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Transcript

We’re Going to Need a Better Boat · What's Your Problem?

• 0:15
  Speaker 1: Pushkin. One of the really striking things about technological progress
• 0:24
  Speaker 1: is the way one breakthrough leads to another. For example,
• 0:29
  Speaker 1: mass adoption of laptops led people to create better, cheaper batteries.
• 0:34
  Speaker 1: Those better cheaper batteries made it possible to build affordable
• 0:38
  Speaker 1: electric vehicles, and then the proliferation of electric vehicles led
• 0:42
  Speaker 1: people to create even better, even cheaper batteries, and those
• 0:46
  Speaker 1: better cheaper batteries are now leading to everything from grid
• 0:51
  Speaker 1: scale energy storage to flying cars. Of course, those advances
• 0:56
  Speaker 1: they don't just happen. People have to look at the
• 0:59
  Speaker 1: world and think I'm going to start with what exists
• 1:01
  Speaker 1: now and build something new. One of those people is
• 1:06
  Speaker 1: Mitch Lee.
• 1:07
  Speaker 2: That very first time I've one in at Tesla, my
• 1:11
  Speaker 2: mind jumped forward two steps to this should exist for boats.
• 1:15
  Speaker 2: It makes even more sense in marine applications because gas
• 1:21
  Speaker 2: boats have all these acute problems with them. They're loud,
• 1:26
  Speaker 2: they've got noxious fumes on them, they're pain to maintain,
• 1:30
  Speaker 2: they're super unreliable, they're expensive to operate, and when you
• 1:33
  Speaker 2: go electric you end up addressing those acute pain points.
• 1:44
  Speaker 1: I'm Jackie Wolstein, and this is what's your problem? The
• 1:46
  Speaker 1: show where I talk to people who are trying to
• 1:49
  Speaker 1: make technological progress. My guest today is Mitch Lee. He's
• 1:53
  Speaker 1: the co founder and CEO of ARC Boats. He grew
• 1:57
  Speaker 1: up boating with his family in northern California, eventually became
• 2:00
  Speaker 1: a software engineer, and he founded ARC in twenty twenty one.
• 2:04
  Speaker 1: Mitch's problem is this, how do you build electric boats
• 2:08
  Speaker 1: that are better than gas powered.
• 2:09
  Speaker 2: Boats, and how do you.
• 2:11
  Speaker 1: Do it at scale and at a competitive price. ARC
• 2:15
  Speaker 1: is currently developed being hybrid electric tug boats, and they're
• 2:18
  Speaker 1: already selling electric wake boats, boats people can take out
• 2:21
  Speaker 1: on lakes or rivers for fun. To start, I asked
• 2:25
  Speaker 1: Mitch to tell me the first big problem that he
• 2:27
  Speaker 1: and his colleagues had to solve when they started the company.
• 2:31
  Speaker 2: The challenge is that boats consume a lot of power.
• 2:34
  Speaker 2: Water is a thousand times more dense than air, which
• 2:37
  Speaker 2: means that if you want to stain a full day's
• 2:40
  Speaker 2: worth of activity out on the water, you need to
• 2:44
  Speaker 2: store a lot of energy on board. If you're going
• 2:47
  Speaker 2: to go electric, that means really big battery packs. Those
• 2:51
  Speaker 2: really big battery packs are the first order problem that
• 2:54
  Speaker 2: you need to solve. If we say, hey, we want
• 2:56
  Speaker 2: over two hundred kilo hours of battery capacity? Who can
• 2:59
  Speaker 2: give it to us? We can't go to Amazon and
• 3:02
  Speaker 2: just like buy one. So part of it is as
• 3:05
  Speaker 2: it exist.
• 3:06
  Speaker 1: And you can't go to like shen Zhen, like there's
• 3:08
  Speaker 1: not somebody who sells battery packs to everybody somewhere.
• 3:12
  Speaker 2: No, and okay, because they tend to be very specific
• 3:15
  Speaker 2: to the use case, the geometry that you want, and
• 3:18
  Speaker 2: there are people that are trying to do this. But
• 3:21
  Speaker 2: then the problem shifts to okay, well now they're cost
• 3:23
  Speaker 2: prohibitive and you almost have to bring them in house
• 3:27
  Speaker 2: to get the cost down low enough to be able
• 3:30
  Speaker 2: to make your product competitive. What we do is we
• 3:32
  Speaker 2: go to automotive suppliers, people that are operated insane scale
• 3:36
  Speaker 2: and have incredible quality standards because automotive operates at a
• 3:39
  Speaker 2: much higher quality standard than marine, So we get to
• 3:44
  Speaker 2: take advantage of all of those and then bring them
• 3:47
  Speaker 2: into the marine industry.
• 3:49
  Speaker 1: What are the particular challenges of building a battery pack
• 3:54
  Speaker 1: for the water One is just its size.
• 3:58
  Speaker 2: The arc sport are wakesport both today is two hundred
• 4:03
  Speaker 2: and twenty six kilo hours battery pack. That's three or
• 4:07
  Speaker 2: four times the size of an Alle Sedan's battery pack.
• 4:11
  Speaker 2: That's kind of a sense of scale. So we're a
• 4:13
  Speaker 2: little bit constrained on mass, We're not that constrained on volume.
• 4:17
  Speaker 2: We're very constrained on price. If you go try to
• 4:20
  Speaker 2: build a two hundred and twenty six kilo one hour
• 4:22
  Speaker 2: battery pack, that can get very expensive very quickly if
• 4:26
  Speaker 2: you are not driving really good economics behind the battery pack. Huh.
• 4:31
  Speaker 1: So it's not a technological problem, but it's a technoeconomic
• 4:35
  Speaker 1: problem really that you're setting out to solve.
