[CEO Interview] One-Tenth the Cost and Speeds Exceeding 30 Knots: How U.S.-Based Vatn Systems Is Disrupting Defense and Commercial Markets with Autonomous Underwater Drones

Vatn Systems (https://www.vatn.com/)

Interest in defense technology (DefenseTech) is rapidly growing in Japan and around the world, particularly in areas such as national security, resource exploration, and the protection of subsea infrastructure. For Japan, a maritime nation surrounded by ocean, maritime defense and underwater exploration are especially important. However, conventional autonomous underwater vehicles (AUVs) have faced significant challenges, including extremely high costs, manufacturing limitations, and relatively slow operating speeds.

One startup attracting significant attention from the global defense industry for challenging these conventional assumptions is Vatn Systems, a U.S.-based company founded in 2023. The company has developed autonomous underwater drones that combine costs approximately one-tenth those of competing products with high-speed capabilities exceeding 30 knots and exceptional mass-production potential. Its technology is drawing interest from both defense and commercial sectors.

For this article, we conducted an exclusive interview with Nelson Mills, CEO of Vatn Systems. Based on insights shared during the interview, we explore the company's business strategy, the technological philosophy behind its remarkable cost reductions, its strategic partnerships with global industry leaders such as Lockheed Martin and South Korea's Hanwha, its ambitions for partnerships in the Japanese market, and its vision for the future of maritime autonomy.

Vant Systems CEO / Nelson Mills

A Dramatic Transformation in Maritime Defense and Autonomous Underwater Vehicles (AUVs)

Traditionally, maritime operations and defense missions—including underwater work in hazardous environments, mine countermeasures, and seabed surveys—have relied heavily on human divers and remotely operated vehicles (ROVs). However, ensuring diver safety in challenging marine environments, addressing severe labor shortages, and managing rising operational costs have become increasingly pressing global challenges.

During the interview, Mills emphasized the structural challenges that have historically constrained the AUV market. Although AUVs have long been regarded as a promising technology for addressing these issues, the market has been dominated by a limited number of manufacturers, resulting in exceptionally high costs per vehicle. Moreover, conventional AUVs generally operate at speeds of only around 3 to 5 knots, significantly restricting their operational flexibility in areas with strong currents and tidal movements.

Against this backdrop, Vatn Systems was founded in 2023 with the goal of delivering autonomous underwater drones that combine dramatically lower costs with superior manufacturability.The company's underwater drones can achieve speeds exceeding 30 knots, a level of performance beyond the capabilities of many conventional AUVs, enabling them to carry out missions even in areas with strong ocean currents.By removing human divers from hazardous environments and automating high-risk operations such as mine countermeasures and seabed scanning, Vatn Systems aims to fundamentally redefine how maritime defense and underwater operations are conducted.

How Is One-Tenth the Cost Possible? A Simplified Design Philosophy Focused on Shallow Waters Below 100 Meters

One of Vatn Systems' greatest competitive advantages is its ability to offer products at approximately one-tenth the cost of competing solutions. During the interview, Mills explained the company's distinctive strategy and product design philosophy behind this remarkable level of cost reduction—an achievement particularly noteworthy in the defense equipment and maritime technology industries.

The primary factor is the company's decision to eliminate excessive specifications required for only a small minority of applications and instead focus on the requirements of approximately 90% of real-world missions. Traditional AUV manufacturers have invested heavily in expensive components and complex engineering to accommodate specialized use cases, such as operations at extreme depths of 300 to 400 meters or underwater navigation requiring millimeter-level positioning accuracy.

According to Mills, however, these specialized requirements—which account for only around 10% of potential applications—can be responsible for as much as 90% of overall product costs. Recognizing this imbalance, Vatn Systems chose to focus on shallow-water scanning and general-purpose patrol missions at depths of less than 100 meters, which represent approximately 90% of actual maritime operations.

For example, rather than deploying an expensive, highly specialized vehicle for every mission, the company proposes using affordable, general-purpose platforms for the 90 out of 100 missions conducted at depths below 100 meters, while reserving expensive specialized equipment for the remaining 10 missions that require extreme-depth capabilities.

By optimizing product specifications around actual operational needs and systematically eliminating unnecessary costs, Vatn Systems has established the first pillar of its low-cost strategy.

Structural Advantages Through Vertical Integration and Design for Manufacturability

The second major factor behind Vatn Systems' cost competitiveness is its commitment to Design for Manufacturing (DFM) and cost-conscious engineering from the earliest stages of product development. Rather than developing prototypes first and addressing production challenges later, the company designed its products with mass production in mind from the outset, pursuing maximum efficiency in assembly and manufacturing processes.

