Welcome to Source.
Perfect.
We are here in what do we call our building A. This is our research and development building. It is a 200,000 square foot building with 50-foot clear high ceilings. Here we have a machine shop, a composites lab, a development test lab, all of these different environments where we can prototype things quickly, test them quickly, find the fractures, find where they break, to get products built and shipped faster. Thinking back to when we started Anduril in 2017, it was kind of the pariah of Silicon Valley. It was not something people were doing. It was incredibly unpopular, and now all of a sudden it's a much cooler place than most places in Silicon Valley. When we started the company, the idea was how do you build an Apple for defense rather than the traditional model. With Anduril, we are constantly inventing new products. We're moving into totally gnarly, hard political and geopolitical questions, and how do we thread these different strategies? That just requires constant creativity.
Artistry and meritocracy.
Artistry and meritocracy.
I'm really curious to hear from you. What would war look like on the moon?
What would war look like on the moon?
Brian, welcome to Sorcery.
Thank you. Thanks for having me.
Thanks for having me at Anduril.
Yeah, it's a pretty cool campus. It's like tons of energy. Old LA Times printing press. It's a very awesome space. When you look at the industrial base, the ability to produce and the ability to get new capabilities out quickly is one of the most determinative aspects you can have as a defense department, right? It's a war department. And that's not where we're at. We've had a strategy for generations which has been the decades-long technological edge is how we win. The US invested more, had better engineers, and capitalized it more efficiently to get to that massive technological edge. And there is still a dimension of that for sure, but increasingly the ability to produce at scale in a way you can afford, the ability to innovate fast on the software to rapidly adapt these capabilities, that's going to be the determinative characteristic. We see this in Ukraine. We see this across the board. So everything he's trying to align around is this idea of how do we get capabilities out faster to the force in a way that is affordable and effective. Companies that can work in that world, great. Companies that can't, you're going to die. And I think that's a healthy view. What he's not saying, and I think because the reality is there is a mix, is some of the stuff is going to look like autonomous systems, but it's not all going to be. There's still going to be a place for aircraft carriers and all these things, but the balance is going to shift. And there's these new class of capabilities that are really relevant, that can be more cost-effective, that you can produce at scale. And that's going to be a key aspect of what we do in the future. So the focus is really on industry that can perform, setting up incentives for performance, and setting up the whole acquisition system around speed, where prior it was entirely set up around we just need the most expensive capabilities at any time at any cost. And that's not the world we're in anymore.
Do you think the nearly trillion dollar budget is reasonable or unreasonable given the amount of efficiencies and technological advancements that we have? And maybe for people that don't understand how it's being allocated, could you also share that?
So there's a borderline trillion dollar defense budget and everyone thinks it's like we're buying a billion dollars of kit every year. Well, that's not true. I forget the actual percentages, but more than half goes to personnel costs, to facilities, to military construction. So you just have an outrageous percentage going to these fixed costs that are not next generation technology. And then there's an outrageous cost as well to sustaining the legacy technologies you have bought. Maintaining aircraft, maintaining ships, these are huge bills that are significantly higher than the amount that's spent on procurement. And when you look at this in historic terms, the procurement budget as a percentage of GDP, for example, is I think the lowest it's ever been. So we're not spending money on the new technology. We're spending money on sustaining the old technology. We're spending money on all the infrastructure that we have to have a global military. And that is very expensive. So now you're really talking about how do I get efficiency out of, call it the 30% of the budget that you're actually maneuvering around. And in that world, there's a good argument which is we could be spending that money a lot more efficiently. I think that is true. It's hard to argue we couldn't. How much more efficiently? I don't know. But I tend to think we can get a lot more bang for our buck on weapons, on aircraft. Probably 2x from where we are by just looking at a different mix of these things. But the hard part is we got to transition to that world. We can't just jump to that and say all of a sudden we're going to abandon all of our manned surface combatants and move to this autonomous future. That's just not believable. So we're going to have to go through this transition, which is sort of always true, of how do we responsibly cycle out the old, think about what's still fit for purpose or not, and then get the new systems in place that will cost more for a period of time. And that is a hard world to live in. So I don't see a world where the defense budgets could magically shrink and we still have the military that we need to have, but I do think these things can be done wildly more efficiently than they ever have in the past.
I want to talk about Anduril's expansion. You have a global expansion, whether it's the facility in Australia or the new deal with Edge and the UAE. Let's maybe start with Australia and building out Ghost Shark there.
