Global Defense Industrial Shifts: Strategic Opportunities in Canadian Submarine Manufacturing

The global defense industry is undergoing a seismic shift, driven by escalating geopolitical tensions, technological innovation, and a surge in military modernization budgets. At the heart of this transformation lies the submarine manufacturing sector, where nations are racing to secure undersea dominance. Canada's Canadian Patrol Submarine Project (CPSP)-a $20–24 billion initiative to replace its aging Victoria-class fleet with up to 12 modern submarines-has become a focal point for investors seeking to capitalize on these trends. The project has narrowed to two contenders: South Korea's Hanwha Ocean and Germany's Thyssenkrupp Marine Systems (TKMS). Their bids, and the broader dynamics of the defense industrial base, offer a compelling case for assessing long-term investment potential in defense contractors poised to benefit from international arms procurement trends.

A Booming Market Amid Geopolitical Uncertainty

Global defense spending hit $2.3 trillion in 2024, surging by 8.1% as conflicts in Ukraine, the Middle East, and the Indo-Pacific drive demand for advanced military capabilities, according to a Forecast International analysis. Submarine procurement, in particular, is gaining urgency. With the submarine market projected to grow at a 4.17% CAGR through 2030, reaching $32.37 billion, nations are prioritizing undersea platforms for deterrence, sovereignty, and strategic flexibility, according to a Mordor Intelligence report. Canada's CPSP aligns with this trajectory, aiming to field Arctic-capable submarines to secure its northern waters and support NATO operations. The project's emphasis on stealth, Arctic deployment, and interoperability mirrors global priorities, making it a microcosm of broader defense industrial shifts.

Hanwha Ocean: A Rising Star in Shipbuilding

Hanwha Ocean, a subsidiary of South Korea's Hanwha Group, has emerged as a formidable player in the submarine sector. Its KSS-III model, equipped with lithium-ion batteries and air-independent propulsion (AIP), offers extended underwater endurance and Arctic readiness, according to Breaking Defense. The company's financials underscore its growth potential: in 2023, Hanwha Ocean reported a 52.4% year-on-year increase in operating income to KRW 7.408 trillion, driven by LNG carrier sales and shipbuilding volume, as noted by IMARINE News. For 2024, the firm anticipates further growth, with LNG carriers accounting for 80% of its operating income.

However, risks persist. Hanwha's bid for the CPSP hinges on its ability to scale production while managing existing contracts, including potential bids for India's Project-75I. Delays in delivery-already a concern given Canada's 2035 deadline-could strain its capacity. Additionally, geopolitical tensions, such as China's recent actions against Hanwha's U.S.-linked units, introduce uncertainty, Reuters reported in its coverage of the measures taken by Chinese authorities (https://www.reuters.com/world/asia-pacific/china-takes-steps-against-us-linked-units-skorea-shipbuilder-hanwha-2025-10-14/). Yet, the company's strategic partnerships, including a Teaming Agreement with Babcock Canada for sustainment, and its promise of localized investments in lithium-ion battery production, present significant economic and industrial benefits for Canada, according to the Canadian Defence Review.

Thyssenkrupp Marine Systems: Proven Expertise with NATO Ties

Thyssenkrupp Marine Systems (TKMS), a German defense stalwart, brings a proven track record to the CPSP. Its Type 212CD submarine, already in service with NATO allies, emphasizes interoperability and AIP technology. TKMS reported €2.1 billion in sales for the 2023/2024 fiscal year, with an adjusted EBIT of €125 million and an order backlog of €11.7 billion in a Thyssenkrupp Marine Systems press release. The company's recent €10.1 billion order intake in Q3 2024/2025, driven by Singapore and Germany, highlights its strong market position, as outlined in the Thyssenkrupp Q3 update.

TKMS's risks include integration challenges for Arctic-specific modifications and competition from emerging players like Hanwha. However, its deep ties to NATO and experience in complex submarine programs-such as Norway's U212CD contract-position it as a reliable partner for Canada. The firm's focus on raising operating profit margins to over 7% in the medium term also signals financial discipline, Reuters reported in its coverage of TKMS's outlook (https://www.reuters.com/business/aerospace-defense/thyssenkrupps-defence-unit-tkms-pay-first-dividend-2027-2025-09-30/).

Strategic Implications for Investors

The CPSP represents more than a procurement race; it reflects a strategic pivot in defense industrial policy. Canada's decision to diversify suppliers beyond the U.S. aligns with global trends toward regional partnerships and technology localization. For investors, both Hanwha Ocean and TKMS offer exposure to these dynamics, albeit with distinct risk profiles.

Hanwha's aggressive growth and technological innovation make it a high-reward bet, particularly if it secures the CPSP contract and leverages Canada's industrial partnerships. Conversely, TKMS's stability and NATO-centric focus provide a more conservative, yet resilient, investment opportunity. The winner of the CPSP will not only shape Canada's maritime capabilities but also influence the trajectory of submarine manufacturing for decades, given the project's 12-ship scope and 2043 delivery timeline.

Conclusion

As global defense spending accelerates and submarine procurement becomes a cornerstone of national security, the CPSP exemplifies the intersection of strategic necessity and industrial opportunity. Hanwha Ocean and Thyssenkrupp Marine Systems are both well-positioned to benefit, but their success will depend on navigating delivery timelines, geopolitical risks, and Canada's demand for Arctic-capable platforms. For investors, the key lies in balancing short-term volatility with long-term growth potential in a sector poised for sustained expansion.