AI transcript
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0:01:01 One of the really striking things about technological progress
0:01:04 is the way one breakthrough leads to another.
0:01:08 For example, mass adoption of laptops
0:01:11 led people to create better, cheaper batteries.
0:01:14 Those better, cheaper batteries made it possible
0:01:16 to build affordable electric vehicles.
0:01:19 And then the proliferation of electric vehicles
0:01:22 led people to create even better, even cheaper batteries.
0:01:26 And those better, cheaper batteries are now leading to everything
0:01:30 from grid-scale energy storage to flying cars.
0:01:34 Of course, those advances, they don’t just happen.
0:01:36 People have to look at the world and think,
0:01:39 I’m going to start with what exists now
0:01:40 and build something new.
0:01:44 One of those people is Mitch Lee.
0:01:46 That very first time I went in a Tesla,
0:01:50 my mind jumped forward two steps to,
0:01:51 this should exist for boats.
0:01:56 It makes even more sense in marine applications
0:02:01 because gas boats have all these acute problems with them.
0:02:03 They’re loud.
0:02:04 They’ve got noxious fumes on them.
0:02:06 They’re a pain to maintain.
0:02:08 They’re super unreliable.
0:02:09 They’re expensive to operate.
0:02:10 And when you go electric,
0:02:15 you end up addressing those acute pain points.
0:02:23 I’m Jacob Goldstein, and this is What’s Your Problem,
0:02:25 the show where I talk to people
0:02:27 who are trying to make technological progress.
0:02:29 My guest today is Mitch Lee.
0:02:33 He’s the co-founder and CEO of Arc Boats.
0:02:36 He grew up boating with his family in Northern California.
0:02:38 eventually became a software engineer,
0:02:40 and he founded Arc in 2021.
0:02:43 Mitch’s problem is this.
0:02:45 How do you build electric boats
0:02:47 that are better than gas-powered boats?
0:02:49 And how do you do it at scale
0:02:51 and at a competitive price?
0:02:55 Arc is currently developing hybrid electric tugboats,
0:02:57 and they’re already selling electric wakeboats,
0:03:00 boats people can take out on lakes or rivers for fun.
0:03:02 To start, I asked Mitch to tell me
0:03:05 the first big problem that he and his colleagues
0:03:07 had to solve when they started the company.
0:03:11 The challenge is that boats consume a lot of power.
0:03:13 Water is a thousand times more dense than air,
0:03:15 which means that if you want to
0:03:18 sustain a full day’s worth of activity out on the water,
0:03:22 you need to store a lot of energy on board.
0:03:25 If you’re going to go electric,
0:03:26 that means really big battery packs.
0:03:29 Those really big battery packs
0:03:32 are the first-order problem that you need to solve.
0:03:32 If we say,
0:03:36 hey, we want over 200 kilowatt hours of battery capacity,
0:03:37 who can give it to us?
0:03:40 We can’t go to Amazon and just, like, buy one.
0:03:43 So part of it is, does it exist?
0:03:45 And you can’t go to, like, Shenzhen?
0:03:46 Like, there’s not just somebody
0:03:49 who sells battery packs to everybody somewhere?
0:03:52 No, because they tend to be very specific
0:03:55 to the use case, the geometry that you want.
0:03:57 And there are people that are trying to do this,
0:03:59 but then the problem shifts to,
0:04:01 okay, well, now they’re cost prohibitive.
0:04:04 And you almost have to bring them in-house
0:04:06 to get the cost down low enough
0:04:08 to be able to make your product competitive.
0:04:10 What we do is we go to automotive suppliers,
0:04:12 people that are operating an insane scale
0:04:15 and have incredible quality standards
0:04:16 because automotive operates
0:04:18 at a much higher quality standard than marine.
0:04:22 So we get to take advantage of all of those
0:04:25 and then bring them into the marine industry.
0:04:28 What are the particular challenges
0:04:31 of building a battery pack for the water?
0:04:34 One is just its size.
0:04:37 The Arc Sport, our wake sport boat today,
0:04:42 is 226 kilowatt hours battery pack.
0:04:45 It’s three or four times the size
0:04:47 of an electric sedan’s battery pack.
0:04:49 That’s kind of a sense of scale.
0:04:51 So we’re a little bit constrained on mass.
0:04:53 We’re not that constrained on volume.
0:04:56 We’re very constrained on price.
0:04:59 If you go try to build a 226 kilowatt hour battery pack,
0:05:02 that can get very expensive very quickly
0:05:06 if you are not driving really good economics
0:05:08 behind the battery pack.
0:05:11 So it’s not a technological problem,
0:05:13 but it’s a techno-economic problem, really,
0:05:14 that you’re setting out to solve.
0:05:17 Now, the mass does come in in the sense
0:05:21 that it’s not necessarily that you’re mass constrained,
0:05:24 but you now have thousands of pounds of battery pack
0:05:26 that you need to place onto a boat.
0:05:29 And where you place that, how you integrate it,
0:05:30 how you offset the weight of that,
0:05:31 how you support the weight of that,
0:05:34 that all starts to become these second-order problems
0:05:35 that you need to solve.
0:05:38 So step one, build a really big battery pack.
0:05:39 It’s heavy.
0:05:40 It’s expensive.
0:05:44 Now, step two is go build the boat around that
0:05:47 and have it compensate for the weight,
0:05:51 for the price, for the volume of it,
0:05:56 in a way that isn’t just not compromising on the experience,
0:05:58 but is actually making the experience better.
0:06:01 Same way automotive comes along,
0:06:03 they build the car around the battery pack,
0:06:06 and suddenly you have a frunk and a low center of gravity
0:06:08 and all this performance that you unlock.
0:06:11 So where are you now?
0:06:13 Tell me about the boat or boats that you’re selling now.
0:06:13 Yeah.
0:06:17 We, as a company, started on the consumer side
0:06:19 and started with a product called the ARC-1.
0:06:22 We called it kind of a luxury cruiser.
0:06:25 It’s got a novel seating layout.
0:06:28 It’s a lot of fun for lakes, rivers, that sort of thing.
0:06:33 And that was really our pilot production, our test bed,
0:06:38 the product that we use to go develop the technology necessary
0:06:41 to make electric boats viable at a larger scale.
0:06:44 And we took all those learnings from that program
0:06:50 and ported it over to what we are now ramping production of,
0:06:51 which is the ARC Sport.
0:06:55 The ARC Sport’s a 23-foot fully electric wakesport boat.
0:07:00 You know, if you go look out at a lake or river today,
0:07:02 you’re going to see families out there wake surfing,
0:07:05 wakeboarding, water skiing, pulling inner tupers.
0:07:07 This is the type of boat that you do it with.
0:07:10 We’re ramping production of that right now.
0:07:14 We’ve got a months-long backlog for the product.
0:07:17 We’re really just trying to keep up with the demand that we see for it.
0:07:19 Yeah, what did it say on your website?
0:07:21 It’s something 2026.
0:07:21 Is it summer?
0:07:24 Like, if I try and buy one now, when can I get one?
0:07:29 Yeah, we’re working through basically the last slots
0:07:32 before summer of 2026.
0:07:35 That seems like, is that a good problem to have?
0:07:37 I mean, it’s better than nobody buying it.
0:07:37 I don’t know.
0:07:41 Is it, how is demand working for you?
0:07:45 Yes, it’s a good problem to have, and it’s still a problem.
0:07:48 And those two things can both be true.
0:07:52 It’s the better problem to have versus nobody wants the product.
0:07:57 It’s still a problem in that we want to deliver great customer experiences to people,
0:08:00 and your summer season matters a lot.
0:08:06 And so if we slip production targets by a few weeks, that can really impact somebody’s experience.
0:08:07 Yes, yes.
0:08:10 The difference between February and March, nobody cares about.
0:08:13 But the difference between July and August is a big one, right?
0:08:13 Exactly.
0:08:15 You have to be out there for the 4th of July or whatever.
0:08:21 So we really emphasize that as a company, and we try to not overpromise to customers.
0:08:26 You know, it’s a balancing act that we’re trying to strike.
0:08:28 What’s the rate-limiting step?
0:08:32 I mean, do you just have one factory, or are you like supply-constrained in some way?
0:08:34 Yeah, we’re supply-constrained.
0:08:41 One of the things that we’re doing, well, from a business perspective here, what we want
0:08:47 to make sure that we do in priority order is build a product that people love and want,
0:08:50 build a better boat, deliver better boats to the market.
0:08:53 The next thing is make sure that we make money on those boats.
0:08:57 And then the third is ramp production of them, ramp supply of them.
0:08:58 Uh-huh, uh-huh.
0:09:04 In order to tackle those last two simultaneously, what we’re doing is as the way that we’re
0:09:07 ramping production is that we’re getting more efficient at production.
0:09:10 Are you losing money on the marginal boat still?
0:09:11 Is that what I’m inferring?
0:09:12 No, no, we make money on the marginal boat.
0:09:14 This is very different than automotive again.
0:09:15 Okay.
0:09:17 You will see many car companies that-
0:09:19 You don’t have to sell a million of them to have-
0:09:19 Exactly.
