Volkswagen AG has signed an agreement with an Israeli investment group, marking a pivot for the struggling German automaker's Osnabrueck plant as it transitions from vehicle assembly to producing components for Israel's Iron Dome air defense system. Under the plan unveiled on Monday, Aurelius Capital will join forces with the state of Lower Saxony, Volkswagen's second-largest shareholder, to acquire a majority stake in the 125-year-old facility. The deal follows months of negotiations aimed at preserving the Osnabrueck site, which employs 1,800 workers and was slated to end car production next year.
Volkswagen said Aurelius Capital and Lower Saxony will transform the plant into a defense manufacturing hub, with the first flagship project tied to Rafael Advanced Defense Systems, the developer of the Iron Dome. The arrangement includes plans for potential production of air defense systems and associated components for Germany and Europe. Media reports in March had already indicated Volkswagen was in talks with the Israeli state-owned defense group, paving the way for parts production on behalf of Rafael.
This pivot by Volkswagen represents the most high-profile case yet of the sector turning to the booming defense industry for collaboration. Europe's largest carmaker is under pressure to streamline operations and cut costs. Last week, Volkswagen's supervisory board approved a sweeping reform package that eliminates 50,000 jobs and permits four plants in Germany to halt new vehicle production. Under a cost-saving plan finalized in late 2024, the Osnabrueck factory was to cease vehicle manufacturing next year, prompting Volkswagen to search for alternative uses for the site.
Volkswagen Chief Executive Oliver Blume said in a statement on Monday: "We have taken a key step, opening up a completely new industrial perspective for this site." German authorities do not expect the defense industry to offset the loss of tens of thousands of automotive jobs, but they still encourage automakers to pursue partnerships with defense firms where feasible. Rafael is the latest in a series of international defense companies seeking to use Germany as a gateway to the European market.
Given the Russia-Ukraine conflict and diminished U.S. security support for Europe, Germany plans to allocate roughly 700 billion euros to defense spending over the next five years. Rafael is also seeking a procurement agreement with the German government for the Iron Dome system, which has a range of 70 kilometers and is primarily used by Israel to intercept rockets from the Gaza Strip. Rafael President and Chief Executive Yoav Tugman stated the agreement opens the door to "long-term industrial cooperation with German partners, with the goal of achieving full local production of the technology in Germany, thereby safeguarding German and European security."
Daniela Cavallo, chair of the Volkswagen plant's works council, said the deal secures jobs for more than 1,200 employees at the site. "We will continue advancing the plan to ultimately ensure that all core staff can secure employment at the plant," Cavallo added.
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