Winning the AI Race Part 3: Jensen Huang, Lisa Su, James Litinsky, Chase Lochmiller

Guys, this is one of the most amazing entrepreneurs that you're going to meet. Jim Leinsky, this founder and CEO of MP Materials.

Thanks. Good to be here. Jason, how are you?

So, let me set this up. Jim was a hedge fund guy running a pretty successful hedge fund. And he ended up basically investing in something called Molly Corp, which went out of business. And you did this incredible thing, which is you said, 'You know what? Screw this.' You essentially shuttered the fund, took over the company, and fast forward many years later, you are the largest and only, I think, supplier and refiner of rare earth materials and maker of magnets inside the United States. We're 100% of the American industry. You just did two really incredible things actually in the last couple weeks. One was you announced an enormous public private partnership with the DoD, $400 million, etc. And the second is you announced a really big deal with Apple. So take us a huge step back. Talk to us why rare earths matter. Tell us about the supply chain for AI. Tell us why you're doing this.

Rare earth magnets are really the feed stock to physical AI. Robots, drones, everything we're talking about today, the biggest industry in the world to come. Essentially, electrified motion requires rare earth magnets. So, you mentioned the predecessor went bankrupt. There was a feeling when I took over this site with my co-founder, and this goes back to 2015. Where is the site? It's in Mountain Pass, California. So if you take a 45-minute drive from the Las Vegas strip, just over the border in California, is the site. You actually can see it from the road. And it's actually the best rare earth ore body in the world. The thing about rare earths is that when you mine them, you also have to refine them. And it's really expensive and difficult to refine them. It's really a specialty chemical process. So it's really a multi-billion dollar refinery that you need to have just to separate them. And then once you separate them, you need to turn them into metal and then a magnet. So there's multiple layers of this stream to get this supply chain. And of course, you could have all the rare earths in the world, but if you don't make the magnets, you're sending it to China. Or you could have all of the magnetic capability in the world, but if you don't have the rare earths, you're relying on China. And so our vision from day one, going back to when we originally bought these assets out of bankruptcy officially, it was a two-year battle, took it out in 2017, and there was a perception that we just couldn't compete against China. And what we discovered actually is we could. It's a world-class site, but we had to reorganize the process flow and then we had to make investments to move downstream. So over the last eight years, we invested about a billion dollars. We took the company public in 2020. We built out the refining capability. And then about four years ago, we announced we were going to build a magnetics factory in Texas. We built that factory. We have GM as a foundational customer. We're now producing auto-grade magnets to GM spec and we'll be ramping up sales to GM at the end of this year in magnets. And then, you referenced a couple, it's been a busy few months for us. We announced a pretty transformative public private partnership with the Department of Defense. DoD is, there's really three pillars to this deal. DoD is becoming our largest economic investor, as well as they're going to provide a price floor for our commodity so that Chinese mercantilism won't take the price of the commodity below the cost of production. And then as a result of the DoD investment, we're going to accelerate the buildout of the magnetic supply chain. So we're expanding our facility in Texas for Apple, I'll talk about that in a second, but we're then going to build a 10x facility to 10x our capacity with DoD as our 100% offtake partner, customer, and business partner, because we'll be splitting profits 50/50 with DoD.

So to translate this, it's not a handout from the government. They didn't gift you $400 million. They invested in your company. They have warrants. They have equity.

Yeah. So they invested, they both are an owner. They also are an upside participant in our commodity to the extent that the prices take off. And then they're also 100% offtake customer. We have a guaranteed level of profits to want to build out this facility, but above a certain threshold, they're a 50/50 economic participant.

So there's really you, the taxpayer.

Yeah. So this is a true win-win. Obviously great for MP shareholders, great from a national security and commercial national security standpoint because we're going to have enough magnets to provide real certainty in the supply chain for the physical AI revolution and other industries. It would not surprise me if, five years from now, hopefully we'll do this conference and you'll say to me, 'Jim, I remember that deal, that was the first of its kind that you did with DoD and the government made money, the taxpayer made money on doing this.' And I'll say, 'Yeah, I actually think that's going to be the outcome.' Because there's an element of mutually assured economic destruction. If the Chinese believe that America has national champions, then there's no point in subsidizing the rest of the world. So I think you can start to see prices normalize for some of these things and free up our ability to invest and expand.

Why go to the government for this investment as opposed to the private markets?

Yeah. Well, because it's that issue. This is one of those, you obviously have to go back to World War II or the railroad boom where you really need government and credit. This administration did something totally unique.

Why do you need the government? Mercantilism. Straight up mercantilism.

