Germany is undergoing a massive industrial transformation into a “weapon factory,” according to an analysis by The Wall Street Journal (WSJ). The report indicates that the country is redirecting its automotive manufacturing prowess toward defense production as Berlin pursues a strategy to establish Germany as the central production hub for the European defense industry.
This strategic pivot is being executed against a backdrop of significant economic challenges, including the longest period of stagnation since World War II, intensifying competition with China in automobile manufacturing, and a decline in global demand for German vehicles.
Government statistics cited in the report show that German industry—including the automotive sector, once the locomotive of the national economy—is shedding approximately 15,000 jobs every month.
Financial data from the nation’s largest automakers underscores the deteriorating state of the sector. Mercedes-Benz saw its 2025 profits fall by 49%, while Volkswagen recorded a 44% decline. Operating profits at Porsche reportedly plummeted by 98% compared to 2024 levels.
As a result, German officials have largely abandoned efforts to revive the traditional industrial model, instead designating the defense sector as the primary driver of future growth. Sources familiar with the matter state that idle production capacities and displaced personnel are being channeled into this new manufacturing segment.
Klaus Rosenfeld, CEO of German bearing manufacturer Schaeffler, announced that the company has already begun diversifying its operations. The firm is now focusing on the production of drone motors, armored vehicle systems, and aerospace equipment. Rosenfeld stated that the company plans to increase the defense division’s share of total turnover to 10%.
The WSJ report also noted that Volkswagen is in negotiations with Israeli companies to produce components for the Iron Dome air defense system by 2027.
Sebastian Schulte, CEO of propulsion system manufacturer Deutz AG, emphasized that the accelerated transformation within the enterprise was triggered by the outbreak of conflict in Ukraine. Schulte noted that the company has begun supplying engines for Patriot systems, unmanned aerial vehicles, and armored vehicles, while simultaneously investing in new defense segments. Thanks to flexible production chains, the company has avoided mass layoffs and achieved a 15% increase in turnover over the past year.
“Our competitive advantage lies in our stable supply chains; systems that work for engines and mining equipment will also work for the defense industry,” Schulte said.
Experts suggest that the combination of surplus industrial capacity, state support, and investment inflows could soon see Germany occupy a pivotal role in the European defense industry.
According to data in the report, approximately 90% of venture capital investment targeting defense technology in Europe is currently flowing toward German companies, strengthening the country’s position in the sector.
In early March, Reuters reported that Rheinmetall, Europe’s largest ammunition manufacturer, has begun converting two factories previously dedicated to automotive parts to focus on military equipment. Similarly, Hensoldt, which produces the TRML-4D radar systems utilized by Ukraine, is reportedly in talks to hire approximately 200 employees from major automotive suppliers such as Bosch and Continental.
Hensoldt CEO Oliver Doerre stated that the company is benefiting from the difficulties facing the automotive industry. He noted that with planned investments, annual production of the TRML-4D radar system could more than double, reaching 25 to 30 units.
Late last year, The Washington Post described Germany as the “primary beneficiary” of Europe’s rearmament process. The publication highlighted that European leaders are intensifying efforts to build independent defense capabilities amid the growing threat from Russia and concerns that the US may distance itself from its role as the continent’s main protector.
The German government approved a plan in August 2025 to increase the current strength of the military. German Chancellor Friedrich Merz expressed that Berlin aims to make its own military a model for the entirety of NATO.
According to a Bloomberg report in July, Germany plans to effectively double its current defense spending, raising the annual budget to 162 billion euros ($189 billion) by 2029.
Russian Foreign Minister Sergey Lavrov said these plans align with a trajectory among Western European politicians to “prepare Europe for a war against Russia.”
Kremlin spokesperson Dmitry Peskov remarked on the strong militaristic trends in European countries. “They are forcing themselves to increase military budgets. This leads to an overstretching of the economy and will have more serious consequences in the medium term,” Peskov said.