Turning point Defence: How the defence industry is moving from the margins to the centre

Defense AI

Defence has long been a marginal issue – for many industries, for investors and for public perception. Conflicts seemed distant, the priorities were on the economy, climate, mobility. But since the Russian war of aggression against Ukraine, shifted geopolitical blocs and growing uncertainty, it is clear that the threat is closer, not abstract. As a result, the defence industry is also becoming the focus of governments, companies, investors and workers.

More money, more politics – the new framework conditions

Germany: The Bundeswehr Special Fund & Defence Expenditure

• In 2022, Germany decided on a special Bundeswehr fund of 100 billion euros , which has its own credit authorization and is managed separately from the federal budget. Purpose: Strengthening the alliance and defence capability. Federal Government+1

• It is constitutionally safeguarded by amending Article 87a of the Basic Law. Federal Government+1

• For 2025, Germany's defense spending is planned at around 86.49 billion euros. Of this, about 62.43 billion euros are attributable to the regular budget and 24.06 billion euros from the special fund. Compared to 2024, this is an increase of a total of about 14.74 billion euros. German Bundestag

• Despite this increase, the NATO target of at least 2% of GDP for defence on a permanent basis has not yet been achieved, according to studies. A study by the German Economic Institute expects a gap of just under 18 billion euros for 2022–2023, and without higher budgets beyond the special fund, a gap remains forecast for 2026 et seq. FAZ.NET+1

EU & NATO: Joint Strategies and Programmes

• The EU has created a wide range of instruments:

  • ReArm Europe / Readiness 2030: A plan to enable additional defence spending of up to €800 billion . Council of the European Union+1

  • SAFE ("Security Measures for Europe"): An EU instrument  that provides €150 billion in loans to help member states procure and develop the defence industry. Council of the European Union+1

  • EDIP (European Defence Industry Programme): Until the end of 2027, 1.5 billion euros are  earmarked as financial aid for defence industry projects. Council of the European Union+1

  • Further funds for joint procurement, promotion of ammunition production, research and development. Council of the European Union+2Council of the European Union+2

• Defence spending by EU member states rose to about €343 billion in 2024, with an estimate of €381 billion for 2025. These are increases of +19% compared to 2023 and +37% compared to 2021. Council of the European Union+1

  
  

Automotive & Supplier Industry: Crisis Meets Opportunity

Where does the automotive industry stand

• The automotive industry and its suppliers are under pressure: falling demand, rising costs, the switch to electromobility and software-driven components. Margin erosion and job cuts are the order of the day. Several suppliers are reporting cost-cutting programs, departments are being closed. Deloitte+2HNA.de+2

• At the same time, arms companies have full order books, demand is booming. One example: the defense technology group Hensoldt has a record order backlog of about 6.5 billion euros. Financial Times

Initial reactions & changes

• Takeovers and changes: Some automotive supplier employees have been taken over by armaments companies or are moving to these areas. Example: Continental brake plant in Lower Saxony – about 100 employees were offered by Rheinmetall to move to an ammunition factory. Hensoldt plans to take over employees of Continental and Bosch. SWR+1

• Conversion of production lines: Rheinmetall is considering converting civilian plants into armaments production as part of its corporate structure. For example, plants that previously manufactured components for vehicles could produce military components in the future. imi-online.de+1

• Medium-sized suppliers see opportunities: According to a study by Roland Berger (Germany, Austria, Switzerland), more than 75% of medium-sized suppliers see diversification into the defense industry as a priority. Competencies such as precise manufacturing, quality standards and series production benefit them. Press portal

Start-ups and tech companies

• ARX Robotics: The start-up has delivered autonomous mini-tanks to Ukraine, among other things, and is often cited as an example in the context of DefenceTech. ZDF

• Quantum Systems, Helsing, etc.: These technology companies are setting new standards, e.g. in AI, drones, the networking of sensor systems. HNA.de

• Start-up procurement and regulatory problems: Many young companies complain about high regulatory hurdles, slow procurement processes, a lack of venture capital, and a lack of appreciation. In a Bitkom survey of DefenceTech start-ups, 59% said that they would choose another location if they were to start again. founders Magazine

Opportunities & Barriers: Who Wins, Who Has to Be Careful

Some Quotes & Cases

"Currently, the freeing up of resources in the automotive and automotive supply sector in Germany offers special opportunities to quickly ramp up armament capacities, especially in the area of larger series. The motto could be: 'Cars to armaments'!" — Hans Christoph Atzpodien, Chief Executive Officer of the Federal Association of German Security and Defense Industries. imi-online.de

"With Palladion, we are opening new doors, breaking new ground and proving that DefenceTech start-ups not only compete with large manufacturers, but also make a big difference in defence capability." — Christian Hösle, Head of Palladion (Bundeswehr Accelerator) ZDF

"The Bundeswehr does not always procure what works on the modern battlefield, but what was planned years before. This process dates back to peacetime, when technology cycles have spanned decades. Nowadays it's weeks." — Marc Wietfeld, ARX Robotics. ZDF

"91 percent of executives demand faster procurement" – from the study "Defense Insider Priorities" by Horváth. Horváth Management Consultants

The top companies in the industry

Top 20 in the DACH region

Backlog & Intake

• Backlog  Order  backlog = long-term visibility (planning, stability).