0:09:20 Yeah, yeah.
0:09:23 Yeah, we can make money even on the earliest units of them.
0:09:31 But, again, dissimilar to how the automotive industry works, which is very robotic, very
0:09:36 automated production lines, boat building is much more labor-intensive.
0:09:39 It is a bit of a craft.
0:09:42 Indeed, boat companies have craft in the name sometimes, right?
0:09:43 Exactly.
0:09:43 Yeah.
0:09:45 It is very much a craft.
0:09:48 I mean, from a business standpoint, that seems bad, right?
0:09:52 That sounds like high unit cost to me when you say craft.
0:09:55 It is high unit cost, and you’ll see that boats are actually quite expensive.
0:09:57 Well, so, yes, your boat is expensive, right?
0:09:58 How much does your boat cost?
0:10:04 It starts at $268,000 for the wake sport boat, which sounds-
0:10:07 Yes, I don’t know anything about wake sport boats, and I was shocked by how expensive that
0:10:08 is.
0:10:10 That’s shockingly expensive.
0:10:10 Yeah.
0:10:14 And the rest of the market is also there for the premium side of this market.
0:10:20 So how many people in America buy a $300,000 boat every year?
0:10:24 The marine industry is interesting for a variety of reasons.
0:10:31 And in this market in particular, one of the things that you see is that, well, you look
0:10:37 at your sedan market, and you have your Honda Civics, your Nissan Ultimas, but then you have
0:10:40 your Mercedes S-Class, your Model S, whatever it is.
0:10:47 And you see, the volume really favors that economy class sedan, and then it’s a smaller
0:10:49 peak of demand at that premium sedan class.
0:10:51 In boating, it’s the opposite.
0:10:54 Well, because nobody needs a boat to get to work, right?
0:10:54 Right.
0:11:01 And if you have this house on a lake or a river, you care about, hey, I just want the best boat.
0:11:03 You’re probably rich, right?
0:11:07 So you end up wanting to buy the best one.
0:11:10 So the demand is actually at that higher end, which is why you see the prices go.
0:11:16 And kind of going back to that roadmap, that business is what ultimately supports everything
0:11:16 else that we’re doing.
0:11:18 We started here for a reason.
0:11:20 It’s a premium class of boat.
0:11:27 It has moderate volumes to it, so we could really scale up to a meaningful business just
0:11:28 in that market alone.
0:11:34 But what we’re doing is we’re taking that same technology and copying it over to other
0:11:34 sectors.
0:11:40 You could look at kind of any car company that uses the same platform to build multiple
0:11:40 products.
0:11:44 We’re doing that same thing at ARK.
0:11:49 So that allows us to expand pretty quickly into other consumer segments.
0:11:50 We’ve already announced the ARK Coast.
0:11:55 That’s a center console boat that is intended for that fishing and leisure market that gets
0:11:58 a lot more popular in, you know, Florida and the East Coast.
0:12:03 And that same technology is also what lays the foundation for us to get into commercial, which
0:12:05 is one of our big expansions recently.
0:12:08 Yeah, I want to talk a lot about commercial.
0:12:14 I mean, that seems from a sort of broader, it seems like a much bigger market, presumably,
0:12:15 right?
0:12:19 If just in terms of dollars, in terms of emissions, in terms of lots of things, I feel
0:12:21 like commercial is a really interesting part of the conversation.
0:12:27 But before we get there, just a couple of things like, one, tell me about safety.
0:12:31 And when you’re sort of building an electric boat from scratch, what do you got to think
0:12:32 about in terms of safety?
0:12:39 We care about making sure that we are moving this industry in a safer direction.
0:12:42 Gas boats today are not that safe.
0:12:44 Engine fires are pretty common.
0:12:53 You end up running these combustion engines in a chamber that traps fumes in it.
0:12:55 So the whole of this boat can trap fumes.
0:12:59 And so boats come with these things called blowers that eject those fumes.
0:13:04 If you forget to run a blower, it can be disastrous and incredibly dangerous.
0:13:08 So you’re telling me your boat doesn’t have to be that safe to be safer than a boat.
0:13:12 I’m saying that we are dramatically safer than where the industry is at today.
0:13:18 I mean, is there, like, I take your point, and internal combustion engines are just kind
0:13:19 of crazy, right?
0:13:23 It’s crazy that they work by having little explosions thousands of times per minute, but that’s actually
0:13:24 what’s going on.
0:13:29 I mean, presumably, like, I totally believe that your boats are safer.
0:13:34 Surely there are some risks associated with putting a giant battery pack on a boat.
0:13:36 I mean, tell me about that.
0:13:36 Yeah.
0:13:39 So do you think about safety in terms of redundancy?
0:13:41 No system is perfectly safe.
0:13:45 And so you’re thinking about, okay, if something fails, then how many more times can it fail
0:13:48 before it actually becomes a concern?
0:13:52 When we think about the battery pack, the obvious thing that you want to make sure you’re
0:13:54 safe for is water ingress.
0:13:57 You want to make sure no water gets into that battery pack.
0:14:01 And just to be clear, just like, dumb question, why is it bad if the battery gets wet?
0:14:02 Yeah.
0:14:07 I mean, because if you, in theory, if you take a battery pack and you dunk it in water,
0:14:10 it can go into what’s known as thermal runaway.
0:14:11 It can catch fire.
0:14:18 And stopping a battery fire is really hard because those chemicals are good at burning even
0:14:18 absent oxygen.
0:14:24 And that is obviously bad anywhere and obviously particularly bad if you’re out on the water.
0:14:25 Classic thing you don’t want on a boat.
0:14:26 Yes.
0:14:26 Yeah.
0:14:31 So if you, if you kind of rapidly step through these steps, you’re like, okay, you want to
0:14:32 get notified about this.
0:14:32 Great.
0:14:33 Yeah.
0:14:34 You’ve got leak sensors in there.
0:14:39 Then you want to allow as much water into the pack as possible before it actually becomes
0:14:40 a safety concern.
0:14:40 Oh, interesting.
0:14:45 So you design the pack in a way that can actually tolerate a fair amount of water in the pack before
0:14:46 it becomes a problem.
0:14:52 And then you say, okay, well then if it does, you know, if you just flood this pack with water,
0:14:54 then what happens?
0:14:57 And how much time do I have to react?
0:15:02 And you step through all of this and what it comes down to is, first off, we’ve designed
0:15:08 the packs to be essentially IP67 rated, which means you could submerge it in a meter of water
0:15:14 for 30 minutes without water getting in, which is an insane standard to hold for a battery pack
0:15:14 of this size.
0:15:18 If water does get in, you’ve got time.
0:15:25 Those leak sensors are, are tripping, alerting you on the boat, alerting our systems, uh, to
0:15:26 give you a lot of notice.
0:15:32 And then in the event that you do end up tripping, uh, uh, thermal runaway event,
0:15:36 you have a lot of time to get off of the boat.
0:15:41 Like we actually alert you and say, Hey, you’ve got maybe 10 minutes to put on your life jackets
0:15:43 and safely get off the boat.
0:15:49 All of these things really lend to the safety profile and compared to gas, it’s, it’s, you
0:15:49 know, incomparable.
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0:17:03 Let’s talk about commercial boats.
0:17:09 You’re you’re building a tugboat or you’re building a tugboat with somebody, right?
0:17:10 Is that the place to start?
0:17:19 Yes, we are entering the commercial market with hybrid electric commercial workboats.
0:17:22 Okay, we signed a deal with Curtin Maritime.
0:17:25 They are a major commercial operator.
0:17:28 They started on the dredging side.
0:17:35 They’re also known for moving some of SpaceX’s barges around.
0:17:37 They are entering the tugboat market.
0:17:45 And the way that they are doing this is by buying a fleet of hybrid electric tugboats from
0:17:46 us.
0:17:50 Okay, so you’re so what they placed a big order, right?
0:17:52 Like you’re supposed to sell them a bunch of tugboats.
0:17:57 Yeah, it’s it’s for eight tugboats, which is a large amount of tugboats when each one of
0:17:59 these is on the order of $20 million.
0:18:00 Yeah.
0:18:04 So you have to sell a lot of wakeboats to get that much money.
0:18:04 You do.
0:18:08 So are you designing a hybrid electric tugboat right now?
0:18:09 Like where are you in that process?
0:18:15 So boats are basically two parts to the boat.
0:18:18 Maybe maybe three parts if I were to break it down.
0:18:20 The first is the thing that floats.
0:18:21 That’s the steel structure.
0:18:22 Okay.
0:18:28 You take a bunch of steel, you cut it up into pieces, and then you weld it all together
0:18:29 and you have something that floats.
0:18:32 We are partnering with a shipyard to do that.
0:18:38 Then there’s the part of this that tugboats are kind of like houses.
0:18:39 Okay.
0:18:47 You have people on board that stay on board for long periods of time doing these jobs or at
0:18:49 least spend all day out on them doing the jobs.
0:18:55 So you care about where’s the refrigerator and where do they stay and what’s the visibility
0:19:00 from their control tower or what’s known as the house of the boat or the wheelhouse.
0:19:03 Where’s the winch go?
