The European auto industry is becoming a defense industry: industrial giants are rebuilding factories for the arms race

The aggravation of the security situation in Europe is radically changing the structure of industrial production. The automotive industry, which for years was the flagship of the European economy, is rapidly losing ground today. Against the background of falling orders and excess production capacity, large and medium-sized auto companies are increasingly looking to the defense sector as the only industry capable of providing stable orders and funding for years to come.

The example of the German industrial giant Rheinmetall is illustrative. A company that operates in both the automotive and defense sectors, stated about the intention to repurpose its two factories in Berlin and Neuss from automotive to the production of military equipment and weapons. The reason is the explosive growth of EU defense budgets and the new reality: the state is ready to pay for weapons, not for civilian cars.

Similar processes are taking place in Italy. There is a state prepares a special program that will unite the efforts of the automotive, defense and aerospace sectors for the development of joint productions. It is about stimulating the transition of those enterprises that are competent in complex metalworking, production of transmissions, engines and electronics – all of this is critically needed today for the production of armored vehicles and combat vehicles.

The largest players are not left behind – the Leonardo concern together with Rheinmetall created a joint venture Leonardo Rheinmetall Military Vehicles (LRMV) to build new generation combat vehicles – Panther KF51 tanks and Lynx armored personnel carriers. All expertise of the automotive industry comes into play here – from electronics and sensors to armored hulls and complex control systems.

Even Volkswagen, which is traditionally far from a defense company, has gone public due to the crisis in car sales declares about the readiness to use excess capacities for military orders – from the production of engines to the supply of army transport chassis. Volkswagen’s joint project with Rheinmetall already provides for the construction of armored vehicles for NATO needs.

So, the old industrial Europe is in sight reformats their production chains. Instead of a peaceful civilian auto industry, tank factories, armored bodies and unmanned platforms come to the fore. Those who manage to reorient themselves will survive on the market. Others will have to curtail production or look for salvation in state subsidies. Europe is preparing for a protracted arms race – and the automobile industry is becoming an integral part of it.

Civilian factories on military rails: how trade unions in Europe were faced with a choice between peace and weapons

It is worth noting that entry into the defense industry carries reputational, financial and political risks for well-known automotive brands. In particular, brands like Volkswagen, known for their civilian products, may face a negative reaction from consumers who are not ready to associate their favorite brands with military equipment. This can lead to a loss of customer loyalty and a decrease in sales.​

Cooperation with the defense industry may cause criticism from the public and non-governmental organizations opposed to militarization. This can affect the image of the company in the international arena and lead to the loss of partners.​

It is obvious that the repurposing of production requires significant investments in new technologies and equipment. Uncertainty in government contracts and possible delays in payment can put companies in financial difficulties.​
Now European trade unions are on a stretch. On the one hand – peaceful rhetoric, social standards and the habit of fighting for a shorter work week and more holidays for decades. On the other hand, there is the reality of war, which hits factories and machines.

The European trade union confederation is already direct speak: massive public investment in jobs is needed. But the word “war” or “defense” is almost taboo there. They maneuver because they understand very well: military production is a completely different reality.

But life dictates a new reality. In Germany, when Rheinmetall announced about the repurposing of two civilian factories for the defense industry, the first reaction of the workers is fear. After all, it is one thing to assemble gearboxes for cars, another is to build armored hulls for equipment that will go to war. These are different risks, different responsibility. Trade unions directly ask: what about guarantees? And won’t this become a “temporary” contract for a year or two while the war is going on?

The social block of Europe is not yet ready for such a turn. They do not know how to transfer people from the “green” future to reality, where the main goal is to shoot first and hit.

Europe will probably be forced to pay the trade unions for their silence. Money for retraining, contracts for 10 years, social packages – otherwise, no one will get on the assembly lines. Because working to death is not about the EU model of 2025. But either they will do it, or they will make weapons for war elsewhere.

Weapons need engineers and steel: why Europe lacks the resources for a new arms race

There are many bottlenecks, which politicians are silent about, in particular, in matters of personnel support (where to get defense engineers?), logistics (supply of metal, composites), complexities of supply chains for military products.

Defense is not to collect civilian cars. These are different standards, different tolerances and a completely different school of engineering thought. Europe is physical today does not have there are enough engineers, designers and technologists who understand the specifics of armored vehicles, artillery, and missile systems. Systemically, this body of specialists has not been prepared for decades – the defense industry has degraded, universities have switched to “green” technologies and IT.

An attempt to quickly “throw” automobile workers or IT workers there is a pure utopia. These are years of retraining, because currently there are no real programs. There is already a shortage of armor welders, specialists in armor steel and fire control systems on the EU market.

As for logistics and materials, armored steel, composites, and explosion-proof materials are supplied by literally several manufacturers in the world. There is no substitute for them. The loading of these productions is already beyond the limit. The supply of armored steel lasts for months, the queues for components are growing.

Yes, Rheinmetall is already open speak, that the problem is not money, but that the factories simply cannot physically produce the required volumes of steel and explosives. They had to open new lines in Hungary and Germany – and the launch will take years.

