#82 Bobby Sakaki, UAS Nexus: Drone industrial base, NDAA, Blue UAS

Bobby: 0:00

The thing that's been guiding in the last two years has really been, okay, what is everybody building? And I've had the suspicion for years that 90 percent of people are all using 90 percent of the same components. And most folks aren't very open kimono with it. So if we want to build an industrial base not reliant on China, which I think the writing's on the wall that we'll have to do that, what is everybody using? What are the core technologies and components that everybody shares? Who are the people that are building those technologies? What are their values? Who are the people you need to talk with?

Jim: 1:30

Hey, welcome back to the The Vertical Space and Merry Christmas and happy holidays to our friends and listeners throughout the world. We want to thank you for continuing to listen in. We just received some amazing statistics on the popularity of the podcast, and we're pleased we're able to have important and relevant guests at the intersection of tech and flight. It's hard to believe and we're delighted we just entered our fourth year. So we have another engaging guest this week with our conversation with Bobby Sakaki. Bobby is a leading expert in small UAS technology and founder and CEO of UAS Nexus, a consulting firm now working with the majority of Western drone technology companies. As we discuss in the conversation, Bobby is driven by and talks about the criticality of drones, especially given the role in Ukraine. And that he's concerned that the U S and Western industrial bases are not supporting or coordinating to ensure we have competitive and affordable drones, particularly with affordable components that are either built in the US or within Western countries. To that end, we extensively discuss the requirements of importance of, and impact from the National Defense Authorization Act or NDAA, the Blue UAS program and MOSA the Modular Open Systems Approach. Bobby recently returned from Europe. He talks about how Europe is so different from the U S on raising capital on defense technology and the pace of innovation. He talks about where the drone industry is struggling how they're trying to solve these challenges. For example, with engineering, supply chains and raising capital. He talks about the challenges of building the US industrial base for drones, challenges of staffing design, getting clean rooms, how we build components, for example. He discusses how he wants to preserve the US quality of life. And that the lack of a strong industrial base for drones is potentially a threat. He walks through the drone taxonomy or tech stack. He discusses the autopilot and its criticality, radios, optics, and other components, and the availability of non-Chinese companies building these components. Should all components be made by each respective country? He mentioned that in the beginning, we can't do it all in the US, nor should we have to. We discussed the NDAA ensuring that critical opponents aren't built by certain countries like cameras batteries, magnets motors on drones. We discuss NDAA versus Blue UAS. He discusses some of the areas, the programs are different. For example, the company structure and what percentage is foreign owned. And we wrap up with MOSA and how it's working in practice and reconciling the need for MOSA and a company's need for some level of competitive moat finally, he talks about what he sees happening in the next five years, including some of the more dominant use cases that will evolve or continue to evolve. Finally, he gives his top five companies he's most impressed with and why. Prior to launching UAS Nexus, Bobby spent a decade in the drone industry serving in various product leadership and business development roles for a Ascent AeroSystems, Autel Robotics, White Fox Defense Technologies, and has advised various Fortune 500 companies, government agencies and startups on drone technology and related innovations. Thanks Bobby, for a terrific conversation and to our guests, we thank you again for listening, wish you a happy holiday season and hope you enjoy our talk with Bobby Sakaki as you innovate in The Vertical Space.

Luka: 5:29

Bobby Sakaki, welcome to The Vertical Space.

Bobby: 5:32

Really appreciate it. Been following you guys for quite some time, actually. I guess they're one of the few podcasts that I, try and keep up with. There's actually. There's not a lot of media in our space that I consume, but you guys are one of them.

Luka: 5:43

Coming from you, it means a lot.

Jim: 5:45

Is there a favorite podcast?

Bobby: 5:47

So I'm particularly interested in the, I didn't listen to the Manna Drone Delivery one entirely. I'm halfway through it. it's interesting having seen the operation in person, And, Bobby Healey is using a lot of the same, you know it's proof in the pudding of, like, this is why we, are profitable. He's very open with his business model. and it was something that I really appreciate. It's something that I think is, and we can talk more about that later on the podcast, just, the disparity of transparency, as I call it. But, yeah,

Luka: 6:17

Bobby Healy's episode, turns out is the most downloaded episode in 2024.

Jim: 6:23

Luka, there was somebody, there was a business professional who told me not only was it his favorite podcast he ever heard, he thought it was one of the best business lessons he had ever heard. Bobby Healy's podcast. So yeah, you, there are many who feel the same.

Luka: 6:37

All right. So Bobby, is there anything that very few in the industry agree with you on? I bet this will be a longer answer.

Bobby: 6:45

There's probably, there's a lot. I think a lot of things, a few in the field of industry. One of them is, the United States probably can't build an industrial base, like, overnight without the help of its, like, regional and global allies. and I don't know if that's as contentious. I think, I have strong convictions, in many things. How loosely held they are varies. And some of that's based on evidence, based on how the market evolves. So for me, one of them is that, there's very few real drone companies. Most drone companies are just systems integrators. And I think more people are actually in agreement with that than I would think.

Luka: 7:17

Okay. So what are some things that you have an isolated viewpoint on? What's the most common pushback that you're receiving when you're, you're commenting the industry a lot.

Bobby: 7:26

you know what, I think what it is, honestly, maybe I'm a little too fixated on certain things. I think that's probably one of them. And I think another one is, like I'm a very, I'm, self critical and I like to take feedback constructively and I want to know what I could be doing to be a better steward and help people in the industry. And sometimes maybe I can be a little bit too polarizing, or a little bit too frank, or maybe, yeah. And that's something that I, I think I actually think I can be more divisive than I want to be. And that's probably not a, I don't know if I, if other people agree with me in that sense, but like, it's something I don't want to be working towards.

Luka: 8:00

What's an example of that.

Bobby: 8:01

I mean, not too long ago, I think I made a comment about a vendor here in town even, about, And I shouldn't have used the terms that I did, but also basically said there's opportunities for people to just clone this open source hardware and, like, make their own business in other parts of the world, which completely goes against the notion of building an industrial base. And it was really highlighting kind of the challenges of, open system architectures, open source hardware in particular, and how, it really comes down to things like, The firmware and the quality of those components that can be built, like, and really these drones are systems of systems, back to what I said earlier about drones being, or drone companies really being systems integrators. So I felt bad about that. I think it actually perpetuated some of the, the rift in the Western drone industry that has stifled some of the innovation. I think it's a huge thing that has put us back. We can talk more about the things I think that have, hurt the West and have prevented us from achieving product parity. But, and then I look at the Skydio, SRR thing in the last little bit as well. I've been reflecting a lot in the last couple of weeks. At the end of the day, there is no net benefit to seeing companies, quote unquote, fail that are in the ecosystem. The value is seeing how we can use people's lessons to refine our own experiences and improve and maybe find ways that, we can deploy capital more effectively or build products more efficiently. And whether you're, We can talk about how building drones in the Bay Area is more expensive than building them, in Eastern and Central Europe. And for the same quality of talent, you're able to pay a fraction of the cost. These are problems that impact all Americans and impact the entire industry, like, not disproportionately. If you're in the United States, you understand the challenges of manufacturing drones here. So, I've been regretful of some of the things I've spoken on in the past. but just moving forward, it's really about, and my opinion has changed a lot. Going to Europe, talking with people who are, different government agencies about what they're facing and what their challenges are and this friction that's within the industry. And I think it's manufactured friction is 1 of the things that we have to work past. World War II and during the Cold War, there was all of this, like, incredible innovation for aviation. You didn't have McDonald, Douglas or, Lockheed and Martin, back when they were separate, and, you know, aerodynamics, et cetera, bad mouthing each other and having private interest groups essentially trying to push their product. It was really this collective effort together. And the government just gave money out, and people made the best product they could, and the best product got selected. And the cadence of that is something that I think we need to be repeating. And I think it's going to happen eventually, and the infighting we have right now only prevents that from working together. We have to find ways to work together through horizontal integration, I believe, so that we can be prepared for what the DoD and the industry really wants. Sorry, that's a long answer, but, That's been on my mind this morning, so I just figured I would relate it to what we're talking about.

Luka: 10:47

Yeah, makes sense. So you mentioned you recently came from a trip in Europe. what are some of the insights that came out of it? What's industry struggling with?