0:19:06 How do you push and pull on these other boats?
0:19:09 So that’s kind of the operating portion of the boat.
0:19:13 Curtin Maritime has a ton of experience and how do you go optimize the operating profile?
0:19:13 Okay.
0:19:14 Okay.
0:19:18 Then the last piece of this is how do you make the boat go?
0:19:21 How do you actually push it through the water?
0:19:21 Okay.
0:19:23 That’s what I mean when I say powertrain.
0:19:27 It’s the thing that actually delivers power into the water.
0:19:32 And that goes from, well, it starts from some amount of energy.
0:19:35 In our case, that is a huge amount of batteries.
0:19:36 Okay.
0:19:41 Talking six to eight megawatt hours of battery capacity.
0:19:44 A crazy amount of battery.
0:19:44 Yeah.
0:19:49 Then there’s all the, okay, well, now that you have the energy, how do you actually convert
0:19:53 that down into a propeller under the water or some sort of thruster under the water?
0:19:56 And that is also all part of that powertrain.
0:20:02 And presumably the integration of this like crazy amount of battery mass you’re going to need
0:20:09 into the whole boat and what everybody else is doing is going to be something to figure out.
0:20:09 A hard part.
0:20:10 One of the hard parts.
0:20:11 It is.
0:20:12 It is.
0:20:13 It is one of the very hard parts.
0:20:16 You know, each of these parts is super complex.
0:20:18 The scale of these vessels is massive.
0:20:27 It’s hard to actually understand the amount of torque that these things put out.
0:20:30 That’s the whole point of a tugboat, right?
0:20:30 Right.
0:20:32 Like that’s what it’s there to do.
0:20:32 Yeah.
0:20:39 So there are these massive vessels that are capable of pushing and pulling these cargo ships that
0:20:42 come in to dock.
0:20:42 Yeah.
0:20:47 And that means that each of the components on there is just giant.
0:20:56 Your thrusters are these huge components, you know, way bigger than, I don’t know, any propeller
0:20:57 you’ve certainly seen.
0:20:58 Way bigger than people.
0:20:59 Yeah.
0:21:05 So each of those comes from different suppliers that have existed for long periods of time.
0:21:08 And one of the integration challenges is, okay, great.
0:21:10 You’ve got a really big battery pack on board.
0:21:14 You’ve got good pricing on that battery pack that makes it cost competitive.
0:21:19 You still need to go get this entire system, all of these different components talking to
0:21:22 each other and all wired up to work nicely together.
0:21:27 And that is part of the integration challenge of all of this.
0:21:30 Where are you on that project?
0:21:36 We have already started construction on the first of the tugboats.
0:21:37 Okay.
0:21:40 And we expect to deliver that to market before the end of next year.
0:21:52 I saw in just my ordinary reading that is it the Daman RSDE Tug 2513 was shortlisted for
0:21:52 tug of the year.
0:21:56 And I missed that news.
0:21:56 Did you?
0:21:58 You did not miss that news.
0:21:59 Surely you knew that.
0:22:02 That’s an electric tug, right?
0:22:03 You’re not the only one doing this.
0:22:05 That’s why I bring it up, right?
0:22:07 That is an electric tug that is new.
0:22:13 Like, what’s the broader landscape like of people electrifying boats in general?
0:22:15 And in particular, this kind of, what do they call them?
0:22:16 Harbor vessels?
0:22:17 Is that this universe of boats?
0:22:17 Is that what they’re called?
0:22:18 Harbor craft, yeah.
0:22:23 These are more popular internationally than they are in the U.S.
0:22:30 The U.S. has a pretty interesting piece of policy in place called the 1920 Jones Act.
0:22:37 And what it means is that if you have a vessel that operates between U.S. ports, it needs to
0:22:38 be U.S. manufactured.
0:22:39 It needs to be U.S. flagged.
0:22:47 And what that means in practice is that if you are the port of L.A., if you’re one of
0:22:52 these many other ports in the U.S. and you have harbor craft, those need to be manufactured
0:22:52 in the U.S.
0:22:55 And that limits the number of suppliers that you can go to.
0:23:02 While there are electric tugboats and electric ferries internationally, there’s only one that
0:23:07 I’m aware of in the U.S. in this kind of ship-assist market.
0:23:17 And it was a heavily subsidized project that was very compelling in the theory of it and
0:23:22 what it could deliver to the market, but it wasn’t on its own economically viable.
0:23:28 What’s so compelling about what we’re doing with Curtin and our entrance into the commercial
0:23:35 industry is we are entering at a point that is directly cost competitive with making a diesel
0:23:36 driven tugboat.
0:23:39 absent any sort of grants.
0:23:43 And it’s cost competitive just buy in the boat or it’s cost competitive when you figure
0:23:45 out the sort of cost of ownership over time?
0:23:47 Off the line.
0:23:50 So it is cost competitive when you buy the boat.
0:23:50 And then…
0:23:51 How can that be?
0:23:55 Is it just that batteries got cheap enough for it to be possible?
0:23:56 Like, I’m surprised by that.
0:24:01 Is it that the domestic industry is super inefficient because it’s protected by the Jones Act?
0:24:07 I’m smiling because you’re hitting on some of the things.
0:24:12 So I think it’s also that we’re driving this business in a way that we want to be globally
0:24:12 competitive.
0:24:19 That is our mission here is to leapfrog in technology and become competitive again on the global stage.
0:24:24 Now, the things making this viable are actually two curves going on.
0:24:28 One is your battery prices are going down over time.
0:24:34 Your high voltage electronics, your power electronics, all of those are getting cheaper over time, which
0:24:37 drives the cost side down.
0:24:44 The other side is when you’re looking at the cost of those diesel tugs, those have been going up over time.
0:24:51 The complexity has been increasing, honestly, exponentially, because what’s happened is over
0:24:58 time, there have been increasingly stringent regulations surrounding the engines themselves.
0:25:06 Compliance standards around how much carbon is allowed to be spewed off of this and how you
0:25:10 burn it off and the temperature that that system works at.
0:25:12 And you need diesel particulate filters.
0:25:19 And it’s a very complex system to try to mitigate the, those negative extra, you know, to try to
0:25:20 mitigate the pollution.
0:25:27 So environmental regulations like emissions regulations have made diesel tugs in this country more
0:25:27 expensive.
0:25:28 Exactly.
0:25:29 Which is also good for you.
0:25:30 Yes.
0:25:34 So what might go wrong for you?
0:25:43 I mentioned that our focus is building better boats, making sure that we make money on them
0:25:44 and then ramping supply of them.
0:25:46 That is a very simple theory.
0:25:50 And we are not taking a lot of demand risk.
0:25:52 We see incredible demand.
0:25:56 We’re just delivering better products to consumer market, better products to the commercial market.
0:26:00 We’re not taking a lot of technology risk because a lot of this exists.
0:26:02 We are taking a ton of execution risk.
0:26:06 Actually pulling these things together is really hard.
0:26:07 And there’s so many levels to this.
0:26:14 Even the financing side of this is, is a challenge because you have to go do the construction of,
0:26:22 of these vessels and make sure that you finance that intelligently so that, you know, you,
0:26:27 you could actually get these things onto the water and validate the technology to unlock even
0:26:28 more of the demand.
0:26:30 The integration is hard.
0:26:34 The timelines have a way of only moving in one direction.
0:26:37 It’s, you’re not going to deliver it early.
0:26:38 Let’s be honest.
0:26:39 Yeah.
0:26:44 We, we, I, I am proud that we have held to the timelines that we have held.
0:26:51 And it is a constant battle because one part, I mean, going back to the consumer side of this,
0:26:54 you can get everything right about a production system.
0:27:00 And if you are lacking a few critical screws, it can halt a production line.
0:27:06 And that means that every, like having every piece in the right place at the right time
0:27:10 is so critical to the company.
0:27:13 And that’s this complex orchestration problem.
0:27:17 People say, you know, what’s hard about producing these boats or any of that?
0:27:18 It’s no one thing.
0:27:24 It’s a thousand small things that all of these pieces just need to fit together and hum, which
0:27:29 is why we’re so intensely focused on execution, on continuing to drive against the plan that we
0:27:30 have in place.
0:27:33 What, what are you going to build after a tugboat?
0:27:42 If you think about across consumer, commercial, the products I mentioned, ArcSport, ArcCost,
0:27:49 these tugboats, the common thread between all of those is that there is a better technology
0:27:53 that exists for the marine industry in electric powertrains.
0:28:03 It is a fundamentally superior technology to these outdated kind of diesel engines or, or gas
0:28:03 engines.
0:28:07 That’s our core focus as, as a company.
0:28:12 And we want to get those powertrains into as many vessels as possible on the commercial
0:28:13 side.
0:28:14 We’re starting with tugboats.
0:28:16 Ferries make a lot of sense.
0:28:19 You can get into offshore supply vessels.
0:28:26 There’s, you know, all sorts of different harbor craft that, that you can go electrify.
0:28:32 And then, you know, there’s this long tail of Coast Guard boats and water taxis and everything
0:28:35 else that you want to do commercially out on the water, fishing boats.
