The Solid Rocket Motor Problem

Why we are using $400,000 missiles to shoot down $30,000 drones

Russia builds Shahed drones for roughly $30,000 each and launches them at Ukrainian cities in waves. The interceptors America and its allies fire to shoot them down cost ten to twenty times that, take more than a year to manufacture, and run on a supply chain so consolidated that a single chemical from a single company sits at the bottom of the whole thing. Even when we win the battle, we lose the math.

The Pentagon’s response, announced in January, was its first-ever direct equity investment in a defense supplier. A billion-dollar convertible preferred stake in L3Harris’s solid rocket motor business, ahead of L3Harris spinning that business off as a publicly traded company later this year. It is an unprecedented financial structure for the Department of Defense. It is also an open admission that the procurement system Washington has been using for forty years is no longer fast enough to fix the supply chain that builds those interceptors.

The investment is necessary, but it’s pointed at the wrong target.

A 10-Second Lesson on Rocket Science

Most missiles and interceptors in the U.S. arsenal run on what is called a solid rocket motor, or SRM for short. Unlike a liquid-fueled rocket, which mixes its propellant ingredients during flight, an SRM comes pre-loaded with a hardened block of fuel that simply ignites and burns. The design is simpler, more reliable, and shelf-stable for decades. You can sit an SRM in a silo or under the wing of a fighter for twenty years and it will still fire on command.

For the high-end use cases, this is irreplaceable. The submarine-launched nuclear deterrent runs on SRMs. The intercontinental ballistic missiles in silos across the Midwest run on SRMs. The interceptors designed to take down incoming ballistic and hypersonic threats run on SRMs. The country genuinely needs more of these, and the Pentagon is correct that the supply chain that builds them is too small for the strategic environment we are in.

What the equity check does not address is the larger problem hiding underneath: somewhere along the way, the same expensive, bespoke product class became the default answer for every job that needed a propulsion system. Including chasing $30,000 drones with $400,000 missiles.

How the Supply Chain Got This Brittle

At the prime level, two companies build solid rocket motors at scale in the United States: Northrop Grumman and L3Harris, which acquired Aerojet Rocketdyne in 2023. Though it may look like a two-supplier market, move one tier down and the competition disappears. Northrop and L3Harris share most of the same specialty suppliers, and many of the most critical inputs come from a single source.

The most striking example is the chemical that allows solid rocket fuel to actually burn, the ingredient that lets the fuel block release its energy in a controlled way rather than just sitting there inert. There is exactly one U.S. manufacturer of it, and the company is called AMPAC Fine Chemicals. It was acquired by NewMarket Corporation for roughly $700 million in 2024. Every Patriot, every Javelin, every Stinger, every Trident submarine missile runs on a chemical from that one company’s facility. NewMarket has announced a $100 million expansion, which helps, but does not change the structural reality. There is no second domestic supplier, and no certified import. The entire U.S. solid rocket motor industry runs through one chemical, made by one company.

The L3Harris deal is part of a broader Pentagon push to roughly 2.5x output across about a dozen priority weapons. Congress backed it with $6.4 billion in 2026 munitions procurement, including a dedicated $500 million for the SRM industrial base specifically and another $200 million in a separate reconciliation package. Lockheed Martin separately signed a seven-year agreement to expand Patriot interceptor production from about 600 units a year to 2,000. It’s more money flowing into this industrial base than at any point in a generation, and still it doesn’t solve the actual problem.

The Ferrari Problem

I’ve referenced this same issue in the turbine industry. The market has plenty of Ferrari-grade products. Bespoke, high-performance, low-volume, made by a small number of consolidated suppliers who have rational reasons not to expand. What the market does not have is enough of the simpler, cheaper, higher-volume alternatives that the next decade of demand actually needs.

The same logic applies to SRMs, just more extreme. A Ferrari is the right car when you need to win a race. It is the wrong car to deliver your uber eats order. We’re currently using Ferraris to deliver pizza, and we are running out of Ferraris.

Even if every dollar of the new funding worked perfectly, even if Northrop and L3Harris doubled output tomorrow, the United States would still be in a war of attrition we cannot win at scale. Doubling the production of $400,000 interceptors does not solve the underlying problem of needing to fire them at $30,000 drones. It doubles the burn rate.

The real constraint is not the size of the SRM supply chain, but rather that we have been pointing the most expensive, most bespoke propulsion technology in the world at threats that don’t require anything close to it. The fix is not just to make more Ferraris faster, the fix is to start fielding the propulsion equivalent of a Toyota.

Where the Real Opportunity Is

The companies building those Toyota-grade alternatives mostly don’t exist in the public markets yet. They are small teams that have spent the last two or three years quietly proving that a cheaper propulsion architecture can do 80% of the job for 5% of the cost. There are roughly three categories worth watching.

The first is attritable turbine engines for drones. I’ve mentioned this before and our portfolio has exposure to it. The argument is the same, for many strike, interdiction, and reconnaissance missions, a small, cheap, mass-produced turbine engine on an expendable airframe is a more rational answer than a missile carrying a high-grade SRM. The traditional primes are not optimized to build at this price point or this volume, which is exactly why the opening exists for new entrants.

The second is propeller-based propulsion, particularly for interceptor drones designed to take down other drones. A handful of companies are now building electric-propeller interceptors capable of engaging Shahed-class (Iranian Group 3 drones) threats at a unit cost an order of magnitude below traditional missile interceptors. The economics finally start to work. You are firing a cheap thing to kill a cheap thing, rather than firing a Patriot at a radio shack drone. I’ve personally got some exposure here as well.

The third is additive/advanced manufacturing for energetic materials. Think cheaper propellant to be used in cheap drones for short range and short lived systems. The qualification timelines for high-end defense applications remain real, and I’m not convinced yet that additive can handle the top of the stack. But for the lower end of the propulsion stack, where the chemistry is simpler and the tolerances are looser, additive methods can potentially decrease timelines and reduce dependence on the same sub-tier suppliers that bottleneck everything else.

The Strategic Bottom Line

At the end of the day, we need both. The high-end SRM supply chain is genuinely critical because hypersonic threats and ballistic missile defense and the nuclear deterrent are not problems a propeller-driven drone can solve. The Pentagon’s billion-dollar investment in L3Harris is not wrong, it’s necessary.

But the deeper investable shift is in the opposite direction. The next decade of defense capital will not be defined by who rebuilt the legacy supply chain fastest. It will be defined by who built the cheap, attritable, mass-produced propulsion systems that mean we are no longer firing $400,000 missiles at $30,000 drones in the first place.

The Ferrari is still useful when you actually need to win a race. Most of the time, what you really need is a Toyota.

Disclosure: These are my opinions, not investment advice. I have positions in the sectors I write about. My views are shaped by my investments, and my investments are shaped by my views. Take everything with appropriate skepticism and do your own diligence.