Germany’s largest defense company, Rheinmetall, is now worth more than Europe’s largest company by revenue, Volkswagen, as the country’s industrial backbone undergoes a massive shift towards a war economy.
Rheinmetall has tripled in value since Donald Trump was elected U.S. president in November. Trump has increasingly distanced the U.S. from its role as the West’s peace broker, increasing investor expectations of a surge in defense spending among Europe’s NATO members. Rheinmetall has vowed to expand to meet European military demands.
Volkswagen’s share price, meanwhile, has been largely stagnant as it tries to navigate billions of dollars in cost-cutting and uncertain consumer demand.
In perhaps the most symbolic example of Germany’s industrial base shifting from automotive to military, the two heavyweight manufacturers could be negotiating a deal over an unwanted Volkswagen plant.
As part of its negotiations with its works council to reduce capacity, Volkswagen plans to halt production at its Osnabruek factory and sell it off to recoup costs.
Speaking to journalists on Wednesday, Rheinmetall CEO Armin Papperger said the Osnabruek plant would be “very suitable” and a good fit for the company’s expansion, as moving into an existing site would be less costly than building a new factory.
Papperger cautioned that while there was no concept for Rheinmetall to move onto Volkswagen’s turf, things could still move quickly.
“One thing is clear: before I’ll build a new tank factory in Germany, we’ll of course take a look at it,” he said.
Reuters reported in January that Chinese EV companies had emerged as potential buyers of the plant’s unwanted factories, reflecting the country’s growing strength in the European automotive sector.
A spokesperson for Volkswagen said: “The goal must be to find a sustainable solution for the plants in Osnabrück and Dresden. We are open to sensible subsequent utilization of the two sites. Currently, there are no concrete plans for this.”
Speaking to German publication ZDF on Tuesday, Volkswagen CEO Oliver Blume said there were potential options for collaboration with Rheinmetall.
Germany’s shifting industrial tide
Volkswagen was Europe’s largest company by revenue in 2023, topping the latest Fortune 500 Europe list after turning over $348 billion.
However, as of Wednesday’s close of markets, the group ranks as only the 46th most valuable company in Europe, with a market value of just $60 billion.
Much of Germany’s industrial might over the 21st century was built on its dominant automotive sector, which employed some 780,000 people as of 2023.
Volkswagen, alongside German competitors BMW and Mercedes-Benz, are among the world’s largest automakers, while companies operating in their supply chain, like Bosch and Continental AG, employ hundreds of thousands more workers.
However, Germany’s carmakers have been left in a perfect storm of rising costs and falling demand following Russia’s invasion of Ukraine, competition from and declining consumer sentiment in China, and a slower-than-expected uptake of EVs from drivers.
Volkswagen was locked in an intense battle with unions last year which resulted in sizeable cuts to its production capacity and a pledge to significantly trim its workforce.
The forces driving Volkswagen’s decline are contributing to the resurgence of its defense industry. Indeed, Russia’s invasion, which pushed up costs for German carmakers, is now presenting as a business opportunity for the country’s arms manufacturers.
Amid the backdrop of Trump’s threats to withdraw all support for Ukraine and to pull the U.S. out of NATO, the EU mapped out a plan to spend up to €800 billion ($840 billion) on a Europe-wide rearmament program.
Germany’s likely new coalition government, meanwhile, is working on a plan to spend more than $500 billion on an infrastructure overhaul, aimed at yanking the country out of two successive years of negative economic growth.
In addition, the country is working on ironing out plans to amend its long-standing debt brake to exempt defense spending above 1% of GDP from factoring into the country’s strict debt limits. In total, Germany’s spending package, which is being debated in parliament, could hit $1.3 trillion.
An unprecedented level of commitment to defense spending in the EU’s history has proved a boon for Europe’s defense firms. Rheinmetall, in addition to Thales and BAE, have all soared in value this year, with each group reporting swelling order books as Europe seeks to rearm.
Clarification, March 14, 2025: This article has been updated to clarify that Germany has yet to form a new coalition government, and its infrastructure spending proposal and plan to exempt defense spending from the debt brake has not yet passed.
