ARPA-E Energy Innovation Summit

now we have the Secretary of Energy Steven Chu and innovator Galore CEO and product architect at Tesla CEO of SpaceX and creator of PayPal Alon musk alen thank you for joining us joining us we'll put alen here and Stephen there it'll be great so we're going to have uh again have some fun have a bit of a an informal chat with with two giants um and I thought I would started off a little bit fun maybe a little bit uh risque that I understand uh uh Stephen that you have a Nobel Prize on your wall uh and that some people have said hey when you're dealing with Congress and talking about sequesters maybe you should take it on off the wall and when you're having a meeting with that cator and say hey here's what I've got what do you have bad idea bad idea hasn't

worked for you um I also heard at the one of the inaugural dinners Will I Am came up to you and said you know Stephen you're really really cool but one way to get uh even cooler is to change your name to MC energy taking it on is that true uh it's true and you did go around that night and and and thought well we have I thought we'd start aen it's great to have you with us um out from California I thought we'd start the conversation uh in an interesting way because Stephen you're known for um investing and thinking about the transition from non- fossil fuel energy to renewable energy trying to think about how you systematically do that bring science and innovators uh and government resources to together to do it you're going to be leaving uh fairly shortly

I assume you've announced that you're going to be leaving your post um Alon musk is here he's quite an Innovative guy uh he's gotten a lot of awards and I'm just sort of interested in starting off conversation by asking you should you President Obama call you and say would you like his job uh how would you do it differently wow um well I I I think Steve's done a pretty awesome job actually I think I've had of a hard time doing a better job so um and I think being Secretary of anything is is a really tough tough role to hold uh and and one where you you tend to get I think a lot more criticism than praise um no matter what job you do so um well when you speak drill down a little it's not a role to to which I would Aspire you're a young man you you've revolutionized

payments you've done a lot of revolution in cars and batteries you're now revolutionizing our access to space and you're doing this in in in part on on the the backs of scientists and other innovators and some government Investments but you're outpacing what government has been able to do and so my my question was not a factious one it was if you were able to not have the the the environment if you were able to basically jump ahead and you know Stephen is is also a brilliant innovator a Nobel La of course in physics but what makes makes you who you are how do you how are you able to do these things which government has found itself less able to accomplish as quickly well I I mean I think one way to think of government is is to think of it as essentially

a large corporation or the largest corporation um and generally uh large corporations have a harder time with radical Innovation than than small smaller companies there are some exceptions to that rule like apple but but it's generally true that the larger a company is the the harder it is to to to execute Innovation um now there there are ways to to get around that by in in the private sector by acquiring smaller companies that that that that do do the radical Innovation or or by having someone uh like say Steve Jobs who who is just relentlessly hardcore about uh pushing um radical Innovation um but uh but I think it is just generally true that the large of the corporation or Lodge The Entity the the harder it is to to uh uh engage radical Innovation

well Stephen it seems to me sitting here at an arpa conference that arpa is a very Innovative notion of how do you move from the very large maybe I I would argue risk avoiding of uh environment of government and here you've got rpe which really is about encouraging you know maybe not risk but investment Innovation and we love you to reflect for a moment on on how you think this experiment is going and what more needs to be done uh particularly in the in the energy area of of Next Generation energy well it um you know going to the uh Corporation analogy um I've got a CEO uh the president uh I got uh a very diverse board of directors 535 of them it's a big board in Congress but but within that you there's many things you can do within the agency um certainly

getting RP going that was of course voted on by Congress proposed by the president you know lots of bipartisan support but once you have the funding to say let's get started within the agency you can then say how can it be different and so we went in there thinking this could be a new example of how we want to get a lot of Department of energy programs and it's uh yes you're going to have to take risks that was designed into the program it was written into uh the American comp act that philosophy it was written into Rising Above The Gather storm that um it's it's research its development and it's very we didn't we don't expect all those things to work but they're short hits this is not a long-term thing this is a short hit get in there see if it's going

