Volkswagen (VW) is in talks with Israeli defense firm Rafael Advanced Defense Systems about a potential collaboration that would see a major VW plant shift production from cars to defense equipment, according to a report. financial Times.
The companies plan to convert Volkswagen’s struggling Osnabruck plant into a facility that makes components for the Israeli state-owned company’s Iron Dome air defense system, the newspaper’s exclusive report said, citing people familiar with the plan.
In response to DW’s questions, a Volkswagen spokesperson said, “Weapons production by Volkswagen AG has been ruled out for the future, and we are not involved in speculation about further plans for the Osnabruck site.”
However, with the Osnabruck site planning to phase out its existing production in 2027, the spokesperson said the company “continues to explore viable options” and is talking to various “market players”.
“This is part of an open review process for the period beyond 2027,” the spokesperson said. “At this time there are no firm decisions or conclusions regarding the future direction of the site. We are also keeping local staff informed about the status of this process.”
a struggling factory
Volkswagen is looking for solutions to save around 2,300 jobs at the Osnabruck plant in the state of Lower Saxony following the decision to move away from current production in 2024 to 2027. Last September, VW decided to shorten the work week at the facility by one day as part of broader cost-cutting measures.
The factory in Osnabruck produces the T-Roc Cabriolet brand as well as the Porsche Cayman and Porsche Boxster models. A VW spokesperson said the company was still considering ways to continue producing vehicles at the site in the future.
“The Volkswagen plant in Osnabruck has developed various vehicle concepts in recent months to explore potential market opportunities and possibilities,” he said. “Whether and to what extent these will result in concrete projects remains to be seen.”
Earlier this month, Volkswagen Group said it planned to cut 50,000 jobs in Germany by 2030 as profits fell to their lowest level in a decade. European carmakers have faced a number of challenges in recent years, from struggles with electrification to increasing competition from China.
The German auto giant’s CEO Oliver Blume recently told shareholders that Volkswagen Group, which owns the Volkswagen, Porsche, Skoda and Audi brands, is “operating in a fundamentally different environment.”
according to financial Times According to the report, the plan aims to save all 2,300 jobs in Osnabruck. The article quoted one of the people familiar with the plans as saying: “The aim is to save everyone, maybe even grow. The possibility is very high. But it is also a personal decision for workers if they want to be part of the idea.”
The report said the German government actively supports the plan. Although Germany’s federal government does not own any stake in Volkswagen, the state of Lower Saxony holds about 12% of the shares and 20% of the voting rights.
Tapping the rapidly growing defense sector
If confirmed, the alliance between Volkswagen and Rafale Advanced Defense Systems would be the largest example of a major industrial company moving from its traditional business to the now rapidly growing defense sector.
Since Russia’s full-scale invasion of Ukraine in February 2022, the value of European defense companies has doubled and, in some cases, even tripled. Meanwhile, European governments are increasing military spending, with EU member states alone set to spend about €400 billion ($463 billion) on defense in 2025.
While Volkswagen produced military vehicles for the Nazis during World War II, by the beginning of the post-war era it became essentially a civilian manufacturer. Only its subsidiary MAN produces military trucks in cooperation with German defense major Rhinemetall. However, if the plans were confirmed with the Rafale Advanced Defense System, it would mark a potential shift from purely civilian car production to defence-related manufacturing.
according to financial Times According to the report, the factory will make military vehicles and other components for Iron Dome, but not missiles.
With the car industry and other industrial sectors in Europe and Germany currently grappling with various headwinds, a move to a defense sector that is cash-rich and ready for government investment has become increasingly attractive.
Paolo Surico, an economics professor at the London Business School who focuses on defense-related innovation, said it is “crucial” to divert industrial companies to defense if defense spending is to deliver broader economic benefits.
However, he cautioned that bureaucracy and the long wait for companies to obtain the permits needed for production for the defense sector could complicate the process.
Hans Christoph Atzpodien, general manager of the German Federal Association of Security and Defense Industries, agrees. He previously told DW that the qualifications of car industry workers will often meet the requirements of defense companies, but retraining and security clearance requirements can slow the process.
“The timeline for issuing these authorizations is currently not fast enough to allow for the rapid transfer of relevant personnel,” he told DW last year.
Surico also said it was important that production remain open to multiple firms rather than one big player, allowing for a widespread pivot from sectors like the car industry to protect jobs.
“Give multiple companies a single purchase, a single contract, with each taking advantage of their comparative advantage in the supply chain,” he told DW. “Everyone can exploit this comparative advantage and therefore make production more efficient and the economic benefits more widespread.”
according to financial Times According to the report, production in Osnabruck for the Rafale Advanced Defense System could begin within 12 to 18 months.
However, one potential hurdle could be getting workers to agree to switch to weapons production, according to a person familiar with the discussions.
Edited by: Srinivas Majumdaru