0:28:43 On the consumer side, it’s wake-sport boats, center console boats, it’s pontoon boats, like
0:28:47 every way that you have it, sailboats, every way that you have of being out on the water,
0:28:49 we want to go electrify it.
0:28:55 We’ll be back in a minute with the lightning round.
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0:29:45 professor Modupe Akinola.
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0:30:05 Let’s finish with a lightning round.
0:30:14 I read you and your co-founder argue about ideas, which seems healthy.
0:30:21 And I’m curious, what was one thing where your co-founder convinced you that you were wrong?
0:30:28 never happened.
0:30:33 It happened so frequently that I’m trying to think of a good example.
0:30:42 My co-founder is, Ryan is, this incredible engineering brain.
0:30:52 And he has this great way of distilling problems down into their core elements and then just
0:30:54 meticulously solving each one.
0:30:59 And the memory that comes back to me is when we first started ARK.
0:31:09 I was shying away from technical challenges and saying, hey, we should get, you know, help
0:31:11 here or buy this thing off the shelf or whatever else.
0:31:17 And he has at multiple points convinced me that we could do it.
0:31:20 And it ended up being way harder than he thought.
0:31:24 But we did it and, and it was certainly better for the business.
0:31:30 And, you know, one of those examples was how quickly we integrated the battery pack into
0:31:32 like, you know, doing the battery packs ourselves.
0:31:38 I thought that we wanted to work for at least a couple of years before we really decided to
0:31:40 bring battery packs in house.
0:31:46 We ended up doing it within months of starting the company, given the challenges that we saw
0:31:48 on procuring off the shelf options.
0:31:51 And, and he convinced me of that.
0:31:54 What’s the dumbest thing you ever did on a boat?
0:31:56 I am not going to answer that.
0:31:59 Second dumbest.
0:32:10 Um, we used to, uh, for the 4th of July, we would go out and watch the fireworks.
0:32:14 And, um, from a boat and you could bring your own fireworks.
0:32:20 This was, I think back at a different time where maybe this was legal, uh, or maybe you
0:32:22 just, I don’t know.
0:32:25 I don’t want to perjure myself here.
0:32:30 Um, so you’d go out on these boats and you could, uh, watch the fireworks.
0:32:37 They lit off this incredible firework show in, um, in Lodi, California, and people would
0:32:39 bring their own fireworks and kind of push them out on.
0:32:43 Like basically launch them off of their own boat.
0:32:49 And let’s just say that that was some of the dumber things you’ve done on a boat for.
0:32:50 Fair, fair.
0:32:55 Um, what’s one thing you know about boats now that you didn’t know when you started the company?
0:33:03 The thing that I’ve learned is that boat building is so much more of a craft than I appreciated
0:33:04 at the time.
0:33:06 What do you mean when you say craft?
0:33:16 So, the whole construction in particular is, is just this art form that there’s no, no, uh,
0:33:20 a hull being just like the bottom part of the thing that is there floating in the water.
0:33:21 The thing interacting with the water.
0:33:31 Um, yeah, that that’s, it’s such an interesting design challenge because there’s no free winnings.
0:33:37 You can, uh, you can make a boat more efficient so that you don’t have to use as much power
0:33:41 to move over the water, but you sacrifice something else.
0:33:45 It gets, you know, uh, bumpier when you’re riding.
0:33:51 It’s not as smooth of a, of a ride, um, or the, it, it lets more water in it.
0:33:53 The wetness of it is, is worse.
0:33:55 Doesn’t chop through waves as well.
0:34:02 Like there are all these trade-offs that you’re, you’re making, how it comes up on up to speed,
0:34:08 um, changes and, you know, how high up the bow is when it’s going through the water.
0:34:12 It, all of these things are trade-offs that you’re making in the design of that.
0:34:15 And then you translate that into the construction side.
0:34:21 And one of the things I’ve learned is boat and whole construction in particular is kind
0:34:29 of like cooking where you can have this recipe in front of you.
0:34:33 And if you’re a brand new cook, you’ve never cooked before, you’re going to mess that recipe
0:34:34 up somehow.
0:34:37 It’s temperature sensitive and maybe you get the temperature wrong.
0:34:38 It’s humidity sensitive.
0:34:39 Maybe you get that wrong.
0:34:44 You taste it and you’re not really sure why it’s not quite tasting good.
0:34:49 If you’re a chef that’s been doing this for 20 years, you could take a quick glance at the
0:34:52 recipe and you don’t even need to look at it because you’re doing everything by feel.
0:34:57 And you could look at imperfections in the side of a boat and know, even though they look
0:35:01 identical to somebody with an untrained eye, you know how to fix them.
0:35:02 And there are two different ways to fix them.
0:35:04 One is you buff them out.
0:35:08 The other is, hey, you need to actually go apply more gel coat to it or something.
0:35:10 It’s such a craft in that way.
0:35:12 And it was an underappreciated part.
0:35:18 I came in thinking, oh, well, you know, we’re going to reason from first principles about
0:35:18 all of this.
0:35:23 And I have a much stronger appreciation for the marine industry.
0:35:29 So does that mean on every boat, you need a sort of master craftsman, not every model,
0:35:31 but like every single one?
0:35:34 The one of the things we’re doing on the production side.
0:35:42 So production, I draw the analogy to Ikea furniture that production is run kind of like
0:35:45 assembling a piece of Ikea furniture.
0:35:51 You have this set of instructions and this set of parts that you come with and you read
0:35:52 the instructions and you go put the parts on.
0:35:57 If you think about how do you speed up that process?
0:36:00 Well, one way is you just get practice at it.
0:36:05 If you go assemble the same piece of Ikea furniture a bunch of different times, then you’re just going
0:36:06 to get better at it.
0:36:08 Or even different pieces, right?
0:36:13 Ikea has certain moves and like I’ve put together a lot of Ikea furniture like, oh, I know this
0:36:13 move.
0:36:15 It’s the thing that goes into the thing and then you turn it.
0:36:17 So some of it is just that.
0:36:23 But then you’re like, okay, well, but now I need to 10x the number of people that are doing
0:36:25 this and I want all of them to do it consistently.
0:36:27 They will have lower skill, right?
0:36:29 It’s the classic production problem.
0:36:34 Like how can someone who is not a master chef, who doesn’t know the craft, do a good job?
0:36:38 So then you go back to the instructions themselves and you’re like, oh, well, if I write better
0:36:43 instructions, then I can make this process move more quickly.
0:36:46 And then you’re like, great, now I’ve got good instructions and people are starting to
0:36:46 get reps on it.
0:36:48 And then you’re like, there’s a missing part.
0:36:50 Oh, no, everything kind of breaks down.
0:36:55 And that’s why, you know, sometimes in Ikea furniture, you’ll see you end up with a few
0:36:57 extra, you know, bolts or something.
0:37:02 And it’s because they stocked extra because they really do not want you to be short a bolt
0:37:05 because that’s painful, annoying, frustrating for everyone.
0:37:06 Yeah.
0:37:11 We’re trying to do that same thing on the whole construction, the craft part of this, but it’s
0:37:12 a challenge.
0:37:19 So the way that to answer your question of, do you need that kind of chef equivalent on
0:37:20 every boat we produce?
0:37:22 The answer is today, more or less, yes.
0:37:27 And what we’re trying to do is distill some of that knowledge into better work instructions,
0:37:33 better processes that allow us to do this repeatably, even if you’re coming in without
0:37:35 a lot of prior experience of doing this.
0:37:41 That’s a really interesting kind of process engineering problem.
0:37:42 It is.
0:37:43 And it’s a challenge.
0:37:47 And we have learned a ton about this and still have so much more to learn.
0:37:52 And I like to think that two years from now, we will look back at where we’re at today
0:37:54 and think, wow, we had no idea.
0:38:04 Mitch Lee is the co-founder and CEO of ARC Boats.
0:38:08 Please email us at problem at Pushkin.fm.
0:38:11 We are always looking for new guests for the show.
0:38:15 Today’s show was produced by Trina Menino and Gabriel Hunter-Chang.
0:38:20 It was edited by Alexandra Gerriton and engineered by Sarah Bruguer.
0:38:24 I’m Jacob Goldstein, and we’ll be back next week with another episode of What’s Your Problem?
0:38:31 We’ll be back next week with another episode of What’s Your Problem?
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0:00:29 a podcast hosted by Columbia Business School professor
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0:00:32 Every week, she’ll introduce you to leaders
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0:00:52 Pushkin.
0:01:01 One of the really striking things about technological progress
0:01:04 is the way one breakthrough leads to another.
0:01:08 For example, mass adoption of laptops
0:01:11 led people to create better, cheaper batteries.
0:01:14 Those better, cheaper batteries made it possible
0:01:16 to build affordable electric vehicles.
0:01:19 And then the proliferation of electric vehicles
0:01:22 led people to create even better, even cheaper batteries.
0:01:26 And those better, cheaper batteries are now leading to everything
0:01:30 from grid-scale energy storage to flying cars.
0:01:34 Of course, those advances, they don’t just happen.
0:01:36 People have to look at the world and think,
0:01:39 I’m going to start with what exists now
0:01:40 and build something new.
