From the driver's seat to the battle: Is defense the new business of automotive suppliers?

DSEI 2025 in London impressively demonstrates how significantly the defense and security industry is growing in importance. While many automotive suppliers continue to struggle with fluctuating demand and overcapacity, a stable, growing market is opening up in the defense sector. However, entering this market is no easy feat—regulatory hurdles, certifications, and infrastructure investments pose significant challenges.

Automotiv vs. Defense - AI generated

The automotive industry is under immense pressure: Falling volumes, rising costs for e-mobility and supply chain problems have brought many suppliers to the brink of extinction. At the same time, the defense industry is experiencing an upswing due to the Ukraine war and political realignment. Special funds, long-term major orders and urgent capacity bottlenecks are tempting – but getting started is neither easy nor risk-free. The following article sheds light on opportunities, risks and voices from practice and paints a sober, objective overall picture.

An unexpected change in strategy

Germany's defence budget has been increased by €100 billion since the start of the war, and the EU is providing almost €9 billion by 2027 through the European Defence Fund. Against this background, suppliers such as Schaeffler, ZF Friedrichshafen and Continental are examining whether their production lines and know-how are suitable for defense components.

„Core competences, some of which have been shaped in the automotive supplier industry over the years, are in demand in the defence sector“, so Klaus Rosenfeld, CEO der Schaeffler AG Reuters.

Other traditional companies are also exploring the market: Bosch is exploring sensor modules for military vehicles, while Continental is researching autonomous control systems.

Opportunities: Planning security and attractive margins

The graph "Capacity utilization compared" is shown above. It visualizes the difference between the current capacity utilization of automotive suppliers (60%) and the defense industry (95%) at the current order situation.

1. Long-term orders

   • Defense ministries often order 5-10 years in advance.

   • Hybrid productions (Auto & Defense) secure additional capacities.

2. Higher profitability

   • Margins in the defense industry are often 3–5 percentage points higher than classic automotive margins.

   • State guarantees and risk-sharing relieve balance sheets.

3. Technology transfer

   • Sensor technology for autonomous driving can be translated 1:1 into drone and radar systems.

   • Materials research (light, stable) finds new customers in tank and aircraft components.

Armin Papperger, CEO of Rheinmetall AG, suggested that VW sites such as Osnabrück would be "very suitable" for arms production, according to Reuters.

Stephan Soldanski from IG Metall Osnabrück adds:

„As IG Metall, we see numerous opportunities to establish new contract manufacturing for various industries under the Volkswagen umbrella“ Reuters.

Political tailwind and social acceptance

The times when defense was frowned upon are over. According to Politbarometer June II 2025, two-thirds of Germans are in favor of a significant increase in defense spending. The Bundestag and the EU are pushing ahead with the diversification of industry with special funds and funds. Universities are setting up "defense labs", private investors are turning their backs on moral divestment.

Voices from the field & concrete cases

Actor	Focus	Quote
Schaeffler AG	Precision components	„Core competences… are in demand in the defence sector.“ – K. Rosenfeld, CEO Reuters
Rheinmetall AG	Tank chassis, ammunition	„… a plant like Osnabrueck… would be very suitable.” – A. Papperger, CEO Reuters
Hensoldt AG	Radar and Optronics Systems	„The demand for sophisticated electronic defence and security solutions… will continue to grow in the coming years.“ – O. Dörre, CEO Reuters
Ex-Airbus CEO Tom Enders	Autonomous weapon systems, drones	„We are told… that there is maybe a window of three to five years before Putin might test Article 5.“ – T. Enders Reuters
Stellantis (John Elkann)	Clear demarcation from the defence sector	„We don't think the future of the car is the defence industry.“ – J. Elkann, Chairman Reuters
IG Metall Osnabrück	Employment, contract manufacturing	„… opportunities to establish new contract manufacturing…“ – S. Soldanski Reuters

Risks: Regulation, Costs & Ethics Debate

1. Certifications & Controls

   • The NATO-STANAG, EU Dual-Use Regulation and the National Arms Export Act require lengthy examinations.

2. Investment hurdles

   • Ballistic test fields, security structures and secret-proof production cost millions.

3. Employee and brand image

   • Employees from the automotive or tech industries could drop out. NGOs and NGOs act vigilantly.

4. Geopolitical Volatility

   • Sanctions, embargoes and changes of government can abruptly stop orders.

 Graphic: Barriers to entry into the arms industry

Polarizing assessment & summary

Anyone who thinks that you can turn a car factory into an armaments factory "with a stroke of the hand" is very much mistaken. Only companies with sophisticated compliance management, a deep understanding of technology and a high willingness to take risks will be successful in the long run. Others are in danger of failing because of the bureaucratic thicket and ethical debates.

Nevertheless, there are real opportunities: long-term predictability, margin premiums and impulses for new technologies can facilitate the necessary structural change. It remains to be seen whether suppliers can wield the double-edged sword of innovation and responsibility.

How do you see that? Discuss in the comments: Is defense the new field for automotive suppliers – or is it playing with fire?