Bobby: 10:56

so Europe is different than the United States. One is raising capital in Europe is very difficult. And it's different depending on where you are. Also, culturally, people's perspectives on entrepreneurship are very different. And then people's perspectives on defense technology is very different. So, in the last six months, we've, I've been to multiple countries. I'd never been to Switzerland before, and I consider Switzerland, like, the epicenter of, mobile robotics of the West, in many ways. The one thing that's interesting is you have these, like, brilliant, like, like, the best engineers working, and they're hyper academic. And they're very focused on refining the product and building the technology. But again, back to the cadence thing, the cadence in which they're willing to deliver these products, sometimes it can be, I don't want to say outdated, but in America, okay, in the United States, We find the customer first, then we build the product for the customer. In Europe, they build the product, specifically in Switzerland, they build the product and they try and find a customer for it. And by the time that happens, like, the technology evolves industry wide. And, there's also this huge hesitation to do defense tech in Switzerland. And this is something that, again, I'm not, like, mocking their culture or whatnot, but I think it's something that's, it is a cultural thing. And that dynamic shows when you see these people that have built products that can literally, silently fly down the slope of a mountain, completely GNSS denied, but it's meant for, you know, avalanche detection. These people don't care about military stuff, right? And, they have their own, moral issues, I think. And also, at the day, it goes back to this idea that some people just want to build great product and great technology, and it's hard to nudge them in a direction they don't want to be. Because these people are not motivated by money. I've realized like the best engineers are not motivated by money. They're motivated by cause and this thing that gives them drive. And for example, back to the Bobby Healy I don't think he's motivated by money. I think talking with him about why he started this was because it was a problem that he wanted to solve. He's like, it should exist. Why shouldn't it exist? How do we do that? And I see that fire in certain companies in Europe. There was folks in Germany that I visited who, built just like exquisite product, incredible, like fixed wing VTOL aircraft. And they have a product that is, that they've alluded to and they've shared with, but it's like a larger airframe. And. I asked why they weren't selling it, and he's like, it's too low of TRL. And I'm like, what are you talking about? What TRL is it? I think it's like four. That's what he told me. And I look at the aircraft, and there's GoPro mounts at the ends of the wingtips, and the large props have like grass stains on them. I'm like, dude, you've been flying this. He's like, yeah, I know. This is America. You call it TRL 7. But in Europe, you only really get to use your name once. And this was something that was very important there's this culture in the United States, and this has happened, I've seen it in our own industry, where people have raised money, companies have failed, and then they just go back and raise money again in another industry. And, there is no consequence for failure, which, and I'm not saying that there should be, per se, but in Europe, there's huge consequences for failure. And then on top of that, you have to think of, like, dual use, where you look at things like, defense technology., And I, I understand there's, they have their own cultural challenges of building defense tech. And I think that defense tech is actually what's driving the industry right now.

Jim: 14:12

Hey Bobby, can I ask a quick question? A lot of people know you and they know you very well. So when Luka said you're going to Europe and you're going to go visit, who do you visit? And then tell people what you ask of companies? What do people think of you when you're going to visit a, a drone company, let's say. Tell people a little bit what angle you come from. What makes you novel?

Bobby: 14:36

I don't really know what makes me novel, to be honest with you, because like my angle, has often been to figure out, like the thing that's been guiding in the last two years has really been, okay, what is everybody building? And I've had the suspicion for years that 90 percent of people are all using 90 percent of the same components. And most folks aren't very open kimono with it. So if we want to build an industrial base, not reliant on China, which I think the writing's on the wall that we'll have to do that, what is everybody using? What are the core technologies and components that everybody shares? Who are the people that are building those technologies? What are their values? Who are the people you need to talk with? And so that's actually my angle of going to all these places. I don't know if people view it the same way. I think people are hoping that I'm just going to talk about the product on the internet. and that isn't always the case. It's going to sound strange, but I don't talk about things because people pay me, that's actually a huge, that's a huge farce because most of the people I talk about, I have no business relationship with at all. And most of the people I talk about, I've been a customer of their product. I've paid for their product with my own money. And so I can speak to my own experience about those, right? And in the end, I built relationships with these folks through the customer relationship. Because I also, when I was working product at other companies or business development, you want to figure out how you can refine the pain points. And then, it kind of goes back to why I started UAS Nexus initially, was to solve the pain points that the majority of the industry has. Whether it's, we need a camera that does this, or we have this problem with integration, or we have, you see, um, it isn't just manufactured friction. And, yeah, so when I travel to these different companies, it's for different purposes. Some of them it's like, oh, you need a new camera built, let's talk to you about building a new camera, you need a new radio link, you need autonomy solutions. In the case of Manna Drone Delivery, I was actually just genuinely curious. And I was in the UK for, Aerial Cities. Aerial Cities. For this event that, Merzilli Consulting and some of their partners put on. And I didn't get a chance to meet with Bobby Healy. I guess he was there like the first day and I was jet lagged and I'd slept in. So I guess he spoke and went back to Ireland. And, yeah, I'd never been to Ireland. I was actually planning on going and exploring the place, but it turns out they just freak, freak storm called Hurricane Bert came through and, prevented the flights. And it was just, it was a whole, it was a whole thing.

Luka: 16:52

Bobby, let's get into a bit more detail, if you don't mind, in terms of the things that the industry is struggling with that you've learned, not just in the recent trip, but more broadly. Okay funding is one part of the story. In Europe unfortunately it's more difficult to raise capital. The mindset of the entrepreneurs is different to your point, but when it gets to the engineering, the supply chains, the technology, the autonomy, the integrations, the payloads, shine some light into the challenges there and how people are solving it or should be solving it.

Bobby: 17:26

So I use the analogy of enterprise IT. But imagine if Enterprise IT didn't have, like, any standards built in, so there was no, like, standardized server rack width or depth, any of the DIN rails, there's no standardized connectivity. You know, in the drone industry we have ethernet, yeah, we have power, but, like, Imagine if you had to build one of those boxes, a server cabinet, every single time you wanted to do something with your own bespoke integration. I think that's how the drone industry is right now. And drones are like computers in the sense that their capabilities are based on the sum of their components. And it's disparate the impact of those components, but still, it could be batteries, it could be onboard compute, it could be, the camera itself. How you integrate those products varies. And I think that's a huge challenge. Like the integration piece is a huge problem. And many drone companies, I said like many companies are simply systems integrators. The inverse is also true, I believe. I think that there are systems integrators that are actually just drone companies. Great example. This guy has Drone Amplified out of New Jersey. They take the AltaX from FreeFly Systems, and they do crazy stuff with it. And they make it like their own. And they're pretty humble about, like, their integration. They do mostly, like, defense and, I think, they do some stuff with, like, wildfire stuff. They have a unique payload that is used for controlled burns. They do some avalanche mitigation work, but, they're like the perfect integrator type of application. and I look at the difference between them and other drone companies who do the same things is, it was just branding. That's really what, that's really what it comes down to. There's a handful of companies that really build their own stuff. And, I went back to, you know, talking about, regretting about Skydio. Skydio's a real drone company. Perhaps they build too much of their own stuff themselves. But we have a handful of companies that are real drone companies.

Jim: 19:10

Is that a good thing or a bad thing, Bobby?

Bobby: 19:13

I don't have a good answer. It depends. It's a bad thing in the sense that I think it dilutes the value of the real drone companies from a money perspective. Because if you go out there, you look at everybody out there who's raised money, how much it costs to raise money, how much it costs to raise a profitable drone business, like an OEM business, right? Some people are not really good at it. Some people are really good at it. So if you just, and there's a hype in my opinion around the industry. So if I were to tell somebody I need to raise X amount of millions of dollars, to start a drone company. Now you folks are seasoned investors at that space. So you probably know you're going to ask very specific questions. What makes you different, et cetera. Most people don't ask those questions. Most people will say, Oh, here's a hundred billion dollar Chinese conglomerate that can just kick everybody's ass. And you want to take them on? Here's a few million dollars. We'll make that bet. But then you don't realize the gravity of that endeavor, about how difficult that is, versus someone that says, I just want to make cameras for the drones, or I'm just trying to make the radio links for the drones. And there is no shame in making critical components. In fact, in my opinion, that's like one of the key pieces to building the industrial base is more component OEMs, like quality component OEMs that aren't reliant on China. And I think that is a key piece to solving this broader problem. Back to the integration thing as well, like you look at DJI, DJI gives everybody all the stuff they need to build on their platform. They have the volume, they have the pricing, they have all these other things. And DJI has never worried about other companies playing in their sandbox. And I think, there's reasons for that. I think that there won't, it's very hard to replicate what DJI did. and I think DJI is actually not a very strong enterprise company. They're like an amazing consumer company and lifestyle brand. When I look at enterprise, like raw enterprise, it's not sexy. Like, the best enterprise vehicle is not the Tesla. It's a great consumer car. I own one, but I look at like the Ford F-150 fleet vehicle, the Comcast truck, that's the number one enterprise car. And it's ugly, but it's customizable, right? And you can get it and the exact way you want it in a volume that matters. And you know what I learned? Turns out the margin on that car isn't that high. The margin on these vehicles isn't huge, especially compared to drones right now. So, there's opportunities for people to come in and compete with DJI on an enterprise level today. It'll be hard. In the next few years, especially based on the regulation that's been proposed by the current Congress and incoming administration, it could hasten some of that, but I also think that, regulatory capture that I write about a lot online is like, not helpful to achieving our objectives of building an industrial base, stopping them from selling into America doesn't help us build better stuff.