Because the Chinese will sell magnets for below the cost of raw materials. And so every time there's somebody who makes progress, they can put them out of business overnight. And so it's difficult to want to make the investment. And frankly, with the Department of Defense, the scale that they wanted us to build on, the time frame that they wanted us to build, there was no way we were going to make that commitment. We're fiduciaries, right? We have shareholders. There's no way we're going to make that commitment without certainty that we would not be destroyed by mercantilism and that we would have a customer for the magnets.

How big of an industry is physical AI? Meaning, we see the robots, we're told the robots are coming, we're told there's going to be billions of them. Are they actually being deployed at the scale and at the pace that we've been told?

Yeah. Well, I think that is a question for much smarter guests on this. For the rest, I'll give a plug, the rest of the day obviously you have the best of the best providing that feed stock. I will say that I think one of the big drivers of our deal was, as we've seen in Ukraine and the Middle East, the future of warfare is physical AI, right? Robots and drones. And I think irrespective of the scale that robotics is ultimately going to be, and certainly the commercial business will be bigger than the defense needs, but just from a defense standpoint, this is a really important supply chain that we must have. We can't be funding cutting edge drone and robotics companies and then say, 'Okay, but we're going to buy those magnets from China.' That makes no sense.

Do we have talent capacity or do we have a talent shortage? Secretary Bergam gave me a stat which was pretty shocking to me that we only graduate 200 people a year in the United States in mining, which is orders of magnitude different than China. What do we need to do to be competitive to build the industry here?

It's a great question. I think about this question a lot because...

What's that?

Oh my god. Dave, sorry. No, it's all good. I'm a huge fan of the pod and I just embarrassed myself all the time. It's the only token whites and you know I'm a fan of the pod since day one and I'm totally embarrassed myself.

That's only one correction. I'm messing with you. Was this intentional?

Huge fan of the pod.

Who are you again? I'll take a selfie later. And I'm not the AIAR. Go ahead.

So, we have 850 employees today at MP. We're going to hire, when we include what we're building out for Apple coupled with what we're going to build with DoD, we're going to need a couple thousand more people easily, not to mention the construction jobs. So this is a key existential question for all of us as we build out: where are we going to get the talent? I think what we have found at Mountain Pass, we hire all electricians, maintenance, operators. You get people in, you train them, and then obviously you give people a career. So we've been training a lot of people and it's a little bit more painstaking, but there's absolutely talent out there. People are hungry to do it.

Why do you think it's been so hard to establish that idea? Meaning you find it straightforward to find good hardworking people to get into these jobs, but the thought is always that these jobs are not desirable, but they really are desirable by many people.

Yeah, absolutely. I mean, our median wage is now pushing $100,000 a year. And relative to some of the opportunity set, these are great jobs.

And what are the salaries? What's the starting salary? Just curious.

So, it really depends on the job function. I think the easiest way to think about it is you can certainly as an operator make close to $100,000 a year with us because everybody's an owner. We have an owner operator culture. Everyone got stock when we went public in 2020. But somebody coming out of high school, they can make $40,000, $50,000, $60,000 or more. It depends. We can't find enough electricians. We can't find enough maintenance workers. A maintenance worker, an electrician, they can make six figures today.

Tell us, you said earlier that you suspect five years from now we're going to look back and this deal with the DoD was a blueprint. Give us other areas of either physical AI or software AI or other markets where you think these public private partnerships are really necessary to embellish US supremacy.

Yeah. There are some major categories, obviously we've all heard about ship building and advanced pharmaceutical ingredients. I think those are important ones. And then there are a number of sort of niche areas like industrial diamonds that are important for quantum computing and some of these things that you never would have thought of, where it's a vertical where there might not be a market large enough to need five players, but a good public private partnership can just solve that problem. And then there's some other verticals in critical minerals.

Was it straightforward for you to find the right person within the Trump administration that said, 'Of course this is obvious. Let's sit down and hash this out'?

Yeah. Well, I think our particular deal was led by DoD, and so I have to say that the Pentagon leadership is extraordinary. And this was a mandate directly from the president to solve this problem. And so again, they deserve a lot of credit for being bold here. And to be clear, because this story is not out there, our process, this was I've never worked so hard in my life. This was a true aggressive private equity style investment and negotiation. The transaction documents are public. You can look at that.

So that's you saying that they're tough.