The third factor highlighted during the interview was the company's approach to vertical integration, particularly the in-house development and production of key components.Many traditional underwater drone manufacturers have primarily operated as parts integrators, assembling products using components sourced from external suppliers. This model often creates a phenomenon known as "margin stack-up," in which profit margins added by multiple component suppliers accumulate throughout the supply chain, significantly increasing the final product price. Vatn Systems has addressed this issue by bringing the production of expensive critical components and core technologies in-house, eliminating layers of intermediary margins.

As a result, the company has substantially reduced intermediate costs and established a level of cost competitiveness that is difficult for traditional competitors to replicate.

Startup Agility: Overcoming the Chicken-and-Egg Dilemma of Mass Production

The drone and defense technology industries have long faced a classic chicken-and-egg dilemma. Customers, including government agencies, military organizations, and private companies, are often reluctant to sign major contracts until manufacturers can demonstrate reliable mass-production and delivery capabilities. At the same time, traditional manufacturers frequently hesitate to invest in production facilities and product development until they have secured confirmed orders.

During the interview, Mills explained that since its founding in 2023, Vatn Systems has deliberately taken a different approach. By leveraging venture capital funding, the company accepted the risks associated with investing in product development and mass-production infrastructure before receiving firm customer orders. This agility and willingness to take calculated risks have been among the key driving forces behind its rapid growth. By demonstrating its ability to manufacture and deliver products at scale early on, Vatn Systems gained customer confidence and successfully accelerated market demand.

In 2025, the company began mass production at a facility measuring approximately 9,000 square feet (830 square meters). It then rapidly moved toward a new headquarters and manufacturing facility with a total area of approximately 90,000 square feet (8,300 square meters). Of this space, approximately 75,000 square feet (7,000 square meters) is dedicated to mass production, enabling the rapid establishment of production lines for the company's flagship S6 Class and S12 Class underwater drones. An important factor supporting this expansion has been Vatn Systems' organizational strategy from its earliest stages. Even during the prototyping and pre-production phases, the company recruited dedicated directors of manufacturing and supply chain operations and established specialized production teams. By incorporating feedback from manufacturing professionals directly into the prototype design process, the company was able to anticipate and prevent many of the challenges that typically arise during the transition to mass production. This approach allowed Vatn Systems to establish a highly capable production system in a relatively short period. Its ability to rapidly scale manufacturing through vertically integrated, in-house production has become one of the company's most significant competitive advantages.

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Vatn Systems' flagship S6 Class and S12 Class underwater drones

Global Alliances with Lockheed Martin and Hanwha

While expanding its own manufacturing capabilities, Vatn Systems has also been actively building strategic alliances with leading defense prime contractors and influential partners around the world.This approach is designed to strengthen systems integration capabilities and expand access to global markets that would be difficult for a startup to penetrate independently.

In its collaboration with Lockheed Martin, one of the largest defense contractors in the United States, Vatn Systems is working to integrate its underwater drones into Lockheed Martin's command-and-control systems. Demonstration projects have involved the coordinated operation of multiple Vatn Systems drones alongside Lockheed Martin's platforms and unmanned systems.These initiatives are helping establish a framework for offering customers advanced, integrated operational solutions as packaged systems. The collaboration also creates opportunities for both companies to expand their respective distribution channels and enhance the value of their products through mutual market access.

In South Korea, Vatn Systems has established a partnership with Hanwha, one of the country's leading integrated defense companies. This partnership not only facilitates access to South Korea's defense market but also includes efforts to integrate Vatn Systems' AUVs as critical payloads into other technology being developed by Hanwha. South Korea has also been rapidly expanding its defense equipment exports to markets across Europe, North America, and Southeast Asia. Partnering with Hanwha, which possesses extensive global distribution networks and strong international market capabilities, therefore represents a highly strategic move for Vatn Systems. Rather than focusing solely on domestic opportunities in South Korea, the partnership creates the potential for joint expansion into Western and third-country defense markets.