to work it's going to be a home run we wanted home runs now after 3 years have there been home runs well maybe not but there's a people rounding second and third base so it's looking good uh and so and then the culture in RP is something else that is very different you had a bunch of program managers who sit around and instead of politely presenting their program and advocating for their program they would listen to what everyone else said and they would start to say well I'm not so sure that I believe that what about this what about that it was described as constructive confrontation that was exactly the thing we got at about Laboratories uh that you know you're not going to completly wait your turn you're going to old discuss is the combin intellect

of the group would develop those ideas and that is very different and of course then there's a spirit that my gosh this is going to be something special and so far it has been very special so much grew out of bell abs and and of course you were at Bell Labs is arpa essentially taking there is no Bell Labs today so is and I'm I'm interested in whether that is a very harmful thing for the US economy is that what RP is now replicating and what you think is important to sort of institutionalize that sort of constructive confrontation how do you look at the future of that kind of big investment in basic research that that would drive the country uh forward well to be fair they're very very different Bell lab's research and development ultimately was to serve

the company and they had a financial bottom line RP is we are funders of other innovators and but the baps bear I was talking about uh can be exactly the same the the quality of the people people we got into the program were truly outstanding and so that part of the Bell Spirit was there but but you know we're not we're not there in business to to to do something we're there to uh sponsor very sponsor Innovation that the private sector will pick up and run with you know Alon to think a little bit about the agenda for today which is essentially about Innovation you shared a while back actually in a forum um that was organized by the Atlantic this was done in San Diego um at a forum we call the Atlantic meets Pacific and you spoke there and said you know

you had three real spheres that drove your interest one was the internet uh the other was sustainable energy and the other was making life multiplanetary right um would you like to share a little bit about the making life multiplanetary bit uh that might be slightly off topic uh but but I guess I can talk about a little bit um not NE but about getting there you know here's about the Innovation with rockets with space with batteries and cars which I assume are are are are somehow in your mind integrated as component pieces of changing the way we live creating sustainability and thinking about moving you know moving into other spheres well the thing that really I mean when when I was in in University I try to think about what were the things that would

most likely affect the future of humanity in at least as far as I could see and the three things seem to be the internet sustainable energy uh which requires both producing it in a sustainable Manner and and consuming it in a sustainable manner um and and then the third being extending life beyond Earth on a permanent basis so become a true space bring civilization of multiplet species and I thought as one sort of thinks about the the future history of humanity those if if we don't take those paths then it would be really very different if if there was no internet if there was uh if we were unable to sell sustainable energy obviously there would be economic collapse um if we were unable to a space Fring civilization then eventually some something would

happen on Earth that would would eliminate civilization as we know it so uh I thought those those three things needed to be addressed um and not that I expected actually in college that I would address them U or have but I think it's not as though I thought this would I'd have have an opportunity to do it uh but but that that's essentially what connects them there's not there's not any other connection um with respect to you know obviously the internet has happened and it's it's amazing it's transformed our life and I think it's actually made Humanity much more of a superorganism than we ever were before um and it's like it's given Humanity a nervous system so it's like every cell in the body can knows what the rest of the cells are doing essentially

whereas previously that would occur bya some sort of process almost like more like osmosis as opposed to um you know your your your brain knowing what your toe knows right um when you can be in the middle of a of a the Brazilian jungle if you have a satellite phone connection you connected to all of Humanity's knowledge which is pretty amazing so um but but I think as far as Earth is concerned I think the biggest problem that Humanity faces is one of sustainable energy if we don't solve that problem this Century um independent of any environmental concerns we will face economic collapse um this is obvious it's tological really uh you know it's either sustainable you brought into Tesla that your concern about energy batteries and it brings us you know