• 4:37
  Speaker 2: Now, the mass does come in in the sense that
• 4:41
  Speaker 2: it's not necessarily that your mass constrained. But you now
• 4:45
  Speaker 2: have thousands of pounds of battery pack that you need
• 4:48
  Speaker 2: to place onto a boat. And where you place that,
• 4:51
  Speaker 2: how you integrate it, how you offset the weight of that,
• 4:53
  Speaker 2: how you support the weight of that. That all starts
• 4:56
  Speaker 2: to become these second order problems that you need to solve.
• 4:58
  Speaker 2: So Step one, build really big battery pack. It's heavy,
• 5:02
  Speaker 2: it's expensive. Now Step two is go build the boat
• 5:06
  Speaker 2: around that and have it compensate for the weight, for
• 5:11
  Speaker 2: the price, for the volume of it in a way
• 5:15
  Speaker 2: that isn't just not compromising on the experience, but is
• 5:20
  Speaker 2: actually making the experience better. Same way automotive comes along.
• 5:24
  Speaker 2: They build the car around the battery pack and suddenly
• 5:27
  Speaker 2: you have a fronk and a low center of gravity
• 5:30
  Speaker 2: and all this performance that you unlock.
• 5:32
  Speaker 1: So where are you now? Tell me about the boat
• 5:35
  Speaker 1: or boats that you're selling now?
• 5:36
  Speaker 2: Yeah, we as a company started on the consumer side
• 5:40
  Speaker 2: and started with a product called the ARC one. We
• 5:43
  Speaker 2: called it kind of a luxury cruiser. It's got a
• 5:46
  Speaker 2: novel seating layout, it's a lot of fun for lakes rivers,
• 5:51
  Speaker 2: that sort of thing. And that was really our pilot production,
• 5:55
  Speaker 2: our test bed, the product that we use to go
• 5:59
  Speaker 2: develop the technology necessary to make electric boats viable at
• 6:03
  Speaker 2: a larger scale. And we took all those learnings from
• 6:06
  Speaker 2: that program and ported it over to what we are
• 6:12
  Speaker 2: now ramping production of, which is the ARC Sport. The
• 6:16
  Speaker 2: ARC Sport's a twenty three foot fully electric wakesport boat.
• 6:19
  Speaker 2: You know, if you go look out at a laker
• 6:22
  Speaker 2: river today, you're going to see families out there wakesurfing, wakeboarding,
• 6:26
  Speaker 2: water skiing, pulling inner tubers. This is the type of
• 6:29
  Speaker 2: boat that you do it with. We're ramping production of
• 6:32
  Speaker 2: that right now. We've got a month's long backlog for
• 6:37
  Speaker 2: the product. We're really just trying to keep up with
• 6:39
  Speaker 2: the demand that we see for it.
• 6:40
  Speaker 1: Yeah, what did it say on your website? Is it?
• 6:42
  Speaker 1: It's something twenty twenty six? Is it summer?
• 6:44
  Speaker 2: Like?
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  Speaker 1: If I try and buy one now, when can I
• 6:46
  Speaker 1: get one?
• 6:47
  Speaker 2: Yeah, we're working through basically the last slots before summer
• 6:53
  Speaker 2: of twenty twenty six. That seems like is that a
• 6:57
  Speaker 2: good problem to have? I mean, it's better than nobody
• 6:59
  Speaker 2: buying it.
• 7:00
  Speaker 1: I don't know, is it? How is demand working for you?
• 7:05
  Speaker 2: Yes, it's a good problem to have, and it's still
• 7:08
  Speaker 2: a problem, and those two things can both be true.
• 7:12
  Speaker 2: It's the better problem to have versus nobody wants the product.
• 7:16
  Speaker 2: It's still a problem in that we want to deliver
• 7:19
  Speaker 2: great customer experiences to people, and your summer season matters
• 7:22
  Speaker 2: a lot, and so if we slip production targets by
• 7:26
  Speaker 2: a few weeks that can really impact somebody's.
• 7:29
  Speaker 1: Yes, yes, it's the difference between February and March nobody
• 7:32
  Speaker 1: cares about. But the difference between July and August is
• 7:35
  Speaker 1: a big one, right heah out there for the fourth
• 7:37
  Speaker 1: of July or whatever.
• 7:38
  Speaker 2: So we really emphasize that as a company, and we
• 7:41
  Speaker 2: try to not over promise to customers. And you know
• 7:45
  Speaker 2: this is it's a balancing act we are that we're
• 7:49
  Speaker 2: trying to strike.
• 7:50
  Speaker 1: What's the rate limiting step? I mean, you just have
• 7:52
  Speaker 1: one factory or are you like supply constrained in some way?
• 7:55
  Speaker 2: Yeah, we're supply constrained. One of the things that we're
• 7:58
  Speaker 2: doing well from a business perspective here, what we want
• 8:04
  Speaker 2: to make sure that we do in priority order is
• 8:07
  Speaker 2: build a product that people love and want. Build a
• 8:11
  Speaker 2: better boat, deliver better boats to the market. The next
• 8:14
  Speaker 2: thing is make sure that we make money on those boats.
• 8:16
  Speaker 2: And then the third is ramp production of them, ramp
• 8:19
  Speaker 2: supply in order to tackle those last two simultaneously. What
• 8:25
  Speaker 2: we're doing is as the way that we're ramping production
• 8:28
  Speaker 2: is that we're getting more efficient at production.
• 8:30
  Speaker 1: Are you losing money on the marginal boat? Still?
• 8:33
  Speaker 2: Is that I make money on the marginal boat. This
• 8:36
  Speaker 2: is very different than automotive. Again, you will see many
• 8:39
  Speaker 2: car companies.
• 8:40
  Speaker 1: You don't have to sell a million of them to
• 8:42
  Speaker 1: exactly yeah.
• 8:43
  Speaker 2: Yeah, we can make money even on the earliest units
• 8:46
  Speaker 2: of them. But the again dissimilar to how the automotive
• 8:51
  Speaker 2: industry works, which is very robotic, very automated production lines.
