German Automakers Eye Defense Sector Amid Industry Crisis

German automakers are facing mounting pressures, including high production costs, weak European market demand, intensifying competition from Chinese carmakers, and potential U.S. tariff barriers. Against this backdrop, some manufacturers are exploring expansion into the defense sector. Ola Källenius, CEO of Mercedes-Benz, stated that the company does not rule out involvement in defense-related activities and is willing to support Europe’s efforts to strengthen its defense capabilities. However, he emphasized that any such move would only serve as a minor supplement to its core automotive business, and no concrete plans or official announcements have been made yet. Volkswagen Group is also evaluating whether its Osnabrück plant could be repurposed for producing military transport vehicles, though it has clearly stated it will not manufacture weapons or tanks. Meanwhile, defense companies are seeking to capitalize on the downturn in the automotive industry. Rheinmetall is assessing whether parts of its former automotive-component plants in Neuss and Berlin could be converted for defense production and is considering taking over struggling vehicle assembly plants—including Volkswagen’s Osnabrück facility. However, the company’s CEO noted that existing automotive plants are only partially suitable for defense manufacturing and would require costly modifications, though such retrofits would still be more economical than building new facilities from scratch. Additionally, aerospace and defense firm Hensoldt is actively recruiting technical talent from automotive suppliers like Continental and Bosch, offering significantly higher salaries. Financial data shows that Mercedes-Benz’s profit in 2025 declined by approximately 49% year-over-year, with revenue down about 9%. Except for BMW, all major German automakers have recently announced layoffs in their domestic operations. In contrast, the global defense industry continues to grow, with the world’s top 100 arms-producing companies achieving record-high revenues in 2024. Nevertheless, the combined 2023 revenue of Germany’s five largest defense firms amounted to less than €30 billion—far below the German automotive sector’s revenue of over €540 billion in 2024—highlighting that the defense industry alone cannot offset the economic impact of the automotive sector’s decline.