The DoD deal protects MP from below-cost magnet pricing

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 3:17

   And then, Chamath, you referenced a couple. It's been a busy few months for us. We announced a pretty transformative public-private partnership with the Department of Defense. DoD is, there's really three pillars to this deal. DoD is becoming our largest economic investor, as well as they're going to provide a price floor for our commodities so that the Chinese sort of Chinese mercantilism, we can get into that, won't take the price of the commodity below the cost of production.

2. 3:49

   And then as a result of the DoD investment, we're going to accelerate the build-out of the magnetic supply chain. So we're expanding our facility in Texas for Apple. I'll talk about that in a second. But we're then going to build a 10x facility to 10x our capacity with DOD as our 100% offtake partner, customer and business partner, because we'll be splitting profits 50-50 with DOD. So to just translate this, it's not a handout from the government.

3. 4:15

   They didn't gift you $400 million. They invested in your company. They have warrants. They have equity. Yeah. So they invested. They both are an owner. They also are an upside participant in our commodity to the extent that the prices take off. And then they're also 100% offtake customer. We have a guaranteed level of profits to want to build out this facility. But above a certain threshold, they're a 50-50 economic participant.

4. 4:39

   So there's really you, the taxpayer, yeah. So this is a, and maybe I'll say something wild here. This is a true win-win, obviously great for MP shareholders, great from a national security and commercial national security standpoint because we're going to have enough magnets to provide, you know, real certainty in the supply chain for the physical AI revolution and other industries. But it would not surprise me if when we, five years from now, hopefully we'll do this conference and Chamath, you'll say to me, Jim, you know, I remember that deal that was the first of its kind that you did with DoD and the government made money on you. The taxpayer made money on doing this. And I'll say, yeah, I actually think that that's going to be the outcome because there's sort of an element of mutually assured economic destruction. If the Chinese believe that America has national

5. 5:28

   champions too, then there's no point in subsidizing the rest of the world. And so I think you can start to see prices normalize for some of these things and free up our ability to invest and expand. Why go to the government for this investment as opposed to the private markets? Well, because it's that issue, this is sort of one of those, you know, obviously you have to go back to World War II or the railroad boom where you really need government and credit.

6. 5:53

   I mean, this administration did something totally unique. Which piece? Why do you need the government? Mercantilism, straight up mercantilism, because the Chinese will sell magnets for below the cost of raw materials. And so every time there's somebody who makes progress, they can put them out of business overnight. And so it's difficult to want to make the investment. And so, frankly, with the Department of Defense, the scale that they wanted us to build on the time frame that they wanted us to build, there was no way we were going to make that commitment.

7. 6:23

   We're fiduciaries, right? We have shareholders. There's no way we're going to make that commitment without certainty that we would not be destroyed by mercantilism and that we would have a customer for the magnets. How big of an industry is physical AI?