In March 2025, Rheinmetall’s CEO Armin Papperger stood in front of journalists and said something that would have been unthinkable three years earlier. He was discussing the potential acquisition of Volkswagen’s Osnabrück plant to convert it into a factory for armored vehicles. Not a hypothetical. An active conversation.
The symbolism landed harder than the business logic. Europe’s largest carmaker, struggling with overcapacity and existential questions about its electric future, might hand facilities to an arms manufacturer that has quietly become worth more than Volkswagen itself. Rheinmetall’s market capitalization now exceeds that of the company that once defined German industrial might.
I’ve watched Europe from both inside and outside for years now. Growing up in Eastern Germany, living in unified Germany through the 1990s to 2010s, then operating from Asia and Dubai while maintaining connections across the continent. The shift I’m seeing isn’t just about defense budgets. It’s about what happens when a culture that optimized for peace suddenly accepts that peace requires preparation for its opposite.
The Narrative That Stopped Being True
For a decade, the story about Europe was simple. Strategic dependency on America. Under-investment in defense. The US called it “free-riding on NATO while spending on social programs.” A continent that had forgotten how to fight and lacked the industrial base to relearn.
That story was accurate until approximately 2023. Then it became a memory that hasn’t yet updated in most people’s minds.
The numbers tell a different story now. EU member states spent €218 billion on defense in 2021. By 2024, that figure reached €343 billion. Projections for 2025 show collective spending exceeding €380 billion, pushing the bloc above the 2% GDP threshold for the first time. The Rearm Europe program, announced in March 2025, aims to mobilize up to €800 billion over four years through a combination of relaxed fiscal rules and new loan instruments.
Several individual member states, such as Poland and Lithuania, have pledged to reach or exceed much higher defense spending targets (up to 5-6% of GDP) by or in 2026, which will contribute to the overall EU total.
But budget numbers don’t capture what I find more significant. It’s the industrial conversion happening underneath.
Rheinmetall isn’t just expanding. It’s metastasizing across Europe with a speed that reflects genuine urgency. An expansion at Unterlüß in Germany costing almost €500 million, built in 15 months and planned to become Europe’s largest ammunition plant after its production ramp-up by 2027. A new artillery facility in Lithuania with production-line qualification scheduled for completion by the end of 2026. A propellant powder joint venture in Romania worth over €500 million. An ammunition plant in Latvia. Capacity expansion in Hungary. A partnership with Lockheed Martin for rocket and missile production.
The company’s order backlog reached €55 billion in 2024, climbing to €62.6 billion by the first quarter of 2025. Usually, companies would be looking for incremental growth. This feels more like industrial mobilization.
What Speed Reveals About Culture
The Poland story clarifies something important about how Europe is actually behaving, as opposed to how it’s described.
When Poland needed to replace tanks donated to Ukraine, it didn’t wait for European manufacturers to scale up production. It signed a framework agreement with South Korea for up to 1,000 K2 Black Panther tanks, along with K9 self-propelled howitzers and FA-50 fighter jets. The initial 2022 deal was worth roughly $14.5 billion. A follow-up agreement in August 2025 added another 180 tanks for $6.5 billion.
By the end of 2025, Poland had received the full first order of 180 tanks from Hyundai Rotem. The delivery rate tripled compared to initial projections. South Korean efficiency exposed something uncomfortable: European defense manufacturers, with all their sophistication, couldn’t match Asian production speed when urgency demanded it.
This tells you something about European industrial culture that no policy document will admit. When Poland needed weapons fast, it went to Seoul, not Berlin or Paris. The fact that Poland will eventually produce K2PL variants domestically, with 61 tanks manufactured at the Bumar-Łabędy plant in Gliwice, suggests the Poles understood something else: you can buy speed now and build capacity later.
The Poles are ready. Last year, I met a former Polish army soldier who still serves in the reserves. He described their border with Russia and its ally Belarus the same way former Bayern and Germany defensive midfielder Jens Jeremies once warned Patrick Vieira after a hard foul: “See the halfway line? If you step over it, it’s ouch. Over here, ouch. Over there, good.”
Operating between Germany and faster-moving markets in Asia has taught me that this speed differential isn’t just about Europe’s capability. It’s about the change in permission, maybe even permission structures. German industrial culture optimizes for certainty, compliance, and consensus. Those are features in peacetime. They become bugs when the timeline isn’t measured in decades anymore, but months.
