--:-- Host: There's a multi-billion dollar business for backup generators for people's house that we want to go tackle by giving you a boat that you can use to backup your house.
--:-- Duncan McIntyre: About half of our projects today are backflowing power from our fleet of batteries to the grid when the grid needs the power the most.
--:-- Mitch Lee: These are boats that are stuck in the 1980s technology. They're basically like oversized gas lawnmowers.
--:-- Gregory Davis: I think what's going to happen is that the new technologies that we're bringing and our new products are actually going to garner the attention of the forward-looking supply chain.
--:-- Duncan McIntyre: Our vision is tackling air quality at the local level, tackling climate change at the same time, creating a very clean, quiet, urban future.
--:-- Gregory Davis: In the near future, you're going to be able to take a 10-minute trip to your nearest airport, get on an airplane, and fly for an hour to do a day trip that previously would have been an overnight trip or a trip to an airport half an hour, 45 minutes away.
--:-- Mitch Lee: What we're doing today was not possible five years ago. But what we're doing today is also such a better product experience compared to what exists today in the market.
--:-- Gregory Davis: I firmly believe in the next 10 to 15 years, we will all be flying regularly on electric airplanes.
--:-- Host: The first electric cars can be traced back to as early as the 1830s. Flash forward to 1900, and astonishingly, electric cars make up about a third of the cars on the road. But electric vehicles that were once leaders of innovation became a faint echo of the past, overshadowed by their gas-guzzling competitors. What caused this radical shift? What happened between then and today that caused the electric car to lose its charge? How did the electric vehicle go from a third of the market to a fraction of a percent a century later?
--:-- Luckily, electric vehicles are making a triumphant comeback due to decades of innovation. As we embark on this resurgence of electrification, we are seeing this investment impact more than just the automotive market. We're seeing the electrification of planes, boats, school buses, even cargo ships.
--:-- Joining us today are Gregory Davis, CEO of Eviation Planes, Mitch Lee, co-founder and CEO of Arc Boats, and Duncan McIntyre, founder and CEO of Highland Electric Fleets. So we've got planes, boats, and buses. Together we discuss the breakthroughs that have set us on this path, but also what can and can't be applied to these new applications, cost curves, and moats. So buckle up, folks. Welcome to the electrification of everything.
--:-- As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any a16z fund. Please note that a16z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see a16z.com slash disclosures.
--:-- I am so excited about this conversation because I think many people are familiar with the electrification of passenger vehicles. Some of the biggest companies in the world now are tackling this and have been tackling it for many years. But as a carryover from that industry, we're seeing the electrification of many more things, which I think people are maybe a little less familiar with. I'd love to hear from each of your perspectives, what got you into this industry? What got you fixated on this idea that you needed to electrify a new industry? Why don't we just kick things off with you, Greg?
--:-- Gregory Davis: Thanks very much for the question. The idea of electrification in aircraft has been around for quite a while. But my involvement in this actually went back to something I was doing in about 2017, 2018, looking at ways to see how the new technology, the new engine technology that was being developed could be used to reduce the carbon impact of the aircraft. The sustainable aviation industry is still quite young, but it's being born out of the fact that we know we need to do something about it.
--:-- Right now, aviation contributes about 3% of all world CO2 emissions. But our own industry projections are that by 2050, that's going to be anywhere up to 50% of all CO2 emissions everywhere. It's because that technology evolution hasn't happened in the aerospace industry the way that it has in the automotive industry and some of the other great industries we're going to be discussing today.
--:-- I absolutely love aircraft. I think it's so important from an economic and from a social perspective that we can continue to connect communities, but we can't do it while we're harming the environment. What really attracted me to aviation and this opportunity that's here right now, what we're specifically working on, we have an aircraft that's going to be able to really change the way that we fly. The cost efficiencies of operating on electric power, that noise reduction from having the new engine technology, the elimination of carbon pollution makes it cost-effective, convenient, and also carbon-free to connect communities. I just find that very exciting.
--:-- Host: I love that because I think maybe one aspect that people pay attention to for good reason is just, is it electric or not? But what you're pointing at is that electrifying an industry or a product also has other ramifications. Like you said, noise pollution could also be the ability to move that energy back into the grid in other ways. Duncan, you're working on school buses, which is a whole other industry. Tell me a little bit more about how you decided to venture into this space.
--:-- Duncan McIntyre: Sure. I think Greg hit on one thing that's near and dear to me, which is noise pollution. When I think of electrification, I think of it as an upgrade all around. Maybe a third to half of the folks that we engage with commercially are interested in talking about climate change and CO2, but more than half of them, if you start the conversation that way, the conversation's over. But if we can frame it in a different way around being an upgrade, they're cheaper to operate, cheaper to fuel, fewer moving parts. They're cheaper to maintain. They are very quiet. They help attack poor air quality in urban areas.
--:-- Transportation is local. No matter how you slice it, it's a local dynamic. Local politicians are awarded their seats or rejected from their seats based on topics like this. You have to get into the local side of it to win. More than anything, I think Tesla inspired us all to look at the EV as technology that's here now. It's not only here, but in many cases, it's better. It's an upgrade.
--:-- It took the market a little while before the product was developed to do medium and heavy duty. We're there now. Companies like Daimler are producing electrified platforms. We started Highland focused on the school bus market because we saw the demand. We also saw the duty cycle as being really appropriate for what electrification had to offer. We're entering the trash hauling space. We're getting into basically any form of municipal and government operated vehicle that tends to operate in a fleet format.
