The Pentagon has a $1.1 billion plan to buy cheap drones by the end of 2027. It has committed to 60,000 attack drones so far. Nearly all of them are built to carry explosives. Two of the key explosives come from a single old plant. It makes a sliver of what it once did.
The Journal's Heather Somerville traces the supply to one place. Since the 1990s, all U.S. production of two key explosives, HMX and RDX, has come from the Holston Army Ammunition Plant. The plant is 84 years old. It makes about 3% of what it made at its 1944 peak. That figure comes from Tyler Hacker, a fellow at a defense think tank. The plant has had explosions and pollution violations. Orders wait one to two years, industry experts say. BAE Systems runs it. Imports are getting harder to find too.
The Army is moving, but slowly. In March it announced a $903 million research facility in Kentucky to raise output before 2031. The Pentagon also opened an office just for making explosives. The slow pace left room for startups.
Small plants, ordinary trucks
Odin Energetics is a joint venture of two companies. Solugen is a chemicals firm whose largest investor is Peter Thiel's Founders Fund. Kraken Kinetics builds the parts that fit a warhead to a drone. The two put up $115 million. Energetics is the trade's word for explosives and propellants. Kraken's CEO Brian Davis said the shortage isn't new. “We have actually been in an energetics crisis for 20 years,” he said. Odin's answer is small modular plants that go up in six months, wherever they're needed. The starting chemicals burn no more easily than sugar, and they travel in ordinary trucks. Co-founder Sean Hunt calls them “boring white powders.” They become an explosive only at the last step, inside Odin's plant. Odin says it can ship small amounts next year. It says it can already make close to a tenth of Holston's roughly 11 million pounds a year.
Our read
This is Investments/Risk · IN04. We hold defense at weight. Lockheed Martin (LMT) is in 29 books, General Dynamics (GD) and RTX in 19 each, Northrop Grumman (NOC) in 16 and L3Harris (LHX) in 11. Nothing added. None of them is named in this story. BAE isn't held, and Odin is private. The point for us is how fast a big budget turns into finished orders. A $1.1 billion drone program sounds like a story about drone makers. The bottleneck is a chemical that only one old plant makes in quantity. A budget can move only as fast as its scarcest input. We've seen that with power for data centers and with memory chips. One startup with $115 million can't close a 20-year gap alone. By its own count, it can make about a tenth of what Holston does.
In your own portfolio, the check is the defense slice. Find it in your holdings this week. See whether it's the big prime contractors, the names above, or a themed fund full of small drone and startup names. The primes build whole systems. A shortage upstream can slow their work too, because explosives sit inside nearly every weapon the military buys, Hacker said. Know how much of your money rides on that slice, and whether it's the size you meant. If a hot themed fund slipped in, find out what it actually owns. It's a fair item for your next review with us. You check the roof before storm season, not during it.