Trump announces tariffs to revive US shipbuilding  - AL3 3D prints metal ship parts fast… in the USA.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 6,810,029 AL3 shares at the time of publishing this article. The Company has been engaged by AL3 to share our commentary on the progress of our Investment in AL3 over time.

What a time for AL3 to show up in the US Capitol.

The US has woken up to the fact that its defence and ship manufacturing industrial base is falling behind the rest of the world.

And now, increasing geopolitical tensions are creating a sense of urgency to fix it...

Today was Trump's “Liberation Day”, where he announced reciprocal tariffs on global trading partners to increase US domestic competitiveness.

Our 2024 Tech Pick of the Year AML3D (ASX:AL3) stands to benefit from the push by the US administration to rebuild and modernise the US manufacturing industry and industrial bases.

AL3 supplies metal 3D printing systems to speed up shipbuilding supply chains...

AL3 already has a US technology centre & manufacturing hub set up in Ohio, USA.

And late last year said it would look to double it’s capacity in the US.

2 hours ago, Trump said the following about the state of play in the US manufacturing space (with specific mention of the US shipbuilding situation)...

And Trump’s plan is for the tariffs to change that...

Recent weeks have been a very good time for AL3 to be escorted around Washington with the assistance of former Ambassador of Australia to the United States, Joe Hockey’s firm, Bondi Partners.

AL3 has robotic 3D metal printing technology that delivers parts exponentially quicker than traditional manufacturing processes.

AL3 services the defence, oil and gas and aerospace industries where highly specific machine parts are often urgently needed, but not readily available.

Today we want to focus on the defence market in the US, as that’s where we see a lot of potential for AL3 to grow into.

AL3 is already generating cash, and has had over $19M in orders from customers in the US alone...

Customers like $96BN BAE Systems, $200BN Boeing and the US Navy.

AL3 is providing parts to the US Navy via the Blue Forge Alliance which was recently given a US$951M contract (most of which is said to be directed at additive manufacturing companies... like AL3).

Off the back of this momentum, late last year, AL3 raised $30M (at 19c/share) to accelerate its US market entry...

And now AL3 has its very own US facility in Ohio where it will service the large US market.

AL3’s trip to the US was timely, as the Trump administration has explicitly called the US Navy shipbuilding industry “too slow and too costly”...

... and they plan to change that by adopting new manufacturing processes.

This is exactly what AL3 has - given its 3D printing can deliver metal parts faster, stronger and more efficient relative to traditional manufacturing methods.

Trump is apparently texting the newly sworn in Navy Secretary in the middle of the night bemoaning pictures of rusty US Navy ships.

(Source)

“We used to make so many ships. We don’t make them anymore very much, but we’re going to make them very fast, very soon. It will have a huge impact.” President Trump is quoted as saying.

The only way to do that is by adopting next gen manufacturing processes like AL3’s tech.

Even Elon Musk’s DOGE is getting in on the shipbuilding drive, and will assess acquisition processes for both departments of Defense and Homeland Security and give the president a blueprint for better procurement methods.

Looks like President Trump wants a fix...fast.

Again - we think AL3 is well placed to deliver the kind of technology within the US to service those defence needs.

An Executive Order from the White House is due to be released any day now to “Make Shipbuilding Great Again’...

This should create the right kind of financial incentives for defense shipbuilding.

And manufacturing technologies that can speed up the building process... like AL3’s.

Today we will do a deep dive into where AL3 is at with its US strategy in defence, after the company’s tour of the US - a 14 day ‘boots on the ground’ tour of 10 locations to forge relationships US government and the private sector.

In today’s note we will go through:

• The standout slides from AL3’s US Defence Markets presentation.
• How AL3 is adding some of the biggest military shipbuilders into its lead pipeline...
• More on the group behind AL3’s US trip (Bondi Partners)
• Where AL3 is with its US expansion strategy and where we think the company can go...
• And finally a reminder on how AL3’s tech actually works (including a link to our site visit)

AL3 to land orders from America’s biggest shipbuilders?