Peter: 21:44

Okay, Bobby, that addresses DJI at the enterprise offering level. From your perspective, what is the most clear eyed view that one can have on the Chinese industrial base as it relates to a drone component supply? And how does it compare to other sources of supply around the world? And when we look at the need for a US industrial base in drones and not just based on economic reasons but based on all of the other reasons that drones are playing and in defense and national security and everything else, what is a realistic set of expectations for developing that US industrial base? But let's start with a clear eyed assessment of the Chinese drone component base and what is it today and how did it get there?

Bobby: 22:36

So I don't, I have different understandings from different groups of people. So, one of them is that the Chinese government built out the infrastructure to manufacture things at scale, which, in my opinion, is not controversial. I think many governments do that, and our government should do the same, right? There's the controversy of the influence of the government on individual companies. And I, from my knowledge, like, to be frank with you, and I have a lot of conviction, the idea that all of these drone companies are agents of the CCP is false. Are they subject to the CCP? Like, sure. Like, yes, that's like, every Chinese company does that, right? So, so, no one's denying that there's risks there. But there's like this idea of like nefarious intent that I think sometimes can get overblown. And a lot of it actually comes from cell phones, the cameras, the optics, the cheap radio chips, et cetera, like the, DJI OcuSync is point to point LTE. And so you have to look at where are those also being manufactured at scale, like in China. and then The challenges of on shoring this is, I think, really difficult in that, one, there's a capability perspective, and then there's an infrastructure perspective. So infrastructure is, we don't have the semiconductor capability right now in the United States to do that. If they undo the CHIPS Act, it'll be even more difficult, in my opinion, but I think that, building clean rooms takes quite a lot of time. It's expensive. You have things like tax incentive financing that are, I don't think they're guiding all the decisions, but if you look at where they're building these clean rooms, they're not building them in the most, I don't want to say, like, not affluent, but it's, you know, like, outside of Billings, Montana. Billings, Montana is beautiful, but it's not you know, Bozeman. And if you're building a clean room there, you have to then think of, like, how are you going to staff that facility and the types of people that you need? And so I was actually having this conversation with my dad. My dad is way better than I am, like, when it comes to drones. He's better than that when it comes to clean rooms and HVAC and semiconductor design. That's, like, what he's been doing his whole career. And he has an accent. And he was in Billings Montana. I shouldn't laugh at this because he was telling me the story about how America's just, how we need to build a industrial base. And he was asking about work. And my father, I should tell you, initially was not supportive of the drone thing. He thought it was ridiculous that I was interested in this for work. I should have, that I should have been a lawyer. So he was like, he was telling me how he was proud of me, what I was doing, and, what the purpose of a lot of my work is, and how I want to basically help create industrial base for drones in the West, and he told me that it was a ridiculous idea, and doomed to fail because of these smaller challenges of, not only is it hard to build these, and like, to get the approval to build these in certain places, it'll take years, then you have to staff them. And he told me the story of he was in Billings at the Home Depot loading his truck and somebody yelled like some crazy racist stuff out of his truck, so I'm gonna go back to where he came from and called him like a camel jockey or something like that. And then I, and he's like, dude, you need somebody that looks like me who's designing the damn thing for you guys, and you need somebody that looks like me to staff the thing too. And this is true. I joke about this, but you're gonna have to hire a guy named Sanjeev and pay him 300, 000 a year. And he's currently in San Jose, he's got three kids, to move to Billings, Montana. And, my family moved to Utah in 1995 from New Jersey. My father worked for a Japanese engineering firm called Kojima, who designs clean rooms all over the world. And I can tell you, being the only, not blonde, blue eyed people growing up in Sandy, Utah was different, right? And it wasn't great for me post 9 11. It was really difficult for my dad. So like, you think of all these, smaller, like, and they're actually really big challenges. And, they don't have this problem in other parts of the world. They're actually building chip fabrication in, I don't want to say rural parts of Croatia, for example, but, like, they're not doing it in Zagreb proper. And they're not doing it in, other parts of, like, Poland, and other parts of Germany, and, I think the United States has to do something similar. And for the amount of money we spend on a lot of other programs, unrelated to drones, whether it's foreign aid, whether it's like, whatever, you name it. It's a fraction of that to build out this industrial base. And I know this because you look at the companies who are able to prop up the industrial base right now without any government assistance, they're doing it. What a great example are the folks at CubePilot. Philip Rowse is a force in the industry. The man, I joke, I was like, the man, is like the Tasmanian devil in the sense, not that he's just from Tasmania, but like, he cannot be, you can't contain this company in a box. They don't need venture capital. They're shipping a ridiculous amount of product. And if you think of how much the industry is built around his just hardware alone, it's pretty mind boggling, right?

Jim: 27:16

Bobby, if I may ask, why is this such a passion for you? What do you hope to accomplish? What's your driving force?

Bobby: 27:23

the drone thing or the, or just like,

Jim: 27:26

and what's your, you're obviously a very passionate, bright, capable guy. What are you hoping to accomplish?

Bobby: 27:32

It's interesting because it was, this was a hobby. Like I have all these like drone parts here in front of me. It was a hobby that was a job, but in the end, This is the problem, I alluded to this earlier, with some other people, actually, the world has changed. This is no longer just about building, these fun toys we race in parking garages and at the park, like, the world is in a very volatile place. So for me, it's about preserving, our quality of life, and, the safety, and like, it doesn't have to sound like some, like, ridiculous neocon. It's not about that. For me, it's much more existential. And some of this, I have to tell you, was, about a year ago, I went to Croatia to visit some people who work in the drone industry. And, it was very embarrassing. Where I live in Park City, we have a Banksy art installation in like a random alley. And it's like being covered in glass because people were trying to destroy it, et cetera. And, Croatians were incredibly hospitable. and like the food was, like, incredibly good. Incredible, and I will tell you the cost of this meal blew my mind. And I don't normally drink alcohol, but they were very hospitable with the wine. And I see in this building, there's graffiti and there's chunks of this building that are like missing and they're like bullet holes. And I ignorantly said, I was like, Oh, is that a Banksy? And one of the guys was like, I wish bro. So actually the city council has like prevented us from rehabing any buildings damaged by war. And listen, I have a degree in Middle Eastern studies, another one political science. I knew there was some conflict that had happened, during the early 90s. I didn't know it was so close. I was like, oh, that happened here. And he's like, yeah, it happened here. He's like the town next door, like 800 people were massacred. And he pointed this other direction. He's like, Serbia is 20 kilometers that way. So you understand why we do what we do. And hearing this for me, it was very interesting. I knew these people on a personal level because at the end I was, all of us got into this industry. And if you've been in the industry for more than the last five years, you got into it for fun. You didn't do it really for defense, with very few exceptions, right? There's people that really focused on it at Anduril and Shield, etc. But to see the sobering impact of like, okay, we, this thing we did for fun is no longer just for fun. And, yeah, so for me, it's about, it's no longer just for fun. And it's not about making money. It's about preserving what we're doing, because I do think, not to sound like nihilists, I think World War III has started already. I remember growing up and reading about how World War II I don't think the great nations understood that the conflict had already begun when it begun. And you know, hindsight's always 20 20, right? But then you think about now, what happens is I look at Ukraine with a lot of, sadness, really. And I also look at it with like, is this the, is this, Something that's part of something larger. I look at what's happening in Israel and Lebanon and Syria is that this is going to be part of something larger. And if that's the case, I'll be quite frank with you. I love to ski. I love to have brunch. I love to hang out with my friends and I actually love living in a safe, secure place, like I am very fortunate. So, for me, I want to preserve that, not just myself, but everybody else I care about. And I think that everybody wants, every human being wants that safety and security. And at this current moment in time, there's just stuff that needs to happen with these flying robots that help preserve that.