--:-- For us, it's about making sure that it's reliable and affordable. Our product suite stitches together the capital infrastructure, the services needed. I think about it as 12 to 15 small businesses that have to be stitched together and completely seamless to the customer. When that's done at scale, it's not only affordable, it's just cheaper for cities to run electrified fleets. We're really excited about it. I saw that opportunity to innovate around business models and drive commercial adoption.
--:-- Host: Right. To make it a no-brainer. Not just the electrification, but to just make it the obvious answer. Mitch, you're tackling boats, which is again a totally different line of products, but maybe with some parallels. We'd love to hear how you got into that. As both Greg and Duncan have mentioned, it feels like you can almost piggyback off of the automotive industry or the strides that have been made there. Tell me about how that has maybe also applied to boats.
--:-- Mitch Lee: I come at this from a very personal level. I grew up on boats. My parents were huge water skiers. I grew up as somebody that loved being out behind a boat on a kneeboard and water skis and wakeboarding and eventually surfing and inner tubing and just enjoying the water with friends. Gas boats are so much fun to be on and an absolute nightmare to own and awful for the environment, particularly when it comes to not just air pollution, but water and noise pollution.
--:-- Electric boats are just better boats and they make a ton of sense. In the auto industry, gas cars were actually pretty good at what they did. They're quiet, they're reliable, they have relatively good fuel efficiency. Electric cars are still an upgrade. But when you look at the boating industry, the pain point of boat ownership is so much more visceral. These are boats that are stuck in the 1980s technology. They're basically like oversized gas lawnmowers. They're loud. They're noxious. They are unreliable. They run out of gas on you.
--:-- When you compare that to what you get in an electric package, it's such a better experience. Reliability goes way up. You can enjoy conversations on the boat when it's whisper quiet. The torque that you get pulling somebody out of the water is better. Even the experience of refueling gets to be so much better because boats are kind of a point A to point A sort of vehicle. That makes charging a lot more tractable.
--:-- Electric boats are a very obvious idea and a huge improvement from a customer perspective. The hard part is the execution. They're so power hungry. That's where we have really benefited from hundreds of billions of dollars that have gone into research and development in the auto industry, the supply chains and the battery technology that's powering the auto industry that has suddenly enabled us to go tackle the marine industry, which might not by itself have been able to support that volume of research and development. That's what gets us really excited because what we're doing today was not possible five years ago. But what we're doing today is also such a better product experience compared to what exists today in the market.
--:-- Host: On this idea of borrowing from the auto industry, I'd love to hear from all three of you what aspects were really easy to port over where you could say, look, this innovation has been worked on for a long time and I can kind of copy and paste it to my industry. But then also, what required you to create something net new? Because it is a different product line. There are different considerations, whether it's being on the water or having to be in the air or having additional redundancy because you're in the air. What have you had to consider and reinvent versus what has been able to be borrowed from the existing automotive industry?
--:-- Duncan McIntyre: All the technology development around making the electrified powertrain super efficient. This is your electric motor connected to your batteries and all the high voltage systems that need to exist and balance to make it work. Mitch talked about reliability. Couldn't agree more. Electric is awesome because it is so reliable. That is an area that we probably all benefit from is just years and years of making it a super durable system.
--:-- I would say for us, we had to create a ton of interoperability systems that we didn't expect we'd have to build. What I mean by that is not all charging stations work with all vehicle types. There's firmware, there's other battery management software within your vehicle, and then there's the utility. If you think about creating a reliable ecosystem, all of us, Mitch said power hungry. They're really power hungry. Our depot in Bethesda, Maryland, draws five megawatts of power when we're charging. It's the largest electrified depot in the country running 200 school buses. Five megawatts is like five hospitals coming online overnight.
--:-- You need really advanced software that is managed in a way that we've never had to do in the past here in the States. That's interoperability between your chargers, your utility, your vehicles. If you're going to make the overall experience reliable, the vehicles are reliable when they're out running, but if they're not reliable when they're charging, you have a major problem. That's maybe the biggest thing we've had to do far more creation around than I expected.
--:-- Mitch Lee: I can piggyback off that specific to power requirements. Boats are power hungry. To give you some scale, recreational boats use more gallons per mile than a fully loaded semi truck. A fully loaded semi truck might get six to eight miles to the gallon. A boat gets one to two. The amount of energy you need to store on these boats is pretty large. The ARC-1 has two battery packs, totaling 220 kilowatt hours of battery capacity, which for reference is well over twice the size of any car that you'd find on the market today, like a Model S or Model X.
--:-- Host: It's identical to what you put in a full-size school bus that hauls 78 children around.
--:-- Mitch Lee: Exactly. One of the biggest challenges is just packaging that much capacity and building battery packs at that size. On the boating side, and I'm curious to hear Greg's take on this, we have a very high continuous power draw. In the auto industry, your power demands kind of spike as you're accelerating zero to 60. That's where you draw a lot of power. Once you're up to 60 miles an hour, the continuous power draw tends to be much lower. Boats almost have the inverse curve. You don't necessarily have very high peak power because it's actually hard to put a lot of power into the water. You're limited by your propeller. Instead, you have very high continuous power, because going 40 miles an hour through the water, which is viscous, is much harder to sustain.
--:-- That generates a lot of unique challenges for the marine industry, for our application of electric technology to the marine industry, particularly around how do you cool that when you're generating so much power. How do we make our motors tolerant to that amount of power draw? Greg, I'm curious your take on this from the aviation side. Greg needs 20,000 times more power than we do to get a plane in the air.
--:-- Gregory Davis: The comparisons are really interesting. I'm going to start by highlighting the two differences just to sort of lay it out there. Each of our battery systems is actually designed to different criteria. Where we've benefited from automotive is the advancement of the cells. There's a definite benefit for improving the energy density, what we measure in watt hours per kilogram, at the cell level. But the architecture of our systems is going to be unique for each application.
