Rheinmetall and Leonardo are making significant moves to strengthen their positions in the defense sector by eyeing the potential acquisition of Iveco's defense division, a strategic pivot highlighted by recent developments in Germany's military funding landscape.
On March 21, 2025, the interest of Rheinmetall, a leading German defense contractor, and Italian aerospace company Leonardo in acquiring the defense arm of Iveco was reported, following an announcement from Iveco in February suggesting a possible separation from its defense business. According to Bloomberg, several prospective buyers have faltered at the negotiation table due to lofty valuation expectations, complicating the sales process further.
The increased enthusiasm for defense stocks in Germany has recently surged, largely driven by Germany's planned substantial investments in its military sector. This follows a broader trend marked by rising defense expenditures across Europe amidst ongoing geopolitical tensions.
The context surrounding Rheinmetall and Leonardo's joint venture, announced in October 2024, cannot be overlooked. Both companies hold equal stakes in a venture headquartered in Rome, which focuses on the production of armored personnel carriers, battle tanks, and specialized vehicles for military applications such as bridge-laying.
This collaborative effort represents the growing recognition among defense firms of the need to capitalize on the projected uptick in military contracting, especially in a climate where national security concerns are paramount.
Additionally, the recent passage of Germany's historic debt package by the Bundestag is poised to further amplify investment in the defense industry, with the Bundesrat's forthcoming vote anticipated to solidify these financial changes. Observers of the German financial landscape are already indicating that various companies, including Rheinmetall, Steyr Motors, and Deutz AG are positioned to benefit from the new financial commitments.
It’s been a remarkable turnaround for Rheinmetall, which has reported extraordinary growth rates in recent years, propelled by increasing demand for military vehicles and weapons systems. The company’s CEO, Armin Papperger, noted, "An era of armaments has begun," emphasizing the unprecedented growth opportunities that lie ahead for the defense industry.
Supported by a historic rise in funding for military investments, Rheinmetall's sales skyrocketed 36 percent in 2024, totaling approximately 9.7 billion euros, while its order backlog reached a record-breaking 55 billion euros. This strong financial performance reflects not only internal demand within Germany but also a surge in orders from NATO allies influenced by heightened security concerns related to the ongoing conflict in Ukraine.
With Rheinmetall now poised to potentially expand its production capabilities, there is speculation regarding its interest in acquiring a VW plant in Osnabrück to manufacture armored vehicles. This plant has been designated for closure due to declining demand in the automotive sector. Papperger has stated that while this opportunity is promising, a takeover would necessitate considerable upfront investment and contingent governmental support to ensure there are sufficient military vehicle orders to justify such a conversion.
The anticipated shift in production from civilian to military applications aligns with broader changes within Germany, a country traditionally known for its automotive industry, as it adjusts to current geopolitical realities. With plans to boost its workforce by about 8,000 positions over the next two years, Rheinmetall is making strategic moves to not only enhance its output but also capitalize on the emerging defense contracts resulting from geopolitical tensions.
As the political and economic landscapes in Europe evolve, Rheinmetall's plans extend beyond mere expansions; they include the retrofitting of two existing plants in Neuss and Berlin, which currently serve the civilian market, for military applications. This pivot underlines the urgent necessity among defense-sector firms to adapt their operations in response to the pronounced demand for military innovations.
Despite Rheinmetall's growth trajectory, the German defense industry remains relatively small, employing approximately 60,000 individuals, or just over one percent of the manufacturing sector. This reality has not diminished the potential for rapid growth, particularly in light of the substantial investments earmarked for defense purposes. It remains to be seen how market sentiment and governmental policies will shape the future of defense firms amid increasing investments and strategic partnerships.
Ultimately, as the defense industry braces for an influx of military spending backed by governmental commitments and international pressures, Rheinmetall and Leonardo's strategic interests in expanding their defense capabilities signal a transformative moment in the sector. The outcome of these ambitious plans, particularly through the potential acquisition of the Iveco division and the conversion of civilian plants for military use, will undoubtedly be monitored closely by industry watchers and investors alike.
