Across Western Europe, factories that produce main battle tanks are closing their doors -- and the companies that run them are consolidating and scrambling to stay alive. Here in the U.S., tank maker General Dynamics (NYSE:GD) recently laid off hundreds of workers due to slack demand, forcing Congress to allocate $120 million to buying tanks the Army doesn't want just to keep the factory running.
But in Russia they're building a 21st century supertank.
Dubbed the T-14 Armata ("Армата"), this is the tank in which Russia will roll into the 21st century. While to date, the Russian army has purchased only 12 Armatas for testing, deliveries at scale are expected to begin this year. Assuming field tests over the next two years work out, Russia plans to replace 70% of its main battle tank force with Armatas by 2020.
What we know about the Armata tank
That works out to 2,300 Armata tanks produced over the next five years, a rate of more than 38 tanks per month -- nearly four times the last-reported production rate at General Dynamics' Lima, Ohio, Abrams production plant.
The tank you see up above is a computer-generated image of what Armata is believed to look like. But according to ITAR-TASS, we will get our first real-life glimpse when Russia unveils the Armata at the May 9 "Victory Day" parade on Red Square in Moscow. But reports are already filtering out about the tank's capabilities. Despite the Russian Defense Ministry's insistence that "no information about [Armata] can be revealed," multiple sources confirm the tank boasts:
- Multilayered armor
- A remotely controlled, fully automated 125 mm main gun firing both cannon rounds and laser-guided missiles
- A 30 mm cannon
- A 12.7 mm machine gun
Russian-language Gazeta.ru reported that the Armata's chassis will form the basis for six armored vehicle configurations, from tanks to armored personnel carriers to military repair and salvage vehicles. The Armata's Russian-language Wikipedia page notes that as many as 10 Armata variants may be built.
These vehicles will range from 30 to 65 tons in weight. Thus, at the upper end, the Armata could be 40% bigger than the T-90 tanks it replaces -- and roughly equal in size to the United States' M1A2 Abrams main battle tank.
What it means to investors
As big as an Abrams? That sounds like Russia is designing the T-14 Armata tank to pose a direct challenge to General Dynamics' most famous product -- but for General D, that may be a good thing. You see, here at The Motley Fool, we're as interested as anyone else in keeping up with developments within the wide world of weaponry. But what we really enjoy is figuring out how these developments might affect investors' portfolios.
In this regard, Russia's upping its game in tank technology holds the potential to spark a new arms race in the moribund tank industry. If the Armata tank is as good as it sounds, the U.S. Army might decide it, too, needs a better tank. After all, while it has been upgraded many times, the original M1A1 Abrams main battle tank dates to 1980 (when it was first produced), and even to 1972 (when development of the tank began). If that's how things play out, it could provide a major revenue boost to General Dynamics.
How much of a boost? According to Deagel.com, the U.S. in total has spent some $40 billion building the Abrams tanks. Even today, with demand for tanks at an all-time low, S&P Capital IQ data show General D's combat systems unit generating $6.1 billion in annual revenue for the company -- at an operating profit margin of nearly 15%. A new round of tank innovation could drive that number upward.
Analogous innovations in armored personnel carriers, light tanks, and other vehicles based on the Armata tank could spur new rounds of development and production in these weapons systems in the U.S., further increasing revenues at General Dynamics.
Is this how things will play out? It all depends on whether the Armata tank lives up to its reputation. You can rest assured we'll be keeping a close eye on developments for you, and tuning into the Victory Day parade to check out Russia's new tank. For now, you just need to be aware that this new tank is "out there" -- and prepare to invest accordingly.
Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.