really to sector 82 um you have a robust AR uh uh you're one of the recipients of a large Grant from the Department of energy or Grant no not a grant loan yes if if if if if we'd like to change those terms of course this would be a good opportunity you know we're back in the green room and I I could tell a deal had just been done it's it's with interest I should say with interest okay in DC everything's a grant good good try yeah but in sustainable energy I assume that that the the the loan that you have with interest is really built around a partnership and looking at you know next Generation uh batteries and and opportunity creating this and so I'm interested in how you see your own product in this and Stephen i' love to draw your thought and why this

investment well not investment uh loan uh makes sense um sure well first of all I think it's it's worth just um talking a bit about the um the program under which we received the the loan um it's it's called the advanced technology vehicle manufacturing program uh it was actually signed into law by President Bush um although people people think it was signed by Obama no it was it was actually signed by President Bush um the and and and then there was I think quite a a careful uh consideration of uh the the applications that that that came in um and and one of the requirements actually of that loan was that you had to be a viable company um and as a result uh uh General Motors and Chrysler were ineligible at the time because of they were going through

bankruptcy proceedings um unfortunately that so are they back the viability now in terms of the grant makers or the yeah I think they're they're more or less back to being viable um that required obviously dramatic restructure ing but because the uh the bailout of GM and Chrysler occurred roughly the same time as the announcements for the um advanced technology vehicle man manufacturing program were announced people conflated those two and thought they were the same thing they were very different things um and in fact in order for us to uh be the program is Milestone based as well so um in order for us to receive portions of the loan we must make progress um along along with concrete Milestones uh and that's I think that's a very sensible way to structure

a program um and that's uh that's why for example one of the participants in the program that the the dispos stopped when that that participant was unable to complete the Milestones so I I think that's a very sensible way I think it's I think it's it's really structured very well um uh are you are you hitting your milestones we we've hit all of our Milestones yeah Sten um how do you feel about this program are are the other car companies uh going to apply and try and move this forward is this something that Tesla's the the the single um loan recipient of right now or you no okay first first they're not uh We've um as Elon said GM GM and uh chestler were not eligible Ford was Ford applied for loan uh our largest loan uh we think that uh that loan will

be paid we have confidence full confidence for it Nissan makes cars in Tennessee including Nissan Leaf uh and they wanted a loan to start uh you know making cars in Tennessee like the leave uh we think that loan is going to be repaid those are the two biggest loans to car companies uh there are others which may be at risk but but I would say in know any new car company even but in those days even even uh Ford uh Nan time was not considered risk but even Ford was considered risky but um but what it did is it preserved over 35,000 jobs just for that one loan Ford and and allowed them to retool to go to uh higher stage robotic automation so that they can program on the line instead of programming to generate just one type of car the line could be reprogrammed

U very very quickly uh you know in months weeks so that they can produce something else so it gave them a manufacturing capability in the US uh that would keep the jobs in the US so so there were so now with Tesla uh you know this is a very Innovative campan any new company uh bear some risk but on the other hand uh its way of innovation the way it's pushing this it's a totally different approach to an old electric vehicle they are an incredibly vertically integrated company um meaning that they not only designed the entire platform the drive the motor train the electronics they even designed a test equipment for the acceptance of the of the parts and and they work with the suppliers and I don't want to sound like an ad for Tesla but but I'm just saying

that it's gone but this is but this is the Innovative the most it's the best of American innovation in the sense that it's it's a totally different approach it's a radical approach and if successful it's it's going to be the wave of the future you know one of the reasons why I like arpa e so much and I've met many of the people who attend this this this meeting uh from last year and this year is that uh there are real innovators and business people out there struggling trying to kind of you know fix whatever puzzle they're dealing with they're not only dealing with it within the US context they're dealing it with it with the realities of a of a globalized world and you know when you think about the kinds of you're from South Africa you're you're uh you're