Yeah, Australia is a great example. Setting the context maybe a little broadly, we are in a period where things are just geopolitically more unstable. People like to talk about this that we're in this time of peace, but doesn't seem all that peaceful to me. We've got a land war in Europe. The Red Sea still intermittently shut down. Israel and Iran going at it. You've got China doing constant aggression on the Philippines and the South China Sea. Cambodia and Thailand are sparring all the time right now. India, Pakistan doing air wars. I'm probably forgetting several of these going on right now. So we're not in a time of peace. This is not a stable time. And so something has changed. There's this sense that a lot of the historic grievances, the political opportunism to use violence to get to your ends, that has changed. And every nation is reflecting it where they're increasing defense spending. They're ramping up their own defense. And I think the view of what the US is going to do or not do on everyone's behalf has shifted. The US reasonably is saying, 'We're not going to go fight everyone else's wars. We're going to expect every nation to provide for their own defense.' But that also does not imply the US is backing away as the sort of security guarantor for the world. We still have the only bluewater navy at scale that is able to project force anywhere and sort of multiple parts of the globe all the time. We can guarantee international shipping and stability of the seas. There's all these things we're still going to do as America that are very aligned to our interests and aligned to the system that we have. So that's the whole backdrop that's going on. There's a whole lot of other pieces to this. And on top of it, the backlogs on things like Patriot missiles. I'm hearing right now the latest number someone told me over the weekend was 15 years to get a new Patriot system. What does that even mean? I have no idea what that means. But it's like call it even 5 to 7 for a backlog. This is crazy. So the US isn't a dependable producer anymore. Can't get the weapons in time. This has resulted in basically every country looking a little bit differently in how they're going to think about when they are ramping spending. What does that mean and what do they want to be true? They're all going to look at a question of if we're going to spend a lot of money, we should get some economic benefit. But probably more importantly, we need to have assured supply. We need to know that if we order this, it shows up. And we want to shape our military for what we need it to be for our regional challenges. Australia is a great example of this. They shut down their French submarine program. They're going all in on the US nuclear submarine programs. That's not going to show up until 2035. So this major gap of about a decade where their old technology was phasing out and they were waiting on this next generation capability to come in. We went and pitched them on this idea of you could build these extra-large autonomous underwater vehicles. You can build them fast. And we did this model of splitting the development 50-50. They had skin in the game. We did too. And we ended up executing that program incredibly quickly. And to their credit, they saw the opportunity and said yes basically immediately. They said yes in just a couple of months. And we were signed under contract. And we were able to deliver at pace. We built out an Australian engineering team. We built out an Australian production facility. We have our first production Ghost Shark already came off the production line, I think 30 days after signing the production contract. So just an incredibly fast pace that shows what you can actually do if you just hit go on this. And we want to replicate that model in a number of other countries. It's not going to look all the same. There's not that many places that will do fully ground-up capabilities, but this idea of integrating into their military, helping them think about ways they can use technology to modernize, do warfare differently, and understanding a more nuanced approach to how they're going to get local engineering and local production that fits while still being aligned with the US, which is still again the backstop of world security. Everyone needs that US alliance. And so this is just a very nuanced, complicated thing to actually solve for, but the numbers are pretty clear. Europe is going to spend something like four times the amount of procurement that the US is over the next 5 years. It's a massive buildup. Japan's going to substantially increase their budget. Taiwan's increasing their budget. Australia, like everyone is ramping. So that problem I talked about with the US having so much in sustainment and keeping the legacy going, these other countries won't have that problem as much. They have an opportunity to build new and build efficiently, and something we very much want to help them with.
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Trey Stevens.
Good to be here. How's it going?
Thanks for having me at Anduril.
It's a much cooler place than most places in Silicon Valley.
You wrote the factory is really the weapon.
Yeah. You know, for decades and decades, the United States was the global manufacturing powerhouse. I mean, we had the ability during World War II to outproduce our adversaries. And you had companies like Ford that turned over their production lines to build bombers for the Allied war effort. Fast forward to the last 30 years, the fall of the Soviet Union. We've atrophied massively in our manufacturing chops. We offshored a lot of manufacturing work to lower cost labor locations like China. And not only did they soak up a lot of that manufacturing capacity, but they also developed advanced tooling and knowhow to build the things that we use every day, whether it's the microphones that we're wearing today or the iPhones that are in our pockets. And so at this point, even if there was complete labor cost parity, we still don't have the ability to just magically reshore a lot of these critical components that are going to be important to the next 50 to 100 years. And so we're in this place where we really need to re-industrialize. It's incredibly important culturally, geopolitically, strategically. And this is what Anduril is really focused on right now, is bringing back our ability to not build hundreds of things or thousands of things, but tens of thousands of things or hundreds of thousands of things efficiently, scalably, and to do it in a way that enables us to retain that magazine inventory advantage against our adversary. And so I think that's really what I was saying with the factory is the weapon, because without the factory you have no weapons.