0:01:44 One of those people is Mitch Lee.
0:01:46 That very first time I went in a Tesla,
0:01:50 my mind jumped forward two steps to,
0:01:51 this should exist for boats.
0:01:56 It makes even more sense in marine applications
0:02:01 because gas boats have all these acute problems with them.
0:02:03 They’re loud.
0:02:04 They’ve got noxious fumes on them.
0:02:06 They’re a pain to maintain.
0:02:08 They’re super unreliable.
0:02:09 They’re expensive to operate.
0:02:10 And when you go electric,
0:02:15 you end up addressing those acute pain points.
0:02:23 I’m Jacob Goldstein, and this is What’s Your Problem,
0:02:25 the show where I talk to people
0:02:27 who are trying to make technological progress.
0:02:29 My guest today is Mitch Lee.
0:02:33 He’s the co-founder and CEO of Arc Boats.
0:02:36 He grew up boating with his family in Northern California.
0:02:38 eventually became a software engineer,
0:02:40 and he founded Arc in 2021.
0:02:43 Mitch’s problem is this.
0:02:45 How do you build electric boats
0:02:47 that are better than gas-powered boats?
0:02:49 And how do you do it at scale
0:02:51 and at a competitive price?
0:02:55 Arc is currently developing hybrid electric tugboats,
0:02:57 and they’re already selling electric wakeboats,
0:03:00 boats people can take out on lakes or rivers for fun.
0:03:02 To start, I asked Mitch to tell me
0:03:05 the first big problem that he and his colleagues
0:03:07 had to solve when they started the company.
0:03:11 The challenge is that boats consume a lot of power.
0:03:13 Water is a thousand times more dense than air,
0:03:15 which means that if you want to
0:03:18 sustain a full day’s worth of activity out on the water,
0:03:22 you need to store a lot of energy on board.
0:03:25 If you’re going to go electric,
0:03:26 that means really big battery packs.
0:03:29 Those really big battery packs
0:03:32 are the first-order problem that you need to solve.
0:03:32 If we say,
0:03:36 hey, we want over 200 kilowatt hours of battery capacity,
0:03:37 who can give it to us?
0:03:40 We can’t go to Amazon and just, like, buy one.
0:03:43 So part of it is, does it exist?
0:03:45 And you can’t go to, like, Shenzhen?
0:03:46 Like, there’s not just somebody
0:03:49 who sells battery packs to everybody somewhere?
0:03:52 No, because they tend to be very specific
0:03:55 to the use case, the geometry that you want.
0:03:57 And there are people that are trying to do this,
0:03:59 but then the problem shifts to,
0:04:01 okay, well, now they’re cost prohibitive.
0:04:04 And you almost have to bring them in-house
0:04:06 to get the cost down low enough
0:04:08 to be able to make your product competitive.
0:04:10 What we do is we go to automotive suppliers,
0:04:12 people that are operating an insane scale
0:04:15 and have incredible quality standards
0:04:16 because automotive operates
0:04:18 at a much higher quality standard than marine.
0:04:22 So we get to take advantage of all of those
0:04:25 and then bring them into the marine industry.
0:04:28 What are the particular challenges
0:04:31 of building a battery pack for the water?
0:04:34 One is just its size.
0:04:37 The Arc Sport, our wake sport boat today,
0:04:42 is 226 kilowatt hours battery pack.
0:04:45 It’s three or four times the size
0:04:47 of an electric sedan’s battery pack.
0:04:49 That’s kind of a sense of scale.
0:04:51 So we’re a little bit constrained on mass.
0:04:53 We’re not that constrained on volume.
0:04:56 We’re very constrained on price.
0:04:59 If you go try to build a 226 kilowatt hour battery pack,
0:05:02 that can get very expensive very quickly
0:05:06 if you are not driving really good economics
0:05:08 behind the battery pack.
0:05:11 So it’s not a technological problem,
0:05:13 but it’s a techno-economic problem, really,
0:05:14 that you’re setting out to solve.
0:05:17 Now, the mass does come in in the sense
0:05:21 that it’s not necessarily that you’re mass constrained,
0:05:24 but you now have thousands of pounds of battery pack
0:05:26 that you need to place onto a boat.
0:05:29 And where you place that, how you integrate it,
0:05:30 how you offset the weight of that,
0:05:31 how you support the weight of that,
0:05:34 that all starts to become these second-order problems
0:05:35 that you need to solve.
0:05:38 So step one, build a really big battery pack.
0:05:39 It’s heavy.
0:05:40 It’s expensive.
0:05:44 Now, step two is go build the boat around that
0:05:47 and have it compensate for the weight,
0:05:51 for the price, for the volume of it,
0:05:56 in a way that isn’t just not compromising on the experience,
0:05:58 but is actually making the experience better.
0:06:01 Same way automotive comes along,
0:06:03 they build the car around the battery pack,
0:06:06 and suddenly you have a frunk and a low center of gravity
0:06:08 and all this performance that you unlock.
0:06:11 So where are you now?
0:06:13 Tell me about the boat or boats that you’re selling now.
0:06:13 Yeah.
0:06:17 We, as a company, started on the consumer side
0:06:19 and started with a product called the ARC-1.
0:06:22 We called it kind of a luxury cruiser.
0:06:25 It’s got a novel seating layout.
0:06:28 It’s a lot of fun for lakes, rivers, that sort of thing.
0:06:33 And that was really our pilot production, our test bed,
0:06:38 the product that we use to go develop the technology necessary
0:06:41 to make electric boats viable at a larger scale.
0:06:44 And we took all those learnings from that program
0:06:50 and ported it over to what we are now ramping production of,
0:06:51 which is the ARC Sport.
0:06:55 The ARC Sport’s a 23-foot fully electric wakesport boat.
0:07:00 You know, if you go look out at a lake or river today,
0:07:02 you’re going to see families out there wake surfing,
0:07:05 wakeboarding, water skiing, pulling inner tupers.
0:07:07 This is the type of boat that you do it with.
0:07:10 We’re ramping production of that right now.
0:07:14 We’ve got a months-long backlog for the product.
0:07:17 We’re really just trying to keep up with the demand that we see for it.
0:07:19 Yeah, what did it say on your website?
0:07:21 It’s something 2026.
0:07:21 Is it summer?
0:07:24 Like, if I try and buy one now, when can I get one?
0:07:29 Yeah, we’re working through basically the last slots
0:07:32 before summer of 2026.
0:07:35 That seems like, is that a good problem to have?
0:07:37 I mean, it’s better than nobody buying it.
0:07:37 I don’t know.
0:07:41 Is it, how is demand working for you?
0:07:45 Yes, it’s a good problem to have, and it’s still a problem.
0:07:48 And those two things can both be true.
0:07:52 It’s the better problem to have versus nobody wants the product.
0:07:57 It’s still a problem in that we want to deliver great customer experiences to people,
0:08:00 and your summer season matters a lot.
0:08:06 And so if we slip production targets by a few weeks, that can really impact somebody’s experience.
0:08:07 Yes, yes.
0:08:10 The difference between February and March, nobody cares about.
0:08:13 But the difference between July and August is a big one, right?
0:08:13 Exactly.
0:08:15 You have to be out there for the 4th of July or whatever.
0:08:21 So we really emphasize that as a company, and we try to not overpromise to customers.
0:08:26 You know, it’s a balancing act that we’re trying to strike.
0:08:28 What’s the rate-limiting step?
0:08:32 I mean, do you just have one factory, or are you like supply-constrained in some way?
0:08:34 Yeah, we’re supply-constrained.
0:08:41 One of the things that we’re doing, well, from a business perspective here, what we want
0:08:47 to make sure that we do in priority order is build a product that people love and want,
0:08:50 build a better boat, deliver better boats to the market.
0:08:53 The next thing is make sure that we make money on those boats.
0:08:57 And then the third is ramp production of them, ramp supply of them.
0:08:58 Uh-huh, uh-huh.
0:09:04 In order to tackle those last two simultaneously, what we’re doing is as the way that we’re
0:09:07 ramping production is that we’re getting more efficient at production.
0:09:10 Are you losing money on the marginal boat still?
0:09:11 Is that what I’m inferring?
0:09:12 No, no, we make money on the marginal boat.
0:09:14 This is very different than automotive again.
0:09:15 Okay.
0:09:17 You will see many car companies that-
0:09:19 You don’t have to sell a million of them to have-
0:09:19 Exactly.
0:09:20 Yeah, yeah.
0:09:23 Yeah, we can make money even on the earliest units of them.
0:09:31 But, again, dissimilar to how the automotive industry works, which is very robotic, very
0:09:36 automated production lines, boat building is much more labor-intensive.
0:09:39 It is a bit of a craft.
0:09:42 Indeed, boat companies have craft in the name sometimes, right?
0:09:43 Exactly.
0:09:43 Yeah.
0:09:45 It is very much a craft.
0:09:48 I mean, from a business standpoint, that seems bad, right?
0:09:52 That sounds like high unit cost to me when you say craft.
0:09:55 It is high unit cost, and you’ll see that boats are actually quite expensive.
