Volkswagen AG announced on September 7 that it has secured key framework terms with the state of Lower Saxony and Israeli investment firm Aurelius Capital regarding the potential sale of Volkswagen Osnabrueck GmbH. The facility, which boasts 125 years of industrial history and currently employs around 1,800 workers, is slated to gradually transition from a conventional vehicle production base into a center for security and defense solutions. Under the current plan, Aurelius Capital would become the plant's majority shareholder, with Lower Saxony participating as a minority investor.
The first "anchor project" is intended to involve collaboration with Israel's Rafael Advanced Defense Systems, focusing on the production of air defense systems and related components in Germany and Europe. The framework agreement unveiled on September 7 aims to convert the plant from vehicle manufacturing to defense production. However, the deal remains in its preliminary stages, and the final transaction still requires formal contracts to be signed, along with approval from relevant corporate bodies and regulatory authorities. Specific details such as equity stakes, transaction price, production models, capacity volumes, and start dates have yet to be disclosed.
Transition from Vehicle Manufacturing to Defense Production
The Osnabrueck plant was originally slated to cease vehicle assembly operations by summer 2027. The site, formerly home to the renowned German coachbuilder Karmann, has in recent years primarily produced models like the VW T-Roc convertible. As Volkswagen pushes forward with European capacity adjustments and cost-cutting measures, long-term solutions for Osnabrueck have been a key focus for both the group and regional authorities. During labor negotiations at the end of 2024, Volkswagen management committed to finding a sustainable industrial future for the plant.
This framework agreement signals that the traditional automotive factory may no longer center on vehicle production, but instead pivot toward the defense industry, where demand has surged in Germany in recent years. Volkswagen indicated that during the transition period, the group will continue to offer its industrial expertise, development and production capabilities, and plant infrastructure to the project. However, specific business scope, implementation timelines, and final employment arrangements will only be announced once partners formalize a comprehensive plan.
Aurelius Capital to Hold Majority Stake, Lower Saxony to Join as Minor Partner
According to the arrangement unveiled on the day, the potential buyer consortium will consist of Aurelius Capital and Lower Saxony, with Aurelius holding a majority stake while Lower Saxony takes a minority position. Lower Saxony itself is already the second-largest shareholder of Volkswagen, so its participation in the plant restructuring carries clear industrial policy and employment stability implications.
State Premier Olaf Lies stated that the plan provides Osnabrueck with a new industrial development pathway. Germany and Europe both need to bolster their security and defense capabilities and increase strategic independence, and the state government aims to convert this demand into local value creation and long-term employment. Lies added that the state's investment approach could draw on the precedent set by its 2024 stake in Meyer Werft shipyard, where Lower Saxony invested approximately €200 million for a 40% share. However, the specific investment amount and equity ratio for the Osnabrueck project have not yet been disclosed.
First Anchor Project Targets Air Defense Systems
A key industrial partner for the plant's future transformation is Israel's Rafael Advanced Defense Systems. Aurelius Capital Managing Director Tomer Jacob noted that the Osnabrueck plant possesses years of experience in manufacturing complex products, precision production processes, an experienced workforce, and a ready-made industrial base—capabilities that cannot be quickly replicated by building a new factory from scratch. The next priority is to integrate new technologies and business operations into the existing manufacturing system.
Rafael CEO Yoav Tourgeman stated that a key focus of the collaboration is to localize as much technology and production capability as possible within Germany, thereby strengthening supply security for both Germany and Europe. Rafael has participated in the development or production of multi-layered air defense and missile systems including the "Iron Dome," "David's Sling," and "Arrow" systems. Nevertheless, official statements currently use the term "potential manufacturing," without confirming which specific models will be produced at Osnabrueck or disclosing production volumes and start dates. Therefore, the more accurate characterization for now is that the plant is intended to become one of Europe's production bases for air defense systems and related components, rather than having confirmed the manufacture of a specific weapon system.
Volkswagen Not Establishing a Direct Joint Venture with Rafael
It is worth noting that the current transaction structure does not involve Volkswagen directly forming a defense joint venture with Rafael. Under the existing framework, Volkswagen intends to first sell the Osnabrueck plant to a new shareholder consortium centered around Aurelius Capital and Lower Saxony, after which the new plant owner would pursue industrial cooperation with Rafael. Multiple media outlets suggest that this arrangement helps reduce governance and shareholder resistance that Volkswagen might face by directly entering the defense business at the group level.
Market attention has particularly focused on the stance of the Qatar Investment Authority. Qatari capital has held a significant stake in Volkswagen for years and carries some influence in the corporate governance structure. There has been prior speculation that directly utilizing Volkswagen assets for an Israeli defense enterprise project could encounter political and governance resistance from certain shareholders. However, Volkswagen did not confirm any direct connection between the transaction structure and Qatari shareholders in its statement. Given discrepancies in reported shareholding and voting rights figures, official corporate filings should ultimately serve as the authoritative source.
Over 1,200 Employees Have Preliminary Prospects
Employment is another central issue in this transaction. Daniela Cavallo, Chairwoman of Volkswagen's Group Works Council, stated that more than 1,200 employees currently see clear prospects for their future within the Osnabrueck plant's new plan. She said this reflects the outcome of local workers' sustained efforts over the past two years. However, with roughly 1,800 employees currently at the plant, this means that long-term arrangements for a portion of the workforce remain unresolved.
Cavallo indicated that the union and works council will continue to push for reliable positions for all core employees. Christiane Benner, First Chair of IG Metall and Deputy Chairman of Volkswagen's Supervisory Board, emphasized that this agreement merely opens up new possibilities and does not release Volkswagen from its responsibility for employees' future arrangements. Some media reports have mentioned "approximately 1,400 positions potentially being retained," but this figure has not been uniformly confirmed by the group. By contrast, the works council's official statement refers to "more than 1,200 people having prospects," so the final employment scale will need to await subsequent agreements.
Volkswagen Group CEO Oliver Blume stated that the group bears responsibility for the Osnabrueck plant, and reaching this framework agreement represents an important step toward opening a new industrial future for the facility.
German Defense Expansion Begins Absorbing Traditional Manufacturing Capabilities
Viewed against a broader industrial backdrop, Osnabrueck's transformation reflects a structural shift underway in Germany's manufacturing sector. With defense spending rising across Europe, German and European defense companies are seeing rapidly growing demand for production capacity, supply chains, and skilled industrial workers. Meanwhile, the traditional automotive industry faces overcapacity, cost pressures, and the electric vehicle transition. Automotive plants with mature facilities, automated equipment, quality management systems, and large pools of technical workers are becoming attractive candidate assets for defense industry expansion.
Osnabrueck had previously engaged in discussions with defense companies such as Rheinmetall and KNDS, but no final plan materialized. The current model—combining a financial investor, state government, and defense enterprise—offers an alternative path for transformation. Overall, the transaction remains at the framework stage, but the direction is already clear: Volkswagen plans to gradually exit vehicle manufacturing at Osnabrueck, with Aurelius Capital and Lower Saxony taking over the plant, and Rafael's air defense project serving as the first industrial pillar to convert a traditional automotive factory into part of Germany's and Europe's defense manufacturing system.
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