Peter: 30:34

Yeah, Bobby, I mean, the last 24 months have, I think, for the whole world, changed people's mindset about, certainly about the transformation that modern warfare has gone through, but they've changed people's mindset about the spectrum of roles that drones are going to play in our lives going forward. Before the war in Ukraine started, I think drones occupied a very different segment of the population's mindset. So now, they do take on these different roles and the importance for many countries of having a domestic industrial base that they always know they'll have access to for drone technology is becoming more important. And when drones were really just purely an electronics and an economic, question, it was logical to outsource the manufacturing of them like we do with so many other things. The industrial base in China grew massively on the back of it. And it quite frankly, advanced beyond Western sources of supply in terms of the quality of the system integration and the refinement of the components and the products. And they've just built upon that and iterated upon that. But now this new mindset that you talk about, leaving huge segments of the world asking the question, okay, well, how do we build an industrial base? And it's more than about building clean rooms. And it's more than about chips. It's about a whole set of components and really a product and a technology roadmap for each of them. And so okay, you look at what Philip Rowse is doing with Cube you look at other, open source or commercial component platforms that have managed to survive in the industry or that have seen growth in the last 24 months. What's their standing relative to the Chinese capability? And how do you think of those as seeds off of which to build out a broader industrial base that addresses the needs of these different countries as they now are thinking about drones in a very different role in their respective futures? How do you assess that landscape where we sit today here at the end of 2024?

Bobby: 32:52

I think that it comes back to what I was saying earlier, that there's a lot of companies using the same critical components. And how can we think of, I use the crude analogy of like when we go and, you go to Costco when you're in college, right? And you don't know, two people don't really need it, but you get two households, multiple roommates together and it makes sense. It's like splitting a cow if you will, for more rural communities than I'd be able to find that analogy. We need to do that with components first. and the reality is, like, so the, so we are so behind in terms of pricing, the orders of magnitude, that we have to find these, like, gradual steps. And the first is, like, increasing the volume, right? And the demand, I think, is going to increase to, to be almost, like, exponential and perpetual for the next several years. So the volume that we're going to have to grow, say from like, a million autopilots a year, we'll have to go from like six and then to like 15 and then 30. And then we're going to have to be shipping these the way it's going to be like ammunition, right? And, it's not just autopilots and you have to look at things. and I used Philip Rowse as an example, because Philip is building this in on the other side of the world. Right? And I'm gonna say this, all of us, I think, are in America. He's on the other side of the world building this in multiple countries. And we, in the United States, we have, a handful of critical components that we built here ourselves. Like the radio links Silvus, Doodle Labs, Persistent Systems, etc. Like, they're all here in the United States. Microhard is based out of Canada. then you have a handful of autopilot, like, Modal. ai out of San Diego is a great example of folks who I've been able to build out a really good, not just product, but like an industrial base and foothold, and support large volumes. And we need more of that. And I think, and not, I'm not saying we need more Modal AIs, I mean more vendors, especially when it comes to, we'll say, like, batteries. And motors. that's, these, this is not covered by NDAA, but it's just a key part of the supply chain. And then you look at things like ESCs, which are, speed controllers, very important. There's the guys out of Australia, Hargrave Technologies, I was checking out some of their stuff. Folks out of Croatia make things as well. Like there's a number of, great products. There's these, and then you look at autopilots, like, on my own personal drones, they make them out of Portland, Oregon, the brand FPD Radix. And it's like a small team. It's a husband and wife, like, neuroscience and electrical engineer, PhDs who have just, it's like a business that doesn't live in a building. And, I just think of these small, every company that I've basically listed, I'm pretty sure, hasn't raised venture capital. They've, some of them like Silvus have been, I've had private equity buy them, but Doodle, and Modal. ai, and Cube, and these guys from BrainFPV, like, they haven't really raised money to do this, and so, I make the potluck analogy, and everybody has something that they make really well that they can bring to dinner, and you have certain people that want to bring the roast, even though you have to realize, like, dude, Phillip makes real good roast, and so also makes really good roast, like, Don't be a schmuck and show up with your own roast and be like, I make one too. Like, we get it. But everyone's been eating off of his thing for the last, like, several years. you make great mashed potatoes, man. Just keep making these amazing mashed potatoes we all want to buy. That's literally the analogy I made to somebody. Who actually took it, I think, very personally and was very offended. But it wasn't that they don't make good product. It's the notion of, like, and I'm not, forgive me, like, I'm not one to tell anybody to do anything, right? This is just, I spoke out of line in telling this person that he should just focus on building this one component rather than focus on his autopilot, which is a phenomenally high quality product. But it's just this notion of, man, like, You already own this one little niche with this one component, like just keep kicking ass doing that. And then how can we scale this, so that it becomes cheaper and cheaper and your margin grows as a result? yeah, so I think that it's going to take some time. I think that there's opportunities, for example, to identify the critical components that the majority of drones are built on in the West, and then double down on scaling from those vendors. And I think the US, the various governments, and should be investing in it. I know that they are. I know that there should be more collaborative efforts by matching funds. And I think there should be some sort of like, consortium, if you will, that helps manage this entire effort. You see this with other countries like, ACSL, Japanese drone manufacturer, is, a consortium of these larger industrial partners within Japan. We need something like that in the United States.

Luka: 37:07

Bobby, can you, round out the rest of the drone tech stack, the rest of the taxonomy of the components, and let's go through them and for each of those components, what's the criticality in terms of dependence on, foreign supply chains.

Bobby: 37:22

Yeah. So, the autopilot is like the brain, basically, and some of them have built in compute, some of them don't. And the compute gives you extra capabilities. GNSS denied, and lets you, process video at the edge, etc. but the autopilot's very important, and it's a critical piece. And right now there's a lot, there are, like I mentioned, Philips and others, there's options for folks in the West to have a non Chinese autopilot. Obviously, it's more expensive than Chinese autopilot, but, if you think about it from a total bill of materials cost, depending on what the component is, that price, that disparity between NDAA or non Chinese is more pronounced. So, radio links are actually one of the ones that I would say is the most pronounced. Same with payloads. ESCs are something that you'll probably will pay twice as much for non Chinese versus paying like five, 10 times as much for non Chinese when I want to talk about like a camera or a payload, right? So the ESCs, we have motors, which are absolutely critical, right? Most of these motors are Chinese, Hong Kong, which is China. And, There's a handful of non Chinese options, but then, in terms of motors that are 10, you're paying 40 a motor, so that becomes more expensive. there's some options in Europe, then we look at the, like, the radio link this is where the, like, that and payloads are the two, in my opinion, the two biggest pain points. Radio links in the United States that are NDAA compliant, generally speaking, cost around 1, 000 and up per module. Microhard is probably half that, we'll say. If the Trump tariffs go through, add another 20%. So we'll say 500 per unit, so we'll say, I don't know, 1, 000 total for the air side and the ground side. That's just for radios. Conversely, you can buy a DJI OcuSync 3 unit for 200 something, and the goggles have it built in. and the HereLink which Philip also makes from CubePilot, that whole unit is a controller that has a screen, the tablet, air unit, et cetera, two of them, ground and air side, and it's 899 or 1000, like, depending on where you buy it. And if you were to get that same type of performance, NDAA, you'll be spending over 10, 000. I'm not kidding you, it's, like, extremely expensive. And, we have to look into that more, and I think that there's a handful of companies, in the United States that kind of hold the keys to the kingdom. And if you look at from the supply chain perspective, are they piggybacking off of larger, semiconductor firms, whether it's Intel or Qualcomm, et cetera, or is it something that they have built very small, bespoke, they can't scale unless there's like a huge investment. And then also, to be fair with you, some people, if you know you make the best pizza in town, like, you can charge a lot for it. it's like knowing you have a great restaurant or a great whatever. There's a premium for these products for a reason. And, that unfortunately has created this issue where not everybody needs a military grade product. If I am just, Johnny Roofing Company, I don't even probably need a blue UAS system, but now these Porsche folks are calling companies who are blue UAS vendors and being like, hey, I do roofing. I want to pay for, I need something like this. But why is it so expensive? Or where can we cut costs? And these are not good customers for these startups, because this roofing company is going to buy like one or two drones a ton of money, they're only used to flying DJI, so they're going to have a ton of problems, they'll need a ton of training, they'll want a bunch of support, and the juice is not worth the squeeze for these startups that are often not profitable to begin with. So yes, I hope that was a long winded answer, but I think of every single bit of the tech stack of what can be done and what needs to be done. Oh, payloads. This is the biggest problem, it's like the optics. Teledyne FLIR makes the best thermal cores. They're also the most expensive. There's a handful of companies making cheaper solutions. This is if you want, ISR. You look at Gimbals. Outside of China, a handful of companies, probably count on my one hand, a handful of companies in the world that can make it. Gremsy Vietnamese company, makes NDAA compliant stuff also in the United States, and they have done a phenomenal job of like cornering this market because it's relatively low cost and, it's high quality for what you pay for and compare that with the super high end Israeli or European made, or, stuff made in America by Trillium, et cetera. Yeah, you get what you pay for, but there's this idea, I think of, do you need a hundred percent of the same capabilities, or what if you've got 90 percent of the capabilities for, 20 percent of the price, 30 percent of the price? Seems like a good trade off, especially when you look at the drone's bill of materials. And how much margin the vehicle OEM is making, because the more expensive the, these components costs, the more the drone will cost. And sometimes if it costs too much, then the margin's not there. And this goes back to what I said, I think I said earlier in the podcast about integrators versus drone companies. And if you look at automotive, there's a lot of systems integrators out there and aviation, same thing. And apparently they're not making a ton of margin. They're not making 40%, they're making like 7 percent or 10 percent on a really good day. And I think that, I don't know, but I think that there is an argument to be made that perhaps the drone industry will and should shift into this direction eventually, for us to reach the volume and the scale that is needed for us to have this like critical mass and meet the need by the DoD. But that may not meet the appetites of certain investors who are looking for like huge return on investment, because some of these companies, like I know the margins on these companies have, the margins are huge on the components. Other folks, especially in the United States, margins are not huge. And this comes down to this bigger issue, like it's not just a semiconductor, but like it's expensive to live in the United States compared to other parts of the world. And that cost of labor, means that the products cost more.