0:09:57 Well, so, yes, your boat is expensive, right?
0:09:58 How much does your boat cost?
0:10:04 It starts at $268,000 for the wake sport boat, which sounds-
0:10:07 Yes, I don’t know anything about wake sport boats, and I was shocked by how expensive that
0:10:08 is.
0:10:10 That’s shockingly expensive.
0:10:10 Yeah.
0:10:14 And the rest of the market is also there for the premium side of this market.
0:10:20 So how many people in America buy a $300,000 boat every year?
0:10:24 The marine industry is interesting for a variety of reasons.
0:10:31 And in this market in particular, one of the things that you see is that, well, you look
0:10:37 at your sedan market, and you have your Honda Civics, your Nissan Ultimas, but then you have
0:10:40 your Mercedes S-Class, your Model S, whatever it is.
0:10:47 And you see, the volume really favors that economy class sedan, and then it’s a smaller
0:10:49 peak of demand at that premium sedan class.
0:10:51 In boating, it’s the opposite.
0:10:54 Well, because nobody needs a boat to get to work, right?
0:10:54 Right.
0:11:01 And if you have this house on a lake or a river, you care about, hey, I just want the best boat.
0:11:03 You’re probably rich, right?
0:11:07 So you end up wanting to buy the best one.
0:11:10 So the demand is actually at that higher end, which is why you see the prices go.
0:11:16 And kind of going back to that roadmap, that business is what ultimately supports everything
0:11:16 else that we’re doing.
0:11:18 We started here for a reason.
0:11:20 It’s a premium class of boat.
0:11:27 It has moderate volumes to it, so we could really scale up to a meaningful business just
0:11:28 in that market alone.
0:11:34 But what we’re doing is we’re taking that same technology and copying it over to other
0:11:34 sectors.
0:11:40 You could look at kind of any car company that uses the same platform to build multiple
0:11:40 products.
0:11:44 We’re doing that same thing at ARK.
0:11:49 So that allows us to expand pretty quickly into other consumer segments.
0:11:50 We’ve already announced the ARK Coast.
0:11:55 That’s a center console boat that is intended for that fishing and leisure market that gets
0:11:58 a lot more popular in, you know, Florida and the East Coast.
0:12:03 And that same technology is also what lays the foundation for us to get into commercial, which
0:12:05 is one of our big expansions recently.
0:12:08 Yeah, I want to talk a lot about commercial.
0:12:14 I mean, that seems from a sort of broader, it seems like a much bigger market, presumably,
0:12:15 right?
0:12:19 If just in terms of dollars, in terms of emissions, in terms of lots of things, I feel
0:12:21 like commercial is a really interesting part of the conversation.
0:12:27 But before we get there, just a couple of things like, one, tell me about safety.
0:12:31 And when you’re sort of building an electric boat from scratch, what do you got to think
0:12:32 about in terms of safety?
0:12:39 We care about making sure that we are moving this industry in a safer direction.
0:12:42 Gas boats today are not that safe.
0:12:44 Engine fires are pretty common.
0:12:53 You end up running these combustion engines in a chamber that traps fumes in it.
0:12:55 So the whole of this boat can trap fumes.
0:12:59 And so boats come with these things called blowers that eject those fumes.
0:13:04 If you forget to run a blower, it can be disastrous and incredibly dangerous.
0:13:08 So you’re telling me your boat doesn’t have to be that safe to be safer than a boat.
0:13:12 I’m saying that we are dramatically safer than where the industry is at today.
0:13:18 I mean, is there, like, I take your point, and internal combustion engines are just kind
0:13:19 of crazy, right?
0:13:23 It’s crazy that they work by having little explosions thousands of times per minute, but that’s actually
0:13:24 what’s going on.
0:13:29 I mean, presumably, like, I totally believe that your boats are safer.
0:13:34 Surely there are some risks associated with putting a giant battery pack on a boat.
0:13:36 I mean, tell me about that.
0:13:36 Yeah.
0:13:39 So do you think about safety in terms of redundancy?
0:13:41 No system is perfectly safe.
0:13:45 And so you’re thinking about, okay, if something fails, then how many more times can it fail
0:13:48 before it actually becomes a concern?
0:13:52 When we think about the battery pack, the obvious thing that you want to make sure you’re
0:13:54 safe for is water ingress.
0:13:57 You want to make sure no water gets into that battery pack.
0:14:01 And just to be clear, just like, dumb question, why is it bad if the battery gets wet?
0:14:02 Yeah.
0:14:07 I mean, because if you, in theory, if you take a battery pack and you dunk it in water,
0:14:10 it can go into what’s known as thermal runaway.
0:14:11 It can catch fire.
0:14:18 And stopping a battery fire is really hard because those chemicals are good at burning even
0:14:18 absent oxygen.
0:14:24 And that is obviously bad anywhere and obviously particularly bad if you’re out on the water.
0:14:25 Classic thing you don’t want on a boat.
0:14:26 Yes.
0:14:26 Yeah.
0:14:31 So if you, if you kind of rapidly step through these steps, you’re like, okay, you want to
0:14:32 get notified about this.
0:14:32 Great.
0:14:33 Yeah.
0:14:34 You’ve got leak sensors in there.
0:14:39 Then you want to allow as much water into the pack as possible before it actually becomes
0:14:40 a safety concern.
0:14:40 Oh, interesting.
0:14:45 So you design the pack in a way that can actually tolerate a fair amount of water in the pack before
0:14:46 it becomes a problem.
0:14:52 And then you say, okay, well then if it does, you know, if you just flood this pack with water,
0:14:54 then what happens?
0:14:57 And how much time do I have to react?
0:15:02 And you step through all of this and what it comes down to is, first off, we’ve designed
0:15:08 the packs to be essentially IP67 rated, which means you could submerge it in a meter of water
0:15:14 for 30 minutes without water getting in, which is an insane standard to hold for a battery pack
0:15:14 of this size.
0:15:18 If water does get in, you’ve got time.
0:15:25 Those leak sensors are, are tripping, alerting you on the boat, alerting our systems, uh, to
0:15:26 give you a lot of notice.
0:15:32 And then in the event that you do end up tripping, uh, uh, thermal runaway event,
0:15:36 you have a lot of time to get off of the boat.
0:15:41 Like we actually alert you and say, Hey, you’ve got maybe 10 minutes to put on your life jackets
0:15:43 and safely get off the boat.
0:15:49 All of these things really lend to the safety profile and compared to gas, it’s, it’s, you
0:15:49 know, incomparable.
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0:16:44 School professor Modupe Akinola.
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0:17:03 Let’s talk about commercial boats.
0:17:09 You’re you’re building a tugboat or you’re building a tugboat with somebody, right?
0:17:10 Is that the place to start?
0:17:19 Yes, we are entering the commercial market with hybrid electric commercial workboats.
0:17:22 Okay, we signed a deal with Curtin Maritime.
0:17:25 They are a major commercial operator.
0:17:28 They started on the dredging side.
0:17:35 They’re also known for moving some of SpaceX’s barges around.
0:17:37 They are entering the tugboat market.
0:17:45 And the way that they are doing this is by buying a fleet of hybrid electric tugboats from
0:17:46 us.
0:17:50 Okay, so you’re so what they placed a big order, right?
0:17:52 Like you’re supposed to sell them a bunch of tugboats.
0:17:57 Yeah, it’s it’s for eight tugboats, which is a large amount of tugboats when each one of
0:17:59 these is on the order of $20 million.
0:18:00 Yeah.
0:18:04 So you have to sell a lot of wakeboats to get that much money.
0:18:04 You do.
0:18:08 So are you designing a hybrid electric tugboat right now?
0:18:09 Like where are you in that process?
0:18:15 So boats are basically two parts to the boat.
0:18:18 Maybe maybe three parts if I were to break it down.
0:18:20 The first is the thing that floats.
0:18:21 That’s the steel structure.
0:18:22 Okay.
0:18:28 You take a bunch of steel, you cut it up into pieces, and then you weld it all together
0:18:29 and you have something that floats.
0:18:32 We are partnering with a shipyard to do that.
0:18:38 Then there’s the part of this that tugboats are kind of like houses.
0:18:39 Okay.
0:18:47 You have people on board that stay on board for long periods of time doing these jobs or at
0:18:49 least spend all day out on them doing the jobs.
0:18:55 So you care about where’s the refrigerator and where do they stay and what’s the visibility
0:19:00 from their control tower or what’s known as the house of the boat or the wheelhouse.
0:19:03 Where’s the winch go?
0:19:06 How do you push and pull on these other boats?
0:19:09 So that’s kind of the operating portion of the boat.
0:19:13 Curtin Maritime has a ton of experience and how do you go optimize the operating profile?
0:19:13 Okay.
0:19:14 Okay.
0:19:18 Then the last piece of this is how do you make the boat go?
0:19:21 How do you actually push it through the water?
0:19:21 Okay.
0:19:23 That’s what I mean when I say powertrain.
0:19:27 It’s the thing that actually delivers power into the water.
0:19:32 And that goes from, well, it starts from some amount of energy.
0:19:35 In our case, that is a huge amount of batteries.
0:19:36 Okay.
