Volkswagen's plant in the German city of Osnabrueck would be a good fit for conversion to military production, the chief executive of major arms maker Rheinmetall said Wednesday, as the car giant considers ways to repurpose the site that could include a sale.
Armin Papperger, speaking to journalists after forecasting strong sales growth for 2025, said that while Rheinmetall could repurpose more of its own automotive plants, buying sites from carmakers under the right conditions was also possible.
Tank factories required heavy-duty cranes and corresponding load-bearing capacities, Papperger said, adding that substantial orders, for example, for the Lynx infantry fighting vehicle, would be required before investing in new locations.
"Then you can also consider whether a plant like Osnabrueck, which I think would be very suitable ... whether you could get involved," Papperger said.
Volkswagen said in December that it was exploring alternative scenarios for the site's future use, raising hopes for a sale that could protect workers and save the carmaker's restructuring costs.
Papperger's comments come two weeks after Rheinmetall said it would repurpose two of its own automotive sites to make mostly defense equipment, something he said could also happen at some of its other sites.
German defense companies seeking more capacity as Europe prepares to raise military spending are also taking on workers from the ailing car industry, the first sign of a shift that could help revive the continent's biggest economy after two years of contraction.
Papperger said that Rheinmetall was in regular talks with Volkswagen via an existing collaboration in military truck production, adding that while there was no existing concept for Osnabrueck, things could move quickly if conditions were right.
"One thing is clear: before I'll build a new tank factory in Germany, we'll of course take a look at it," Papperger said, adding Rheinmetall could even sell its entire automotive Power Systems division if it got a decent offer.
Rheinmetall, Europe's biggest ammunition maker, owns 51% of Rheinmetall MAN Military Vehicles, with the remainder held by MAN Truck & Bus SE, a division of Traton, the truck maker majority-owned by Volkswagen.
Volkswagen CEO Oliver Blume on Tuesday told broadcaster ZDF that while there were no in-depth talks with the defense industry regarding Osnabrueck, there was ample room for potential options.
Rheinmetall, meanwhile, has overtaken the continent's top carmaker, Volkswagen, in terms of market valuation, which is the latest sign of a soaring investor appetite for defense stocks.
Its market capitalization stood at around 56.2 billion euros ($61.1 billion) as of 8:48 a.m. GMT on Thursday, compared with 54.7 billion euros for Volkswagen.
Defense stocks across Europe have skyrocketed in recent weeks, driven by efforts across the continent to ramp up military spending in response to U.S. pressure on governments to step up.
Rheinmetall shares have been one of the biggest beneficiaries of that trend, more than doubling since the beginning of the year and rising more than twelve-fold since Moscow invaded Russia in February 2022.
Jefferies on Thursday initiated coverage on European defense stocks, rating Rheinmetall "buy" and singling out the company as its top pick.
"We have seen a clear paradigm shift in Europe around defense spending," the brokerage wrote. "This has been triggered by the risk of the U.S. removing support to Ukraine in the ongoing war and also the perception of its protection granted to Europe being at risk, especially in the context of a potential conflict with Russia."
