Automotive giant ventures into military industry! Volkswagen Group is negotiating to convert its struggling factory into a producer of missile defense components.

Volkswagen is in talks with Israel’s Iron Dome missile defense system manufacturer, planning to shift from the automotive sector to missile defense.

On March 24, according to the Financial Times of the UK, citing sources, Volkswagen is negotiating with Israel’s state-owned defense company Rafael Advanced Defence Systems to convert a nearly closed German factory from car production to manufacturing missile defense system components.

The report states that Volkswagen plans to transform its Osnabrück plant in Lower Saxony, Germany, into a production base for Iron Dome missile defense system components, aiming to preserve all 2,300 jobs at the factory and sell the system to European governments.

This collaboration between Volkswagen and Rafael marks the group’s return to weapons manufacturing. During World War II, Volkswagen produced military vehicles and V1 rockets for Hitler’s Wehrmacht.

According to reports, the German government is actively supporting this plan. If workers agree to switch to weapons production, the related production lines could be operational within 12 to 18 months.

Factory transformation from car manufacturing to Iron Dome components

It is reported that the Osnabrück plant will produce various key components of the Iron Dome system, including heavy trucks for carrying missiles, launchers, and generators, but will not produce the missile bodies themselves, which will be manufactured separately by Rafael in Germany.

Sources emphasize that the additional investment needed for this transformation is limited. One insider said:

Moving to the new production line requires some funding, but it’s quite feasible. It’s a combination of mature (defense) technology and German manufacturing capabilities.

The future of the Osnabrück plant was previously uncertain. According to Volkswagen’s cost-cutting plan finalized in 2024, vehicle production at the plant will cease next year. About 35,000 employees under the Volkswagen Group are expected to leave voluntarily by 2030.

In response to inquiries, a Volkswagen spokesperson said the company is in discussions with “multiple market participants,” but the future direction of the Osnabrück plant “has not yet been decided or concluded.”

Potential controversy: Is Iron Dome suitable for European air defense needs?

Although the collaboration appears promising, some experts question the applicability of the Iron Dome system in the European battlefield environment.

The Iron Dome system has an effective interception range of about 70 kilometers and has mainly been used to intercept short-range rockets fired from Gaza into Israel. Critics argue that its effectiveness against medium- and long-range threats faced by Europe remains to be seen.

Israel, on the other hand, endorses the system’s comprehensive defense capabilities. Israel claims its multi-layered air defense system combines several different systems and has successfully intercepted over 90% of incoming missiles.

From an industry perspective, sources with knowledge of the situation are quite ambitious:

The goal is to save all jobs, and there’s even potential for revenue growth. The potential is very large.

However, they also acknowledge that whether workers are willing to switch to weapons production is “ultimately a personal choice.”

Germany’s manufacturing capacity surplus meets Europe’s rearmament efforts

Behind this cooperation are multiple structural factors. For Rafael, Germany is a strategic gateway into the European market.

Reports indicate that Rafael chose Germany as its European production base partly because Germany is one of the most staunch supporters of Israel in Europe. Additionally, the company responded to calls from German officials to utilize idle industrial capacity in the country.

From a market demand perspective, after the Russia-Ukraine conflict, European countries are massively rearming, and air defense capabilities have become a priority procurement area.

Germany plans to invest over 500 billion euros in defense spending by 2030, with officials explicitly listing air defense as a core expenditure. Last year, Germany received its first Israeli Arrow-3 missile defense system, manufactured by another Israeli company, Israel Aerospace Industries.

Rafael is not without a presence in Germany. The company has previously produced Spike missiles through joint ventures with Rheinmetall and Diehl Defence, and manufactures tank and armored vehicle active protection systems like Trophy.

Volkswagen is also involved in defense, with its subsidiary MAN establishing a joint venture with Rheinmetall to produce military trucks.

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