The Bradley Infantry Fighting Vehicle has been in service since 1981 as the United States’ go-to ground combat vehicle (GCV).
BAE SYSTEMS PLC ORD (PINK:BAESF) has a subsidiary in the US which has made these vehicles for the Gulf War and the Iraq/Afghanistan Wars and hopes to continue to do so with Northrop Grumman Corporation (NYSE:NOC) as its partner for the next ground combat vehicle. BAE and Northrop are competing against General Dynamics Corporation (NYSE:GD), the maker of the United States main battle tank the M1 Abrams, for the $29 billion contract to make the next GCV for the US.
Both BAE/Northrop Grumman Corporation (NYSE:NOC) and General Dynamics have received money (around $400 million each) from the Department of Defense (DoD) for research to make the best new GCV they can by 2019. By 2019 the DoD will choose who wins the contract and gets the rewards of upgrading the United States’ military.
The BAE/Northrop group wants to have a hybrid tank (see links) for the next GCV, which will have an electric battery that can significantly save on fuel. This hybrid will burn only 4.61 gallons while idling for an hour compared to 10 gallons for the existing Bradley tank, but it is also twice as heavy as the Bradley as it can fit three more people inside it and has significantly more armor than the Bradley. The hybrid tank will be 10-20% more fuel efficient than another vehicle of the same size, according to BAE SYSTEMS PLC ORD (PINK:BAESF).
General Dynamics Corporation (NYSE:GD) has said it won’t make a hybrid tank because the tank tracks stop the electric battery from gaining a lot of its charge back as it brakes. When a Prius brakes some of that forward momentum is given back to the battery as charge, but the tank tracks absorb most of that forward momentum and doesn’t give back that much charge. BAE/Northrop Grumman Corporation (NYSE:NOC)’s hybrid will cost around $9.5-11 million while General Dynamics will only cost $9 million per tank. Keep in mind though that the DoD is looking to pay around $13 million per tank.
Whoever wins the contract will see some nice upside potential while the other will drop as the speculation in the current stock price goes away. I would bet on the BAE/Northrop tank because even though it is more expensive, it is a hybrid and burns significantly less fuel while still being very heavily armored. Being more fuel efficient would reduce the cost of the tank versus another in the long run and could be pitched as “more environmentally friendly.”
This tank can turn off its engine and go into stealth mode while still being able to use surveillance equipment to scan the battlefield. In this day and age where the battleground has changed so significantly, being stealthy is extremely important. While out in the middle of a desert if you are making an enormous amount of noise then everyone will know where you are. But if you lay and wait in silence while still being able to figure out where the enemy is would be a very strong selling point, especially when you consider the kind of enemies we are fighting today who tend to be guerrilla fighters.
General Dynamics Corporation (NYSE:GD) has revenue (TTM) of $31.34 billion while Northrop Grumman Corporation (NYSE:NOC) has revenue (TTM) of $25.12 billion. Winning this contract could boost their growth rates could boost General Dynamics growth rate by 6% or Northrop’s by 8.5% over the next 10 years.