0:19:41 Talking six to eight megawatt hours of battery capacity.
0:19:44 A crazy amount of battery.
0:19:44 Yeah.
0:19:49 Then there’s all the, okay, well, now that you have the energy, how do you actually convert
0:19:53 that down into a propeller under the water or some sort of thruster under the water?
0:19:56 And that is also all part of that powertrain.
0:20:02 And presumably the integration of this like crazy amount of battery mass you’re going to need
0:20:09 into the whole boat and what everybody else is doing is going to be something to figure out.
0:20:09 A hard part.
0:20:10 One of the hard parts.
0:20:11 It is.
0:20:12 It is.
0:20:13 It is one of the very hard parts.
0:20:16 You know, each of these parts is super complex.
0:20:18 The scale of these vessels is massive.
0:20:27 It’s hard to actually understand the amount of torque that these things put out.
0:20:30 That’s the whole point of a tugboat, right?
0:20:30 Right.
0:20:32 Like that’s what it’s there to do.
0:20:32 Yeah.
0:20:39 So there are these massive vessels that are capable of pushing and pulling these cargo ships that
0:20:42 come in to dock.
0:20:42 Yeah.
0:20:47 And that means that each of the components on there is just giant.
0:20:56 Your thrusters are these huge components, you know, way bigger than, I don’t know, any propeller
0:20:57 you’ve certainly seen.
0:20:58 Way bigger than people.
0:20:59 Yeah.
0:21:05 So each of those comes from different suppliers that have existed for long periods of time.
0:21:08 And one of the integration challenges is, okay, great.
0:21:10 You’ve got a really big battery pack on board.
0:21:14 You’ve got good pricing on that battery pack that makes it cost competitive.
0:21:19 You still need to go get this entire system, all of these different components talking to
0:21:22 each other and all wired up to work nicely together.
0:21:27 And that is part of the integration challenge of all of this.
0:21:30 Where are you on that project?
0:21:36 We have already started construction on the first of the tugboats.
0:21:37 Okay.
0:21:40 And we expect to deliver that to market before the end of next year.
0:21:52 I saw in just my ordinary reading that is it the Daman RSDE Tug 2513 was shortlisted for
0:21:52 tug of the year.
0:21:56 And I missed that news.
0:21:56 Did you?
0:21:58 You did not miss that news.
0:21:59 Surely you knew that.
0:22:02 That’s an electric tug, right?
0:22:03 You’re not the only one doing this.
0:22:05 That’s why I bring it up, right?
0:22:07 That is an electric tug that is new.
0:22:13 Like, what’s the broader landscape like of people electrifying boats in general?
0:22:15 And in particular, this kind of, what do they call them?
0:22:16 Harbor vessels?
0:22:17 Is that this universe of boats?
0:22:17 Is that what they’re called?
0:22:18 Harbor craft, yeah.
0:22:23 These are more popular internationally than they are in the U.S.
0:22:30 The U.S. has a pretty interesting piece of policy in place called the 1920 Jones Act.
0:22:37 And what it means is that if you have a vessel that operates between U.S. ports, it needs to
0:22:38 be U.S. manufactured.
0:22:39 It needs to be U.S. flagged.
0:22:47 And what that means in practice is that if you are the port of L.A., if you’re one of
0:22:52 these many other ports in the U.S. and you have harbor craft, those need to be manufactured
0:22:52 in the U.S.
0:22:55 And that limits the number of suppliers that you can go to.
0:23:02 While there are electric tugboats and electric ferries internationally, there’s only one that
0:23:07 I’m aware of in the U.S. in this kind of ship-assist market.
0:23:17 And it was a heavily subsidized project that was very compelling in the theory of it and
0:23:22 what it could deliver to the market, but it wasn’t on its own economically viable.
0:23:28 What’s so compelling about what we’re doing with Curtin and our entrance into the commercial
0:23:35 industry is we are entering at a point that is directly cost competitive with making a diesel
0:23:36 driven tugboat.
0:23:39 absent any sort of grants.
0:23:43 And it’s cost competitive just buy in the boat or it’s cost competitive when you figure
0:23:45 out the sort of cost of ownership over time?
0:23:47 Off the line.
0:23:50 So it is cost competitive when you buy the boat.
0:23:50 And then…
0:23:51 How can that be?
0:23:55 Is it just that batteries got cheap enough for it to be possible?
0:23:56 Like, I’m surprised by that.
0:24:01 Is it that the domestic industry is super inefficient because it’s protected by the Jones Act?
0:24:07 I’m smiling because you’re hitting on some of the things.
0:24:12 So I think it’s also that we’re driving this business in a way that we want to be globally
0:24:12 competitive.
0:24:19 That is our mission here is to leapfrog in technology and become competitive again on the global stage.
0:24:24 Now, the things making this viable are actually two curves going on.
0:24:28 One is your battery prices are going down over time.
0:24:34 Your high voltage electronics, your power electronics, all of those are getting cheaper over time, which
0:24:37 drives the cost side down.
0:24:44 The other side is when you’re looking at the cost of those diesel tugs, those have been going up over time.
0:24:51 The complexity has been increasing, honestly, exponentially, because what’s happened is over
0:24:58 time, there have been increasingly stringent regulations surrounding the engines themselves.
0:25:06 Compliance standards around how much carbon is allowed to be spewed off of this and how you
0:25:10 burn it off and the temperature that that system works at.
0:25:12 And you need diesel particulate filters.
0:25:19 And it’s a very complex system to try to mitigate the, those negative extra, you know, to try to
0:25:20 mitigate the pollution.
0:25:27 So environmental regulations like emissions regulations have made diesel tugs in this country more
0:25:27 expensive.
0:25:28 Exactly.
0:25:29 Which is also good for you.
0:25:30 Yes.
0:25:34 So what might go wrong for you?
0:25:43 I mentioned that our focus is building better boats, making sure that we make money on them
0:25:44 and then ramping supply of them.
0:25:46 That is a very simple theory.
0:25:50 And we are not taking a lot of demand risk.
0:25:52 We see incredible demand.
0:25:56 We’re just delivering better products to consumer market, better products to the commercial market.
0:26:00 We’re not taking a lot of technology risk because a lot of this exists.
0:26:02 We are taking a ton of execution risk.
0:26:06 Actually pulling these things together is really hard.
0:26:07 And there’s so many levels to this.
0:26:14 Even the financing side of this is, is a challenge because you have to go do the construction of,
0:26:22 of these vessels and make sure that you finance that intelligently so that, you know, you,
0:26:27 you could actually get these things onto the water and validate the technology to unlock even
0:26:28 more of the demand.
0:26:30 The integration is hard.
0:26:34 The timelines have a way of only moving in one direction.
0:26:37 It’s, you’re not going to deliver it early.
0:26:38 Let’s be honest.
0:26:39 Yeah.
0:26:44 We, we, I, I am proud that we have held to the timelines that we have held.
0:26:51 And it is a constant battle because one part, I mean, going back to the consumer side of this,
0:26:54 you can get everything right about a production system.
0:27:00 And if you are lacking a few critical screws, it can halt a production line.
0:27:06 And that means that every, like having every piece in the right place at the right time
0:27:10 is so critical to the company.
0:27:13 And that’s this complex orchestration problem.
0:27:17 People say, you know, what’s hard about producing these boats or any of that?
0:27:18 It’s no one thing.
0:27:24 It’s a thousand small things that all of these pieces just need to fit together and hum, which
0:27:29 is why we’re so intensely focused on execution, on continuing to drive against the plan that we
0:27:30 have in place.
0:27:33 What, what are you going to build after a tugboat?
0:27:42 If you think about across consumer, commercial, the products I mentioned, ArcSport, ArcCost,
0:27:49 these tugboats, the common thread between all of those is that there is a better technology
0:27:53 that exists for the marine industry in electric powertrains.
0:28:03 It is a fundamentally superior technology to these outdated kind of diesel engines or, or gas
0:28:03 engines.
0:28:07 That’s our core focus as, as a company.
0:28:12 And we want to get those powertrains into as many vessels as possible on the commercial
0:28:13 side.
0:28:14 We’re starting with tugboats.
0:28:16 Ferries make a lot of sense.
0:28:19 You can get into offshore supply vessels.
0:28:26 There’s, you know, all sorts of different harbor craft that, that you can go electrify.
0:28:32 And then, you know, there’s this long tail of Coast Guard boats and water taxis and everything
0:28:35 else that you want to do commercially out on the water, fishing boats.
0:28:43 On the consumer side, it’s wake-sport boats, center console boats, it’s pontoon boats, like
0:28:47 every way that you have it, sailboats, every way that you have of being out on the water,
0:28:49 we want to go electrify it.
0:28:55 We’ll be back in a minute with the lightning round.
0:29:07 Run a business and not thinking about podcasting?
0:29:07 Think again.
0:29:12 More Americans listen to podcasts than ad-supported streaming music from Spotify and Pandora.
0:29:17 And as the number one podcaster, iHeart’s twice as large as the next two combined.
0:29:20 So whatever your customers listen to, they’ll hear your message.
0:29:24 Plus, only iHeart can extend your message to audiences across broadcast radio.