--:-- I'll give you some practical examples of why that is. When you're building a car or a ground-based vehicle, the typical consumer is involved in buying that car. When they buy an electric car, they don't want to think about things like having to replace the batteries while they own the car. You want the car to last for the entire time that you buy it.
--:-- Mitch Lee: I would say, my guess is that the marine industry is a little bit more forgiving than that.
--:-- Gregory Davis: They are. Okay, yeah. The aerospace industry actually expects to have to maintain your aircraft. When we're designing our batteries, we're designing them to a specific life cycle. The quality of the batteries in an aerospace application is obviously very, very high, but it's also governed by the certification standards that we're going to have for the aircraft. Part of our advantage at Eviation is that our whole product premise is based on the fact that we're able to design and certify an airplane using the existing standards. We actually have a clear path to certification.
--:-- We design our batteries to be replaced every 3,000 cycles, which given our utilization is about every 3,000 hours. That could be two years, three years, four years, depending on how you're going to use the airplane. The great thing is that the battery technology continues to evolve. Our architecture is designed so that it can be somewhat agnostic to the actual cells that are being used to provide the energy. We can upgrade our battery every two, three, four years. When you go in and do a mandatory maintenance activity, which is absolutely normal for an airplane, you actually end up getting a better plane.
--:-- Duncan McIntyre: I want to chime in there because I think it speaks to how different the problems are for each of these industries. We have an entirely different scenario. A big boating season is maybe 50, maybe 100 hours. We are the opposite of cycle constraint. You will never reach a point where you have outcycled the useful life of your battery. Even with a ton of usage on that boat, it is nowhere near what you would see in the auto industry or in the aviation industry.
--:-- One final thought is what we really should get to as an industry. Gregory uses these batteries for two and a half years and they're no longer suited to the standards that you need. But they're perfectly fine for me. They roll off and they're in applications that are less mission critical, where they're still perfectly safe and they've got perfectly good life. That's ultimately a better design.
--:-- Gregory Davis: Not to the extent that Mitch explained, but our school bus fleets are on the road 9% of the hours in a year. The other 91% of the time they're sitting idle. They're actually relatively underutilized.
--:-- Host: On that note, I'd love to hear from especially you, Duncan, and Mitch, because these assets, actually I guess the plane is true for as well, but for some period of time, they're not being used. That influences when you can charge, how much you can charge. But also something that we're seeing a lot more with even the passenger vehicles is the idea that some of this charge can go in the reverse direction, getting more use out of the asset itself. We'd love to hear your thoughts on this idea that the electrification of these products is not just a gas to electric, but it opens up this whole range of other potential opportunities.
--:-- Duncan McIntyre: It's a good question. It's core to our business model at Highland. About half of our projects today are backflowing power from our fleet of batteries to the grid when the grid needs the power the most. We earn various amounts of money. In New England, as an example, we earn about a third of our revenue just from providing grid services.
--:-- Duncan McIntyre: It's a battery just like any other stationary battery. It can be used to absorb high levels of renewables production and help meet the grid's demand during the grid's peaks. It's a very interesting opportunity for, frankly, all of us. All of our industries are power hungry, and if we charge at the wrong times, it's going to make operating the grid much, much more expensive. I think we see it as an issue that is getting solved, but too slowly. Ultimately, the utilities and the wholesale energy markets should develop better products and then better policies to really require that this activity is done smartly. If it's done in the right way, you're going to flatten the load curve and drive better efficiency in our distribution system and our generation systems, as opposed to the opposite.
--:-- Mitch Lee: We come at this from the more localized customer perspective. Duncan's coming at it from the grid level, which is very exciting because when you stack multiple of these vehicles together, you quickly get into the megawatt hours of capacity. We think about it from two perspectives. The first is the fact that a normal boat outing might be four hours out on the water. That translates to 20 hours of downtime that you can then go recharge before you would feasibly be using that boat again. It makes charging a much more tractable problem. If a boat's at a dock, you have plenty of time for an overnight charge before you use it again. You don't necessarily need fast charging to exist in order to have a compelling electric boating experience.
--:-- The second part is that boat is sitting in the off season when it's winter and it's too cold to go boating, or even midweek when you're working and not able to get it out. That's an opportunity to provide power back to your house. Not necessarily at the grid level, but that is a tremendous amount of battery capacity that could power your house for a week without you doing any sort of finagling of electric loads. That's exciting because it presents a whole bunch of opportunities to optimize your energy consumption throughout a given week.
--:-- Gregory Davis: It's funny, I was just talking to one of my board members, a guy named John Meskel, about this. This is the exact same thing. What we've just highlighted collectively is how well this technology, the battery technology, electric technology, integrates into the way that we actually use things. The primary and secondary uses of the aircraft, each of us is looking at the charging network. Not just at the infrastructure level, also at the actual vehicle interface level. Our discussions about the charging network absolutely include the idea of secondary storage of energy.
--:-- Typically speaking, the aircraft's going to fly morning to evening. Cargo applications will be able to use it later in the evening, which isn't directly related to batteries. It's actually related to the fact that the aircraft is so much quieter that it's not going to be subject to noise restrictions. When you look at the typical turnaround time for an airplane, you load passengers onto it, it takes off, it travels for an hour, it lands, then you offload the passengers and baggage and then repeat the cycle. That turnaround time typically takes about half an hour. You can charge your batteries for one hour of flying time in 30 minutes. That's actually a fairly gentle charging cycle for a battery.
