The remarkable growth in the role of software in our lives over the past couple of decades was best captured by Marc Andreessen. In 2011, Andreessen the founder of Netscape and more famously the founding partner at Andreessen Horowitz, one of the world’s leading venture capital firms, wrote in an essay about how ‘software was eating the world’. As prescient as it was, fourteen years hence, Silicon Valley is now finding out that the physical world hasn’t kept pace and is now causing a bottleneck of sorts. In a recent podcast, Eric Schmidt the former CEO of Google claimed that the natural limit for AI will be electricity, alluding to the energy guzzling nature of GPU laden data centres. Aptly, here’s another essay from a partner at Andreessen Horowitz about the need to build a bridge between the software and the physical world. He calls it the electro-industrial stack:
“…the electro‑industrial stack — the technologies that enable machines to behave like software: minerals and metals processed into advanced components, energy stored in batteries, electrons channeled by power electronics, force delivered by motors and actuators, all orchestrated by software running on high-performance compute.”
He uses the move from ride sharing apps to autonomous cars as an analogy to explain: “This is the shift from software that merely summons a taxi to software that takes the wheel. Software ate the world. Now it will move it.”
And he reckons the time is ripe as the machines themselves are changing:
“Electrified systems, built on batteries, power electronics, and high-torque motors, are more efficient, more precise, and more responsive to software. They can be tested in simulation, updated over the air, and improved continuously as telemetry feeds back into design. In practice, this means closed-loop systems where perception, planning, and control run in real-time, and hardware is designed to support deterministic control. In other words, with the electro-industrial stack, physical machines are beginning to behave like software.
Importantly, the electro-industrial stack isn’t new, but its presence is easy to miss. Today, core components already underpin energy storage systems, electric vehicles, drones, and industrial robots. Past enabling breakthroughs span rare-earth production at Mountain Pass, lithium-ion chemistry pioneered at Argonne National Lab, SiC power devices from DARPA-backed research, GM’s early permanent-magnet motors, robotics from NASA, autonomy advances from the DARPA Grand Challenges, and, of course, the modern logic chips born in Silicon Valley.””
However, in the context of geo-politics, he sees a problem. Given we are talking about the physical industrial world, as one would expect much of the upstream and midstream is dominated by the Chinese:
“China now increasingly dominates both research and production of these technologies. This is particularly true for upstream metals/chemicals, batteries, motors/actuators, and power electronics. And where it doesn’t lead, like in high-performance compute, it is either investing aggressively to catch up or seeking to collect as a spoil of war. These technologies may be American, but the capacity to build, scale, and upgrade them increasingly isn’t.
More broadly, the collision of AI with a digitally integrated industrial base is the real unlock for step-change productivity in the physical world. Tesla has set the pace, pulling this future forward by nearly a decade through fusing software, electrified systems, and networked sensors across its products and factories. But we must spread and accelerate that model further”
The essay then goes deeper into each segment of the stack. For example, the metals and minerals piece: “Ore deposits are scattered globally, but the real leverage sits in the midstream where China has built a state-backed, vertically integrated machine. That midstream controls the chemistry, metallurgy, and finishing that turn raw concentrates into battery-grade chemicals, alloys, foils, laminations, and powders. It’s also where margins expand and supply chains harden, locking in customers through long-term offtakes and driving upstream integration to secure feedstock — exactly the strategy China has executed worldwide.”
Or batteries: “Solar and other renewables could produce abundant power during the day and close to where it was needed, but without cost-effective storage, its value quickly declined. Low-cost, high-energy density batteries changed that. We can now store, move, modulate, and deliver electricity efficiently, powering everything from data centers to drones.
Put bluntly, the electro-industrial stack cannot scale without a major Western battery cell manufacturer able to supply energy storage units for systems beyond the tether of the grid. A true “energy dominance” strategy must include batteries.”
And the Chinese dominance here as well: “Chinese champions lead on both scale and process knowledge: CATL supplies ~40% of global EV capacity and BYD ~20%. Both supply Tesla with cells and manufacturing equipment. As high-nickel blends cede market share to lithium-iron phosphate and newer chemistries, the center of gravity in manufacturing and R&D expertise shifts more to China.”
Much as Tesla is the model for connecting the software and physical world in the US, BYD is the global symbol: “No company illustrates this power more clearly than BYD. What began as a Chinese battery maker now dominates the global EV market and extends into cargo ships, trains, buses, and industrial equipment. BYD even supplies more than half of DJI’s drones, by some accounts. This breadth is possible because its products share the same core technologies in which BYD has built deep expertise mineral sourcing and refining, batteries, motors/actuators, power electronics, compute and final assembly.”
Silicon Valley’s unlikely backing of Trump in the recent elections might partly be explained by the need to address this chokepoint and re-industrialise America and catch up with China.
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