• 8:57
  Speaker 2: Boat building is much more labor intensive, is a bit
• 9:01
  Speaker 2: of a craft.
• 9:02
  Speaker 1: Indeed, boat companies have craft in the name sometimes.
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  Speaker 2: Right, exactly, it is very much a craft.
• 9:08
  Speaker 1: I'm a business standpoint. That seems bad, right, Like that
• 9:12
  Speaker 1: sounds like high unit cost to me when you say craft.
• 9:15
  Speaker 2: It is high unit costs. And you'll see that boats
• 9:17
  Speaker 2: are actually quite expensive.
• 9:18
  Speaker 1: So, yes, your boat is expensive, right, How much does
• 9:21
  Speaker 1: your boat cost?
• 9:22
  Speaker 2: It's it starts a two hundred and sixty eight thousand
• 9:25
  Speaker 2: dollars for the wake sport boat.
• 9:27
  Speaker 1: Which I don't know anything about wakesport bucks. I was
• 9:29
  Speaker 1: shocked by how expensive that is.
• 9:31
  Speaker 2: That's shocked expensive. And the rest of the market is
• 9:35
  Speaker 2: also there for the premium side of this market.
• 9:38
  Speaker 1: So how many people in America buy a three hundred
• 9:41
  Speaker 1: thousand dollars boat every year?
• 9:43
  Speaker 2: The marine industry is interesting for a variety of reasons,
• 9:47
  Speaker 2: and in this market in particular, one of the things
• 9:49
  Speaker 2: that you see is that, well, you look at your
• 9:54
  Speaker 2: sedan market and you have your Hanta Civics, your Nissan Ultimas,
• 9:59
  Speaker 2: but then you have your Mercedes S Class, your your
• 10:02
  Speaker 2: model ass whatever it is, and you see the volume
• 10:06
  Speaker 2: really favors that economy class sedan, and then it's a
• 10:09
  Speaker 2: smaller peak of demand at that premium sand class. In boating,
• 10:13
  Speaker 2: it's the opposite.
• 10:14
  Speaker 1: Well, because nobody needs a boat to get to work.
• 10:17
  Speaker 2: Right, right, and if you have this house on a
• 10:20
  Speaker 2: lake or a river, you know you care about Hey,
• 10:23
  Speaker 2: I just want the best boat. You're probably rich, right, yes,
• 10:27
  Speaker 2: so you end up wanting to buy the best one.
• 10:30
  Speaker 2: So the demand is actually at that higher end, which
• 10:32
  Speaker 2: is why you see the prices go. And kind of
• 10:35
  Speaker 2: going back to that roadmap, that business is what ultimately
• 10:38
  Speaker 2: supports everything else that we're doing. We started here for
• 10:40
  Speaker 2: a reason. It's a premium class of boat. It has
• 10:44
  Speaker 2: moderate volumes to it, so we could really scale up
• 10:47
  Speaker 2: to a meaningful business just in that market alone. But
• 10:52
  Speaker 2: what we're doing is we're taking that same technology and
• 10:55
  Speaker 2: copying it over to other sectors. You could look at
• 10:58
  Speaker 2: kind of any car company that uses the same platform
• 11:02
  Speaker 2: to build multiple products. We're doing that same thing at ARC,
• 11:07
  Speaker 2: so that allows us to expand pretty quickly into other
• 11:11
  Speaker 2: consumer segments. We've already announced the Our Coast that's a
• 11:13
  Speaker 2: center console boat that is intended for that fishing and
• 11:16
  Speaker 2: leisure market that gets a lot more popular in Florida
• 11:20
  Speaker 2: and the East Coast. And that same technology is also
• 11:24
  Speaker 2: what lays the foundation for us to get into commercial,
• 11:26
  Speaker 2: which is one of our big expansions recently.
• 11:29
  Speaker 1: Yeah, I want to talk a lot about commercial. I
• 11:31
  Speaker 1: mean that seems from a sort of broader it seems
• 11:35
  Speaker 1: like a much bigger market presumably, right, if just in
• 11:38
  Speaker 1: terms of dollars, in terms of emissions, in terms of
• 11:41
  Speaker 1: lots of things. I feel like commercial is a really
• 11:43
  Speaker 1: interesting part of the conversation. But before we get there,
• 11:47
  Speaker 1: just a couple of things, Like one, tell me about
• 11:50
  Speaker 1: safety and when you're sort of building an electric boat
• 11:53
  Speaker 1: from scratch, what do you got to think about in
• 11:55
  Speaker 1: terms of safety.
• 11:56
  Speaker 2: We care about making sure that we are moving this
• 12:01
  Speaker 2: industry in a safer direction. Gas boats today are not
• 12:05
  Speaker 2: that safe. Engine fires are pretty common. You end up
• 12:10
  Speaker 2: running these combustion engines in a chamber that traps fumes
• 12:16
  Speaker 2: in it. So the whole of this boat can trap fumes,
• 12:19
  Speaker 2: and so boats come with these things called blowers that
• 12:21
  Speaker 2: eject those fumes. If you forget to run a blower,
• 12:24
  Speaker 2: it can be disastrous and incredibly dangerous.
• 12:27
  Speaker 1: So you're telling me your boat doesn't have to be
• 12:29
  Speaker 1: that safe to be higher than a boat, I'm.
• 12:31
  Speaker 2: Saying that you're dramatically safer where the industry is at today,
• 12:36
  Speaker 2: I mean, is there, Like I take your point, and
• 12:39
  Speaker 2: internal combustion engines are just kind of crazy, right, It's
• 12:42
  Speaker 2: crazy that they work by having little explosions thousands of
• 12:45
  Speaker 2: times per minute.
