Mitsubishi Heavy Industries (MHI) is dealing with what many call a 'good problem to have': a record order backlog of over ¥13 trillion, or about $82 billion.
This situation is fueled by two major global shifts. First is the explosive growth of AI. Data centers powering artificial intelligence consume vast amounts of electricity, and natural gas turbines have become a critical power source. Demand is far outpacing supply; one report estimates global gas turbine orders will hit 110 gigawatts (GW) while annual manufacturing capacity is only 60–70 GW. This imbalance has caused prices to nearly triple since 2019 and created long waiting lists, directly contributing to MHI's massive backlog.
Second is the trend of global rearmament. Japan has significantly increased its defense budget, aiming for nearly 2% of its GDP. Crucially, the government has also lifted its long-standing ban on exporting lethal weapons. This policy change opens up a vast new market for MHI's advanced defense systems. A recent deal to supply Australia with three Mogami-class frigates is a prime example of this new revenue stream, feeding directly into its ¥4 trillion-plus defense backlog.
However, this mountain of orders presents a serious execution challenge. The current backlog is equivalent to about 2.7 years of the company's annual revenue. This puts immense pressure on MHI's production capacity, which faces two main bottlenecks. For the energy division, it's the shortage of specialized hot-section components for turbines, which only a few foundries worldwide can produce. For the defense division, it's the scarcity of skilled labor for shipyards and missile production lines.
While MHI is investing in expanding its capacity, so are its competitors like GE and Siemens. The key question for investors is no longer about securing orders, but about the certainty of delivery. MHI's success over the next 18 months will depend entirely on its ability to navigate these complex supply chain and labor challenges to turn its record backlog into record revenue.
- Backlog: Orders a company has received but has not yet fulfilled or billed. It is an indicator of future revenue.
- Gas Turbine Combined Cycle (GTCC): A highly efficient method of generating electricity that uses both a gas turbine and a steam turbine in conjunction.
- Hot-section components: The critical parts of a gas turbine that operate under extremely high temperatures and pressures, requiring advanced materials and manufacturing techniques.