Watch CNBC's full interview with AeroVironment CEO Wahid Nawabi

Summary

AeroVironment CEO Wahid Nawabi discusses the company's performance and future outlook, addressing mixed earnings results and continued growth despite challenges. Nawabi emphasizes the increasing global demand for drones and unmanned systems, noting that the defense landscape has shifted towards low-cost, scalable technologies like drones and loitering munitions. He highlights the need for the U.S. military to ramp up production and readiness, warning that current capabilities may not be sufficient in the face of emerging threats like drone swarms. Nawabi also talks about the role of counter-drone systems and the importance of a layered defense strategy.

Takeaways

• 😀 AeroVironment is on track for a record year despite mixed earnings results, with demand growing from both the U.S. military and international allies.
• 😀 The defense landscape is undergoing a significant transformation, with drones, loitering munitions, and autonomous systems becoming central to future warfare.
• 😀 Wahed Nawabi emphasizes the shifting nature of warfare, especially with drone technology playing a crucial role in future conflicts with adversaries like China and Russia.
• 😀 AeroVironment has the capacity to meet current demand but needs to scale up production to meet future threats, potentially needing hundreds of thousands of drones.
• 😀 The U.S. military is not fully prepared for future conflicts, especially in the face of adversaries developing drone swarms and autonomous technologies.
• 😀 Counter-drone technology, including directed energy systems (e.g., lasers), will be essential in defending against the growing threat of drones.
• 😀 The cost of defense systems must become more affordable, with a shift from expensive, traditional weapons (e.g., missiles) to scalable, low-cost autonomous systems.
• 😀 Directed energy systems can offer a low-cost alternative to traditional kinetic weapons, with costs per kill measured in pennies rather than millions of dollars.
• 😀 Nawabi warns that the U.S. needs a major shift in industrial mobilization to be prepared for new threats in the defense sector, particularly from countries like China.
• 😀 The U.S. needs a layered defense approach to protect critical infrastructure, with different systems employed depending on the type of threat, from drones to hypersonic missiles.
• 😀 AeroVironment is acquiring Blue Halo, a counter-UAS technology company, to bolster its capabilities in counter-drone and defense systems against evolving threats.

Q & A

What impact did AeroVironment's earnings have on its stock performance, and how does the company view its growth prospects for the year?

AeroVironment's earnings report showed mixed results, with a missed estimate in one area, particularly related to Puma drone sales to Ukraine. Despite this, the stock is still up 30% for the year. The company remains confident, stating that it is on track for another record year, with strong demand for its systems beyond Ukraine, including from the U.S. military and international customers.

How does AeroVironment view the potential impact of a change in U.S. policy regarding Ukraine and defense funding?

AeroVironment acknowledges that the war in Ukraine won't last forever, but emphasizes that global defense demands, including those from the U.S. and other international allies, are increasing. The company believes that even if the war ended tomorrow, the demand for unmanned systems and loitering munitions will remain strong due to the changing nature of warfare.

What is AeroVironment's response to concerns that drones and unmanned systems could face limitations in future conflicts?

AeroVironment highlights the shifting nature of warfare, where drones and autonomous systems are increasingly critical. They believe that loitering munitions and drones, which provide lower-cost alternatives to traditional defense systems, will be a central part of future defense strategies. The company is confident that its innovative technologies will meet the rising demand for these systems.

What are some of the new technologies AeroVironment is working on to support defense needs?

AeroVironment is heavily investing in R&D to innovate in areas like loitering munitions, drones, and autonomous systems. They are focused on creating scalable, affordable solutions that can meet the needs of the U.S. military and international allies, particularly in terms of counter-drone technologies and other defense applications.

How does AeroVironment view the evolving role of AI and drones in defense strategy?

AeroVironment sees itself as a leader in AI-powered unmanned systems. The company emphasizes that AI is becoming increasingly vital in defense, especially in areas like swarm technology and autonomous drones that can operate without GPS or operator communication. This shift is seen as crucial to maintaining defense superiority in modern warfare.

What is AeroVironment's stance on the current state of U.S. defense preparedness in the face of evolving global threats?

AeroVironment's CEO expressed concern that the U.S. is not fully prepared for modern threats, particularly in a scenario where adversaries like China deploy thousands of autonomous drones. The company stresses the need for rapid and substantial changes in U.S. defense strategy and industrial mobilization to address these emerging challenges.

Can AeroVironment meet the production demands of the U.S. military, particularly in a large-scale conflict scenario?

AeroVironment claims it has the capability to scale up production to meet large-scale demands, as demonstrated during past conflicts. The company can produce thousands of drones, but it emphasizes the importance of having government contracts to facilitate the necessary investments and production scaling for a future conflict.

What challenges does AeroVironment face in scaling up drone production, and how can these challenges be overcome?

AeroVironment faces challenges in scaling up drone production primarily due to the lack of a broad customer base, as the U.S. military is currently the primary buyer. The company needs consistent government contracts and procurement to ramp up production to tens or even hundreds of thousands of drones. The company is confident that with the right government support, it can meet these challenges.

How does AeroVironment compare its defense strategy to the historical shift in technology sectors like computing?

AeroVironment draws a parallel between the shift in defense technology and the evolution of the computing industry. Just as the advent of smartphones didn't eliminate the need for mainframes, the rise of drones and autonomous systems will not replace traditional defense assets like fighter jets and aircraft carriers. However, there will be a significant shift in focus and spending towards scalable, cost-effective systems like drones.

What does AeroVironment mean by a 'layered defense system,' and how is this relevant to counter-drone technology?

AeroVironment's 'layered defense system' refers to a multi-tiered approach to detecting and neutralizing threats, including drones. Depending on the size and distance of the threat, the system may use different technologies such as kinetic weapons, electronic warfare, or directed energy like laser beams to neutralize incoming threats. This approach is crucial for defending critical infrastructure and military assets from a variety of threats, including low-cost consumer drones.