm talking about is a level above that those companies that make motors need to wind those motors. And the manufacturing equipment needed to do that type of manufacturing are largely from overseas. The same thing in the battery industry. That equipment used to make those end products comes from overseas. The same thing for semiconductors, photolithography comes from overseas companies like asml.
So I think that there's a huge opportunity that's kind of wide open for us to start making those machines that are going to power and enable that core American manufacturing base. And that's something that's been under invested in. I think there's a huge opportunity there and a huge demand.
[00:26:06] Speaker C: Maybe my last point, I'll put a put a few numbers on it that we've seen before that if you spend a billion dollars to build a factory, 700 million of that goes overseas. For this equipment to be made. And so maybe 3, like 30% or 300 million of it stays in the US to build the building utilities, those kind of things.
[00:26:24] Speaker A: Yeah, I was going to say, by the way, that's mostly construction spend, just has to be local. So that makes sense.
[00:26:30] Speaker C: But, and so like, so maybe 30 or maybe most is like 40%, but that means 600 million, 700 million of that is getting is going to those mostly the three countries that some to Western Europe, but mostly Japan, Korea and China. And I think there's a place for those countries and expertise. But I think to Will's point, the strategic stuff and there just should be more of that work done there. And even that's what we're hearing from the, the people that make the equipment, they want, they're kind of open to it and they want to do it here. And so I think in some ways it's mutually beneficial. They're not resistant to it. They're open to especially building the strategic stuff here. And so really optimistic that it's there. But I agree it's like sort of a layer down. It's like people love seeing factories getting announced, but no one knows that 70% of that gets wired overseas almost immediately.
[00:27:18] Speaker B: So you're saying that for every billion dollars that you're spending in the US to start up a new factory, roughly 70% of that is going to make the machines that can make the machines in the US but they have to go be made elsewhere.
[00:27:31] Speaker A: Wow.
[00:27:31] Speaker C: Isn't that crazy?
I didn't realize that. But it's honestly very varies by industry. But those numbers are directionally right.
[00:27:40] Speaker A: I think that number even is an underestimate. And I'll tell you because I feel really strongly about this. I think that there is a strategic reason why we should be building these tools too.
Because the pace of innovation of the end product is actually limited by the pace of innovation of the specialized machines and tools that you use.
So I can think of two examples of companies overseas that have successfully transitioned their product suite from serving one market to another. There's this company, Wuxi Lead, and if you haven't heard of them, you'd be forgiven. But they're the largest battery equipment maker in the world. They're based in China and they started out by making capacitor winders. So capacitors for consumer electronics and other products that just like wind up coils of material.
And what they noticed is that they could use that same technology to wind up batteries. It's the same mechanism. And they were able to innovate their way into that vertically, integrate into some of the other steps of the battery manufacturing process and kind of acquired their way into being one of the largest companies now in the world that does this. So that's one example. In South Korea, a lot of the companies that make things like coding machines, these machines that put the paste on the metal foil that becomes that the battery. These companies actually started by making coating machines for screens and displays for like your iPhone or your laptop.
And these companies were able to use that same technology to transition into coating battery electrodes. So I think that by making investments in the tool suite that you have available to you, you'll actually be able to innovate faster on the end products that you want to make. And so I think that it would be wise for us to consider doing more of that domestically and giving ourselves an opportunity to get a leg up when it comes to making really cool things at scale.
[00:29:38] Speaker B: Greg, going back to you, what's your hot take then?
[00:29:40] Speaker C: My hot take is that re industrialization needs a rebrand. That I think it will happen, but it's going to look a lot different than it did when we de industrialized through the 80s, 90s and 2000s that automation the factory. There'll be strategic industries. The industries that'll be re industrialized are not going to be the textiles and these kind of things that we in the US used to make. A lot of. It will look a lot different and the factories will be automated and anyways it's going to look a lot different but it needs a rebrand. It's not going to be the, the industries of old. The, the, the coal is maybe not a direct comparison, but I don't think we're bringing coal back and the factories are going to be a lot different than they were 30 years ago.
[00:30:20] Speaker B: I feel like re industrialization needs a rebranding is the podcast topic we need for next time. Will and Greg, thank you so much and for everyone listening at home on your mobile device, Spotify, Apple Music or whatever it might be, thank you so much for tuning in. Leave a comment and please be sure to follow and subscribe and send to folks and if you have any questions about Diagon or want to learn more about equipment that you are looking for or trying to sell, go to Diagon AI and reach out to the team. Thank you so much Greg and Will. Thank you team.
