President Donald Trump swept into office pledging to get American factories up and running again.
“We will follow two simple rules: buy American and hire American,” the nation’s 45th President said during his inauguration speech.
The Federal Trade Commission requires that any product advertised as ‘Made in the USA’ or ‘American Made’ be “all or virtually all” made in the U.S. This means that all significant parts and processing that go into the product must be of U.S. origin, with “no — or negligible — foreign content,” according to the FTC rules.
Many entrepreneurs dream of manufacturing their product in America. But for technology start-ups, producing a high-tech device in the U.S. without any foreign content is harder than it appears.
CNBC talked to three startups that found it impossible to build products 100 percent the U.S. – even though two of them, URB-E and Lumiwave, are using the ‘American Made’ label.
When the founders of URB-E, or Urban Electric, were coming up with their foldable electric vehicle design in a garage, they decided they wanted to manufacture the product in America. The company is based in Pasadena, California, and some of the top aerospace companies are in the region. That’s exactly what they needed for the lightweight, aircraft-grade aluminum that makes up the foldable frame.
Like any start-up, they started knocking on doors.
“A big challenge for us was manufacturing in California,” said URB-E CEO and co-founder Peter Lee. “Not every fabricator was receptive to the idea. A lot of them were looking for large quantity orders that were very simple as a plug and play.”
URB-E needed partners that would work through their growing pains, and it finally found eight fabricators who were willing to take on the task. It was also able to source the high-quality aluminum from U.S. companies, and started a seven-person assembly line out of its downtown Pasadena headquarters. It started making the vehicles in 2015.
But many important components that make a vehicle a vehicle — the battery, the seat, the wheels, the handle grips and the motor — are all made in China. URB-E was not able to find vendors in the U.S. who were willing to take on the project.
“We have talked to many companies that have produced motor-type products to see if they could adjust their product to fit our needs,” Lee said, “and all of them could not do it.”
They also could not find a company in the U.S. that produced the lithium batteries that they needed for the electric vehicle so they purchase URB-E’s Panasonic cells from China. Lee said that Tesla was the only U.S. company he knew of that would soon be producing batteries for electric vehicles, in its gigafactory in Nevada.
“If Elon Musk said ‘hey, we have some capacity to build URB-E batteries,’ we would be there in a second,” Lee said.
For Sherry Fox, the CEO and co-founder of BioCare Systems, the goal was monitor the production of her product, LumiWave, near company headquarters in Parker, Colorado. Just like the URB-E founders, she was focused on quality control and needed to assess and address problems directly with manufacturers. She had also made a pledge to her late husband, who started the company with her, to build in the U.S.
“It was one of his values,” Fox said in a phone interview.
Lumiwave is a medical-grade, infrared-powered pain relief device that can be used at home. Professional athletes, Olympians, and people with chronic pain have been using the pain reliever since 2006 when it first went on the market.
Fox found a manufacturing partner to assemble the product in Colorado. But one of the most important parts of this ‘American Made’ device is shipped in from China: the medical-grade LED lights that operate on a specific wavelength and are necessary for the device to work. The only company in the world that makes these lights is in China, and it was willing to guarantee their quality for use in the FDA-approved device.
The LEDs were not her only hurdle for keeping the manufacturing in America— the cost of labor and goods is keeping her margins minimal.
“I compared the cost of manufacturing elsewhere,” Fox said. “It would be significantly cheaper to manufacture overseas.”
But she thinks it’s worth keeping the operation in Colorado.
“As Americans we want to have the best quality at the lowest price and they just don’t always go together,” Fox said. “We have to be willing to pay more for the best products.”
Owlet makes a wireless smart sock that tracks a baby’s oxygen levels and heart rate.
The company, which is based in Provo, Utah, used to make the device in Salt Lake City, Utah and El Paso, Texas. In the early start-up phase, it needed manufacturers to be nearby so they could quickly respond to changes, said CEO and co-founder Kurt Workman.
But it wasn’t efficient: Owlet was losing $65 per unit when making the socks in the U.S.
“Eventually, you hit a point where you don’t want to make changes to your product, you just want to make a lot of them,” Workman said. “That’s where the U.S. is significantly behind.”
So Owlet recently moved manufacturing to Guadalajara, Mexico.
Since they moved, “service level and quality has gone up and cost has gone down,” Workman said. Owlet is no longer losing money on each unit.
Workman said that the equipment, the processes and the supporting supply network are all stronger internationally than at home.
“Maybe with the emphasis of bringing it back to the U.S., you’ll start to see the capabilities come back,” Workman said. “But it will take at least 20 years for the U.S. to catch up.”