Competition in the turbine blade manufacturing industry is heating up. This isn't the typical competition between makers, known as casters. It's a competition for the casting firms.
In that battle, GE Aerospace has seemingly gotten the edge on SpaceX, leaving SpaceX CEO Elon Musk with an interesting choice.
Musk made waves in the aerospace industry recently when he suggested that his rocket and AI firm could get into the business of casting turbine blades.
Casting is the process of pouring liquid metal into a mold. It sounds easy, but turbine blades are some of the most difficult mechanical parts to make on the planet. Turbine blades end up, of course, in turbines for either jet propulsion or power generation. SpaceX is interested in the power-generation kind, as Musk believes that electricity is a constraint for AI growth.
There are four main casters. Howmet Aerospace and DPC are publicly traded. Precision Cast Parts is part of the giant Berkshire Hathaway. And Consolidated Precision Products (CPP) was recently owned by private equity.
Musk's comments sent Howmet and DPC shares down, with investors fearing new competition. That might not have been the right reaction. Musk is interested in the business because he sees a shortage. "SpaceX's [casting] foundry has near-no impact to Howmet/DPC.... but does offer the market Musk's own view that demand will outpace supply for years to come," wrote Jefferies analyst Sheila Kahyaoglu recently. She sees SpaceX using any casting capacity for its own needs, and also suggested the best way to solve its problem would be to buy an existing player.
Right on cue, a caster did get bought, but not by SpaceX. Tuesday, GE Aerospace announced the $11.75 billion acquisition of CPP. GE CEO Larry Culp beat Musk to the punch.
"With CPP now off the market, SpaceX could end up being a home for DPC or Chromalloy in pursuit of its own internal blades and vanes production, or even Howmet to a much larger check," wrote Kahyaoglu on Tuesday. Howmet is much larger than DPC. Its market value is north of $90 billion. DPC's is closer to $6 billion. (Chromalloy is another privately held aerospace company with casting capacity.)
Strategic interest can drive the price of scarce assets higher. Whether SpaceX will buy something is, of course, hard to say. What's more certain is that demand for difficult-to-make castings is on the rise, for both aerospace and power applications. In the long run, that should make casters more valuable, not less, even if SpaceX sees the need to start its own production, which Kahyaoglu estimates will take some four years to set up.
SpaceX stock was down 0.6% in premarket trading at $153.47, while S&P 500 and Dow Jones Industrial Average futures were down 0.3% and 0.4%, respectively.
Howmet shares were up 0.2% at $232.02. Shares were about $265 before investors started worrying about industry disruption coming from SpaceX.
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