--:-- You have the opportunity for using fast charge and megawatt chargers and all this. Those will be part of our solution for some applications. But compared to some of the more strenuous applications on batteries, we're actually being relatively gentle to what we're doing with our batteries, even at the aircraft level. That's very, very exciting. With today's available energy levels, energy densities that we can get from batteries with the projected efficiency gains that we're going to have as the systems develop, you can actually take that technology that's very clearly in front of us in the next two, three, four years and design it right into your product. It's a great fit.
--:-- Host: Greg, will you provide charging solutions with the planes? I would imagine your business model is to sell equipment to operators. Is that right?
--:-- Gregory Davis: Thanks for that. There's three parts of our business model. The first is selling aircraft. It ranges, again, very traditional for an aircraft manufacturer. The second is the aftermarket support. Supporting those airplanes, parts, services, training. Again, very typical. The third is actually the charging solution. There's different approaches to charging. There's different ways that you can do it. You can work directly with the airports. The people who are buying planes from us right now are potentially leasing charging applications from us.
--:-- We're looking at charging in two different ways. The first is a fixed charging location where you tap it directly into the grid at the airport that you're going to be servicing your aircraft from. That works very well for maybe an operator that has their own terminal where you can reliably park your airplane. But we're also looking at mobile charging. The idea of having a truck that's specifically designed for charging Alice, our aircraft, that has a battery bank on it so that you can quickly charge. We call it an e-Bowser, a fuel Bowser.
--:-- Duncan McIntyre: Maybe a school bus.
--:-- Gregory Davis: I will say the thought crossed my mind.
--:-- Duncan McIntyre: I'll tell you, we're in the middle of the same tech R&D and that stuff is hard. It's going to happen and we're all going to get there. We're going to power a concert. I won't say who, but a big concert. You would have grown up with them. Part of the concession, which is this big part of it. We're going to be powering it with school buses in the fall. I'll send you guys tickets. You'll have to come.
--:-- Gregory Davis: Nice.
--:-- Host: Thank you. Great. On that note, I'd love to hear from all three of you. Greg, you've already touched on it for aviation. But I think when people consider electric vehicles, let's just use Tesla as an example, they think, okay, most of the revenue comes from the sale of the vehicle to the consumer. But Tesla also makes a bunch of money through the software that it sells to those consumers as well. What the three of you have pointed towards is that there are other business models here. It could be the energy moving back into the grid. I'd love to hear how each of you are thinking about the different business models that ladder up to a multimodal system for your company. And also where, if you're willing to share, you see the biggest opportunity. Where do you see the largest revenue opportunity for your given space?
--:-- Mitch Lee: The way we think about it is we are delivering better boats. That's our goal. Everything that we are doing at the design and manufacturing side is optimized around how do we deliver a better product to customers. One of the biggest pain points of boat ownership is the reliability and the maintenance burden. We are at the design stage and through the manufacturing process, designing out a lot of these maintenance burdens. An example is we have a closed cooling system on the Arc 1. It basically uses the hull itself as a heat sink to dissipate heat from the powertrain. That means we're not ingesting raw water and clogging up filters or having pumps break.
--:-- Software is also a way to make that experience better. Garmin sells off-the-shelf navigation maps, and that's a billion-plus dollar business for them. We want to offer that for free to customers as a way to incentivize adoption of the boats that we're selling, which is still our core business. When we talk about providing backup power to your house, there is a multi-billion dollar business for backup generators for people's house that we want to go tackle by giving you a boat that you can use to backup your house. All of these are still in support of our core product, which is selling better boats to people at very good margins. That's the core business that we think about. A lot of the investments we're making go back into driving sales around that core business.
--:-- Duncan McIntyre: I would generally echo some of those themes. I think the market has historically operated in a way such that OEMs are really good at making a product, making a vehicle, whether it's a plane or a boat or a truck, whatever it is. But they tend not to be in the fleet operations business. They tend to sell it to an operator. That could be someone who buys a car who's just driving around town. It could be a waste hauling business. It could be Delta. Users that tend to be fleet operators.
--:-- The business model opportunity that we see is to create more performance-based guarantees around these new vehicle classes. There's a ton of perception out there that it's new tech and so it's not going to be reliable. There's also a perception that what is this fuel cost?
--:-- Duncan McIntyre: It's electricity. I don't really understand it. My utility bill is very complicated. It's got all these line items that we don't really understand. So core to our business model, which we're confident has accelerated adoption in our category and driven the Highland business, is this concept of making it very simple and performance based.
--:-- We will often get paid by the mile. We might charge a customer $3.50 per mile and they get all the equipment, they get all the services. If the charging station breaks and the bus isn't charged, we just don't get paid. There's very much an alignment of incentives.
--:-- By making it performance-based, we tend to own the assets and we can then bring on downstream services to increase utilization. Elon Musk wrote a great article recently about how he views autonomous electric vehicles as capable of taking utilization from single digits up to 50, 60, 70 percent. Because all of a sudden you have autonomous vehicles performing tasks and that utilization changes dramatically. So we need fewer vehicles or we get more done with the vehicles that we have. I believe that's a big opportunity.
--:-- If you look at garbage trucks, school buses, parks and rec vehicles, any vehicle out there that is not long haul trucking, you have this dynamic where you can start to piece together other ways to make money or make that asset useful. If you can deliver it as a service and make it easy for the customer, I think that's where the market is going. That's really exciting.
--:-- Gregory Davis: Just to tack on to the exact opposite end, I think there's an opportunity for people in the infrastructure development business to actually go and start selling solutions to bringing the right electrical services and layouts. Almost like an urban planning exercise, but to actually get the power lines, get the infrastructure set up for whether it's the airport, the marina, or the schoolyard, or wherever you're going to do your charging.
