Trump's message to defense contractors: There might be a lot more money coming, but only if you deliver

• Trump sent a blunt message to defense contractors this week in social media posts and an executive order.
• The Pentagon is getting tougher on slow contractors and shareholder-first actions.
• Big defense primes are under pressure as startups see a rare opening.

President Donald Trump sent jolts through the defense industry this week by mixing talk of a $1.5 trillion defense budget with a blunt warning to contractors: Prioritize production and readiness, not Wall Street.

The apparent messaging behind a string of Truth Social posts, a new executive order, and the president's call for boosting the defense budget by 50% is that there's going to be a lot of cash on the table, but only for companies that produce and deliver weapons on time.

A venture capital investor focused on aerospace and defense told Business Insider that Trump is effectively saying: "I've got a really big pool of money here, but I'm only going to be giving it to people that are going to play ball."

The new executive order empowers the Pentagon to pressure contractors that it feels aren't moving fast enough and are perceived to instead be prioritizing profits for top executives and shareholder returns over production demands.

Turning up the pressure

The Pentagon is now authorized to crack down on underperforming defense contractors by limiting stock buybacks and dividends, linking executive pay to production and delivery, and using contract and emergency authorities to force faster output and investment.

There are questions about the degree to which the Department of Defense can influence company decisions, but it sends a clear signal that the government intends to at least try to tell weapons makers how to run their businesses.

"MILITARY EQUIPMENT IS NOT BEING MADE FAST ENOUGH," Trump wrote on social media this week before singling out the major defense firm Raytheon (now RTX Corp) in a follow-up post.

"Either Raytheon steps up," Trump wrote, urging the company to build more facilities and equipment, "or they will no longer be doing business with" the government. RTX is one of the world's leading producers of missiles like the Tomahawk cruise missile; it also makes radars and sensors, among other technologies.

It's extremely unusual to see this level of federal government involvement in contractor financial decisions.

"I've never seen anything like that," Jerry McGinn, the director of the Center for the Industrial Base at the Center for Strategic and International Studies think tank, told Business Insider.

Defense stocks tumbled hard with the string of announcements but jumped as the Trump administration floated the possibility of a massive increase in defense spending, which would need Congress's approval.

Forcing a reset

This new push reflects growing concern that America’s defense sector has slipped, with capacity, capability, and experience today well below Cold War levels, leaving the US potentially ill-prepared for the possibility of a major war, such as a conflict with China.

The Trump administration appears to be trying to force a reset while also offering more money and more predictable demand, acknowledging the government itself has not always been a reliable customer. The hollowing out of the defense industry since the Cold War's end has left the federal government highly dependent on a few companies with the necessary industrial facilities to design and produce complex weapons on a large scale.

The administration has signaled from the get-go that the big established arms makers are in its crosshairs, with a dramatic shift in support toward agile start-ups over the primes, even if it's still making substantial business deals with them.

"We are going to completely disrupt the system that held the Army back for decades and lined the primes' pockets for so long," Secretary of the Army Dan Driscoll said last year.

The Army's top civilian official previously said that he would like to see one of the big defense power players in the contracting world go out of business. And now there's increased pressure.

"The EO is more of a hammer," McGinn said of Trump's newest executive order targeting the US defense industrial base.

"It still raises a lot of questions about what's enforceable," he added, especially with some of the Truth Social mandates that weren't included in the executive order. But "the strategy is all about focusing on how do you change, how do you make it more attractive for companies to invest, to build factories ahead of need."

Reshaping the market

With the president's new executive order on defense contracting, the companies that "stand to lose the most" are "the existing primes," Justus Parmar, CEO of Fortuna Investments, an America-first venture capital firm, told Business Insider.

"Legacy defense companies," Parmar said, "they're kind of like taxicabs. They need a bit of disruption." He sees the rising defense firms like the ride-share companies that changed the game.

The primes, the biggest defense contractors, are far from powerless. Their scale, capital, and decades of experience give them room to resist pressure, and in certain defense technologies, they remain the only game in town.

Lockheed Martin, for instance, is still producing F-35 stealth fighters, Huntington Ingalls Industries is still building aircraft carriers, and Boeing has a major contract for the new sixth-generation F-47 fighter jet.

While some big companies didn't respond, others signaled a willingness to engage. Lockheed Martin, for instance, said it "shares President Trump's and the Department of War's focus on speed, accountability, and results, and will continue to invest and innovate at scale to ensure our warfighters maintain a decisive advantage and are never sent into a fair fight."

The newcomers, the start-ups and rising firms making big plays "have the most to gain" from what's unfolding right now, Parmar said, calling the latest Trump moves a "tide shift."

Palmer Luckey, the founder of Anduril, said this week that he "broadly" supports the president's agenda, saying that "it's good to scare people sometimes." Anduril has been pitting itself up against major defense contractors in areas of emerging tech, like collaborative combat aircraft, advanced drones designed to operate alongside piloted fighters.

McGinn said "there's a strong recognition that we need to get more out of our defense industrial base and we need new entrants." New technology spaces like drones, counter-drone systems, and command and control architecture improvements are opening the doors for new players, particularly those that move fast.

Secretary of Defense Pete Hegseth laid out the administration's approach last November, briefing industry CEOs and releasing a new acquisition strategy aimed at overhauling what it calls an outdated system and a weakened defense industrial base.

Hegseth has said his focus is on building the "arsenal of freedom" to better prepare the US military for modern warfare.

The plan is aimed at accelerating modernization, rapidly expanding production, surging capacity, and putting military acquisition and industry on a "wartime footing" that favors speed and execution over process.

This process takes time though, Parmar said. "The existing primes, they're entrenched. They're not going anywhere quickly."

"It's going to be a slow bleed," he said," a slow transition until some of these other companies start to get market share."