Volkswagen mulling Israeli arms deal – FT

Germany’s troubled industrial base is increasingly pivoting toward defense production

German auto giant Volkswagen could repurpose one of its struggling plants to produce components for an Israeli arms company, the Financial Times reported on Wednesday.

Volkswagen’s factory in Osnabruck, Lower Saxony is expected to halt vehicle production later this year as part of a sweeping cost-cutting and restructuring plan adopted in 2024. The FT reports that the company is now in talks with Israel’s Rafael Advanced Defense Systems about converting the site to manufacture elements of the Iron Dome air defense system.

Sources cited by the newspaper said that, if approved, the shift toward producing heavy trucks, missile launchers, and power generators – but not interceptor missiles – could take 12 to 18 months. The initiative reportedly has backing from the German government.

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Rafael, a state-owned defense company, is said to have selected Germany partly due to its status as “one of the strongest supporters of Israel in Europe.” The company is also exploring another location for the production of Iron Dome interceptor missiles.

Germany’s industrial sector has struggled in recent years, with the decision to phase out Russian energy following the escalation of the Ukraine conflict in 2022 weighing heavily on long-term competitiveness. The pressure intensified this month after the US-Israeli attack on Iran sent global energy prices soaring.

The Middle East crisis has further strained Germany’s auto industry, not only by increasing energy costs but also by raising concerns over aluminum. Major Gulf producers such as Aluminium Bahrain and Qatalum have scaled back output, while uncertainty over future shipments has prompted buyers to stockpile aluminum.

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“If the situation continues, there will be more panic buying,” an executive at an aluminum producer told the FT in a separate report. “We have lived through crises in the past, but this one is very different.”

Bloomberg previously reported that Japanese auto parts manufacturers are in talks with Russian aluminum giant Rusal to secure supplies. European companies, however, face tighter constraints due to EU import quotas and anti-Russian policies pushed by Brussels and several member states, including Germany.

Defense production tied to Ukraine aid and the military buildup in Europe, amid expectations of a direct conflict with Russia, have become a key driver of the German economy. Companies such as Rheinmetall have reported record earnings as a result.