Volkswagen said it is selling its factory in the German city of Osnabrueck to Israel's Aurelius Capital and the state of Lower Saxony, which aim to repurpose the site to make defense equipment.
The deal offers a new industrial future for a plant where Volkswagen had decided to end car production, and comes less than a week after the carmaker said it would look at alternative uses for four other factories in its home country as part of a major overhaul plan.
As arms makers bulk up in Europe in response to rising military spending, industry executives and economists have long said the continent's underused car factories could find a new start producing tanks, guns and other military gear.
Under the deal with Volkswagen, investment company Aurelius would take over the plant as majority owner, together with the state of Lower Saxony, and turn it into a security and defense facility, Volkswagen said Monday. Financial details weren't disclosed.
The site's new owners plan an anchor project with Israeli company Rafael Advanced Defense Systems that would involve potentially producing air-defense systems and components for Germany and Europe, Volkswagen said.
Completion of the deal remains subject to final agreements, as well as approvals by relevant corporate bodies and regulatory authorities, the carmaker said.
The agreement aims to secure the site's future and the majority of jobs for the long term, Volkswagen said.
Daniela Cavallo, chairwoman of Volkswagen's labor-representative body, said the pact would save more than 1,200 jobs.
Volkswagen in 2024 laid out plans to cease making vehicles at its plants in the German cities of Dresden and Osnabrueck in 2027, as part of a cost-saving push to contend with a tough economic environment, high domestic costs, and shifts in demand for electric vehicles. As competition from lower-cost Chinese EV makers intensified, it proposed to deepen its cost cuts.
The carmaker last week said its supervisory board had signed off on plans to double job cuts to 100,000, halve its model portfolio and assess alternative uses for four of its core German assembly plants--in Emden, Zwickau, Hanover and Neckarsulm.
Conversions of former auto factories are gaining traction in Europe, while companies in adjacent sectors are increasingly pivoting into defense.
Arms maker Rheinmetall last year said it would turn two auto-parts plants into military weapon-production sites. Truck maker Daimler Truck and auto-parts supplier Schaeffler have set out targets to boost their defense revenue, while Deutz--which supplies engines for tractors and other vehicles--is pushing into the defense market.
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