Luka: 42:58

So, on a typical enterprise drone, what is the content of Chinese made parts?

Bobby: 43:04

So, non DJI, I mean, so generally speaking, I think that you have a lot of people building pretty good NDAA compliant stuff, but the motors are generally Chinese, the battery packs often are Chinese, and then the radio link, depending on which one it is, the lower cost solutions are Chinese. On the cameras, the cameras are interesting because the Chinese vendors may make good product, but they're like, not easy to work with at all. The support is horrible. So it's not even like, I don't think they have the same leg up, but the Herelink is a really good example of, selling the blue version of drones that generally have the Herelink cost way more. We'll say the motors for the sake of math are like today, 40 a piece. And they'd be four times as much if you made them outside of America. Right. So they're$160 a piece. Like yeah, that's expensive. And there's four them. I totally understand that. But that's about 500 bucks. But there's the radio link and the camera alone, that's gonna be extra thousands of dollars. Right. And the GCS on top of that's gonna be expensive. And sometimes if you look at the cameras that they're tens of thousands of dollars. The next vision Raptor. Which is a cheap version of what the higher end Trillium and Edge payloads are, it's still 35, 000 30, 000. And so, the margins just get eroded away. And, the motors are something that I think, it's only been in the last couple of months because of the T motor thing, that people are looking at non Chinese motors. And then, due to Skydio's, being sanctioned from the battery manufacturing perspective, how do we get batteries made in America?

Peter: 44:37

For the benefit of the audience, what was the T Motor thing?

Bobby: 44:40

Oh, yeah, so T Motor was added to the covered entity list that, because they, I don't know exactly why. It might have been because they were selling to Russians, etc. I'm not here to question the, like, I would argue that T Motor does tens, if not, maybe even over a hundred million dollars worth of business. And that they, somehow, in that company, one of their less competent salespeople made sales to Russia, doesn't, like, surprise me. But the idea that they're like, actively, knowingly working with the Russian government to like, sell stuff against Ukraine. I think that's a little hyperbolic. Just because they're risking all this other business. Motors have a lot of, my understanding is that there's a handful of companies that are actually, this is the crazy thing. You have American motor manufacturers that are being used by the Russians too. Like I've seen pictures of like a thing. And again, it's all unintentional.

Luka: 45:28

Bobby, when you talk about supply chain resiliency and building a domestic industrial base, is your position that all of the components should be made, in the U S in Europe? Where's the right balance to strike between, relying on partners, other friendly countries versus having everything within the walls of your own country?

Bobby: 45:50

Is a very good question, and I think that it varies on country to country. I think out of the gate, initially, you need to work with, like, it has to be as global as possible, because you can't do it yourself. Over the long term, people will want to build more critical components stateside. But again, if you think of, like, a free market, the products built in the United States will be more expensive than the products built in Asia and Vietnam, et cetera. So how do you compete globally? And this is the thing I've also been talking about, is once this thing in Ukraine ends, hopefully soon, or whatever, that technology is going to start to be sold against Western, like our American companies. And it's their stuff's probably more battle proof as well. And I can be sure it'll be cheaper. So it's going to create a new type of competition that I don't think Americans are used to. And it goes back to also what we're seeing with this latest NDAA and regulatory capture against DJI because you remove DJI and Autel from the industry. You know, the last couple of years, we've all been focused, just focused on basically, making money and being in the shadow of DJI. Well, now we're all going to be, us, the West, will be fiercely competing with one another in a way that we haven't in the past. And how do we reconcile that when we're all using the same, not all of us, many of us using the same components, same suppliers, et cetera. And you'll have to see, what's really different about a drone per platform. I, I look at automotive as a great analogy where, like, people like F 150s, people like the Chevy Silverado. I'm not a truck guy, but I just, like, that's a, that's a pretty And for no reason, like whether it's brand reliability or they're close, you know, proximity to a service center they purchased the brands in the past, like drones will have a similar, and I know this because people will say, oh, I bought a Free Fly Alta X for years. I love it. I'm gonna try the new Astro. Or people who x, y, Z brand, right? I know this'cause there's this type of, social currency associated with the product. And people within industry, especially public safety and defense, they talk to one another, whether or not they work for the same agency, even in the same country, but people want to know what the best kit is. So they'll say, I love this, I use this. And if it's bad, that's, I hate to say this, if it's bad, they all let each other know, stay away from this. And so it's a bigger, it's important for us to have, the right products. I don't think that it is realistic for us to want to build things In our own countries, 100 percent self sufficiently. I think India is a great example of how that was a mistake. And I don't talk about this publicly, but India has shot themselves in the foot because they're extremely technically savvy. Like, country with relatively good manufacturing capabilities, but the fact that they all of a sudden thought they could build an entirely homegrown drone industry, you know, the product speaks for themselves. How many Indian drone companies are dominating on the global drone market? And I think that's something that people don't realize. So it's a crawl, walk, run approach. And it goes back to what I talked to about, like, why I do this. Like, man, there's like shared values in the West. It doesn't matter if you're Republican or Democrat, like you're like your freedoms and you probably, hopefully, like other people's freedoms and respect their human rights and their ideologies and that is where that defines all of us.

Luka: 48:52

Bobby, let's talk about NDAA since we mentioned it a couple of times. What is it? What's the scope?

Bobby: 48:58

So the latest 2020, it's like section one seven zero nine. I believe it's the latest version it actually calls out Autel and DJI. And essentially says that if there's any security, issues with them, they can have their FCC license revoked. But prior to that, it was section 848 of, the NDAA and it called out critical components. So anything that basically stores or transmits data, and that includes radio links, that includes payloads, it doesn't include more benign lower level components. And I believe now what we're seeing is people trying to exceed that NDAA threshold. NDAA does not mean Blue UAS, it doesn't mean Made in USA, it just means that it's, like, not built with components that come from covered countries, like Venezuela, Syria, Iran, North Korea, Russia, China, like, there's like a handful of that, I think Syria's on there too,

Luka: 49:46

And that's only, again, only critical components, right? So that's flight control systems, payloads, ESCs, radios. What else?

