And they're ESG to Boot!
Dec. 2022 "Windfalls await investors in ammunition"And with their inclusion in many ESG funds,* this is the best of all possible worlds....
From Rob's substack, February 7:
America: The Ultimate Crammer
I am an engineer by training with the questionable instinct to run towards problems, especially problems that should not be problems. When I heard that the United States could not produce sufficient 155 mm artillery shells to supply Ukraine, I thought it sounded odd. I knew essentially nothing about artillery save I would want to be on the other end of one. I was generally aware the industrial base for the defense industry had either atrophied or specialized or both, depending on your perspective. Maybe this was just over-specialization? A dependency on a single part? Maybe it is a reliance on something exotic? Surely, there must be an explanation, something that would help me understand why we are so ill-prepared. Maybe there is some new technology that could be applied? This is a record of what I learned for the benefit of a more-educated citizenry and to save time for anyone else investigating the issue.
Maybe as Much as You Ever Wanted to Know about Artillery Shell Production
I approached this first to understand and second to know if-and-how I could help. My understanding is far from perfect—I went for breadth more than depth, often sacrificing detailed measurements in order to go fast. This is the short version.
There is a shortage because our lone factory’s maximum capacity is 28,000 units (i.e. 28 ku) per month in the face of Ukraine asking for 600,000 units (600 ku) per month.
The major shortage is with producing steel casings for the artillery shells.
The materials required to make these shells are relatively plentiful.
If you were to remove the casings bottleneck, other bottlenecks are possible. However, the next step (filling shells with explosive materials) is simpler to optimize vs. moving and precisely shaping a hundred pounds of steel at 2000°F.
There is no technological shortcut to producing more of these.
3D printing is not viable. The metal itself is too precise to be printable with current technology, and the size of the shells would pose an issue.
Existing facilities use automation, but newer facilities will integrate more automation to improve quality and throughput.
Producing shells requires specific machine tools to accommodate the weight/heat and specially forming the nozzle. The tools themselves are fairly common, especially the furnaces; however, a factory optimized for building shells won’t be effective at building much else.
The existing production facility is part of a national landmark district, complicating expanding the existing facility.
The Department of Defense’s (DOD) current primary path forward is building a new facility in Garland, TX with modern automation and inspection equipment. Assuming it is contributing to the goal of scaling to 100ku per month of production by early 2025, it will have taken 3 years since hostilities started and 2 years since a contract was awarded for it to be online.
Building additional capacity is largely in DOD’s hands, as defense contractors are unwilling to build facilities without long-term (15 year) contracts. Today, the DOD typically awards 3-4 year contracts.
Ultimately, I am left with the impression that the US’ solution to problems that require building things is to avoid it at all costs. Congress is loathe to fund munition supplies that are never used, and defense contractors are loathe to build factories that sit idle (and despite what Hollywood may portray, everyone wants deterrence, not actual conflict). Though Congress and DOD are funding a new facility, 3-4 years will have passed before it produces a shell, which is entirely unhelpful in a present conflict. Instead, the DOD is attempting to plug the Ukraine-sized hole with shells from allied nations including Canada, South Korea, Finland, and Germany—places where it’s still possible to build new things.
I believe in alliances, especially when it is the free people of the world standing against aggression from authoritarians. What troubles me here, though, is that the US is pursuing that option because the domestic defense industrial base, inclusive of DOD and its contractors, is sclerotic. It treats time like it’s free. It does not respond quickly. It does not build or innovate around current problems, because of a combination of disincentives from DOD’s own structure and the pervasive challenges of trying to run a manufacturing business in the US. These are largely own goals. If the DOD would write longer term contracts. If we did not declare essential production facilities to be historic landmarks, strangling expansion. I did not even want to get into why GOCOs exist or the labyrinth of DOD procurement, but it is sufficient to say they both pose challenges to doing anything new or different. My solace is that in a real conflict, all of that red tape would be put to the side and people can get about building things. There will be a multi-year lag between when that crisis happens and how fast the factories can return, and I hope we can weather that storm.
Could an entrepreneur change this equation? Anduril’s success is a testament that with the right application of influence and creativity, new companies can compete effectively against the prime contractors. I am less certain that is a possibility here for a few reasons. The primary concern is getting an ROI in 3-4 years on the capital required to build such a facility. You either need a technological edge that dramatically reduces the capital expense, or you need to be able to blend production with other commercial goods (i.e. dual use). For the former, I do not see a dramatically cheaper option unless there is some arbitrage on cheaper electric arc furnaces and presses. For the latter, 3D printing could be an answer, if the material properties existed. However, metal 3D printing companies are struggling with sales as-is, reflecting a lack of commercial demand for commercial 3D printed metal parts. Therefore, even with the steel needed, I am confident it would be a battle to keep them full the rest of the time. This only gets harder without a technological edge like 3D printing, as it would be a sub-scale, commodity steel mill likely optimized for an application with only one real customer.
The rest of the post is specific research questions I had with the best quality of answers I could find and cited. Questions include:....
....MUCH MORE