Yeah. They are. This was as tough as it gets. Tougher than any blue chip private equity or distress lender type negotiation. That's what this was. And the key thing was they were going to hold our feet to the fire to execute on an aggressive timeline. They were going to hold our feet to the fire on the cost. And so we're exposed if we get the costs wrong. We're making this investment. And the key piece of this, which I think is a good model for all of us and will actually be really effective, is the goal, I don't speak for them, ask them, but I think their goal was we're going to take the things off the table that you can't control, mercantilism, certain customer issues. We're going to be held to account for the things that we can control: our ability to execute, our ability to execute on a good timeline, and our ability to control costs. So when we think about a lot of these historically, the government sort of investing in a sector and picking a winner, usually there's money given to someone and it's sort of public risk, private upside. This is not that. This is private risk, public risk, public upside, private upside. It's a true shared win-win-win. And again, I hope I'm right on this, but I think to the credit of the Trump administration, I think they will make money on this and have solved the national security.

All right, we appreciate you coming, Steve.

Yeah. Oh, thanks.

Thanks so much. Thanks, brother. Yeah, it's great. All right. Take care, Steve.

Thanks, Jacob. I appreciate it. Yeah.

Okay. Hi, Lisa. Lisa, it's a pleasure.

Hi. Well, thanks so much for being here with us today. We don't have a lot of time, so we want to get into it. In April, it was announced that you achieved your first silicon output at the TSMC facility in Arizona on that 2-nanometer line. This administration and the private sector have talked a lot about onshoring semiconductor manufacturing. Would love your thoughts on the on-the-ground experience in Arizona. How's it going? What's not going well? What does America need to do to get this right?

But the reports out there that TSMC couldn't get good qualified trained employees. They had to bring folks over. Is that accurate? And again, if we're going to scale, what's the order of magnitude we're going from here? Is it 10x, 100x? And how are we going to build a workforce to support this industry, which is a completely new industry for America? And Lisa, you have permission to speak freely.

But what about cost in Arizona? Because it's unrealistic to think the United States could compete on cost. Am I correct? We're going to pay a little bit more. Give us the ballpark. 50% more, 20%?

And how does that impact the business, if at all, in terms of competition globally?

How much time do we have? If there was a disruption, for whatever reason, we can come up with hypotheticals in Taiwan and we were unable to get chips from those factories, what would that look like globally?

Lisa, there were two really interesting posts over the last couple of days. One was from Elon where he said in 5 years he projected 50 million H100 equivalents just for xAI. And the second was Sam Altman, they signed a deal for a 4 gigawatt data center, $30 billion a year with Oracle. That portends an enormous amount of chips that are necessary and power. And if you forecast that, how do we actually meet all of that? What needs to happen that's not happening today inside of the United States to actually do that?

And how do you see the market evolving in these next five or six years? Is there a standard set of chips for training, a standard set for inference, or do you just see an explosion like a Cambrian explosion of different ASICs, different designs, different use cases?

You opened up a really interesting line of questioning there. When mainframes were so expensive and then eventually wound up having PCs that were more expensive on their desktop, you alluded to AI being run locally. When would we have a local computer, a laptop, a desktop computer that would have the power we're seeing to run some of these LLM models in your mind? And do you see that as a specific market to go after?

On that point, can you make a prediction on when the market for physical AI chips is greater than the market for chips in data centers?

You think five years? Is that that fast?

So you're saying five plus.

But that is ultimately the biggest end market. Do you think physical AI becomes the biggest end market?

When you look at the most cutting edge techniques today, EUV lithography, all of this whole stuff to make chips. One of the things that's observable is we're only as good as what humans have been able to invent. And I often ask the recursive question, what happens when the AI is able to invent its own method of manufacturing, different materials, different material sciences, different approaches that we may not necessarily understand? Is any of that R&D happening whether at AMD or in other places? Like how are we trying to get beyond the physical limits of electrons shunting across a junction?

You talked about the need to reshore more parts of the ecosystem. Obviously you guys are world class chip design, the fabs are getting reshored, but how do you think about things like lithography? Does that need to be reshored, or does ASML need to start building machines in the United States, or is it okay to have that type of supply chain risk on an ally?

Going to first principles and asking you the open-ended question: what should be done about American education? I'm going to ask this a lot today. Assume there's no college, high school, nothing. You arrive in America, the situation is what it is today. What do you do? How do you build an education system to prepare the next generation for the evolving workforce?

Lisa, when you go to bed at night and you think about the best case scenario for this technology and this trajectory we're on, which is accelerating and you're enabling, what could the world look like in 10 years? Let's say it's pretty obvious we're hitting artificial general intelligence at this moment. I think we'd all agree we're starting to see that. But super intelligence can't be far behind that. I assume you agree with that. Assume we hit that super intelligence, what will the world look like in 10 years in the most optimistic scenario if we do this right?