whether it's SpaceX or you're dealing with you know technology you're now dealing with a global format you emphasizing us jobs us technology which I think is also important because there's a sense that stewardship here is something we need to get back to thinking about and we may have lost that track do you get a sense and let me ask you as a businessman do you get a sense that the United States you cited the Bush Administration for signing but you think we're beginning to shift I remember a McKenzie report saying you know that America benefited uh tremendously from every offshore job uh I remember uh in earlier presidential administrations advisor to the president said it didn't matter what we made in the United States a a potato chip and a semiconductor

chip are the are the same uh and and do you get a sense that there you know some people call it industrial policy but let's just call it you know A A A Renewed sense that manufacturing and that creating things in the US economy is back and that takes smart policy and I'd love to get your thoughts on this Stephen just you're leaving your job soon but you've been at this yeah um and it's a hard nut to get people to believe that the government can really make a positive impact well it is smart policy but let me you know it's a great question here's here's the thing there are some who say it a job is a job is a job um and uh service jobs are the same as manufacturing jobs um I strongly disagree if you look at how the United States is embedded and how we got

to where we are uh and this is looking back but also looking forward the the jobs in manufacturing that you invent in America you manufacture in America you produce here uh have all the other secondary service jobs associated with so it's greatly leveraged the other more important thing to realize is if you looked over there was um uh Michael Spence the Nobel prize winning Economist a friend of mine U happens to be from Stanford uh he and a colleague of his published uh a paper about 6 Months 8 months ago that looked at jobs and all the new jobs were created in the United States over 20e period and they divided it into service jobs into manufacturing of tier one tier two tier three all these things and but he really divided between what would be called

things that you do that are tradable and things that are not tradable uh let me give you an example if you're a farmer and you grow wheat or corn that's tradable you can ship it abroad uh cars are tradable you know things of that nature are tradable what's not tradable the US Secretary of energy is not tradable it's the US sector of energy uh restaurant jobs are not tradable right it's serving that uh most hospital jobs are not tradable okay the job growth in the United States remarkably grew a lot very healthy time in the period of the United States 1980 to 90 uh to 2000 20 years only in the non-tradable sector think about that all the jobs were in the non-tradable sector the job growth in the tradable sector was flat right so now think about this in

areas where the United States has to compete globally we didn't grow now what you take that to its natural limit you're in a very bad place because you still need to import things into the us but we're not exporting things you get to a very bad Pace if I sell you pizza and you sell me Blue Jeans that's okay but eventually we're going to need something else from outside the US and so on this larger context uh this notion that you can give up manufacturing as a root Foundation of yan State's wealth is I think deeply flawed uh it is part of you know yes most of our jobs are today service jobs but manufacturing is a root Foundation because those are tradable things and not only that in terms of the wide diversity and talents in the American public you want

you know not everyone's going to be a stock broker or something like that and so um so that's another thing where yes good sensible policy to actually get forces back to look at in the long term what will be good for our citizens actually if I may comment on that with respect to Tesla um uh we have as customers Mercedes uh and Toyota uh so we Supply electric power trins to them um much of that being exported um and uh we have Tesla roads is have been exported now to 31 different countries uh longterm we expect probably uh some something in the order of 60 to 65% of the cars that we manufacture will be exported to Europe and Asia and and then other parts of the world as well so I do think that that to to just king of your point that that isn't if if if

the if other countries can export their cars to us why can't we make cars that are good enough to export to them MH yes can I add to that and what I'm seeing for the first time it's actually stimulated by the higher mileage standards uh that EPA and transportation put out all of a sudden cars being manufactured in the United States are now exportable because they're they're small they liable more fuel efficient and so so what you think would be uh a quote regulation telling us how to do our business is actually stimulating uh this thing in a very subtle way where if you know if you know except from a few exceptions if if you're only making cars to get 15 20 mil to a gallon that's not mass Market exportable if you're making cars to get 35 40 45 mil a gallon