• 12:46
  Speaker 1: But that's actually what's going on. I mean presumably, Like
• 12:50
  Speaker 1: I totally believe that your boats are safer. Surely there
• 12:53
  Speaker 1: are some risks associated with putting a giant battery pack
• 12:56
  Speaker 1: on a boat. I mean, tell me about that.
• 12:59
  Speaker 2: Yeah, So you think about safety in terms of redundancy.
• 13:02
  Speaker 2: No system is perfectly safe, and so you're thinking about, Okay,
• 13:05
  Speaker 2: if something fails, then how many war times can it
• 13:08
  Speaker 2: fail before it actually becomes a concern. When we think
• 13:12
  Speaker 2: about the battery pack, the obvious thing that you want
• 13:14
  Speaker 2: to make sure you're safe for is water ingress. You
• 13:17
  Speaker 2: want to make sure no water gets into that battery pack.
• 13:20
  Speaker 1: And just to be clear, just like dumb question, why
• 13:22
  Speaker 1: is it bad if the battery gets wet?
• 13:24
  Speaker 2: Yeah, I mean because if you in theory, if you
• 13:28
  Speaker 2: take a battery pack and you dunk it in water.
• 13:31
  Speaker 2: It can it can go into what's known as thermal runaway.
• 13:33
  Speaker 2: It can catch fire, and stopping a battery fire is
• 13:37
  Speaker 2: really hard because those chemicals are good at burning even
• 13:41
  Speaker 2: absent oxygen.
• 13:42
  Speaker 1: That is obviously bad anywhere, and obviously particularly bad if
• 13:45
  Speaker 1: you're out on the water. Classic thing you don't want
• 13:48
  Speaker 1: on a boat.
• 13:48
  Speaker 2: Yes, yeah, So if you kind of rapidly step through
• 13:52
  Speaker 2: these steps, you're like, okay, you want to get notified
• 13:54
  Speaker 2: about this. Great, Yeah, you've got leak sensors in there.
• 13:57
  Speaker 2: Then you want to allow as much water into the
• 13:59
  Speaker 2: pack as possible before it actually becomes a safety concern. Oh. Interesting,
• 14:04
  Speaker 2: So you design the pack in a way that can
• 14:05
  Speaker 2: actually tolerate a fair amount of water in the pack
• 14:08
  Speaker 2: before it becomes a pro And then you say, okay,
• 14:11
  Speaker 2: well then if it does, you know, if you just
• 14:14
  Speaker 2: flood this pack with water, then what happens? And how
• 14:18
  Speaker 2: much time do I have to react? And you step
• 14:21
  Speaker 2: through all of this, and what it comes down to is,
• 14:23
  Speaker 2: first off, we've designed the packs to be essentially IP
• 14:27
  Speaker 2: six seven rated, which means you could submerge it in
• 14:30
  Speaker 2: a meter of water for thirty minutes without water getting in,
• 14:34
  Speaker 2: which is an insane standard to hold for a battery
• 14:37
  Speaker 2: pack of this size. If water does get in, you've
• 14:40
  Speaker 2: got time. Those league sensors are are alerting you on
• 14:44
  Speaker 2: the boat, alerting our systems to give you a lot
• 14:49
  Speaker 2: of notice. And then in the event that you do
• 14:52
  Speaker 2: end up tripping a thermal runaway event, you have a
• 14:57
  Speaker 2: lot of time to get off of the boat. Like
• 14:59
  Speaker 2: we actually alert you and say, hey, you've got maybe
• 15:02
  Speaker 2: ten minutes to put on your life jackets. It's safely
• 15:05
  Speaker 2: get off the boat. All of these things really lend
• 15:08
  Speaker 2: to this safety profile and compared to gas, it's you know,
• 15:12
  Speaker 2: been comparable.
• 15:16
  Speaker 1: We'll be back in just a minute. Let's talk about
• 15:29
  Speaker 1: commercial boats. You're you're building a tugboat or you're building
• 15:34
  Speaker 1: a tugboat with somebody, right, is that the place to start.
• 15:37
  Speaker 2: Yes, we are entering the commercial market with hybrid electric
• 15:44
  Speaker 2: commercial workboats. Okay. We signed a deal with Curtain Maritime.
• 15:49
  Speaker 2: They are a major commercial operator. They started on the
• 15:53
  Speaker 2: dredging side. They're also known for moving some of SpaceX's
• 16:00
  Speaker 2: barges around. They are entering the tugboat market and the
• 16:04
  Speaker 2: way that they are doing this is by buying a
• 16:08
  Speaker 2: fleet of hybrid electric tugboats from US.
• 16:12
  Speaker 1: Okay, so you're so what they placed a big order, right,
• 16:16
  Speaker 1: Like you're supposed to sell them a bunch of tugboats.
• 16:18
  Speaker 2: Yeah, it's it's for eight tugboats, which is a large
• 16:22
  Speaker 2: amount of tugboats when each one of these is on
• 16:24
  Speaker 2: the order of twenty million dollars.
• 16:26
  Speaker 1: Yeah, so you have to sell a lot of wake boats.
• 16:29
  Speaker 1: So you have that much money to do. So are
• 16:31
  Speaker 1: you designing a hybrid electric tugboat right now? Like? Where
• 16:34
  Speaker 1: are you in that process?
• 16:36
  Speaker 2: So boats are basically two parts to the boat, maybe
• 16:42
  Speaker 2: maybe three parts if I were to break it down.