--:-- That's something that I think we all share. Right now, I know that people come to me to ask where should I put my charging station at my airport? How much capacity should it have? The fact that people are coming to me as the aircraft manufacturer means that there's probably no place else for them to go to get that information right now. I think there's an opportunity for somebody listening to this who's looking to start a business to actually become an expert in doing that, focus their attention on it, and start delivering those solutions.
--:-- Host: On the note of opportunity, it feels like there are still some challenges in the industry that could be related to regulation. It could be related to the grid infrastructure that exists and needs to be upgraded. It could be the battery technology. Mitch, something you mentioned is potential fear around range anxiety, depending on the product and its needed range, or at least what consumers think they need in terms of range.
--:-- I'll open it up to the group. What gaps are there for people to tackle? And what would you love to see people tackle? Greg, I love that you've already mentioned one very clear opportunity, but it feels like it's still kind of open range in a way where there's a lot of work to do in the next few years. I'd love to hear where the three of you are seeing the biggest opportunities.
--:-- Gregory Davis: In terms of aircraft, in the United States, there are 5,000 airports. About 3,600 of them have paved runways and have aids. You can fly a small commuter aircraft like Alice from those runways as a commercial operation. But we don't use 3,000-something airports that way. We use a couple hundred airports with regular scheduled service. That's actually something that's changed over the past 40 years. We used to be able to fly point to point much more often than we can, but the market after deregulation went away.
--:-- Even so, if you look at the breakdown of the world's air travel, and it's very similar whether you're in North America or Europe, half of all flights in the world are under 500 miles. A full 30% are 250 miles or less. Watch planes fly by. There's a 30% chance the plane that you're looking at is flying a flight of less than 250 miles.
--:-- The proposition, I think Mitch was mentioning this, I think we're on the same page on this one. It's a very different thing. We're A to B, not necessarily A to A. If you go back to the whole culture around the automobile, when you get in your car, you want to be able to get in your car and go wherever you want to go without any concerns. It's an open road, it's freedom, it's a great sensation. With an airplane, you want to take off from the airport you wanted to take off from, fly for exactly how long you wanted to fly, and then land at the airport that you wanted to land at exactly when you wanted to get there. It's a very different prospect.
--:-- There's a wonderful marriage here between what the technology is available today in terms of what we can achieve with range and payload for an aircraft and the way that people actually want to fly. Our plane today represents potentially 30% of the total market for aircraft if you look at it. That's pretty outstanding.
--:-- Host: It's such a great point that there's this marriage between the technology and how people are using this. I hadn't really thought about the culture around how you approach plane flights, but that's so true. Before the trip ever starts, you know exactly where you're going, exactly the distance that you're going, and so you plan accordingly.
--:-- Mitch Lee: If you get out on a gas boat today, it's stuck in the 1980s. Your fuel gauge goes like this. They're super unreliable. Your speedometers don't work. There's no odometer on boats. The state of the art in most cases is unscrewing the fuel tank and looking in and guesstimating how many gallons of gas you have left, and then using intuition to think, how far can I go on this many gallons? It is common to run out of gas on a gas boat. I've done it personally at least a dozen times in my life.
--:-- When you think about what you get with an electric boat, suddenly you have down to the percent level precision on how much capacity you have left. You have intelligent software that can tell you this is how far you can go with that amount of battery capacity. Something that's unique to boats is if you're out in the middle of Lake Tahoe and you have 5% battery, you can reach any other point on that lake as long as you're going five miles an hour. It's not a question of if you get back. It's a question of how long it takes. That is so novel and such a huge improvement from a customer perspective over where things are at with the gas industry today.
--:-- Going back to the opportunities, I think about it in three tiers. There's plenty of these product opportunities. We happen to be tackling the marine space and delivering much better boats to people that happen to be electric. You can look across all these industries and find those opportunities where the technology that exists today, the electric powertrain, delivers a better and more compelling experience to people. I think the three of us are all doing that.
--:-- There's also supply chain opportunities. We want our battery prices to be lower. We want our high-voltage electrical powertrain components to cost us less. That helps us a lot. I think there's a tremendous number of opportunities at that base supply chain level.
--:-- Then there's this third category of what I call second-order opportunities. You're going to have an electric future. Imagine what that looks like. You're going to be towing around a bunch of electric boats in electric trucks, or you're going to be towing around an RV in an electric truck. What does that mean in terms of the new charging infrastructure you need to go support that, or the new technology you need to make that happen? Maybe it's powered trailers that can actually help the vehicle. There's just a ton of opportunities. If you cast your mind forward a few years and think about what are the new problems that are going to exist when the marine industry is going electric and the aviation industry is going electric and the bus industry is going electric.
--:-- Duncan McIntyre: I think interoperability and standards, industry standards, is a challenge today. We've left it largely to traditional industry associations to drive standards, and in my opinion, it's been too slow. We've done integrations with 15 to 20 utility companies in the last 12 months and every single one of them has been discreet and different. You just have to put the right team on it to know how to navigate the system and get through to the other end.
--:-- Putting better standards in place would allow for what Mitch is describing. Your boat is charging your house when the power grid is down, or for four hours every afternoon when the grid is strained and demand charges are kicking in, or your trailer is charging your vehicle because it's got extra power. That's all interoperability that needs standards.
--:-- I would flag one other challenge. Mitch mentioned it, but it is one of our greatest pain points, which is supply chains. It's not just about getting the sell cost down so we can deliver cheaper product. It's being able to deliver product full stop. The last couple of years have been really tough on supply chains. It's led to soaring costs, but also poor reliability.