Bobby: 49:54

Well, so ESCs are interesting. type of ESC matters. You use ESC with telemetry, it can't be Chinese. It's two way. Use ESC as one way, then it wouldn't matter because it's not storing information. It's just passing it on, right? So, or like cameras, the idea of like the value of an NDAA compliant analog camera, may not, and that depends on the customer. if it's the U. S. government, of course, it's going to matter. But like for other people, it's technically not. It doesn't violate NDAA because it's analog. it's not even storing any data, it's just passing on that stuff through. But there is analog stuff that's made in China. Like, there's, my understanding is there's only one NDA compliant analog FPV camera out there. It's made in Europe, and it's like the only one. And people don't realize, like, how hard it is to actually do that, compared to when the rest of the industry. Is, all of us, all my FPV rigs currently, they use a Chinese camera that cost me 30 dollars. but the fact that these folks in Europe are able to pull it, and yeah, it costs more than 30 bucks, but the fact that there's zero Chinese components in this thing gives the, like, warm and fuzzies to a lot of these more security concerned, folks. So NDAA, there's small nuances, like motors aren't there, batteries aren't. But if your batteries say, have like a BMS that like, store cycles, like, yeah, you don't want that chip to be Chinese. So, yeah, there's a whole, one of the things we do at UAS Nexus is, like, do this consulting on NDAA compliance and, Bill of Materials audits, helping you find alternative components to the critical components that might be in violation of NDAA. And on top of that, I should mention, a lot of these NDAA certified components, people self certify. Unless you've gone through the whole, some sort of formal audit by preferably an accredited organization, like who the DIU uses, like Dark Wolf. it's really just a self certification, and there's, I think, risks in that as well.

Luka: 51:46

Given the complexity of the supply chains and how layered they are, tracing, critical components, down to their, smallest elements can be particularly, a daunting task. So first of all, how is country of origin defined?

Bobby: 52:02

Well, so it's supposed to be 50 percent or more of the summation of the components, right? But it actually when you think about it, like, this has blurred the line, because you look at a drone, the value of the product of many drones, the camera alone is more expensive than the rest of the bill of materials. So you can have a Chinese drone, and I think this was happening in the past, Chinese made drone, but American made payload, and oh, it's more than 51 percent of the value. Oh, it's made in America. And then they've clarified some of this, but the country of origin, like some people, and this is where it's subjective. Some people will say, well, the PCBAs can't be made in China. Dude, like a lot of PCBAs are made in China. That I hate to say that. And so I don't think that's an actual like rule. It's just some people's, or different organizations have different thresholds for what they consider to be permissible or not. It's like saying how clean is not clean enough. And I think some people have an unwarranted perception of, like I earlier, the roofing guy. if you're in defense and you work in intelligence, yes, I understand. But you're like the Department of Interior or you're just like a firefighter, like I understand why these folks are using DJI products. It's just, The writing is on the wall. It's a great product. It's cheap. It's accessible. The performance is amazing.

Luka: 53:18

So when your clients come to you, asking for help with NDAA, what's the most common issue that they have and how does that result typically?

Bobby: 53:26

Initially, it's really has been like radio links and cameras and like many people are using the HereLink because it's fantastic. They want a different solution. And I don't think many of them understand like, okay, this is going to cost a lot more than what you've been used to. you've been spoiled with the HearLink. Second would probably be cameras and optics. And lately it's been motors and batteries. And this is also like, you don't really need to have it, but it's a, after what happened with Skydio, I think it's made people pretty panicked.

Luka: 53:52

Would you say that NDAA is adequately mitigating security risks?

Bobby: 53:58

NDAA is mitigating security risks. The question comes down to. Someone told me, actually the guy who raised all of the red flags about DJI's security thing, Kevin Finisterre he's like, man, nothing's 100 percent secure. I'm like, what? He's like, nothing is 100 percent secure, whether it's made in America or made in China. So it's like, okay, then what's the point? If it's theoretically possible, then what's the point? And I guess it goes back to this notion of values and who do you trust? I trust Apple to not be doing the things that I would hope they wouldn't be doing that DJI was caught doing. And or the same could be said about Facebook or Google or you name the large tech company or whatever. So yeah, I don't know if it adequately addresses security concerns. I know that it adequately, addresses the need to build an industrial base because it's like, Hey man. You say we have to build the spec, but where are you going to get all these parts? Oh, there's only a handful of these people in these disparate parts of the world on these separate hemispheres. Well, we better figure something out to build, to bring some of this more stateside or any way where we can connect the dots globally and just not be relying on China because I look at batteries. It's a great one. Like China wants to cut the plug on batteries. It's not going to be just for drones. You're going to have the issue with your cell phone. You'll have the challenge with electric vehicles and these other issues. And who knows, maybe Elon Musk will become like the battery Don of the world. I don't know. I just, I personally am skeptical that we're going to be using Tesla packs and all of these drones because we haven't solved this problem of maybe these battery packs are over engineered and in some cases under engineered. I don't need a 40 battery pack for a drone that's going to fly one way 10 minutes. I need like a 5 battery pack that's super reliable and maybe doesn't give me the same performance. But anyway, so that we can talk more about that, probably another, in person or another call. But the batteries are a big one. Where are we going to be getting the magnets? these like screens that, that people are using and I look at, like, I'm looking at my cell phone right now, until Apple figures out how to build that super reliably outside of China, we're going to have some challenges. The AirPods are made in Vietnam, I learned. It says in the back of them, but turns out Autel drones are also made in Vietnam. Every single one in the last year and a half. And I think you're going to start seeing manufacturing capabilities in other parts outside of China. And they'll have to be, unfortunately, more scrutiny on some of these products. Oh, is this a, depending on who it is it just a front for a Chinese company or not? And I think there's been examples of other companies, in the recent drone news who've come under scrutiny of licensing product or using products of other OEMs and having manufactured outside of China.

Luka: 56:30

On that note, Bobby, in NDAA's language, what is a foreign made part, is it one that is designed? Is it one that's manufactured? Is it one that's assembled?

Bobby: 56:40

That's any of it. Design, manufacture, or assembled. So, so a big piece is, you can build a drone and for example, the plastics are fine, right? they lay out these certain components, but say you were to build a drone largely out of, all NDAA compliant components. And then you were going to have Chinese nationals build that drone. That would not be okay. And you would have them load their own software on that drone. That would not be okay.

Luka: 57:05

When did this language first emerge? Was it 2020?

Bobby: 57:08

There was a version before that actually had come out. 2018, I believe was one of the first ones. And then really section 848 was the thing that kind of changed it all, where they started to call out the specific components. And this was in 2020. And you started to also, yeah, and then this was also on top of like the DJI state bans in like Florida and other places. So there was like a cascading effect of like, oh these, Chinese drones are nefarious.

Luka: 57:34

So I guess, my question is since 2020, how have you seen the domestic supply chain evolve as a result of this NDAA that came on the scene?

Bobby: 57:43

Yeah, so the supply chain, in my opinion, hasn't evolved nearly as much. The thing that changed it all was Ukraine. The Ukraine thing started to be, and as Peter was saying, like, the last 24 months have been huge, because now, and I'm almost, I'll guarantee you by the time this thing airs, there'll be even more restrictions on Chinese exports of drone related parts. So, nobody thought that these drones would be so effective and, on the battlefield and the demand would be so huge. Most of the stuff in Ukraine is still coming from China. So, if the Chinese start to cut off the sale of autopilots, for example, there's going to be a need to still make those and provide them for Ukraine, et cetera. I think that's going to happen. And the same will happen for batteries and motors and other things like that. 2020, it was really just about DJI. The Ukraine thing is what changed all of this.

Luka: 58:29

So, how is Blue UAS then different from NDAA?

Bobby: 58:33

So Blue UAS is like its own, it's like its own certification, which is I would say even a higher level than NDAA in many ways. And the thing about Blue UAS, I hate to say this is like, let me just, I'll take a step back. DIU is very important, very critical in helping the domestic drone industry. But Blue UAS has gone through different forms and different, I think, efforts and the program, I think, is not going to have the same reception that it had in prior years. And I say that for a few reasons. Initially, the credentials in which they were, like, based on was very clear. It's like, alright, it's built to NDA compliance, the software is secure, and the drone, it's like, I shouldn't even say not even terrible, because some of those drones that were initially picked on the blue list, like, they're not even, the company's not even in business anymore. But the latest bit of what's happened on the blue list for the latest refresh, I think, has caused a lot of frustration for companies and component OEMs.

