Volkswagen signs deal to turn factory into Israeli defence hub

Israel’s Aurelius Capital has agreed to purchase a Volkswagen factory in Osnabrück, Germany, with the intention of transforming the site into a defense manufacturing hub. This marks the first time a European automaker is restructuring its plants to focus on military equipment, as Volkswagen battles competition from lower-cost Chinese rivals.

The deal promises to retain around 1,400 of the 1,800 jobs at the 125-year-old plant, providing a lifeline for the aging facility. Volkswagen's initial "anchor project" for the Osnabrück site will involve collaboration with Israel's Rafael Advanced Defence Systems, a key partner in the country's Iron Dome, Arrow, and David's Sling air and missile defense systems.

The company suggests that this cooperation could pave the way for further defense manufacturing deals within Europe. Volkswagen CEO Oliver Blume indicated that the carmaker will seek investors, industrial partners, and alternative uses for factories where vehicle production is no longer economically viable. The agreement to sell the Osnabrück factory to Aurelius Capital as the majority owner, alongside the Lower Saxony government, stems from the need to avoid resistance from Qatar Investment Authority, which holds about 17% of Volkswagen's voting rights and has two supervisory board seats.

The deal comes amid a global shortage of air-defense systems, potentially driven by the US-Israeli war on Iran and Russia's invasion of Ukraine. Lower Saxony's Premier, Olaf Lies, likened the state's involvement in the Volkswagen deal to its previous investment in the Meyer Werft shipyard. Lower Saxony spent €200 million for a 40% stake in the shipyard.

Rafael CEO Yoav Tourgeman emphasized that the company aims for a long-term industrial relationship focused on producing technology in Germany to protect Germany and Europe.