--:-- We're one of the largest buyers of medium and heavy duty truck platforms in an electric format right now. We're talking hundreds of millions of dollars per year of equipment purchases. We're not billions yet, but we will be quite soon. Even as a large buyer, it's tough to get product. You've got manufacturing sites that have thousands of completed vehicles, and they are all short an air compressor. So they can't complete these vehicles and deliver them to customers.
--:-- Duncan McIntyre: We are buying switchgear 18 months in advance for projects we don't even have under contract yet. Because if we don't have switchgear, we're not getting the infrastructure completed and we can't get up and running. We don't get paid. We're solving problems that we shouldn't have to solve, in my opinion. I think for some entrepreneurs, there could be big opportunities in streamlining supply chains and creating better standards.
--:-- Host: I heard a very creative description of the supply base over the past couple of years, and it was called the surprise chain. That's all you need to say. Perfect.
--:-- Gregory Davis: Timing for what we're doing. You look at the outlook on the aerospace industry right now, particularly aircraft manufacturing. A lot of the major aircraft manufacturers have already launched their next program. They're entering service, they're delivering them. If you take a look around at the large incumbent aircraft manufacturers, there's no new programs on the docket right now. The tier one supply base and even the tier two, tier three supply base, they're all hyper aware of what they're going to be working on.
--:-- It gives us an opportunity to show that we've got an aircraft, we've got a market, we've got good orders. The utility of the product is there. I think what's going to happen is that the new technologies that we're bringing and our new products are actually going to garner the attention of the forward-looking supply chain. I think we're going to disproportionately benefit in the aviation industry, but I think the same is probably widely applicable. The new technologies, new companies are actually going to benefit from obtaining the focus of the established tier one, tier two supply base. I don't want to say the problems are behind us yet, but I think the outlook is actually quite sunshiny.
--:-- Host: I'm curious how you two think about this.
--:-- Mitch Lee: For us, there are incredible advantages for bringing the battery pack in-house. That's why we vertically integrated our battery pack. It is structurally integrated with the boat hull in the same way that electric cars didn't become that compelling until you built the car around the powertrain under one roof.
--:-- The opportunity that I see is on some of the other atomic components that go into a high-voltage electrical system. An example might be a DC-DC converter. When we started ARC, there was one on the market, and we did not have much choice. There are now 30 of those, and that's exciting because you can use those across applications more so than you can just drag and drop an entire battery pack.
--:-- When I think about supply chains, it's actually some of those more atomic components or connectors that are a big one for us that have historically been a nightmare. Those are examples of things that work across the application and are not necessarily so tailored to your application. I wouldn't necessarily encourage people to go after building an entire battery pack and trying to make that battery pack work for both boats and airplanes, because that's going to be really hard. We have very different objectives out of what we want from those battery packs. But you might be able to find components that factor across those.
--:-- Gregory Davis: I agree. You want the keel and the ballast to be replaced by battery packs, I'm guessing.
--:-- Mitch Lee: Yes, we actually don't mind weight on a boat. It allows you to throw a bigger wake and makes the boat more stable. So we're not as weight constrained as some other people.
--:-- Gregory Davis: Certainly for us, that's a prime example of the difference in some of the design criteria that we've got in the aircraft side versus the marine and land-based applications. What we've seen in terms of technology evolution, talking to people, DC to DC converters is the perfect example for a shareable component that has an important role to play.
--:-- But I'd like to take it one step further. Why do we need the DC to DC converter? Why don't we just get the subsystems made to operate at the same 800 volt system level as the rest of the equipment? We're seeing high voltage applications of traditionally lower voltage electric components coming up. We've got environmental control systems that operate at 800 volts now. Looking at other actuation and so on that operate at high voltage, reduce your wire sizes. That's what we're pushing on.
--:-- Mitch Lee: Great point. I would love to see some of these low voltage components actually come up and support high voltage ranges. That would be awesome for us.
--:-- Host: Maybe as a follow-up question there, Mitch, you mentioned whether or not you design your own battery packs, given that every single one of these planes, boats, school buses have many components. How do you think about what is inherent to your business and that you build on your own versus buying or borrowing?
--:-- Tacking onto that, what I really am trying to get to is this idea of what moats might arise in these industries. Let's say 10, 20 years from now, we're going to be seeing a lot of electric boats, a lot of electric school buses, a lot of electric planes. Where does the differentiation come from?
--:-- Mitch Lee: We're just over two years old and we are delivering the most advanced electric boat in the world to paying customers. That's exciting. The way that we've been able to do that is by leveraging a lot of the research and development that has gone into the automotive industry over the past decade intelligently and apply it and adapt it to the unique challenges in the marine industry.
--:-- We're very careful to integrate the things that become the platform for all future boats we develop and try to not integrate the things that do not give us a unique advantage over time or that are more marginal improvements. The battery packs are core to that moat and that's hard. It is hard to build your own battery packs. When we talk about moat, we have an incredibly talented team. We have top talent from SpaceX and Tesla and Rivian and other EV companies and marine companies. It still took us two years of working around the clock to integrate those battery packs and get them production ready for customers.
--:-- Host: I just was wondering, do you aspire to be in commercial boating applications? Does all that IP you're describing, which sounds very cool, does it all apply when you get into ferries that may have predictable routes? Maybe not long shipping, but I don't know.