Challenges in Collaborating with Large Corporations and Criteria for Selecting Partners

Startups often face unique challenges when collaborating with major defense contractors and large multinational corporations. According to Vatn Systems, one of the most significant challenges is the difference in decision-making processes and business execution speed. Startups such as Vatn Systems typically operate in an environment where team members can involve senior management, make decisions immediately, and rapidly move toward implementation. By contrast, established large corporations often have multiple layers of approval, which can make decision-making considerably slower. Recognizing this difference, Vatn Systems carefully selects joint projects in which the pace of execution is compatible with its own operating style. This selective approach helps the company maintain productive partnerships while avoiding unnecessary delays.

Mills also highlighted several important criteria that Vatn Systems considers when selecting collaboration partners: alignment of values, access to appropriate networks and customers, and the potential for mutual benefits that create a genuine win-win relationship. Above all, the company prioritizes partnerships with organizations that accurately understand the strengths of its products and can effectively communicate their value to end customers.

Expansion from Defense into Commercial Markets: A Dual-Use Strategy

Demand for autonomous underwater drones extends far beyond military and defense applications, with significant opportunities also emerging in commercial markets. Vatn Systems sees potential applications across a wide range of industries and operations, including subsea telecommunications cable installation and inspection, offshore wind farm maintenance, oil and natural gas pipeline management, marine construction, maritime search and rescue, and environmental protection.

The company has established a clear roadmap for expanding its technology into dual-use applications spanning both defense and commercial markets. According to Mills, startups typically face significant constraints in development and sales resources during their early stages. Attempting to expand simultaneously into both defense and commercial markets can therefore create substantial risks by spreading these limited resources too thinly.

Vatn Systems has consequently adopted a phased approach.The company initially concentrates its resources on the defense sector, focusing on completing its products, establishing a strong market position, and building credibility among customers. Only after achieving sufficient product maturity and market traction does it plan to progressively expand into commercial applications. This step-by-step strategy helps prevent development priorities from becoming fragmented while enabling the company to build strong momentum within a clearly defined initial customer segment. Once the company has reached an appropriate level of maturity in its initial market, it can establish dedicated teams to pursue commercial opportunities more aggressively. Vatn Systems believes this disciplined approach is a key factor in successfully scaling dual-use technologies.

High Expectations for the Japanese Market

Mills also expressed strong interest and high expectations for the Japanese market. As an island nation surrounded by ocean and possessing an extensive exclusive economic zone (EEZ), Japan has substantial potential for autonomous underwater drone applications. According to Mills, Japan is among the countries where autonomous underwater technologies could deliver the greatest value—not only in maritime defense but also in marine environmental protection, offshore wind energy, and the broader utilization of ocean resources.

Vatn Systems already incorporates high-quality Japanese electronic components, including servo motors and battery cells, into some of its products, reflecting the company's strong appreciation for Japan's advanced manufacturing technologies. Looking ahead, Mills indicated that establishing production capabilities in Japan could also become a possibility as demand in the Japanese market expands. The company is open to considering various forms of local operations, including licensed manufacturing through Japanese companies, joint ventures, or the establishment of its own manufacturing facilities in Japan. Vatn Systems has demonstrated a highly flexible and open attitude toward potential joint business development opportunities with Japanese manufacturing partners and defense-related companies. The company also recognizes that partnerships with Japanese businesses possessing extensive domestic networks could play a critical role in facilitating successful market entry. Such alliances would help Vatn Systems better understand Japan's unique market structure, regulatory environment, and customer requirements across both defense and commercial sectors, supporting smoother and faster business expansion.

The Future of Sustainable Maritime Autonomy

Regarding the future direction of maritime autonomy, Vatn Systems believes the industry is undergoing a fundamental transformation. Operations that have traditionally relied on human divers and remotely operated vehicles (ROVs) are increasingly shifting toward fully autonomous underwater systems. Historically, one of the greatest barriers to widespread adoption of fully autonomous underwater technologies has been the high cost of the vehicles themselves. However, the emergence of companies such as Vatn Systems, which combine dramatically lower costs with high-speed performance, is beginning to fundamentally change this dynamic. Over the coming decade and beyond, autonomous systems are expected to take on an increasingly central role in maritime operations, potentially transforming how underwater missions are conducted across defense and commercial industries.

By combining costs approximately one-tenth those of traditional competitors, exceptional operating speeds, and a flexible global alliance strategy, Vatn Systems is positioning itself as a disruptive force in the autonomous underwater drone market. As revealed through our exclusive interview with CEO Nelson Mills, the company's strategy offers valuable insights into the future of maritime autonomy. Its approach to cost reduction, manufacturing scalability, and international partnerships could have significant implications not only for the global underwater drone industry but also for the future of maritime defense and ocean-related industries in Japan.