The most telling detail from the Poland-South Korea relationship isn’t the hardware. It’s that Poland is now projected to have more tanks than the UK, Germany, France, and Italy combined. A country that spent decades as a security consumer has become a security producer in under four years.
The Dependency Question Nobody Wants to Answer
Portugal’s doubts in March 2025 about buying the F-35 reveal a different kind of shift.
Defense Minister Nuno Melo questioned the purchase because of “the recent position of the United States, in the context of NATO and in the international geostrategic plan.” The predictability of allies, he said, “is a greater asset to take into account.” On 14 March 2025, his ministry clarified that he had not ruled out the F-35; European alternatives were still under preliminary consideration.
This is diplomatic language for something simpler: Portugal no longer trusts that American weapons come without strings. The concern isn’t abstract. F-35 operators depend on American-controlled maintenance, logistics, and software networks. If Washington decides to withhold access, the aircraft becomes expensive furniture.
The Portuguese are now considering European alternatives. The Rafale, the Eurofighter Typhoon, the Gripen. None offer the F-35’s fifth-generation capabilities. But choosing a European aircraft does not eliminate supplier dependencies. The Gripen E, for example, uses a US-made General Electric engine.
I’ve had versions of this conversation with founders and operators across industries. The question is always the same: at what point does capability matter less than sovereignty? The answer keeps shifting. What was acceptable dependency five years ago now looks like strategic exposure.
Portugal isn’t alone in reconsidering. The broader European sentiment, expressed more quietly in Berlin and Paris, is that American weapons systems create lock-in that becomes uncomfortable when American foreign policy becomes erratic. The Trump administration’s stance toward NATO, the threats to withdraw security guarantees, the transactional approach to alliances, all of this has changed the calculus.
Germany still has 35 F-35s on order. But the conversations I hear suggest that future procurement will tilt toward European and non-American options wherever the capability gap permits.
What the Factories Tell Us
The most revealing indicator isn’t policy statements or budget announcements. It’s what’s happening on factory floors.
Rheinmetall is exploring “hybrid plants” at its Berlin and Neuss facilities, converting automotive production to defense manufacturing while maintaining some civilian capacity. KNDS, the German-French tank consortium, acquired an Alstom train carriage factory in Eastern Germany and is converting it to produce assemblies for Leopard 2 battle tanks and Puma infantry fighting vehicles.
The Federal Association of the German Security and Defence Industry has formally proposed repurposing closed automotive facilities for defense production. The idea isn’t theoretical. The infrastructure exists. The workers can be retrained. The only question is whether political will and procurement contracts follow.
I remember when German industrial policy meant protecting automotive jobs at any cost. The shift to treating defense manufacturing as a legitimate, even desirable, use of industrial capacity represents a cultural change that would have seemed impossible before 2022.
The symbolic weight of Volkswagen plants potentially producing military vehicles shouldn’t be underestimated. Volkswagen was founded as a Nazi-era state enterprise. Its postwar transformation into a symbol of peaceful German prosperity was deliberate. For German facilities to return to military production, even indirectly, crosses a psychological threshold that matters.
Papperger, Rheinmetall’s CEO, who reportedly travels with security after a Russian assassination plot was publicly reported in July 2024, has been direct about what he sees. “An era of rearmament has begun in Europe,” he told journalists. “And for Rheinmetall it brings growth prospects in the coming years that we have never had before.”
The Capital Follows the Conviction
European defense stocks have risen nearly 200% since January 2025 in some cases. Rheinmetall’s stock has increased more than twelve-fold since Russia’s full-scale invasion of Ukraine in February 2022. SAAB, Leonardo, BAE Systems, Thales, all have seen dramatic appreciation.
More significant than public equity performance is where private capital is moving. Defense-focused private equity and venture capital funds are launching across Europe. Tikehau Capital, BOKA, and Marondo are among the firms raising dedicated defense vehicles. European defense M&A deal value reached $2.3 billion in the first half of 2025, a 35% increase year-over-year.
This matters because it signals something beyond government policy. Private investors are making multi-year bets that European defense spending is structural, not cyclical. They’re pricing in a decade of elevated procurement, not a temporary spike that reverts once geopolitical tensions ease.