• 16:45
  Speaker 2: The first is the thing that floats. That's the steel structure. Okay,
• 16:49
  Speaker 2: you take a bunch of steel, you cut it up
• 16:52
  Speaker 2: into pieces, and then you weld it all together and
• 16:54
  Speaker 2: you have something that floats. We're partnering with a shipyard
• 16:58
  Speaker 2: to do that. Okay. Then there's the part of this
• 17:01
  Speaker 2: that tugboats are kind of like houses. You have people
• 17:07
  Speaker 2: on board that stay on board for long periods of
• 17:10
  Speaker 2: time doing these jobs, or or at least spend all
• 17:14
  Speaker 2: day out on them doing the jobs. So you care
• 17:16
  Speaker 2: about where's the refrigerator and where do they stay, and
• 17:21
  Speaker 2: what's the visibility from their control tower or what's known
• 17:24
  Speaker 2: as the house of the boat or the wheelhouse, where's
• 17:28
  Speaker 2: the winch go? How do you push and pull on
• 17:31
  Speaker 2: these other boats? So that's kind of the operating portion
• 17:34
  Speaker 2: of the curtain. Maritime has a ton of experience and
• 17:37
  Speaker 2: how do you go optimize the operating ok Then the
• 17:41
  Speaker 2: last piece of this is how do you make the
• 17:43
  Speaker 2: boat go? How do you actually like push it through
• 17:47
  Speaker 2: the water. That's what I mean when I say powertrain.
• 17:49
  Speaker 2: It's the thing that actually delivers power into the water,
• 17:54
  Speaker 2: and that goes from well, starts from some amount of energy.
• 17:58
  Speaker 2: In our case, that is a huge amount of batteries. Okay,
• 18:03
  Speaker 2: six eight to eight megawatt hours of battery capacity, a
• 18:09
  Speaker 2: crazy amount of battery. Then there's all the okay, well,
• 18:13
  Speaker 2: now you have the energy, how do you actually convert
• 18:15
  Speaker 2: that down into a propeller under the water, some sort
• 18:18
  Speaker 2: of thruster under the water. And that is also all
• 18:21
  Speaker 2: part of that power.
• 18:22
  Speaker 1: Train, and presumably the integration of this like crazy amount
• 18:26
  Speaker 1: of battery mass you're going to need into the whole
• 18:30
  Speaker 1: boat and what everybody else is doing. It's going to
• 18:33
  Speaker 1: be something to figure out a hard part. One of
• 18:36
  Speaker 1: the hard parts.
• 18:37
  Speaker 2: It is, it is, it is one of the very
• 18:39
  Speaker 2: hard parts. You know, each of these parts is super complex.
• 18:42
  Speaker 2: The scale of these vessels is massive. It's hard to
• 18:47
  Speaker 2: actually understand the amount of torque that these things put
• 18:53
  Speaker 2: out off.
• 18:55
  Speaker 1: That's the whole point of a tugboat, right right, That's
• 18:57
  Speaker 1: what it's there to do.
• 18:59
  Speaker 2: So there are these massive vessels that are capable of
• 19:03
  Speaker 2: pushing and pulling these cargo ships that come in to dock,
• 19:09
  Speaker 2: and that means that each of the components on there
• 19:12
  Speaker 2: is just giant. Your thrusters are these these huge components,
• 19:17
  Speaker 2: you know, way bigger than I don't know any any propeller.
• 19:22
  Speaker 2: You've certainly seen, way bigger than people. Yeah. So each
• 19:28
  Speaker 2: of those comes from different suppliers that have existed for
• 19:31
  Speaker 2: long periods of time. And one of the integration challenges is, Okay, great,
• 19:35
  Speaker 2: you've got a really big battery pack on board. You've
• 19:37
  Speaker 2: got good pricing on that battery pack that makes it
• 19:39
  Speaker 2: cost competitive. You still need to go get this entire system,
• 19:44
  Speaker 2: all of these different components talking to each other and
• 19:46
  Speaker 2: all wired up to work nicely together. And that is
• 19:50
  Speaker 2: part of the integration challenge of all of us.
• 19:54
  Speaker 1: Where are you on that project?
• 19:57
  Speaker 2: We have already started construction on the first of the
• 20:01
  Speaker 2: tugboats and we expect to deliver that to market before
• 20:06
  Speaker 2: the end of next year.
• 20:08
  Speaker 1: I saw in just my ordinary reading that is it
• 20:12
  Speaker 1: the domin rsde tug two five one three was shortlisted
• 20:18
  Speaker 1: for Tug of the Year. And I missed that? Did you?
• 20:23
  Speaker 1: You did not miss that new? Surely you knew that
• 20:26
  Speaker 1: that's an electric tug, right, You're not the only one
• 20:29
  Speaker 1: doing this. That's why I bring it up, Right, that
• 20:31
  Speaker 1: is an electric tug that is new. Like what's the
• 20:34
  Speaker 1: broader landscape like of people electrifying boats in general and
• 20:39
  Speaker 1: in particular this kind of what do they call them
• 20:41
  Speaker 1: harbor vessels? Is that this universe grows? Is that what
• 20:43
  Speaker 1: they're called harborcraft young.
• 20:46
  Speaker 2: These are more popular internationally than they are in the US.
• 20:50
  Speaker 2: The US has a pretty interesting piece of policy in
• 20:53
  Speaker 2: place called the nineteen twenty Jones Act, and what it
• 20:57
  Speaker 2: means is that if you have a vessel that is
• 21:01
  Speaker 2: operates between US ports, it needs to be US manufactured,
• 21:04
  Speaker 2: it needs to be US flagged. And what that means
• 21:09
  Speaker 2: in practice is that if you are the port of
• 21:12
  Speaker 2: la if you're one of these many other reports in
• 21:15
  Speaker 2: the US and you have harborcraft. Those need to be
• 21:17
  Speaker 2: manufactured in the US, and that limits the number of
• 21:20
  Speaker 2: suppliers that you can go to. While there are electric
• 21:24
  Speaker 2: tugboats and electric ferries internationally, there's only one that's I'm
• 21:30
  Speaker 2: aware of in the US in this kind of ship
• 21:33
  Speaker 2: assis market. And it was a heavily subsidized project that
• 21:39
  Speaker 2: was very compelling in the theory of it and what
• 21:43
  Speaker 2: it could deliver to the market, but it wasn't on
• 21:46
  Speaker 2: its own economically viable. What's so compelling about what we're
• 21:51
  Speaker 2: doing with Curtain and our entrance into the commercial industry
• 21:55
  Speaker 2: is we are entering at a point that is directly
• 21:59
  Speaker 2: cost competitive with making a diesel driven tugboat absent any
• 22:04
  Speaker 2: sort of grants, and.