As we noted above, AL3’s tech is able to print parts in a fraction of the time it would take if using traditional casting processes.

As evidence of that, in early January, AL3 3D printed a prototype tailpiece component for the US Navy in just 5 weeks - a process which would have taken ~17 months using traditional manufacturing processes.

AL3’s manufacturing efficiency gains are a key reason we are Invested in the company.

US urgency to strengthen its manufacturing base means speed & point of delivery will eventually trump costs...

This broad push has triggered an expansion of the remit of the “Marine Industrial Base” to capture a wider range of target markets...

AL3 was already providing parts to the US Navy, and now can access all of the capital that will be deployed by the expanded remit of the ‘Marine Industrial Base’ (MIB):

AL3 teased potential orders for its systems from the MIB in its recent investor presentation, with specific mentions of Huntington Ingalls, Austal and Fastech.

Huntington Ingalls is America’s largest military shipbuilding company...

Those guys combined have budgets of over ~$40BN to deploy into tech like AL3...

Below is the reference in AL3’s deck which specifically said “MIB endorsed specific efforts that should lead to near-term machine sales with....”

AL3 is already supplying parts under the AUKUS deal (including that prototype tailpiece we talked about earlier in today’s note).

(AL3 also supplies its Arcemy units to $1.7BN Austal, who is a major supplier to AUKUS).

IF AUKUS is serious about building the subs it says it wants to, then the speed of manufacturing will become more and more of a priority.

As we mentioned above, AL3 already has a Master Licensing Agreement (MLA) with the Blue Forge Alliance, a company working with parts suppliers to the US Navy.

The MLA means AL3 has access to the data needed to print parts for Blue Forge customers.

BlueForge was recently awarded a ~US$951M contract, which media is speculating will go into “additive manufacturing” (AL3’s tech).

(More on that contract later in today’s note)

So AL3 is already working with the US Navy (specifically the submarine program) - next it can tackle shipbuilding, tanks and vehicles, aircraft and other military equipment...

AL3 just got back from a trip to the US...

With the massive changes happening in the US industrial sector, we think that is exactly where any company like AL3 needs to be marketing itself right now.

And it was good to see AL3 spend the last few weeks on the ground in Washington.

AL3 was toured around by a firm called Bondi Partners.

Bondi Partners was founded in Washington DC, in early 2020 by former Australian Ambassador to the United States, the Hon. Joe Hockey.

Hockey has deep roots in the US from his time representing Australia diplomatically in Washington and has strong familiarity with the workings of a Trump presidency.

Bondi Partners sounds like the ideal partner for an ASX small cap to be shown around Washington...

AL3 released a presentation that runs through all of the learnings of the US trip...

It’s a great summary of AL3’s shift to focus its business on the US market... (Which was the trigger for our Investment in the company last year).

Check out the full presentation here.

(Source - AL3 US tour presentation)

We see this US site visit by AL3 as the beginnings of a major push into the massive US defence industry, at a time when geopolitical tensions are at fever pitch and supply chains are being squeezed.

The US is already a big part of AL3’s business AND is set to grow...

AL3 first entered the US market back in 2023.

Over the next 18 months ~A$19M of sales have been made in the US primarily to the US Department of Defence and its supply chain partners, including submarine parts:

AL3 already has the US Navy on the books as a customer, printing parts for the US Navy’s submarine supply chain.

Not to mention other sales to major defense organisations - $96BN capped BAE Systems, $200BN Boeing and even the USA’s largest public utility (Tennessee Valley Authority).

Then late last year, AL3 raised $30M and made it’s big push into the US.

AL3 opened its US tech centre and manufacturing hub in Ohio and then announced that it would be doubling its US manufacturing capacity.

The doubling of capacity came with guidance “to expect significant growth in US demand” after its key customer Blueforge was awarded a US$951M contract that includes pushing US Navy supply chains to adopt metal 3D printing.

We mentioned it earlier, but here is the US Department of Defense US $951M contract announcement for BlueForge Alliance:

(Read the full announcement here - Source)

In September, AL3 signed a Master Licence Agreement (MLA) with Blue Forge Alliance, a company working with parts suppliers to the US Navy.