Luka: 59:33

Elaborate, please.

Bobby: 59:35

Yeah, there is opacity in which these products have been vetted. I know this from people who were there and people who've told me, people who are evaluating the systems themselves. And there is, like, presumably every single product that was, that was shown, vetted, is NDAA compliant. And the question is like, oh, well, does it have the capabilities that I need? And can it go through the cyber penetration testing that is provided, to be extra secure? Because NDAA compliant products don't have to go through the same cyber security requirements as the Blue UAS product. But then there's things of, like, I know there's a number of platforms that were on the blue list that will no longer be on the list once this new refresh goes through. Their ATO will not be renewed. And the reasoning, like, I have not heard a good reason from, or any reason from anyone about why that's the case. And so, the concern to me is, like, oh man, like, if I'm drone company A and I have had a system or more systems on the blue list, I've pre sold or I've sold a bunch of systems that customers expected to be on the blue list, and you're telling me that I'm no longer be on the list? Sorry, you can't tell me why? I'm a lot less likely to want to work with you in the future. I'm a lot less likely to want to go and do other things. And this is a huge problem because, the blue list itself is just a simple certification. What I'm learning more and more is that it's actually causing, this is not to DIU's intent at all, it's all unintentional, it's causing a ton of confusion and in some ways detriment. So people think they need a blue system when they don't. For one, companies are forced to spend a ton of R& D to build the blue system for customers that don't actually exist, right? Or they think might exist. And on top of that, there's actually on a program of record problem, which I didn't know this. This is the only thing that changed my perspective the last several months and weeks. There's no sustainment with the Blue UAS program, which means there's no training and extra parts. You're just paying them like MSRP. So what you have is certain forces and organizations in the U. S. military and DOD and around the world who are like, we're only going to look at Blue UAS product. And other groups within that same organization will say, no Blue UAS products at all. Because what you're having are individual folks buying small batches of drones without the training, without the sustainment, and it's causing problems. And if you think of it from a drone company perspective, these guys are strapped for cash. Of course, they're trying to make a sale. But then you think about it, oh, we sold two or three drones to this, some special forces unit and they hate it because they didn't pay for the training and they didn't do all this other stuff. Like that's not a good experience for anybody. And then I look at the issues of like, and I know a number of companies that applied for this latest refresh that were denied, and some of the companies from components to also vehicles themselves, had other systems they make that, like, one vendor, they were like, man, we got on the list with all these other products, except the one that does 90 percent of all of our business, the DoD, is the one that didn't get selected. Like, that's not good. Or a drone that was, a drone that was selected to be on the list, but the controller that is required to work with that drone wasn't. So it's like, how are you going to use that system?

Luka: 1:02:38

So, Bobby, just to understand better, on a technical level, what's the additional scrutiny for the Blue UAS, Is the definition of the critical component, is that expanded? Does it cover more or in what way is it more scrutinizing?

Bobby: 1:02:52

So this is the challenge is that historically it hasn't been, it has been just kept to NDAA and there's a cybersecurity element. But then there's certain things like, in my own experience, like, a big one is actually the company structure, right? So, what percentage of your company is foreign owned or owned by adversarial nations or based in adversarial countries and little things like that. So there's like an extra layer of scrutiny, right? So, when I was at Autel we were doing the Blue UAS program, like, we had a path for everything, all the components, the software, etc., but a lot of it was based on the company ownership, like, and initially it was that, oh, this Chinese national owns the company still? Like, that's not going to work. And they're like, well, his son, who's a US citizen, is actually going to own it instead. And they're like, that's his son. We don't care. You know what I'm saying? There's like an extra layer of scrutiny that comes along with the Blue UAS program that exceeds what NDAA is.

Luka: 1:03:49

But if there's an NDAA compliant, product made by a company that's in, friendly countries, and apply some good cyber hygiene, is that pretty much, a guaranteed blue UAS label, or?

Bobby: 1:04:02

No, that's the problem. It's not guaranteed. that's one of the issues is because there have been multiple products that were already listed on the blue list that are made in the United States that have already been certified that are just all of a sudden not on the list anymore. And so companies can't be NDAA, but the products can be NDAA compliant, right? And this is something that, but I don't want to pick on DIU. I, they have a very hard job.

Peter: 1:04:25

But is DIU the sole arbiter of this, or is there,

Bobby: 1:04:29

Yeah.

Peter: 1:04:30

and there's no recourse on the part of the companies, just depending on what DIU says?

Bobby: 1:04:35

Yeah. if you don't get in this year, you wait till next year, the next refresh product. Or you basically, the other way to do it is just the way it's been the whole time, which is you need to get a sponsor from a DoD client that's willing to pay for you to go through the cyber testing. And there's like time and people don't realize the refresh was just a way to like onboard a bunch of new people and get them on board. What I think is happening now is you have companies that have been excluded from the list or companies that have had products excluded from the list that will now have to go through a different process to go on there. This means time and money, and this is frustrating because some of these companies right now have spent hundreds of thousands of dollars to get their platforms already on the list, only to have their ATO expired. It's like, it's a slap in the face. And this is where I go back to this manufactured friction and the challenges. And how we can be ready for something that, might be coming. Like, this is just self sabotaging. I had the opportunity to fly the FLIR Black Hornet 4, which is like, it's tiny. The one thing everybody knows about is that it's super expensive. Right? And I have, the pricing for some of these products goes up to like, horseshit category. Turns out, through the program of record, it's cheaper than most blue UAS systems. That were on the list previously. And it comes with sustainment and training and yes, there's a huge volume of it. And I have to give the Army enormous credit, really. Like the Army has done a phenomenal job of like leading the way. Just not just with SRR, but in this case, SBS, and they've got LRR and MRR. These programs of record, not only do they enable these companies to build products, but they're actually enabling the industrial base because. Teledyne FLIR is going to have to scale and ship out, 10, 000 of these or whatever, a huge number of these little birds, which means they have to scale the, all of the components associated with it. And this has a trickle down effect because, oh man, you made all of these thermal cores are bad example, because I don't think you can make enough of them, but you've just made a bunch of these cores. Eventually, this new gen that you'll be working on, the older gen version of price will come down. And this always happens. And I think that we need to have that. And I know, so SRR is a good example with the Teal Black Widow. They have a, a FLIR camera on there and hopefully, and I know this, it's very likely that like that volume, because of what they're going to be purchasing will enable the component price to go down for everybody else. Same with the Doodle Radio in that bird, right? So it really is an all boats rise with the tide, effect with a lot of these MOSA oriented systems.

Peter: 1:07:02

That SRR contract, the initial amount awarded is roughly what, 12, 000 drones? Is that what the unit volume is going to be?

Bobby: 1:07:10

I, I think the initial amount on my understanding is actually very small, like the first teeny bit of the order, but I think it's up to like, It is in the might be over 12, 000 something total.

Peter: 1:07:21

Okay. Yeah. I'd heard it was 5, 880 kits, each kit having two drones, something like that.

Bobby: 1:07:27

Yeah, I think it's twice as large as what the last one was, is my understanding. and again, this is helpful. So if you look at, we have somebody that say for like, for MRR, Anduril, and, PDW got it. All of the components associated with each of those birds will then have to scale to meet that demand and that volume, which also means that If I'm also using the same radios and core components, price can come down. and this is something that I, anybody who's listening to this, if you ever flew like RC airplanes 20 years ago, the electric brushless motors, those were like 150 a piece. They were super expensive. And yeah, these were made in Germany and they were hand wound, et cetera. But now you look at them, you can buy them for like 20, 30 bucks a piece, 10 bucks a piece in volume. And I think that's going to happen with these other components. in the United States, and I, and you look at like what Doodle Labs is doing is, they've done a phenomenal job of, US based company, manufacturing product, I think out of Singapore and the United States, NDAA compliant. Is it low cost compared to China? Absolutely not. Is it low cost compared to like the super high end Silvus radio? Certainly. But it's just a matter of time before all those components come down in price, orders of magnitude. And so then instead of paying tens of thousands of dollars for blue UAS product, you're paying under 10k. And then hopefully one day under 5k.

Luka: 1:08:41

Bobby, we can't talk about DoD without touching on MOSA. So, what's MOSA? What are your thoughts on it?

