- The Trump administration is requesting an unprecedented $1.5 trillion defense budget while also reforming defense procurement to emphasize speed and efficiency.
- The moves come at a time when U.S. munitions stocks have been depleted by multiple wars.
- The size of the budget request, change in contracting, and an influx of private capital have startups and established contractors looking for weapons manufacturing sites where they can build fast.
- One such company, Castelion, was founded by three SpaceX alumni who are seeking to apply some of Elon Musk’s principles to hypersonic missiles.
One of the many lessons from the wars in Iran and Ukraine is that the
supply of munitions and weapons systems is finite, and difficult to replenish. That has led to a new way of doing business at the Pentagon, and a new battleground in the war between the states for jobs and economic development.
"We're seeing a lot of growth coming out of the Department of War, new programs, new startups, really the SpaceX-ification, if you will, of the Pentagon," said consultant Tom Stringer of Stringer Site Selection and Incentives in New York.
In fact, three alumni of Elon Musk's space technology and AI company are behind a prime example of the new model. Castelion, a three-year-old startup based in Torrance, California, is trying to apply SpaceX's business model to hypersonic missiles.
"This is going to be one of the most important capabilities in the American arsenal," said co-founder and CEO Bryon Hargis
on CNBC's Squawk Box in January. Hargis, a physicist by training, previously led SpaceX's national security product development.
The U.S. military is well-versed in hypersonic missile technology. The trick, under the Pentagon's new approach, is being able to develop the new missiles quickly, produce them at scale, and deliver a lot of them to the battlefield.
The traditional defense procurement model — at least in recent years — offered little incentive for contractors to do that. Instead, under so-called "cost-plus" contracts, they could simply bill the government for their costs — including farming out work to subcontractors — then tack on a pre-determined fee.
By contrast, Castelion, which has agreements to deliver at least 500 missiles per year and potentially thousands more, is raising private capital instead of government appropriations — more than $550 million to date — to fund a massive, vertically integrated manufacturing operation.
Castelion has contracts with each of the major service branches to deliver its first weapons system, dubbed Blackbeard. But rather than cost-plus contracts, Castelion is operating under so-called "
firm-fixed-price contracts" — the government pays the same price regardless of Castelion's costs. That shifts the cost risks to the contractor from the government.
That is a game changer, said Castelion co-founder and chief operating officer Sean Pitt, a former SpaceX director of commercial sales who previously served as an aide to Sen. Dick Durbin, D-Illinois, a member of the Defense Appropriations Subcommittee.
"We're really applying standard commercial manufacturing strategies to a space that hasn't had them applied to it for many decades," he said. "It is not acceptable to come up with a design that we can only produce a couple dozen of. Instead, manufacturability in the thousands at a cost per missile that is measured in hundreds of thousands of dollars was our guiding light from the beginning, and that's what we're executing against today."
That is where the economic development opportunities — and challenges — come in.
How 'SpaceX of hypersonic missiles' landed in New Mexico
Delivering on Castelion's vision, and doing so profitably, would require a huge manufacturing facility, built fast.
"We're in a dead sprint to scale production," said co-founder and chief financial officer Andrew Kreitz. "Nothing we do matters until we are in high-rate production with our first weapon system," he said.
Kreitz, a former Goldman Sachs investment banker who became a SpaceX senior finance manager before leaving to start Castelion, led a year-long search for a location. He said it ultimately came down to sites in Arizona, Tennessee and New Mexico. In January, the company broke ground on a 1,000-acre campus in Sandoval County, New Mexico, approximately 30 miles north of Albuquerque.
"The reality is, if you draw the Venn diagram of places where you can get a lot of land, a sort of shovel-ready, able to move in quick site, and the talent base to actually staff the factory, there are very few places in America that can do that, and New Mexico stood out," Kreitz said.
In addition to having the space — which quickly ruled out expanding the company's California headquarters or its facility in Texas — New Mexico has a long heritage of defense production, and a wealth of talent from Sandia and Los Alamos National Laboratories.
Stringer, the site selection consultant who helped broker the deal, said New Mexico also offered seamless coordination at all levels of government, and across party lines.
"There was almost no red tape. That's the best way to describe it," he said. "Everyone was at the table from day one in New Mexico."
The state and Castelion estimate the $220 million project will create 300 high-paying jobs and provide $650 million in economic impact over the next ten years.
"Castelion chose our state because we have the workforce, the expertise and the infrastructure they need to succeed," said Democratic Gov. Michelle Lujan Grisham in January.
"This company will be critical to catch up and pass China and Russia in hypersonic technologies," said Republican State Sen. Jay Block. "This is a race we cannot lose," he added.
Stringer said there will be plenty more opportunities for states to win similar projects, especially with the Pentagon's unprecedented, $1.5 trillion
budget request.
"We need to build really phenomenal products that deliver and that we can scale and build and deploy quickly at cost, and that's a sea change," he said.
Castelion, meanwhile, is wasting no time getting its manufacturing underway. The company says just six months after breaking ground, 15 of the 21 buildings on the New Mexico campus are already under construction, with 1.6 million cubic yards of dirt moved.
In fact, Pitt noted that even before the company had settled on a site, it had already purchased the steel for construction.
"Doing things like buying this steel before we had our site selected is what allows us to keep our timeline of fielding our first weapon next year," he said.
And, he said, that is just the beginning.
"We're talking about already committing 300 jobs to the state of New Mexico at this facility," he said. "I expect us to significantly exceed that, and then we'll continue to look for additional sites, both in New Mexico and across the country."
CNBC will reveal America's Top States for Business in 2026 – our 20th year – on July 9.
<small>Source: CNBC</small>
Business
Trump's massive defense budget, depleted war machine, spark U.S. state battle for business and jobs
CNBC
June 30, 2026
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