Anduril Industries will invest $3.7 billion of private capital to build Arsenal-2, a two-million-square-foot submarine component shipyard at Sparrows Point in Baltimore County, Maryland. The U.S. Navy has separately awarded Anduril a contract worth up to $2.9 billion, bringing the combined effort to as much as $6.6 billion. Payments under the Navy contract are tied to demonstrated production outcomes, placing much of the execution risk on Anduril rather than reimbursing the company simply for constructing the facility.

Arsenal-2 will not build complete submarines. Anduril plans to begin with components including torpedo tubes before expanding into larger modules and, eventually, complete bow and stern sections that can be delivered to General Dynamics Electric Boat and HII’s Newport News Shipbuilding for final assembly. The goal is to allow more Virginia-class construction to occur in parallel instead of concentrating nearly every major production step inside the two existing submarine yards.

Torpedo tubes are an important early target because U.S. officials have identified them as a gating component for Virginia-class submarines already under construction. A senior administration official said earlier delivery of the tubes could allow those submarines to move through production faster. Anduril says Arsenal-2 could ultimately add roughly nine million labor hours each year to the submarine industrial base, equivalent to about a 15% increase in capacity available to the Virginia-class program.

The expansion comes as the Navy continues struggling to reach its desired production rate. The service has sought two Virginia-class submarines per year, but a Government Accountability Office assessment cited by Breaking Defense found shipbuilders were producing roughly one annually as of June 2025, with late material deliveries and shortages of experienced workers contributing to delays. Those problems carry additional weight as the United States prepares to transfer Virginia-class submarines to Australia under AUKUS while still trying to meet its own attack-submarine requirements.

Anduril intends to start addressing the problem before the Maryland yard opens. A new 160,000-square-foot facility in Orange County, California, will begin producing submarine components roughly two years before Arsenal-2 enters service, giving the company time to qualify manufacturing processes, train workers and develop SUBSAFE-compliant production systems. Once the Maryland facility opens, the California site is expected to remain part of Anduril’s broader maritime manufacturing network.

Arsenal-2 itself will occupy roughly 187 acres and include a 1,200-foot graving dock, high-bay assembly halls, adjacent fabrication areas and road and rail connections for moving large submarine sections. Anduril says its ArsenalOS industrial software will connect fabrication, material movement, inspections, work instructions and documentation into one production system. The company argues that greater visibility across those processes could reduce staging delays while helping new workers learn complex production requirements without lowering the certification standards required for submarine construction.

The project will also return large-scale maritime manufacturing to a site with a long industrial history. Sparrows Point was once dominated by Bethlehem Steel and supported major shipbuilding activity before much of that industrial base disappeared. Maryland says Arsenal-2 will create more than 3,100 permanent jobs, support more than 14,000 jobs directly and indirectly, and generate an estimated $2 billion in annual economic output.

The larger objective is to expand the submarine supply chain rather than simply enlarge the existing yards. Electric Boat and Newport News remain responsible for building complete Virginia-class submarines, but their output depends on hundreds of suppliers delivering specialized materials and components on time. Adding another large-scale producer gives the Navy additional capacity and resilience, particularly if Anduril can take work that would otherwise compete for space and labor inside the two lead shipyards.

SYNAPSE Analysis

Arsenal-2 is a test of whether the Pentagon can bring new industrial capacity into one of the most difficult parts of the defense sector without weakening the standards that make submarine construction slow to expand. Anduril has built its reputation around software, autonomous systems and modern manufacturing rather than nuclear shipbuilding, but it is now entering a supply chain defined by specialized welding, traceability, certification and a limited pool of experienced labor. The opportunity is substantial, but so is the execution challenge.

The contract structure is equally important. By tying up to $2.9 billion in Navy payments to demonstrated production outcomes while Anduril commits $3.7 billion of its own capital, Washington is testing a model in which private industry assumes more of the initial financial risk in exchange for long-term government demand. If successful, that approach could provide a faster way to expand other constrained parts of the defense industrial base without requiring the government to finance every new factory upfront.

The central question is whether Arsenal-2 actually removes production constraints or merely relocates them. More torpedo tubes and hull sections will help only if materials, skilled labor, certification authorities and downstream yards can absorb the additional output at the same pace. If Anduril can scale those pieces together, Arsenal-2 could become a meaningful addition to the Virginia-class enterprise; if not, the Navy may discover that solving one bottleneck simply exposes the next one.