--:-- Mitch Lee: Our aspirations are that everything on the water eventually becomes electric. The playbook that we're taking is to start on the recreational side. We're building a strong brand. We're building a technological moat. We are building an extremely talented engineering team. Along the way, we're driving down our cost of capital because boats are a very good business. The more boats we produce, the more working capital that we have. Those are the ingredients that ultimately set you up to more efficiently go after larger craft. I'm not necessarily ready to talk about that part. We have our hands full on the recreational side, but certainly there are aspirations to go there.
--:-- Host: I heard yes. Thank you.
--:-- Gregory Davis: We found the sweet spot for making an electric plane. The size of the aircraft, it's a nine passenger aircraft. It's nine passengers on purpose because in the United States, you can actually fly nine paying passengers with a single pilot. We have two pilot seats, so you can also use that other pilot seat to train a new pilot, which will help address the overall pilot shortage that we've got. We didn't do that in isolation. We've come up with this approach based on interacting with real customers and figuring out what they need and what the market needs.
--:-- The other thing is we're building an electric airplane, but it's just an airplane. It's a Part 23 commuter category aircraft. That means that we're building it to be certified under the existing standards. The pilots who fly it will be able to fly it with their existing pilot's licenses. They get trained the same way as they would for any other aircraft that size. Likewise, the mechanics and people who operate the aircraft on the ground maintain it. It's the same system that we've got today. It flies from existing airports using the existing airspace.
--:-- We've got this product that's being fit so that we don't have to go and change the way that aircraft are certified. It's the other way around. We've developed an electric airplane that meets all of these standards. Our plane meets the same standards as any other airplane in its category. To the point of mass adoption, 100%, I firmly believe in the next 10 to 15 years, we will all be flying regularly on electric airplanes.
--:-- Host: I have aspirations to get my pilot's license. One of the things that clicked for me is the biggest risk to being a pilot and flying a Cessna is reliability of those vehicles and the number of checkdowns that you have to do on an aircraft before it gets into the air. In my mind, electric aircraft make a ton of sense because you get that extra reliability almost free. You're no longer worried about the whole class of problems you worry about with mechanical engine failure on an aircraft. I am personally excited for that future. I want to fly an electric plane. I aspire to visit Greg and have him take me for a flight in his plane.
--:-- Mitch Lee: Me too. You guys can all rotate.
--:-- Gregory Davis: We should do a pact.
--:-- Mitch Lee: I was going to say, go out on the boat. I'll host everyone for a boat demo.
--:-- Gregory Davis: Everyone's going to the concert.
--:-- Mitch Lee: I can ski a little bit.
--:-- Host: Awesome. Great.
--:-- Duncan McIntyre: Steph, your question on differentiation. These guys obviously have products that have had a ton of IP investment. That's truly technical IP behind the product. We're a really different business. We buy a finished product for the most part from leading OEMs. The business model that we're running is really bundling and packaging of services and financing.
--:-- If you look at the big solar operators, companies like Sunrun and other utility scale businesses, they drove commercial adoption. That's because they very elegantly bundled and packaged a whole bunch of services with capital, and they made it very easy for customers to adopt. We're very much in that business. It's lots of little things from training mechanics to training drivers to building a technology backbone that's scalable so that we can actually operate these fleets relatively efficiently.
--:-- One of the things that we've identified as a core differentiator for us right now is simply scale. We're the largest provider in this space. We have more contracts and bigger contracts than anyone else. When you look at scale, especially in the early days of the market evolving, we have better access to capital, cheaper capital. We have more miles under our belt to prove to that capital that we're a reliable operator. We can buy product at scale and get better terms in buying everything from charging stations to switch gear to construction services.
--:-- Because it's local, we have operators on the ground that are responsible for actually delivering some of those services. Some of them are really technology-driven, but some of them are people on the ground who actually have to turn some wrenches. We have scale in places like Maryland, Michigan, New England, where it's much cheaper for us to operate and add that next customer than it is for our competitors. I think those are some of the moats we're building. I very much believe that it's a more challenging bundle of services than operating a solar farm, and that's going to continue to be difficult for others to replicate.
--:-- Host: My summary of Duncan's point there is ideas are cheap. The hard part is execution. I'm sure there are a million people in the U.S. that have thought somebody should make a Tesla for boats. The hard part is how do you go build a product that can actually deliver that vision? How do you go package enough battery on a boat to make it compelling in such a power-hungry market?
--:-- Mitch Lee: Totally agree. How do you do that without spending incredible amounts of money on CapEx or R&D? That's the hard part. I think that speaks to the moat here is it is hard to go do this.
--:-- Gregory Davis: That's amazing. I couldn't have said it better. I completely agree with that. I also just want to pick up on one point that Duncan just made, which is very, very important. It's the order book. Having a real order book where you've gone and sat down with the customer and they've said, yes, we want your product. Eviation recently passed the $3.5 billion pre-order mark for the aircraft. More than 400 airplanes on LOI that we have with our customers now. They're real customers. These customers that are signed on early are committed to working with us on the program. They're giving us feedback. They're giving us information about how they're going to actually operate the planes. They're there to work with us, to be our launch partners, when we actually put those planes into service with them in the next few years.
--:-- That order book says so much about what your market is saying. Recently we just announced a deal with a leasing company. The leasing company doesn't just bet on our aircraft. The leasing company is betting on the market. It's telling you that there is a market for your entire product line where the leasing company buys it. It's very, very important to look at that mix.
--:-- Host: I should share that we chose the three of you to contribute to this conversation because we did do our research and check that all three of you have orders booked. That was really important in terms of you're actually on the ground, you have relationships. To all of your points, it shows that this is not just an ideal where we want to electrify and eventually people will buy into this. The market is actually participating in this. They're saying the cost combined with the other benefits that we're seeing in this industry now are actually better to the point that we're ready to put our wallet down.