0:29:26 Think podcasting can help your business?
0:29:27 Think iHeart.
0:29:29 Streaming, radio, and podcasting.
0:29:32 Let us show you at iHeartAdvertising.com.
0:29:37 Got a business problem?
0:29:38 There’s a TED Talk for that.
0:29:43 Stay updated on everything business on TED Business, a podcast hosted by Columbia Business School
0:29:45 professor Modupe Akinola.
0:29:50 Every week, she’ll introduce you to leaders with unique insights on work, answering questions
0:29:53 like, how do four-day work weeks work?
0:29:55 Do will a machine ever take my job?
0:29:59 Get some surprising answers on TED Business wherever you listen to podcasts.
0:30:05 Let’s finish with a lightning round.
0:30:14 I read you and your co-founder argue about ideas, which seems healthy.
0:30:21 And I’m curious, what was one thing where your co-founder convinced you that you were wrong?
0:30:28 never happened.
0:30:33 It happened so frequently that I’m trying to think of a good example.
0:30:42 My co-founder is, Ryan is, this incredible engineering brain.
0:30:52 And he has this great way of distilling problems down into their core elements and then just
0:30:54 meticulously solving each one.
0:30:59 And the memory that comes back to me is when we first started ARK.
0:31:09 I was shying away from technical challenges and saying, hey, we should get, you know, help
0:31:11 here or buy this thing off the shelf or whatever else.
0:31:17 And he has at multiple points convinced me that we could do it.
0:31:20 And it ended up being way harder than he thought.
0:31:24 But we did it and, and it was certainly better for the business.
0:31:30 And, you know, one of those examples was how quickly we integrated the battery pack into
0:31:32 like, you know, doing the battery packs ourselves.
0:31:38 I thought that we wanted to work for at least a couple of years before we really decided to
0:31:40 bring battery packs in house.
0:31:46 We ended up doing it within months of starting the company, given the challenges that we saw
0:31:48 on procuring off the shelf options.
0:31:51 And, and he convinced me of that.
0:31:54 What’s the dumbest thing you ever did on a boat?
0:31:56 I am not going to answer that.
0:31:59 Second dumbest.
0:32:10 Um, we used to, uh, for the 4th of July, we would go out and watch the fireworks.
0:32:14 And, um, from a boat and you could bring your own fireworks.
0:32:20 This was, I think back at a different time where maybe this was legal, uh, or maybe you
0:32:22 just, I don’t know.
0:32:25 I don’t want to perjure myself here.
0:32:30 Um, so you’d go out on these boats and you could, uh, watch the fireworks.
0:32:37 They lit off this incredible firework show in, um, in Lodi, California, and people would
0:32:39 bring their own fireworks and kind of push them out on.
0:32:43 Like basically launch them off of their own boat.
0:32:49 And let’s just say that that was some of the dumber things you’ve done on a boat for.
0:32:50 Fair, fair.
0:32:55 Um, what’s one thing you know about boats now that you didn’t know when you started the company?
0:33:03 The thing that I’ve learned is that boat building is so much more of a craft than I appreciated
0:33:04 at the time.
0:33:06 What do you mean when you say craft?
0:33:16 So, the whole construction in particular is, is just this art form that there’s no, no, uh,
0:33:20 a hull being just like the bottom part of the thing that is there floating in the water.
0:33:21 The thing interacting with the water.
0:33:31 Um, yeah, that that’s, it’s such an interesting design challenge because there’s no free winnings.
0:33:37 You can, uh, you can make a boat more efficient so that you don’t have to use as much power
0:33:41 to move over the water, but you sacrifice something else.
0:33:45 It gets, you know, uh, bumpier when you’re riding.
0:33:51 It’s not as smooth of a, of a ride, um, or the, it, it lets more water in it.
0:33:53 The wetness of it is, is worse.
0:33:55 Doesn’t chop through waves as well.
0:34:02 Like there are all these trade-offs that you’re, you’re making, how it comes up on up to speed,
0:34:08 um, changes and, you know, how high up the bow is when it’s going through the water.
0:34:12 It, all of these things are trade-offs that you’re making in the design of that.
0:34:15 And then you translate that into the construction side.
0:34:21 And one of the things I’ve learned is boat and whole construction in particular is kind
0:34:29 of like cooking where you can have this recipe in front of you.
0:34:33 And if you’re a brand new cook, you’ve never cooked before, you’re going to mess that recipe
0:34:34 up somehow.
0:34:37 It’s temperature sensitive and maybe you get the temperature wrong.
0:34:38 It’s humidity sensitive.
0:34:39 Maybe you get that wrong.
0:34:44 You taste it and you’re not really sure why it’s not quite tasting good.
0:34:49 If you’re a chef that’s been doing this for 20 years, you could take a quick glance at the
0:34:52 recipe and you don’t even need to look at it because you’re doing everything by feel.
0:34:57 And you could look at imperfections in the side of a boat and know, even though they look
0:35:01 identical to somebody with an untrained eye, you know how to fix them.
0:35:02 And there are two different ways to fix them.
0:35:04 One is you buff them out.
0:35:08 The other is, hey, you need to actually go apply more gel coat to it or something.
0:35:10 It’s such a craft in that way.
0:35:12 And it was an underappreciated part.
0:35:18 I came in thinking, oh, well, you know, we’re going to reason from first principles about
0:35:18 all of this.
0:35:23 And I have a much stronger appreciation for the marine industry.
0:35:29 So does that mean on every boat, you need a sort of master craftsman, not every model,
0:35:31 but like every single one?
0:35:34 The one of the things we’re doing on the production side.
0:35:42 So production, I draw the analogy to Ikea furniture that production is run kind of like
0:35:45 assembling a piece of Ikea furniture.
0:35:51 You have this set of instructions and this set of parts that you come with and you read
0:35:52 the instructions and you go put the parts on.
0:35:57 If you think about how do you speed up that process?
0:36:00 Well, one way is you just get practice at it.
0:36:05 If you go assemble the same piece of Ikea furniture a bunch of different times, then you’re just going
0:36:06 to get better at it.
0:36:08 Or even different pieces, right?
0:36:13 Ikea has certain moves and like I’ve put together a lot of Ikea furniture like, oh, I know this
0:36:13 move.
0:36:15 It’s the thing that goes into the thing and then you turn it.
0:36:17 So some of it is just that.
0:36:23 But then you’re like, okay, well, but now I need to 10x the number of people that are doing
0:36:25 this and I want all of them to do it consistently.
0:36:27 They will have lower skill, right?
0:36:29 It’s the classic production problem.
0:36:34 Like how can someone who is not a master chef, who doesn’t know the craft, do a good job?
0:36:38 So then you go back to the instructions themselves and you’re like, oh, well, if I write better
0:36:43 instructions, then I can make this process move more quickly.
0:36:46 And then you’re like, great, now I’ve got good instructions and people are starting to
0:36:46 get reps on it.
0:36:48 And then you’re like, there’s a missing part.
0:36:50 Oh, no, everything kind of breaks down.
0:36:55 And that’s why, you know, sometimes in Ikea furniture, you’ll see you end up with a few
0:36:57 extra, you know, bolts or something.
0:37:02 And it’s because they stocked extra because they really do not want you to be short a bolt
0:37:05 because that’s painful, annoying, frustrating for everyone.
0:37:06 Yeah.
0:37:11 We’re trying to do that same thing on the whole construction, the craft part of this, but it’s
0:37:12 a challenge.
0:37:19 So the way that to answer your question of, do you need that kind of chef equivalent on
0:37:20 every boat we produce?
0:37:22 The answer is today, more or less, yes.
0:37:27 And what we’re trying to do is distill some of that knowledge into better work instructions,
0:37:33 better processes that allow us to do this repeatably, even if you’re coming in without
0:37:35 a lot of prior experience of doing this.
0:37:41 That’s a really interesting kind of process engineering problem.
0:37:42 It is.
0:37:43 And it’s a challenge.
0:37:47 And we have learned a ton about this and still have so much more to learn.
0:37:52 And I like to think that two years from now, we will look back at where we’re at today
0:37:54 and think, wow, we had no idea.
0:38:04 Mitch Lee is the co-founder and CEO of ARC Boats.
0:38:08 Please email us at problem at Pushkin.fm.
0:38:11 We are always looking for new guests for the show.
0:38:15 Today’s show was produced by Trina Menino and Gabriel Hunter-Chang.
0:38:20 It was edited by Alexandra Gerriton and engineered by Sarah Bruguer.
0:38:24 I’m Jacob Goldstein, and we’ll be back next week with another episode of What’s Your Problem?
0:38:31 We’ll be back next week with another episode of What’s Your Problem?
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0:38:33 We’ll be back next week with another episode of Marketplace.
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0:39:06 Guaranteed human.
Mitch Lee is the co-founder and CEO of Arc Boats. Mitch’s problem is this: How do you build competitively priced electric boats?
On today’s show, Mitch explains why water makes electrification so hard, the techno-economic puzzle of building giant battery packs, and how Arc’s high-end wake sport boat opened the door for a new generation of hybrid-electric tugboats.
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