Volkswagen Group is in talks with Israel’s Rafael Advanced Defence Systems to convert its Osnabrück plant from car production to manufacturing components for the Iron Dome air defence system, the Financial Times reported on Tuesday.
The plan would save all 2,300 jobs at the factory in Lower Saxony, which is scheduled to end vehicle production next year under the cost-cutting programme VW agreed with trade unions in late 2024.
The German government is actively supporting the proposal, the FT reported, citing people familiar with the plan.
The Osnabrück plant — a historic factory dating to 1901 that VW acquired from coachbuilder Karmann in 2009 — currently produces the T-Roc Cabriolet.
Under the proposed deal, it would be retooled to manufacture Iron Dome components including the heavy-duty trucks that carry the system’s missiles, launchers, and electricity generators. It would not produce the projectiles themselves. Rafael plans to set up a separate facility in Germany for the system’s missiles.
Production could be running within 12 to 18 months with minimal new investment, one of the people told the FT. “Proven defence tech comes together with German manufacturing,” the person said.
From Cars to Missiles
The tie-up would mark a significant return to weapons production for Volkswagen, which produced military vehicles and V1 flying bombs for Nazi Germany during the Second World War.
VW already makes military trucks through a joint venture between subsidiary MAN and German arms group Rheinmetall.
Rafael chose Germany because of its status as one of the strongest supporters of Israel in Europe and in response to pleas from senior German officials to use excess capacity in the country’s struggling industrial sector, the FT reported.
Financial Context
The Osnabrück talks come amid the worst financial stretch in VW’s recent history.
The company reported 2025 operating profit of €8.9 billion on March 10, down 53% from €19.1 billion the year before.
The operating margin fell to 2.8% from 5.9% in 2024. Net profit declined 44% to €6.9 billion. Revenue was roughly flat at €321.9 billion.
CFO Arno Antlitz attributed the decline to US tariffs — which cost the company an estimated €2.9 billion — currency effects, and a costly strategic shift at Porsche.
The sports car brand’s automotive operating profit collapsed 98% to just €90 million after €4.7 billion in writedowns tied to its abandoned all-electric roadmap.
Porsche’s automotive margin fell to 0.3% from 14.5% the year before.
For 2026, VW guided to revenue growth of 0% to 3% and an operating margin of 4% to 5.5% — both below analyst expectations.
50,000 Job Cuts
Alongside the earnings report, CEO Oliver Blume disclosed that VW now plans to cut 50,000 jobs in Germany by 2030 — a significant escalation from the 35,000 agreed with IG Metall in December 2024.
“In total, around 50,000 jobs are due to be cut by 2030 across the VW Group in Germany,” Blume wrote in a letter to shareholders.
The additional 15,000 cuts reflect reductions at Audi, Porsche, and software subsidiary CARIAD beyond the core VW brand.
The savings programme targets €15 billion in annual cost reductions by 2030, with €1 billion already achieved in 2025.
Competitive Pressure
Once the dominant foreign brand in China, VW has seen its market share erode as domestic manufacturers led by BYD, Geely, and several others have gained ground.
German automotive exports to China have more than halved since 2022, dropping from nearly €30 billion to under €14 billion in 2025, according to the German Economic Institute.
In Europe, Chinese EV brands have gained significant market share despite EU countervailing duties of up to 35.3% on Chinese-made vehicles.
VW‘s own EV lineup has faced a recall of nearly 100,000 vehicles on Tuesday over a battery module defect with fire risk, adding to what Blume described over the weekend as “costly battery issues” in the company’s electric vehicles.