that is uh and so that's another thing that's you see beginning to happen the the car manufactur are beginning to say you know what we can build the onit states and Export rather than you know build in another country well I I remember I I worked for Senator bingaman in the 1990s I remember at that time in this Arena U we had San National Laboratories um there and they had Cooperative research and development agreements with very large firms like Intel General Motors and others and the guys that were running the GM CR uh were very explicit and overt that they had the agreement to try and take all the Dual use or you know non-national security technology they could get out of the agreement and to apply it to their facilities in China and they said if we

didn't do that we won't be there in 30 years so this was raised interesting ethical questions for me as a you know taxpayer supported National Security research but it's hard to get these equations right because technology flows phds flow and and and you have it but while we have just a few minutes left I'd like to ask you you're both such um Giants in in the world of innovation and Alon you you've not just done I mean it's ironic because you've had some tough media recently in the New York Times uh I was just uh reminded that uh this was entirely your fault not because of bad car uh but alon's um first foray into business was a company called zip 2 uh which the New York Times was an investor in and you actually helped take the New York Times online uh

so any that was years ago I realiz I think that's called being called host on your own petard yeah so um but from that and and PayPal and Tesla of course Solar City um where I've interviewed a number of U your friends and colleagues that have helped put that together and and Stephen with you in your um in in your research work at Berkeley and others you know forget yourself as a powerful Secretary of Energy but just in terms of of innovating thinking out of the box and doing things that no other people have done before we have 3,000 people in the room uh who are struggling to find that kind of those what are the right ingredients to make Innovation work not just Innovation but then disrupting incumbents getting finance and capital partnering in the right

ways and I I'd love to just get two or three important lessons from you that this crowd should hear as they struggle with their own aspirations okay yeah um well uh I I think uh so you're looking for S suggestions that people for executing on on IDE wants to do what you've done but maybe in different areas I think I'm not sure they really knew what the that they would want that actually um yeah it's Never As Good As It Seems um I think things are better these days but but for many years there it was it was very painful um and we almost lost everything back in 2008 um so at Tesla yeah actually all three companies almost died in 2008 um because uh that SpaceX and you're still running two of the companies full-time right as CEO right how's that going for

you I don't recommend it yeah yeah um it's uh it's it's not I I'm doing this because I think I have to not because I want to okay so that's that's maybe an important consideration so doing what you have to do I also remember in our San Diego meeting was fascinating you uh conveyed that uh uh the only limits on you and your aspirations were physical I thought it was a really great line that's that's well that's I'm not saying that I can do anything within the limits of physics but I'm saying if if physics says you can't do it then you probably can't um yeah or you should get a you should get a really big Nobel Prize one of the two yeah um yeah you know generally important to observe the laws of the thermodynamics and conservation of energy momentum and

that kind of thing I see Stephen um yes I would agree I want to direct this yeah okay we're we're we're straight on loss of physics but thoughts for innovators in the in the room um I think when I look at both what I've done you know certain what Yan's done whether number of people done you cast around and you look for areas that you begin to see either a glimmer of a new breakthrough type of thinking uh or the some technology in this sector has been left alone and not applied to that sector and or there's a just a need based on an Emerging Market uh and those are the things that actually are can be real drivers for success in Innovation uh when you see a glimmer of a breakthrough I mean Elon was telling me when he was a graduate student he was into energy

storage and super Capac things like that uh and I think many of us saw 8 10 years ago battery techn ology before that was crawling along crawling along crawling along and all of a sudden you see wait a minute there's beginning to see something that will uh take a different slope and if you think that it could take a different slope do those things to develop that technology and Surround you with people that help you develop that technology so you become the leader okay but but but there's something behind you that's building wave that you're going to ride and so that's very important uh and and so and in in the things I did in my research career when I was a graduate student lasers had been demonstrated in the early 60s the tunable laser was invented

