Rheinmetall to re-equip its car plants for defense equipment production
25 February 11:49
Leading European ammunition manufacturer Rheinmetall intends to repurpose two of its automotive plants in Germany to produce mainly defense equipment. This was reported by Reuters, according to
According to the agency, such intentions are influenced by the expected increase in defense needs and spending in the region amid political tensions in the United States and the ongoing war in Ukraine.
The need to expand the defense sector will affect the future of Rheinmetall’s two plants in Berlin and Neuss, where automotive parts are currently produced. In addition, the automotive business is currently facing challenges as German automakers struggle with high costs and competition from abroad.
According to the plans, which are yet to be approved, both plants will become part of the company’s arms and ammunition division and will be so-called hybrid plants, providing the ability to produce a certain number of cars.
“First and foremost, the plants will benefit from the industrial strength of the Rheinmetall Group as a major supplier of military equipment, as well as from the high demand for defense products from customers in Germany and around the world,” the company said in a commentary to Reuters.
It was also reported that these facilities will not handle explosives, but will produce protective and mechanical components for military use.
European defense plants awaiting large orders
Shares of European arms manufacturers are anticipating a spending boom after US President Donald Trump said that Europe will need to increase investment in military resources.
The STOXX aerospace and defense index hit record highs last week as investors speculate that governments in the region will have to spend more on weapons and military hardware as the US prepares to pull back and leave Europe alone.
It could also give a boost to German manufacturing at a time when traditionally strong sectors, especially automakers including Volkswagen, are cutting capacity and thousands of jobs.
By the way, Rheinmetall’s market value has risen sharply since Russia’s invasion of Ukraine. The company is now worth about 39 billion euros ($40.8 billion), according to LSEG, almost double its value before Trump’s election.
And Rheinmetall’s operating profit in arms and ammunition nearly doubled to 339 million euros in the first nine months of 2024, while its automotive division’s profit fell 3.8% to 74 million, as reported in November.
Rheinmetall’s intentions to repurpose two of its automotive plants marks the second time in a month that a defense company has unveiled plans to retool existing production facilities.
This also includes the KNDS Group, which has agreed to acquire a plant in eastern Germany from French train manufacturer Alstom. The KNDS group, which is 50-50 owned by the German company Wegmann & Co GmbH and the French government, plans to produce military equipment at this plant, including the LEOPARD 2 battle tank and the PUMA infantry fighting vehicle.
NATO member states are preparing to increase defense budgets
Last year, only 23 of NATO’s 32 member states met the goal of spending 2% of national output on defense.
“It’s easy to see why hundreds of billions of euros of additional spending could be required over the rest of this decade,” Deutsche Bank analysts say.
They estimate that reaching the 2% target would cost NATO member states approximately 800 billion euros.
Deutsche Bank analysts also said that of the approximately 200 billion euros spent by Europe on defense equipment since 2022, only 40 billion went to EU defense service providers.
Investor interest in defense-related assets is also growing. Thyssenkrupp TKAG.DE is preparing a spin-off of its TKMS warship division, and KNDS is exploring the possibility of a stock market listing as early as the end of 2025.
“We are well prepared, and we don’t need to be shy – for security in Europe, we need to take action now,” Rheinmetall CEO Armin Papperger told Reuters earlier this month, adding that the company expects to grow even faster than previously thought.
The expected boom in defense spending could also benefit Rheinmetall’s competitors, including Hensoldt Corporation and RENK Group.
Rheinmetall expands its presence in Ukraine
In an interview with Deutsche Welle during the Munich Security Conference in mid-February, Rheinmetall CEO Armin Papperger said that the company is keeping its word and its strategy is to build three plants in Ukraine.
“The first plant to start operating in Ukraine was a vehicle repair plant, a munitions plant is currently under construction, and we would like to build a plant for the production of anti-aircraft systems,” said Rheinmetall’s CEO.
Armin Papperger also emphasized that despite the fact that the processes in Ukraine are slower than in Europe, cooperation with the Ministry of Defense and the Ministry of Strategic Industry of Ukraine is developing well.