Remember, MLAs enable the exchange of sensitive technical data between suppliers and expands the suite of 3D printed products that AL3 can offer its customers.

An MLA is like being given a special recipe book for all the parts, one that only a select few companies can have (it’s highly sensitive information after all).

Now BlueForge has an additional US$951M of cash to push down into its network of suppliers....

AND recent media is hinting that a large chunk of it will go into “additive manufacturing” (AL3’s tech).

(Source)

AL3 really appears to be in the right place at the right time, with the right relationships and contracts already in place (and now a big cash balance to execute on it).

The current US administration is pushing to reshore supply chains, encourage local manufacturing and increase government efficiency.

We think smaller, more nimble, efficient companies will benefit (especially US based ones... like AL3 is now).

Luckily for AL3, Elon Musk is also all about radically reshaping defence spending and increasing capital efficiency...

He has explicitly mentioned in the past that US defence spending needs to be allocated to "entrepreneurial companies” over the traditional US defence juggernauts.

(entrepreneurial companies like AL3?)

(Source)

In that article above with the US Navy Rear Admiral, AL3 was the only metal 3D printing company to get a mention.

(Source)

What’s clear to us is that there is a big push by the US Department of Defence to re-shore defence supply chains and adopt 3D printing.

We think the US expansion will be central to AL3 delivering our Big Bet which is as follows:

Our AL3 ‘Big Bet’:

“AL3 re-rates to a $500M market cap on achieving significant sales growth across an expanding range of industries and jurisdictions”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our AL3 Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

How does AL3’s tech work? What we learned from our site visit...

AL3’s technology combines robotics, welding, automation and software.

AL3 tech “3D prints” complex industrial parts for the defence, oil & gas and aerospace industries, and sells these 3D printers to industries looking for on-site custom solutions.

AL3 strategy has recently moved from being a seller of just 3D printed parts to sellers of BOTH 3D printed parts and 3D printing systems.

These systems are the revenue drivers for the company, together with the ongoing software, maintenance and licensing revenue that comes with it.

AL3’s systems are able to 3D print parts that are harder, better, faster, stronger.

We have been to AL3’s Australian facility in Adelaide to check the systems out and its genuinely amazing to see these things in motion.

We saw the largest ever custom AL3 ARCEMY 3D printing system ever built, before it was to be shipped off to the USA:

As well as some of the product software looks like:

To see our full site visit write up read: Our AL3 site visit and what we learnt.

What we want to see next from AL3

🔄 More sales out of the US

Now for AL3 it’s all about the US scale up.

AL3 has previously mentioned it will be doubling the capacity of its US facility.

In the US trip presentation, AL3 mentions several times that it would use it’s facility as a base to market its tech from.

We are hoping that the US facility coming online brings with it big new contracts to fulfil (and hopefully big $ revenue amounts attached to those deals).

In the half yearly presentation last week AL3 mentioned there was a $40M+ sales pipeline that the company was going after...

We are also hoping to see some of those lucrative ITAR contracts that AL3 have mentioned get converted into sales.

(Source)

🔄 UK/European expansion on the cards?

AL3 has also previously flagged the opportunity of expanding into the UK.

The majority of AL3’s sales are out of the US, so expansion into a new market is completely new upside from a revenues perspective.

We are looking forward to newsflow from the company’s push into the UK/European market.

What could go wrong?

The short term risk for AL3 is sales and sales delay risks.

If AL3 fails to deliver more sales and its financial performance suffers, the market may start to price in lower growth potential for the future and re-rate AL3’s share price lower.

Sales risk

There is always the possibility that AL3 does not close more sales, and its financial performance suffers as a result.

Source: “What could go wrong” section - AL3 Investment Memo 27 June 2024

Our AL3 Investment Memo

In our AL3 Investment Memo, you can find the following:

• What does AL3 do?
• The macro theme for AL3
• Our AL3 Big Bet
• What we want to see AL3 achieve
• Why we are Invested in AL3
• The key risks to our Investment Thesis
• Our Investment Plan