by 1970 by 1972 even though my thesis advisor had not been in lasers didn't know lasers and I told them you know what we got to get into this technology but you get into it not by purchasing a laser you get into it by building the next best thing that keeps you ahead of the pack and then you can do signs no one else could do yeah I I can make two two recommendations which actually do slightly K physics which is I think a lot of times if if you want to do something really Innovative you have to apply a sort of first principles analysis not not and don't don't Reason by analogy analogies are referencing the past um so first principles means you you you look at the most fundamental truths in in a particular Arena uh um and and the things that really are

almost indisputably correct um and you reason up from there to a conclusion um and and if you if you see that that conclusion is at is at odds with with what people generally believe then you have an opportunity um now you can't operate like that on all things because it takes too much mental horsepower so most of your life you have to operate by reasoning by analogy but if you really want invate you must reason for first principles to identify the problem um and then you also should seek negative get a feedback this this sounds like a strange thing and see from from from your friends and from people who are knowledgeable people will not give you the negative feedback be cruel to be kind no it's not it's you just want you need to understand where you're

wrong it's got It's got nothing and and put feelings aside and a lot of times people can look at what you're doing and they know that's wrong but you have but but they don't want to hurt your feelings and that's why they don't tell you um so yeah yeah Stephen yeah we we're right at the end go ahead um I agree with for few more days um it'll be longer than that but but uh I think uh I agree with everything Elon said uh when you look at new technologies and you look there could be you know St called wild claims um but you what is the quote theoretical limitations but not theoretical Allah Heisenberg on Ser principle you know there's a lower theory that is beyond this it's just you know it's not going to make it and then you where is the technology and then

you say how much space is there between that that realistically you can get there in 5 years okay and and that actually helps Define things and and focuses the mind on what you should be thinking about what you shouldn't be thinking about so there are many things like that that I think successful innovators do all the time the constructive feedback the honest feedback is exactly what we were establishing in RP that's now being infected in the rest of the Departments of energy uh you know if you hear an idea that you don't really agree with instead of politely sitting there and being polite you say no you know that I don't think that's right you know this is why you know you're wrong and then and then you sit at a table and you talk about it and that's

where you figure out are you right are you wrong and then you have a deeper understanding of what's going on and that's the type of culture that we want to that start started in RP it certainly has to be continued in RP but to infect the rest of the Department of energy yeah ladies and gentlem we've come oh last last word I can make an announcement that maybe would be interesting um so uh everybody get Twitter out yeah exactly um so I I I really think that that the the Dee loan to to Tesla should be viewed as as a pretty significant success I mean we're we're we're we're exporting cars uh we're we're selling power trins to two of the most respected brands in the world Mercedes and and and Toyota uh we won electric car went car of the year last year I

mean this this is pretty good stuff I mean so if people are going to um you know attack the doe for floody cylindra for God's sake honestly um uh you know if then then there should be some praise for the doe when there is a success um I think you just help doe stock go up yeah and and and and so actually I want to make a public commitment and we're going to codify it that Tesla is going to cut the payment time in half of the loan so we have 10 years ahead of us the loan half or less great well we are uh we we are uh 2 minutes and 47 seconds over but I think when you're sitting with two of the most brilliant innovators in the United States they can lend us that that little extra time I want to uh thank you both for for sharing your insights into how make

this work uh I know I teased you a little bit about the government private sector thing but what we're doing here and I think what arpa is doing is so important of essentially creating a platform raising aspirationally where we need to go as a nation bringing uh participants into this so that they can get constructive feedback negative and positive uh and that they've got real world examples to see what you've done over and over and over again if we had another hour or two you know it's interesting I've had an opportunity in my position to interview a lot of geniuses and when you're around genius it gives you an opportunity because people organize the way they see the world these guys are slowing down a little bit for us right now when you're having a

beer with them late at night you can sort of see how they see the the future and how they're operating and it is really incredibly um valuable to all of us into people in room that you take the time uh to share with us and give us some on-ramps into how you see Innovation and how it works so thank you so much [Applause] [Music]