Bobby: 1:08:48

The Modular Open System Architecture, I think it's the same thing as enterprise IT, which is what we currently use. You go to any server cabinet anywhere in the world, The width has been standardized, the DIN rail's been standardized, the depth. Only what's different anywhere in the world is the power plug, right? But you have usually, 90 percent of the time, Linux of different flavors, powering different hardware OEMs, Fortinet, Barracuda, Dell, whatever, HP, different ways, working seamlessly, whether it's a Bitcoin miner, a video caller, or one of those horrible video callbots. You name the application, it just works seamlessly, right? And it's that horizontal integration piece that I think is very important. We currently don't have that when it comes to drones. And the DoD is laying out some of their own standards, whether it was like Ross A and STANAG kind of on the interface side, I think that we need to start seeing more of the standardization and modularity on the physical side. Like maybe use the same connector that connects the radio to the autopilot. For every drone right? And we just standardize that one damn cable, so for the sake of supply chain, and also for support and maintenance, like, we just know it's just one cable that we use. The way a USB C is used pretty ubiquitously, right?

Luka: 1:10:01

How is it working in practice, though? Companies are trying to, yes, on the one hand, embrace it, but at the same time, finding ways to, still lock out competitors and build somewhat of a proprietary system.

Bobby: 1:10:13

Think companies like Quantum Systems have done a phenomenal job of this, where they have their own, like, secret sauce, whether it's the airframe and some of their own software associated with it. Their CEO very openly talks about, this is how we build our stuff, and this is who's radio, whether it's a Sylvus radio or a NextVision camera, or, the AirVolute board that powers a lot of it. Like, they're very open about this. And the real value is, it's our prowess and integration and capabilities that is the real value here. And it's, I think it's very hard for folks, and I would love your input on this as folks who invest in the space. How can builders in defense tech reconcile the DoD's need for MOSA with, I think, maybe a lot of VC's need for, like, building a really strong moat because when it comes to the enterprise, like, my gut tells me it's not meant to be sexy, it's just supposed to work. Because these are tools, and because they're tools, how we interact with them matters. Everything from their aesthetic to their usability and their interoperability. And again, I think Anduril, Palantir is an incredible company, and I think Skydio is also a very, like, impeccable piece of technology. I am just curious, I'm hearing the DoD customers feedback about, hey, I want this to plug in with everything. And the thing about, and I shouldn't use Anduril's example because I was, for the last several years, critical of Lattice's one way integration. Well, I think a few days ago they just announced, like, an SDK. So you can now integrate two ways. Which actually enhances and perpetuates this MOSA, right? And I know Palantir is doing the AIP thing, where you can build your stuff on Palantir's platforms. I'm gonna pick on AeroVironment for a second, who is not very MOSA focused, who historically has been building things themselves. And I think it's a result of them not having any competition. I look at what Edge Autonomy is doing, and, also building some of their own components, but the interoperability really shines. And, yeah, it's like as simple as saying you bought a cigarette lighter or a power adapter for your car that only works for this one brand. That's literally what we're currently dealing with in DoD. So how do we go back to this, like, consumer mindset of, like, ease of use and convenience interoperability and interpret that for enterprise? Like, okay, this has to be ubiquitous because if it's exquisite and it takes time to fix, and break has to be at the depot. It's going to, it'll be a pain in the ass and that's not an option for us. One of the things about MOSA too is it's a concept that I'm talking about for years. Not everybody has embraced it. I think that the drone industry in general is built on MOSA. We just have these tribalism, lack of interoperability between components that, I think prevent that. I'm very bullish. Like these guys, Firestorm Labs. They built a modular system. Ascent Aerosystems, my former employer, they built a modular system. Like, you take their bird, you take a payload of yours, you integrate onto it, and then there you go. And you can sell that, or someone's white label it, like, they get it. And, the challenge has always been the small little integration between the components that those vehicle OEMs don't make, and the integrators and the end customer the integrator wants. Whether it's a camera, a radio that's a one off, or a classified payload, or whatever the hell it is. That integration piece matters. I think maybe you asked me, someone asked me like, what do you expect to happen in the next five years? I think stuff's going to get smaller physically and hopefully cheaper. We've been wanting this for 10, 15 years, but, this idea of like, actual attritable mass, this is something that we haven't really addressed yet. And I think, we, I can talk for hours on end about we need to solve, a big problem in the United States about our cost of living if we're going to be manufacturing things here at scale, because it is, it is a problem, right? You, you've got computer vision, engineers getting paid a quarter million dollars in the Bay Area and getting paid, a fraction of that in Europe and it's the same quality of engineering. And I don't know, this is a national security issue that I hope the DoD is paying attention to, but I hope Congress is paying attention to, and this is not meant to be like, it's not a political thing for me, it's about, it's expensive to build stuff here in the United States, and if it becomes more and more expensive, we are at a huge disadvantage. Because if you look at this attributable mass, what happened with Iran and Israel back in March or April, when Iran fired the first volley of missiles, and it was intercepted, I think it cost them, they said, 25 to 50 million, and it cost like 1. 25 billion for us to defend against that. That's the problem.

Jim: 1:14:26

How does the use of drones change in the next five years in your vision, both on the military side and the commercial side? What's going to most dramatically change?

Bobby: 1:14:36

Yeah, I think, one is Drones as First Responders, something I'm very interested in. I think we're actually going to be seeing more of that, like, for public safety use cases. I think drone delivery will overlap with that, where you'll be seeing the delivery of like defibrillators and critical, life saving technology. And on the defense side, I think we're going to see more, like, applied autonomy. And the big thing is the whole GNSS denied application yeah, EW will be a norm. So the drones will have to be able to fly autonomously in a way that only a few really do right now. And I also think that autonomy will become more commodified, like the way ADAS on cars has, or like the backup cameras now, like on every car, or lane keep assist, like we'll see that with, with products, and then obviously stuff being smaller.

Jim: 1:15:19

You're a fascinating guy. Tell us who in this industry are you most impressed by?

Bobby: 1:15:26

I can't say there's just one, there's a handful of people. I'll name like the top five, and some people I work with, some people I don't. These dudes out of Croatia, Orqa I would say are the, I'm the most excited about. I was one of their customers for their FPV goggles. People know the goggles are the hardest part to make, and I was a skeptic. And I was like, there's no way these dudes in Croatia are able to make goggles. I'm not going to fund their Kickstarter. They're just going to run with the money. And, I was wrong. I ate my words. And I consider them to be the single, like, I think they're going to be the next big thing, and I think everybody who works with them knows that. Quantum Systems I'm extremely impressed with the quality of engineering organization, the focused execution that the US team and the German team also has brought together, super impressed with. Modal AI, I mean, these guys have just been doing something super quiet, just staying very focused. I think they cornered the indoor GNSS denied GPS denied market with their tech stack. I posted some videos on Untethered the CubePilot CubeNode. It's an, it's like an autopilot SOM, essentially, that's the size of your thumbnail. And it's gonna be like 40 bucks. And it's all NDAA compliant, and you can, make millions of these a year. So this is also really impressive. There's these guys, Spleen Lab out of Germany, that do the autonomy for a lot of, they did it for a bunch of self driving car companies that are well known, and then they've been doing, GNSS denied navigation and precision landing. yeah, I'm very excited about them. I work with these guys, Gremsy out of Vietnam, who make gimbals, but now are starting to make payloads, and I'm excited to see some of their stuff come out and enable the rest of the industry as well.

Jim: 1:16:55

And, when you came on the podcast, you were thinking, I'd like to make sure there's one message our listeners most take away from this conversation. What would it be?

Bobby: 1:17:04

Drones are hard. They really have to think about the drones are hard. people, I'm going to joke about Bobby Healy being like, oh, it's not that hard because the entire time I'm talking to him, he's like, oh, it's just software. It's like, yeah, for you, who's built a bunch of software and the software you've built, like it's not that hard. Drones themselves, the robotics themselves, this is very difficult. And, I think that if people realize how hard it was, they would reconsider investing and also not just their money, but their time in the industry. Because once you go down this path, you'll be like, Oh God, like, what the hell have I done? So yeah, drones are hard. I have many people said this, but it really is. This is a very difficult problem to solve.

Jim: 1:17:39

Bobby, thanks so much for joining us.

Bobby: 1:17:41

Thank you so much for the opportunity.