• 22:05
  Speaker 1: It's cost competitive just buy in the boat, or it's
• 22:08
  Speaker 1: cost competitive when you figure out the sort of cost
• 22:10
  Speaker 1: of ownership over.
• 22:11
  Speaker 2: Time off off the line. So is cost competitive when
• 22:15
  Speaker 2: you buy the boat? And now, how can that be?
• 22:17
  Speaker 1: Is it just that batteries got cheap enough for it
• 22:20
  Speaker 1: to be possible, Like I'm surprised by that. Is it
• 22:23
  Speaker 1: that the domestic industry is super inefficient because it's protected
• 22:26
  Speaker 1: by the Jones Act.
• 22:29
  Speaker 2: I'm I'm smiling because because you're you're hitting on some
• 22:33
  Speaker 2: of the things. So I think it's also that we're
• 22:36
  Speaker 2: driving this business in a way that we want to
• 22:37
  Speaker 2: be globally competitive. That is, that is our mission here
• 22:41
  Speaker 2: is to leap frog and technology and become competitive again
• 22:44
  Speaker 2: on the global stage. Now. The things making this viable
• 22:48
  Speaker 2: are actually two curves going on. One is your battery
• 22:52
  Speaker 2: prices are going down over time, Your your high voltage electronics,
• 22:56
  Speaker 2: your power electronics, all of those are getting cheaper over time,
• 23:00
  Speaker 2: which drives the cost side down. The other side is
• 23:05
  Speaker 2: when you're looking at the cost of those diesel tugs,
• 23:08
  Speaker 2: those have been going up over time. The complexity has
• 23:11
  Speaker 2: been increasing, honestly exponentially because what's happened is over time
• 23:18
  Speaker 2: there have been increasingly stringent regulations surrounding the engines themselves,
• 23:26
  Speaker 2: compliance standards around how much carbon you know, is allowed
• 23:30
  Speaker 2: to be spewed off of this and how you burn
• 23:33
  Speaker 2: it off, and the temperature that that system works at,
• 23:36
  Speaker 2: and you need diesel particulate filters, and it's a very
• 23:40
  Speaker 2: complex system to try to mitigate the those negative extort
• 23:44
  Speaker 2: you know, to try to mitigate the pollution.
• 23:47
  Speaker 1: So environmental regulations like emissions regulations have made diesel tugs
• 23:52
  Speaker 1: in this country more expensive.
• 23:54
  Speaker 2: Exactly, which is also good for you. Yes, so what
• 23:58
  Speaker 2: might go wrong for you? I mentioned that our focus
• 24:06
  Speaker 2: is building better boats, making sure that we make money
• 24:09
  Speaker 2: on them, and then ramping supply of them. That is
• 24:11
  Speaker 2: a very simple theory. And we are not taking a
• 24:15
  Speaker 2: lot of demand risk. We see incredible demand. We're just
• 24:18
  Speaker 2: delivering better products to consumer market, better products to the
• 24:21
  Speaker 2: commercial market. We're not taking a lot of technology risk
• 24:25
  Speaker 2: because a lot of this exists. We are taking a
• 24:27
  Speaker 2: ton of execution risk. Actually pulling these things together is
• 24:31
  Speaker 2: really hard, and there's so many levels to this. Even
• 24:34
  Speaker 2: the financing side of this is a challenge because you
• 24:39
  Speaker 2: have to go do the construction of these vessels and
• 24:43
  Speaker 2: make sure that you finance that intelligently so that you
• 24:48
  Speaker 2: could actually get these things onto the water and validate
• 24:51
  Speaker 2: the technology to unlock even more of the demand. The
• 24:55
  Speaker 2: integration is hard. The timelines have a way of only
• 25:00
  Speaker 2: moving in one direction.
• 25:01
  Speaker 1: It's you're not going to deliver it early.
• 25:07
  Speaker 2: I am proud that we have held to the timelines
• 25:10
  Speaker 2: that we have held, and it is a constant battle
• 25:13
  Speaker 2: because one part I mean, going back to the consumer
• 25:17
  Speaker 2: side of this, you can get everything right about a
• 25:19
  Speaker 2: production system, and if you are lacking a few critical screws,
• 25:24
  Speaker 2: it can halt a production line. And that means that
• 25:28
  Speaker 2: every like having every piece in the right place at
• 25:32
  Speaker 2: the right time, is so critical to the company. And
• 25:36
  Speaker 2: that's this complex orchestration problem. People say, you know what's
• 25:40
  Speaker 2: hard about producing these boats or any of that. It's
• 25:44
  Speaker 2: no one thing. It's a thousand small things that all
• 25:47
  Speaker 2: of these pieces just need to fit together and hum
• 25:50
  Speaker 2: which is why we're so intensely focused on execution, on
• 25:53
  Speaker 2: continuing to drive against the plan that we have in place.
• 25:57
  Speaker 1: What are you going to build after a talk about.
• 26:03
  Speaker 2: If you think about across consumer commercial the products I
• 26:06
  Speaker 2: mentioned are export or coast, these tugboats. The common thread
• 26:11
  Speaker 2: between all of those is that there is a better
• 26:15
  Speaker 2: technology that exists for the marine industry in electric power trains.
• 26:20
  Speaker 2: It is a fundamentally superior technology to these outdated kind
• 26:25
  Speaker 2: of diesel engines or gas engines. That's our core focus
• 26:32
  Speaker 2: as a company, and we want to get those power
• 26:35
  Speaker 2: trains into as many vessels as possible. On the commercial side,
• 26:39
  Speaker 2: we're starting with tugboats. Ferries make a lot of sense.