• Intake Order intake = short-term dynamics (growth, market opportunities).

  
  

📌 Backlog (order backlog)

• Definition: The order backlog includes all contracts that have already been signed/orders that a company still has to fulfill in the coming years.

• Example: If Rheinmetall is supposed to deliver tanks for 5 billion euros, but the delivery is spread over 5 years, this amount will appear in the backlog.

• Meaning:

  • Shows the planning security for a company.

  • Signals to investors and suppliers how stable and busy the business is.

  • A high backlog = full order books, even if sales are not yet high in the current year.

    
    

📌 Intake

• Definition: Order intake refers to the new orders that have come in during a certain period of time (usually in the financial year).

• Example: Hensoldt reports an order intake of 2.9 billion euros for radar systems and sensors in 2024.

• Meaning:

  • Reflects a current trend : If incoming orders increase, demand is strong.

  • A high intake in relation to sales shows that the company is growing.

  • If the intake drops significantly, this may indicate less demand or delays in tenders.

    
    

📊 Interaction of Backlog & Intake

• Backlog = long-term visibility (planning, stability).

• Intake = short-term dynamics (growth, market opportunities).

For example, a company may have a huge backlog (large projects over 10 years), but only a moderate intake in the last year (because new projects have to be put out to tender first). Conversely, a young company can report a very dynamic intake , but not yet a huge backlog.

How to get the funds – conditions and mechanisms

In order for companies or start-ups to successfully obtain the new funds, several levers are important:

1. Knowledge of funding programmes and tendering mechanisms Companies need to understand how EU instruments such as SAFE, EDIP, joint procurement, ammunition funding work. Applications must meet formal requirements and consortia or partnerships are often desired.

2. Capacities & technical/legal requirements Anyone who wants to supply parts for defence projects needs certifications, security checks (e.g. secret protection, reliable supply chains), production sites, and often series production. Standards and quality assurance are crucial.

3. Financial strength and planning security Projects in the defence sector often have long lead times. Investments must be advanced – in machinery, personnel, infrastructure. Those who do not have capital or good financing partners run the risk of making initial offers, but failing in implementation.

4. Network & political/administrative proximity Contacts with the Bundeswehr, the Ministry of Defence and EU authorities help. Participation in accelerators (e.g. Palladion) and collaborations with established arms companies can open doors.

5. Risk management and ESG awareness Investors and partners are increasingly looking at sustainability, human rights responsibility and reputation. Companies must be transparent about how their products are used. Dual-use can be helpful (if civilian applications exist at the same time).

   
   

Summary: Between departure and stumbling blocks

• There is a real turning point: financial resources, political will and threat perception have changed fundamentally. Defense is no longer a niche topic.

• New market opportunities are emerging for companies that have their expertise in precision manufacturing, electronics, sensor technology, AI, etc. – especially for suppliers and start-ups.

• But: the path is not easy. The switching costs are high. Production changes, legal and safety requirements, long approval and procurement times, high initial investments – all of this can be a brake track.

• In addition, the risk of funds being used inefficiently is too high. If political promises do not translate into long-term budget planning (e.g. beyond the special fund), there is a risk of gaps. NATO's two percent target shows that momentum can be lost without stabilizing budgets. FAZ.NET

• The following also applies socially / reputatively: Anyone who invests in armaments must be prepared for debates – moral questions, export ethics, dual-use, risks of abuse. Transparency and regulation will be key.

Polarizing assessment

Those who do not rely on defence could be the losers in the industrial transformation. Companies and regions that remain hesitant – out of image fear, because "armaments = dirt", or due to a lack of willingness to take risks – risk losing their capacities and talents. But those who are willing to take responsibility can gain strong new momentum through innovation, speed and partnerships.

And at the same time:

There is a danger that defence will become a "refuge for crisis winners": companies that fall out of other sectors (e.g. automotive suppliers) and want to save themselves in armaments drive up prices, lower standards or overlook long-term ethical costs. There could be an overextension in short-term opportunities, without a sustainable strategy.

Result

Today, the defense industry is far more than a peripheral area – it is part of strategic industrial strategies, part of modernization programs, part of geopolitical security and part of economic transformation. At the same time, effort and risk are great: capital, time, regulatory requirements and public acceptance are not small hurdles.

For decision-makers in the mobility industry, tech, the supplier industry and research institutions, this means:

• check whether existing competencies can be used for defence,

• invest in partnerships,

• understand the funding landscape and the procurement process at an early stage,

• Develop strategic plans for at least 5-10 years and secure budgets.

Call to Action

How do you see that?

• Will your company be active in the defense sector in the future – or are you afraid that the risks outweigh the opportunities?

• What conditions would have to be met for you to participate? (e.g. stable order situation, clear legal framework, transparency, ethical rules)

• And: In your opinion, how should policymakers ensure that funds, innovations and capacities are used efficiently and responsibly?

I look forward to your assessments, perspectives and concrete experiences – let's look at and discuss this turning point together.