Newsletter: Physical AI: Reimagine Manufacturing as America’s Biggest Opportunity

David Cao 

Physical AI, Manufacturing, Real Estate | Austin + Silicon Valley + Monterrey

September 2, 2025

Why the intersection of robotics, AI agents, US, and Mexico will define the next decade of industrial innovation

For years the conversation around artificial intelligence centered on digital applications—chatbots, recommendation engines, and software that lives in the cloud. A new wave is emerging: Physical AI, where machines perceive, decide, and act in the real world. Nowhere will this revolution be felt more profoundly than in manufacturing.

The next wave is Physical AI—robots, machines, and intelligent systems that can see, decide, and act. And no sector is better suited for this transformation than manufacturing.

Manufacturing, a key driver of this transformation, is poised for a revolution. In Q1 2025, U.S. manufacturing generated $2.9 trillion in value-added, contributing 9.7% to GDP, with each dollar spent creating $2.64 in economic impact and each job supporting 4.8 others.

However, U.S. labor costs remain high, with the “Made in USA” label carrying a premium. In contrast, Mexico’s manufacturing wages averaged $4.10/hour in June 2025, nearly ten times lower than the U.S. average. This cost disparity is driving U.S. manufacturers to automate domestic operations while nearshoring supply chains to Mexico, positioning this cross-border collaboration as a cornerstone of industrial innovation for the next decade.

Manufacturing is the obvious entry point for Physical AI

• Manufacturing already contributes $2.9 trillion to U.S. GDP, making it the world’s eighth-largest economy if measured alone.
• Every $1 in U.S. manufacturing adds $2.64 to the economy, the highest multiplier of any sector.
• The sector faces 415,000+ job openings and over 2 million projected unfilled roles this decade.
• With labor shortfalls and rising costs, physical AI isn’t optional—it’s the only path to competitiveness.

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The Expense Problem

• U.S. manufacturing wages average $35.30 per hour, compared to $4.10 in Mexico.
• High labor costs, compliance, and infrastructure challenges have historically driven production offshore.
• AI agents, robotics, and predictive maintenance (which can cut costs by 25% and reduce downtime by 30%) create a path to making U.S.-based factories viable again.

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Why the U.S. Still Has an Edge

• Reshoring & Nearshoring: U.S.–Mexico supply chains under USMCA are pulling factories closer to North American markets.
• Capital & Ecosystem: Silicon Valley venture firms, Texas manufacturers, and Mexican labor form a powerful innovation triangle.
• Policy Tailwinds: The CHIPS Act has already catalyzed 130+ projects and $600B in private investments, setting the stage for AI-driven fabs and advanced plants.

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Texas + Mexico: The Corridor Advantage

• Texas accounts for nearly 10% of U.S. manufacturing GDP and is home to booming EV, aerospace, and semiconductor clusters.
• Mexico surpassed China in 2023 as the largest exporter to the U.S., led by automotive, electronics, and aerospaceth.
• Together, Texas factories + Mexico supply chains create a globally competitive model: low-cost inputs, advanced AI/robotics, and rapid delivery.

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Why Now?

• Technology Convergence: Industrial robots in the U.S. grew 10% in 2023 to 39,000 units installed, and AI agents can now coordinate entire workflows.
• Capital Flow: Humanoid robotics startups are raising nine-figure rounds; Morgan Stanley projects the market could reach $5 trillion in value in the long term.
• Global Shifts: Geopolitical tensions, tariffs, and supply chain fragility are accelerating nearshoring.
• Policy Momentum: U.S. incentives—from semiconductors to green energy—are directly subsidizing automation adoption.

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Opportunities for investors and entrepreneurs

Physical AI in manufacturing is not merely about cost savings; it unlocks entirely new business models:

• AI‑orchestrated factories: Build platforms that integrate robots, sensors, and AI agents to manage workflows end‑to‑end—from supplier scheduling to in‑line quality control. These platforms will become the ERP systems of physical operations.
• Robotics‑as‑a‑service (RaaS): Leasing fleets of humanoid or mobile robots to manufacturers allows SMEs to adopt automation without capital expense. Recurring revenue models and maintenance contracts make this attractive to investors.
• Supply‑chain fintech: Financing inventory, equipment and cross‑border logistics in a highly automated environment will require new financial products. The intersection of AI agents and fintech will create opportunities for venture capital and private equity.
• Talent platforms: As factories need technicians and AI engineers, workforce‑development platforms will emerge. Investing in training and credentialing could unlock a new labor marketplace.

Sustainability integration: AI‑enabled optimization reduces energy use and waste. With increasing regulatory pressure and ESG mandates, solutions that track carbon footprint in real time will find ready customers.

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Closing Thought

Manufacturing isn’t just one of many AI use cases—it is the aorta of the physical AI revolution.

With U.S. innovation, Texas factories, and Mexico’s supply chain backbone, North America can redefine global manufacturing. For investors and entrepreneurs, the window is open now—those who act today will shape the industrial platforms of tomorrow.