• 26:43
  Speaker 2: You can get into offshore supply vessels. There's you know,
• 26:47
  Speaker 2: all sorts of different harbor craft that you can go electrify.
• 26:52
  Speaker 2: And then you know, there's this long tail of coastguard
• 26:55
  Speaker 2: boats and water taxis and everything else that you want
• 26:59
  Speaker 2: to do commercially out on the water, fishing boats. On
• 27:02
  Speaker 2: the consumer side, it's wake sport boats, center console boats,
• 27:08
  Speaker 2: it's pontoons like every way that you have, sailboats, every
• 27:12
  Speaker 2: way that you have of being out of the water.
• 27:14
  Speaker 2: We want to go electri it.
• 27:19
  Speaker 1: We'll be back in a minute with the lighting round.
• 27:33
  Speaker 1: Let's finished with the lightning round. I read you and
• 27:39
  Speaker 1: your co founder argue about ideas, which seems healthy, And
• 27:43
  Speaker 1: I'm curious, what was one thing where your co founder
• 27:48
  Speaker 1: convinced you that you were wrong?
• 27:57
  Speaker 2: Never happened. It happened so frequently that trying to think
• 28:01
  Speaker 2: of a good example. He is, my co founder is
• 28:09
  Speaker 2: Ryan is this incredible engineering brain, and he has this
• 28:16
  Speaker 2: great way of distilling problems down into their core elements
• 28:21
  Speaker 2: and then just meticulously solving each one. And the memory
• 28:26
  Speaker 2: that comes back to me is when we first started ARC,
• 28:30
  Speaker 2: I was shying away from technical challenges and saying, hey,
• 28:36
  Speaker 2: we should get you know, help here, buy this thing
• 28:39
  Speaker 2: off the shelf or whatever else. And he has a
• 28:44
  Speaker 2: multiple points convinced me that we could do it, and
• 28:47
  Speaker 2: it ended up being way harder than he thought, but
• 28:50
  Speaker 2: we did it and it was certainly better for the business.
• 28:53
  Speaker 2: And you know, one of those examples was how quickly
• 28:56
  Speaker 2: we integrated the battery pack into like, you know, doing
• 29:00
  Speaker 2: the battery packs ourselves. I thought that we wanted to
• 29:05
  Speaker 2: work for at least a couple of years before we
• 29:07
  Speaker 2: really decided to bring battery packs in house. We ended
• 29:10
  Speaker 2: up doing it within months of starting the company, given
• 29:14
  Speaker 2: the challenges that we saw on procuring off the shelf options.
• 29:18
  Speaker 2: And he convinced me of that.
• 29:22
  Speaker 1: What's the dumbest thing you ever did on a boat?
• 29:24
  Speaker 2: I am not going to answer that.
• 29:27
  Speaker 1: Second.
• 29:34
  Speaker 2: We used to for the Fourth of July, we would
• 29:37
  Speaker 2: go out and watch the fireworks from a boat and
• 29:42
  Speaker 2: you could bring your own fireworks. This was I think
• 29:45
  Speaker 2: back at a different time where maybe this was legal.
• 29:49
  Speaker 1: Or maybe you just I don't.
• 29:51
  Speaker 2: Know, I don't want to perjure myself here. So you'd
• 29:57
  Speaker 2: go out on these boats and you could watch the
• 29:59
  Speaker 2: fireworks they lit off this incredible firework show in LowDye, California,
• 30:04
  Speaker 2: and people would bring their own fireworks and kind of
• 30:07
  Speaker 2: push them out on like basically launch them off of
• 30:12
  Speaker 2: their own boat. And let's just say that that was
• 30:16
  Speaker 2: some of the dumber things you've done on a boat
• 30:18
  Speaker 2: for fair.
• 30:19
  Speaker 1: Fair. What's one thing you know about boats now that
• 30:23
  Speaker 1: you didn't know when you started the company.
• 30:26
  Speaker 2: The thing that I've learned is that boat building is
• 30:30
  Speaker 2: so much more of a craft than I appreciated at
• 30:33
  Speaker 2: the time.
• 30:34
  Speaker 1: What do you mean when you say craft?
• 30:36
  Speaker 2: The whole construction in particular, is is just this art
• 30:41
  Speaker 2: form that there's no no.
• 30:46
  Speaker 1: A hall being just like the bottom of the interacting
• 30:50
  Speaker 1: with the water. Yeah, that that's it's such an interesting
• 30:56
  Speaker 1: design challenge because there's no free winnings. You can you
• 31:02
  Speaker 1: can make a boat more efficient so that you don't
• 31:05
  Speaker 1: have to use as much power to move over the water,
• 31:09
  Speaker 1: but you sacrifice something else. It gets, you know, bumpier
• 31:14
  Speaker 1: when you're right at it's not as smooth of a ride,
• 31:18
  Speaker 1: or that it lets more water in the wetness of
• 31:21
  Speaker 1: it is worse, doesn't chop through waves as well like
• 31:25
  Speaker 1: they are all these tradeoffs that you're making, how it
• 31:29
  Speaker 1: comes up on up to speed changes, and you know
• 31:35
  Speaker 1: how high up the bow is when it's going through
• 31:37
  Speaker 1: the water. All of these things are trade offs that
• 31:40
  Speaker 1: you're making in the design of that and then you
• 31:42
  Speaker 1: translate that into the construction side. And one of the
• 31:45
  Speaker 1: things I've learned is boat and whole construction in particular
• 31:50
  Speaker 1: is kind of like cooking, where you can have this
• 31:57
  Speaker 1: recipe in front of you, and if you're a brand
• 31:59
  Speaker 1: new cook you've never cooked before, you're going to mess
• 32:02
  Speaker 1: that recipe up somehow. It's temperature sensitive and maybe you
• 32:05
  Speaker 1: get the temperature wrong, it's humidity sensitive, maybe you get that.
