Selling batteries into an industry burned by overpromises | Jonathan Tan

Jonathan Tan (0:00)

China steamrolled everyone by coming in with the lowest cost, good enough product. That's exactly what's happened in the battery industry. I think it does come down to just an evolution of America giving up its means of production. They own the raw materials production. They own the processing of that raw materials into special chemicals, and they own the integrated way of turning that into a finished product. Sometimes you just gotta be able to survive. How did you know that defense was the market that made sense? What materials can we produce in the United States in volume, not 10 years down the line? Meladigal silicon is one of the few that is in abundance here. We partnered with the largest source of that critical mineral. Because we had secured that supply chain, when we went out to market and said, where does that have the most resonance? That's really when the defense customer started coming to us a lot more. How did people and governments allow this to happen? I think it does come down to...

Jonathan, welcome to the show. Thanks, thanks for having me. Of course, we're just having a great chat pre-interview, and I asked you, does China control the battery supply chain? And you corrected me, and it's dominant. China dominates, absolutely dominates the battery supply chain. I think when we first started Coreshell, we're a battery technology company, foreshadowing some of the conversations we'll be having. That was essentially what we theorized, was that China was going to follow the same blueprint that happened in the solar industry. So it's exactly happened, which is that America spent a lot of time investing with what they thought were sort of moonshot disruptive technologies. China just steamrolled everyone by coming in with the lowest cost, good enough product. And I think that's exactly what's happened in the battery industry. They control the majority of the battery supply, including over 93% of the world's battery-grade graphite, which is half of every single battery that's made. So it's an absolute dominant position that they're in right now. How did people and governments allow this to happen? How did Elon Musk allow that to happen with batteries? How did the government allow that to happen from a national security perspective? There had to have been signs, right? There's no way it just woke up, where bam, all of a sudden they just control it? It's a great question.

I think it's not been one thing.

I don't think it's something where people woke up one day and said, okay, well, we're just not going to try to make batteries. We're just not going to try to make solar panels. I think it does come down to just an evolution of America giving up its means of production. People have used the term deindustrializing, which I think is an interesting term, just not having the means to make physical goods anymore, right? Because it requires not just a single part of the supply chain, but a completed, integrated, holistic overview. That's why China is so dominant. They own the raw materials production, they own the processing of that raw materials into special chemicals, and they own the integrated way of turning that into a finished product. By owning that entire supply chain and having a long-term vision on how you're going to implement that into something that has real strong national security and real incentive for the country to come behind, they have effectively had a much longer purview on how to build that industry up. And one of the things that China does so well that US is just completely lost is the ability to say, I am going to allow those discrete portions to not have to all be super profitable, right? To not have to compete on that same level of, okay, every single business has to buy for themselves. I'm going to look at the entire supply chain and the market in a much more holistic way. And I think the proof is in the pudding, right? They have really run away with the ability to produce physical goods in a much more efficient way than we have. And batteries are an instance of that, but not necessarily a cause or a real different supply stream than other things that we've lost the ability to make. Going back to the founding of the company, was that on your radar that this was going to become a national security conversation? Did you ever think you'd be part of that conversation? No, no, it's a great question. When we first started the company back in 2017, our main thesis was that batteries are going to become important. It sounds stupid now, but when we first started, this was before Tesla had taken off. This is before we started to build these massive batteries on the grid. And so we do want to give ourselves a little credit. When we first started, when we told people that we were going to start a battery technology company, the first thing they asked was, oh, are you going to make batteries for iPhones? Because that was the biggest popular usage for batteries when we first started the company back in 2017 So our theory was that, no, we're not just trying to make better devices. We're trying to really build something critical for this next generation of vehicles, of transportation, of energy. And I think it's gone through multiple iterations, but I think the one thing that has been completely clear is that batteries are just growing in their presence and usage for all the things that we're trying to do, whether it's transportation, whether it's AI, whether it's data centers, all that stuff is reliant on cheap and abundant energy storage. And that's been the mission for the company. How did you get into this space in the first place? Like, did you grow up just playing with Duracell batteries? Like, where did the love and the passion for batteries come from? No, no, no, it's a great question. My co-founder and I, we were technologists or engineers, scientists when we first started. We met at UC Berkeley, did our degrees there, and we really wanted to apply our skills for something impactful, right? I think that was the main thing was, how do we make our technical skills, which are sometimes, in my opinion, almost abstracted from the human condition at times, right? Like you solve a technical problem, it's great. But for me, I've always thought about impact on a more humanistic way, right? How do we turn technology for the greater human good, rather than just technology in a vacuum, right? Better science, which is fantastic, but it's not really the motivation that I think both me and my co-founder had. So we wanted to do that. And again, we didn't actually intend to apply those skills to batteries. Batteries were just the best way that we found to implement the materials level innovation and understanding that we had developed in our careers to make the most amount of impact that we could. So we had worked on thin film nanomaterials before starting the company. My co-founder much more on the technical side, me on the scaling and commercialization of those thin film materials and nanomaterials, and then we just decided, okay, batteries were, in our opinion, going to be so critical that we wanted to devote our skills to making that a better industry. I think we're in an era right now where it's almost cool, or no, it's not almost cool. It is cool to do deep tech and hard tech. 2017, I feel like, was a different time. Do any stories stand out to you from that time period of investors just saying like, no, like go do something in SaaS, like go do something software? Is it a better time?