Are you also outsourcing and finding different ways to manufacture?
We have a lot of manufacturing partners. Obviously, we're not building every subcomponent of everything that we're building. So we're working with other vendors, other machine shops, other manufacturers. And then we're pulling it all together generally in our own facilities. But in the first quarter of next year, we'll be opening our soon-to-be 5 million square foot factory campus called Arsenal 1, just outside of Columbus, Ohio, which is where we'll start ramping up our collaborative combat aircraft, the autonomous fighter plane production. And we have other facilities around the country. We have shipyards, we have loitering munition assembly that's happening in Atlanta, Georgia. We do some stuff right here in Costa Mesa at our headquarters. So I imagine that there will be multiple factories across not just the United States, but across allied and partner nations as well, where we're ramping that manufacturing muscle at the same time.
What was it like to open up Arsenal 1? I know it's under development, but choosing Ohio, where you're from, what was that like?
Yeah, at some point when we got down to the final three states, I realized that the bias was going to look really bad to the company. So I just kind of sat back and I'm like, you know what? I don't want to push this. I think Ohio is great. Obviously, as a native Ohioan, I thought it would be awesome to land there.
Opening something so large like that, does this feel real? I mean, primes have existed for a very long time, but you're known as the new prime. So how does that physicality feel?
Well, I'm certainly experiencing the realness of it with all the LinkedIn messages from my high school classmates that I haven't heard from in 20 years that are now looking for jobs. So it feels pretty real now. I mean, one of the cool things to remember is that Ohio is the birthplace of aviation. And so in some ways it's like you're starting with the right flyer and then coming back with fully autonomous fighter planes to be built less than an hour drive away from where the Wright brothers were building the first airplane. And so there's a tremendous history. GE Aviation, GE Aircraft, where they build the jet engines is also right down the street about an hour away from where we're setting up the factory. So it's a cool kind of cultural moment, I think, not only for us and what we're trying to deliver to the department, but also to the state of Ohio.
One thing that was kind of the central focus of our interview with Alex Karp was like moral and ethics around this. Christian Garrett, he's a big fan of you. We've done so many interviews with him at this point. He's great. But one of his questions he wanted me to ask you was about the just war theory and St. Augustine. So how does that play into all this?
I mean, since the very beginning, this was always a big part of the conversation that I was drawing the rest of the team into is just war theory, which was developed over a thousand years ago by St. Augustine. It talks about how you engage in lethal defense activity in the most ethical way possible. And if you look back at the course of all human civilization, you had this massive ramp up in lethality. So we started with hitting each other with rocks, and then it was at some point somebody is making a knife, and then someone makes a bow and arrow, and then you have catapults that could do one-to-many destruction, trebuchets, and then you have the advent of gunpowder, so you have guns and simple bombs, and that just kept going up and up and up until the atomic bomb in 1945. And at that moment, I think humanity looked around at each other and they said, 'I don't think we want to do this. Global nuclear war is a pretty bad bet.' And so from then until modern day, you see the climb back down the ladder. And so you had precision guided munitions. You see some of the counterterrorism work we were doing was literally shooting non-explosive AGM-114 Hellfire missiles into windows to take out individual targets without blowing up buildings, no collateral damage. We've become really, really good at being accurate. And so people are constantly talking about the freak out of the intersection of AI and defense and autonomy and what does that do from an ethics perspective. The goal is to take humans out of dull, dirty, dangerous jobs. So we're not putting our men and women, brothers and sisters in horribly dangerous situations, and become as accurate and precise as possible. And that's really what just war theory is all about. Principles of discrimination, principles of just cause. How good is the information? Do we know for sure that this action that we're going to take is actually going to address the problem that needs to be solved? So this is a big part of Anduril culture. We talk about these things internally a lot, and I think we would only do something that we fundamentally believed would be better, more just for humanity.
Where do you get pushback on that?
Well, I mean, there's a lot of pushback from people who don't necessarily understand why defense is important. Pacifism as an idea is only possible inside of a governing system with a monopoly on violence. You can't be a pacifist without a government monopoly on violence. That's just not possible for humanity. And so I'm glad that people get to have these positions, these anti-national security positions where they can sink down into their comfy couch with their hot chocolate and talk about pacifism, because it means that someone out there is willing to risk their lives to protect their ability to be pacifists. So I'm all for it.