• 32:09
  Speaker 1: You taste it and you're not really sure why it's
• 32:12
  Speaker 1: not quite tasting good. If you're a chef that's been
• 32:15
  Speaker 1: doing this for twenty years, you could take a quick
• 32:18
  Speaker 1: glance at the recipe and you don't even need to
• 32:20
  Speaker 1: look at it because you're doing everything by feel. And
• 32:22
  Speaker 1: you could look at imperfections in the side of a
• 32:24
  Speaker 1: boat and know, even though they look identical to somebody
• 32:28
  Speaker 1: with an untrained eye, you know how to fix them.
• 32:30
  Speaker 1: And they're two different ways to fix them. One is
• 32:32
  Speaker 1: you buff them out.
• 32:33
  Speaker 2: The other is, hey, you need to actually go apply
• 32:35
  Speaker 2: more jelcoat to it or something. It's such a craft
• 32:39
  Speaker 2: in that way, and it was an underappreciated part. I
• 32:42
  Speaker 2: came in thinking, oh, well, you know we're gonna reason
• 32:46
  Speaker 2: from first principles about all of this. And I have
• 32:50
  Speaker 2: a much stronger appreciation for the marine industry.
• 32:54
  Speaker 1: So does that mean on every boat you need a
• 32:56
  Speaker 1: sort of master craftsman? Not every model, but like every
• 32:59
  Speaker 1: single one. The one of the things we're doing on
• 33:03
  Speaker 1: the production side, So production, I draw the analogy to
• 33:06
  Speaker 1: Ikia furniture. That production is run kind of like assembling
• 33:13
  Speaker 1: a piece of Ikea furniture.
• 33:14
  Speaker 2: You have this set of instructions and this set of
• 33:17
  Speaker 2: parts that you've come with, and you read the instructions
• 33:21
  Speaker 2: and you go put the parts on. If you think
• 33:24
  Speaker 2: about how do you speed up that process, Well, one
• 33:27
  Speaker 2: way is you just get practice at it. If you
• 33:30
  Speaker 2: go assemble the same piece of Ikea furniture a bunch
• 33:32
  Speaker 2: of different times, then you're just going to get better
• 33:35
  Speaker 2: at it.
• 33:36
  Speaker 1: Yeah, or even different pieces. Right, I can't have certain
• 33:38
  Speaker 1: moves Like I've put together a lot of Ikea furniture.
• 33:41
  Speaker 1: I'm like, oh, I know this move it's the thing
• 33:43
  Speaker 1: that goes exact exactly turn it.
• 33:45
  Speaker 2: So some of it is just that. But then you're like, okay, well,
• 33:48
  Speaker 2: but now I need to I need to ten x
• 33:51
  Speaker 2: the number of people that are doing this, and I
• 33:53
  Speaker 2: want all of them to do it consistently.
• 33:55
  Speaker 1: They will have lower skill, right, It's the classic production problem,
• 33:59
  Speaker 1: like how can someone who is not a master chef
• 34:01
  Speaker 1: who doesn't know the craft.
• 34:03
  Speaker 2: Do a good job. So then you go back to
• 34:05
  Speaker 2: the instructions themselves and you're like, oh, well, if I
• 34:07
  Speaker 2: write better instructions, then yeah, I can make this process
• 34:12
  Speaker 2: move more quickly. And then you're like, great, now I've
• 34:14
  Speaker 2: got good instructions and people are starting to get reps
• 34:16
  Speaker 2: on it, and then you're like there's a missing part.
• 34:17
  Speaker 2: Oh no, everything kind of breaks down. And that's why
• 34:21
  Speaker 2: you know, sometimes you know, I care furniture, You'll see
• 34:24
  Speaker 2: you end up with a few extra you know, bolts
• 34:26
  Speaker 2: or something, and it's because they stalked extra because they
• 34:29
  Speaker 2: really do not want you to be short a bolt
• 34:32
  Speaker 2: because that's painful, annoying, frustrating for everyone. Yeah, we're trying
• 34:36
  Speaker 2: to do that same thing on the whole construction, the
• 34:39
  Speaker 2: craft part of this, but it's a challenge. So the
• 34:42
  Speaker 2: way that to answer your question of do you need
• 34:45
  Speaker 2: that kind of chef equivalent on every boat we produce,
• 34:50
  Speaker 2: the answer is today more or less yes. And what
• 34:53
  Speaker 2: we're trying to do is distill some of that knowledge
• 34:55
  Speaker 2: into better work constructions, better processes that allow us to
• 35:00
  Speaker 2: do this repeatably, even if you're coming in without a
• 35:02
  Speaker 2: lot of prior experience of doing this.
• 35:06
  Speaker 1: That's a really interesting kind of process in engineering. Problem
• 35:11
  Speaker 1: it is and it's a challenge, and we have learned
• 35:14
  Speaker 1: a ton about this and still have so much more
• 35:16
  Speaker 1: to learn. And I like to think that two years
• 35:19
  Speaker 1: from now we will look back at where we're at
• 35:21
  Speaker 1: today and think, Wow.
• 35:23
  Speaker 2: We had no idea.
• 35:30
  Speaker 1: Mitch Lee is the co founder and CEO of ARC Boats.
• 35:34
  Speaker 1: Please email us at problem at pushkin dot fm. We
• 35:38
  Speaker 1: are always looking for new guests for the show. Today's
• 35:41
  Speaker 1: show was produced by Trinamanino and Gabriel Hunter Chang. It
• 35:45
  Speaker 1: was edited by Alexander Garretton and engineered by Sarah Bruguier.
• 35:49
  Speaker 1: I'm Jacob Goldstein and we'll be back next week with
• 35:52
  Speaker 1: another episode of What's Your Problem