Germany’s economic agenda is shifting from cars to defense as the United States retreats and Russia threatens.
Weapons manufacturer Rheinmetall’s market capitalization overtook automotive behemoth Volkswagen Group on Thursday, a sign of Germany’s economic shift from cars to defense.
Rheinmetall’s market cap — the value of a publicly traded company — stood at €55.7 billion as of 4 p.m., compared to Volkswagen’s €54.4 billion.
Rheinmetall’s value has more than tripled since Donald Trump became U.S. president in January, alongside those of many other big European defense companies, while their U.S.-based rivals have seen their share prices fall on rising concern that Trump’s unpredictable policies could harm American arms exports.
VW and Rheinmetall are heading in different directions. The arms-maker is benefiting from the surge in European defense spending as the bloc rearms to deter Russia, support Ukraine and ensure its security amid fears that Trump will back away from the continent, while Volkswagen battles headwinds caused by problems in China, Trump’s tariffs and a bumpy transition to electric vehicles.
Cars powered Germany’s post-World War II recovery, making it the EU’s economic powerhouse and allowing defense to take a back seat — especially after the end of the Cold War. Now Germany’s economy could rely on tanks for growth.
“An era of rearmament has begun in Europe that will demand a lot from all of us,” Rheinmetall CEO Armin Papperger said in a statement Wednesday announcing the company’s record earnings. “It also brings us at Rheinmetall growth prospects for the coming years that we have never experienced before.”
In one sign of the transition, Volkswagen is planning to end production at its Osnabrück factory, and Papperger said Wednesday that the plant would be “very suitable” as a potential tank factory.
“One thing is clear: Before I build a new tank plant in Germany, we will certainly look at it,” Papperger said.
While the automotive sector’s problems dominated public discourse in the months leading up to Germany’s snap election in February, concerns around security are shifting attention — and funding — toward defense.
Incoming German Chancellor Friedrich Merz wants to exempt defense spending from the restraints of the country’s debt brake — a historic change he had previously shied away from.
“In view of the threats to our freedom and peace on our continent, whatever it takes must now also apply to our defense,” Merz said when announcing the strategic change.
VW Group CEO Oliver Blume acknowledged the shift during a Tuesday earnings briefing.
“We need to invest more in order to be safe again,” he said.
No specific conversations are taking place, he added, but the company is ready to advise other manufacturers on defense production — a role it previously played.
VW produced armored vehicles for the Nazis in World War II. Its trucking subsidiary MAN Truck & Bus is connected to Rheinmetall through a joint venture to produce logistics vehicles for the military.