The capital formation around defense represents a kind of industrial memory. Europe is building financial infrastructure to support sustained military production in ways that didn’t exist three years ago. Banks that avoided defense lending on ESG grounds are reconsidering their screens. The European Investment Bank has broadened its mandate to include dual-use companies. The conversation has shifted from whether defense is acceptable to how quickly capacity can scale.
For operators looking at adjacent opportunities, the defense ecosystem is creating demand across supply chains. Components, materials, electronics, software, logistics. ReArm Europe could mobilize up to €800 billion in additional defence financing through fiscal flexibility and loans. Procurement financed through that framework could flow through prime contractors into networks of suppliers that extend across the continent.
What Europe Is Actually Building
The pattern I see isn’t Europe becoming a military superpower. It’s Europe building resilience against a world where American security guarantees can no longer be assumed.
This requires distinguishing between what gets announced and what gets built. Announcements are political. Factory construction is operational. The announcements have been dramatic. But the factories are going up.
Rheinmetall’s Lithuania facility represents the largest defense investment in that country’s history. The Romanian propellant powder joint venture addresses a genuine bottleneck, Europe’s limited capacity to produce the energetic materials that make ammunition function. The German ammunition plant expansion aims for 350,000 rounds annually, addressing the shell shortage that limited Ukraine’s ability to sustain artillery operations.
These aren’t abstract commitments. They’re physical infrastructure with multi-year production timelines and long-term contracts. The difference between political rhetoric and industrial reality is concrete poured and equipment installed.
The European defense industrial base is being rebuilt around a specific theory of the case: that Europe must be able to sustain military operations without depending on American resupply or American permission. This doesn’t mean breaking the alliance. It means reducing the vulnerability that comes from having a single point of failure.
The Speed Question
What I keep returning to is speed. How quickly can this industrial mobilization translate into actual capability?
Poland showed that if you’re willing to source from whoever/wherever delivers fastest, you can re-equip rapidly. The South Korean model works because Korean defense firms have manufacturing capacity, are hungry for exports, and offer technology transfer that European primes historically resisted. And with an aggressive North Korea across the border, they’ve known for decades what the Europeans are starting to feel more and more.
European manufacturers are scaling, but from a lower base. The conversion of automotive facilities helps, but tank factories require specific infrastructure. Heavy-duty cranes. High load-bearing floors. Specialized tooling. You can’t just wheel a Tiguan production line out and wheel a Lynx infantry fighting vehicle line in.
The honest assessment is that European defense autonomy is directionally real but timeline-dependent. In a 2-to-5-year horizon, significant American dependency remains, particularly for systems like fifth-generation aircraft, intelligence and surveillance capabilities, and satellite communications. In a 5-to-10-year horizon, meaningful independence becomes achievable if current mobilization continues. Beyond 10 years, full strategic autonomy is possible.
For operators positioning in and around European markets, the relevant question isn’t whether Europe will build defense capacity. It’s whether the timeline matches your investment horizon.
What Changes When a Culture Changes
Operating between cultures has taught me that the hardest changes to see are the ones that happen inside people’s heads before they show up in policy or economics.
European defense mobilization isn’t primarily about budgets or factories. It’s about a generation of policymakers and industrialists accepting that the assumptions they built careers on no longer hold.
The assumption that America would always provide the security umbrella. The assumption that military spending was a distraction from more civilized priorities. The assumption that economic interdependence made large-scale conflict impossible. The assumption that Germany’s historical guilt meant it could never again be a military power.
Each of these assumptions has cracked in the past four years. What’s emerging isn’t a return to 20th century European militarism. It’s something more pragmatic. An acceptance that sovereignty requires capacity, and capacity requires industry.
The discussed possibility of a Volkswagen-to-Rheinmetall transition would be the physical manifestation of a mental model change. A continent that believed it had transcended military competition is accepting that competition never ended. It just paused.
For those of us who move between regions, watching Germany rediscover that it has industrial capacity that can serve defense purposes feels significant in ways that are hard to articulate. The country that I lived in during the 2000s or early 2010s would not have had this conversation. The country emerging in 2025 and 2026 is having it with surprising directness.
The pattern I see is a continent that optimized for the wrong scenario suddenly optimizing for a different one. Whether the new optimization proves correct, whether Europe actually faces the threats it’s now preparing for, remains uncertain.
What seems clear is that the “weak Europe” narrative has stopped being predictive. The infrastructure being built, the capital being deployed, the cultural assumptions being revised, all point in a different direction.
The factories are going up. That tells you more than any speech.