--:-- That was really important in terms of us determining that there are many participants in all three of these spaces. That was essential for us. I also want to just quickly note that all three of you spoke to so many different opportunities for moats. There was technical moats, there was operational moats. There's even potentially regulatory moats. I think it's fascinating to imagine how this develops.
--:-- Host: Because there's not just one single moat. Each one of you are figuring out where your business tied with your customer base, whether it's B2B or B2C, like what they're really looking for. I think one great place where we can end this conversation is we've already kind of spoken to this idea that this is where these industries are moving in five years, 10 years, 20 years. We do expect these set of industries to change and to be electrified. And so I'd love to hear the three of you just comment on what that really means, like contextualize the impact of, let's just say, like maybe not all aircraft, but like most aircraft being electric, most boats being electric. I know this will take time, but I'd love for the audience to just understand maybe the second, third order effects or the implications of that shift once it's fully manifested.
--:-- Mitch Lee: I think something that some people don't necessarily think about is the next generation of boaters will not be allowed to use gas boats on our lakes and rivers. They are very unpopular because they're huge polluters. You know, semi trucks out on the water, except a lot of them don't even have catalytic converters on them. And so you just see these fuel slicks behind boats as they take off and all the noxious fumes around there, CO2 poisoning warnings on the back of these boats.
--:-- Fast forward several years, you're looking at marinas that are quiet, that have clean water around them because these boats are not polluting into them. We'll take an ARC-1 out into a marina and we'll pass a sailboat and the sailboat will be louder than our boat. So just this ability to suddenly appreciate and enjoy water so much more than you're able to today with this drum of engine noise drowning everything out. It's an exciting vision that we're driving towards.
--:-- Duncan McIntyre: When you look at urban areas around the country, the EPA—you go to their website and look up who's in attainment of air quality that's fit for being healthy for human life, is effectively the way they describe it. And most of our major cities do not meet the threshold. And it's because we have tailpipes from vehicle traffic. We've essentially moved all of our power plants further outside of urban areas. We don't run coal plants in cities anymore. And so bad air quality is a function of tailpipes.
--:-- Cancer rates, rates of pediatric asthma are high in cities where tailpipes and vehicle traffic is high and areas where the airflow does not wash those fumes out quickly and easily enough. And so there are places in California where we're engaged with municipal leaders where pediatric asthma is over 30%. And so our vision is tackling air quality at the local level, tackling climate change at the same time, creating a very clean, quiet, urban future.
--:-- And Mitch said quiet. We would say the same thing. Our bus depots are silent and the buses operate almost entirely silently. Trash pickup could happen earlier in the morning because you don't have the loud rumbling noises of a diesel engine. And the grid is not utilized to the tune of 36% or 38%. It's utilized to 55, 60, 65, 70%. And so we can integrate more renewable energy, not less. We can reduce demand charges and just charges to rate payers and create an ecosystem where transportation of all forms—whether it's flight, marine, or road—is really integrated into an energy ecosystem that's more efficient, cheaper, and better.
--:-- Gregory Davis: In the near future, you're going to be able to take a 10-minute trip to your nearest airport, get on an airplane, and fly for an hour to do a day trip that previously would have been an overnight trip or a trip to an airport half an hour, 45 minutes away and going through security. You're going to be able to conveniently move from point to point to go do the trips that you want to do. They'll be more time effective. It'll be good for the economy in terms of enabling more trade, but also from a social perspective, just being able to go and see people that you want to be able to see.
--:-- We thrive in connectivity. This type of connectivity will disproportionately benefit small rural communities, communities that previously have not had the benefit of having air travel, which is a real economic motivator. These flights will be much more cost effective than the flights we have today because they eliminate aviation fuel and replace it with a much cheaper electrically derived energy from the grid.
--:-- As with those other forms of transportation, electric aviation is very quiet, which means that not only will you be able to increase the frequency of flights or even add previous flights that just haven't existed in decades, you'll be able to do it not worrying about polluting the environment, but also not worrying about irritating your neighbors because the flights will be so quiet that nobody will complain. In fact, you will want to have that airplane next to you so that you can take advantage of it. It's going to change the way that we fly. And really, this is the future.
--:-- Host: I'm just picturing this summer day in my head where you wake up, you go to your nearby airport, you fly to your friend who lives near a lake, you go out on an electric boat. After that, you go to a concert powered by an electric school bus. This is obviously an extreme scenario. It's the perfect day. It's the perfect day that is hopefully enabled by technology in the coming years. So it's not far off. Let's make it happen.
--:-- Duncan McIntyre: Yeah. We're counting on you guys. Let's make it happen.
--:-- Host: I think that's a great place to end off. Thank you so much for sharing the amazing things that all three of you are building in your respective spaces. And I think it was fascinating to just see the overlap and also some of the differences that are unique to your industries.
--:-- Gregory Davis: Thank you for the excellent questions. It was really inspiring and thought-provoking. And Duncan and Mitch, that was really enjoyable. Thank you both.
--:-- Duncan McIntyre: Yeah, yeah, I would echo. Steph, thanks for getting us together. And Mitch, Greg, love to stay in touch with you guys. Love what you're doing.
--:-- Mitch Lee: It'd be a pleasure.
--:-- Gregory Davis: Yeah, thank you for having us. And it's an awesome and inspiring conversation. I look forward to it.
--:-- Host: Thanks for listening to the A16Z podcast. If you like this episode, don't forget to subscribe, leave a review, or tell a friend. We also recently launched on YouTube at youtube.com slash A16Z underscore video, where you'll find exclusive video content. We'll see you next time.
