Your right, it works... just don't research factory when in the dev.exe.
In regards to ships making ships Ryat is correct your only option is abilities.
However, create frigate and clone frigate IGNORE fleet supply making it abuseable (negative fleet supply) unless the created frigates have a limited lifespan. Spawn frigates for frigates and cruisers only will follow fleet supply rules but all the ships will phase jump into the gravity well. Spawning capital ships can work but capital ship supply is ignored so open for abuse as well (negative capital and fleet supply).