As for supply chains, the auto industry has been around for decades worked according to the “just in time” model – the parts arrive exactly at the time of assembly. But it doesn’t work in defense. Here you need stock, reserves, warehouses. And here the “peaceful” realities emerge – some of the components for electronics, optics, even steel – are made in China.

Putting Chinese chips in a NATO tank is a bad idea. Currently, all European defense giants are puzzled – where to get components if Beijing stops or limits their export tomorrow, creating serious problems for the production and modernization of equipment.

From the “green transition” to the arms race: Europe mobilizes billions for common defense

It is increasingly obvious that Europe stops playing “green transition” and returns to the reality of war. And it is the border states – those who see the threat of Russia not on the map, but behind the fence – who are becoming the drivers of the new European defense course.

Poland and the Baltic states – states bordering the Russian Federation and Belarus – officially performed for the creation of an EU defense fund worth 100 billion euros. Their position is simple and clear: either we build our army and contain Moscow here, or we wait for the war to come to Berlin. Estonia – a country with a population of three million – has already raised taxes and has become the leader of NATO in terms of the percentage of defense spending. They know well what it means to stand on the front line.

Germany, under the pressure of this reality, has already agreed leave on an unprecedented step – to finance the defense fund through the new state debt. It is about 200 billion euros – and this is only the beginning. Berlin understands: the old formulas no longer work.

To finance their own military program, raise taxes are being prepared by France. This is a painful decision, but Paris recognizes that if it does not invest now, it will pay in blood later.

Europe finally understood – defense can no longer be the business of each individual country. Or joint projects and joint factories – or the Kremlin will check the strength of each in turn. The EU is preparing a plan “Rearm Europe” with the mobilization of 800 billion euros for rearmament. And here the logic is clear: creation of consortia, joint production, work for a common result.

For the first time in history, the European Commission already last fall guessed 300 million euros for joint cross-border defense projects – from the purchase of shells to the creation of new armored vehicles.

A separate block is support for the defense industry of Ukraine. Europe is already openly entering into joint ventures. Yes, “Ukroboronprom” signed an agreement with the French Thales on the creation of a joint venture in the air defense sector. This is a signal that Ukraine is seen as part of the European defense system.

In addition, the EU considers the allocation of a separate fund of 1.5 billion euros so that member states can form consortia and cover needs after the transfer of weapons to Ukraine. And this is only the beginning of a large-scale restart of the European defense industry.

The war on green standards: how European money and bureaucracy are holding back the new defense industry

The key question of the next generation of warfare: Will Europe pay for weapons when its banks and funds are linked by peacetime ESG chains? The old rules simply cannot withstand the impact of war.

The example of the European Investment Bank (EIB), which for years avoided financing any defense production due to the policy of “green” standards, is illustrative. But now the paradigm has changed due to the understanding that without guns there will be neither ecology nor social justice. This year the EIB is planning double or even triple the funding of defense projects.

And these are not just numbers, but a political reversal. Because while the EU is talking about “green” transformation at the level of slogans, the military industry has already become a magnet for investments. European ESG funds invested in defense in just one year doubled – from 3.2 to 7.7 billion euros.

But at the same time, the problems did not go away. Banks in Europe continue block financing of defense projects, because their domestic policies forbid investing in weapons. And while Germany or France are preparing to pour billions into new defense plants, some bankers still live in the illusion of a “green world”. In practice, this means that half of Europe is ready to fight, and half is still afraid for its environmental rating in investment funds.

It is worth noting that the European bureaucracy is complex and multi-level. The transition to military production means for a civilian company not just a change in product range, but entry into a closed club of players with access to classified work and access to defense budgets.

Any production for defense, especially within the framework of joint European or NATO projects, must meet AQAP standards. Allied Quality Assurance Publications is a NATO quality control system that requires fully documented processes; clear chains of responsibility; multi-level control of each node; special certification of employees. Companies spend from 1 to 3 years on the preparation and passing of such certification, depending on the complexity of production.

In order to work with weapons samples or classified documents, companies and their employees must obtain access to state secrets of the respective country or the EU. It’s a long process: security checks, financial audits and analysis every six months to a year or two companies get only a limited level of access. Defense production requires separate lines, special materials (armor steel, explosion-proof components), quality control system. According to estimates of European industrial associations, the minimum entry ticket for the transition is from 20 to 100 million euros, depending on the scale.

Italy already prepares a special state program to facilitate these transitions and reduce bureaucratic pressure – they realize that the companies themselves may not be able to handle such a burden. But even for the giant Rheinmetall, the restructuring of factories and the transition to new standards takes several years – despite the fact that the company already has defense experience.

Is Europe ready for truly large-scale changes in its defense industry? So far – no. Its bureaucratic machine is tuned to “old players” with many years of experience in the military field, proven and comfortable with the system. And newcomers, even from the powerful civil sector, are forced to make their way through the labyrinths of complex procedures, expensive investments and endless checks. Without political will, simplifications and state support, this breakthrough will remain on paper.

…And this is where Ukraine appears, which knows the value of real defense and has not only experience, but also developed defense and industrial potential. Isn’t it logical to offer Europe a hand of partnership right now? To join forces in the production and development of new weapons, to strengthen common security and at the same time bring Ukraine closer to European structures. After all, this is how – in action, not in words – real strategic alliances are built.

Tetyana Viktorova