Automotive and defense industry: a profitable merger?

Russia’s invasion of Ukraine in February 2022 completely reshuffled the cards of European geopolitics. The era of peace that we have known for more than 80 years is crumbling, accentuated by other conflicts, notably that in the Middle East.

 

Furthermore, the arrival of Donald Trump at the White House and his provocations against European interests have given rise to a desire to return to sovereignty in matters of defense. An atmosphere which raises awareness for the countries of the Old Continent: investments in armaments must be increased.

 

Thus, for ten years, France has doubled the army budget to reach 413 billion euros in 2026 for the current military programming law. The same goes for Germany, which will be able to spend a total of 524.5 billion euros, including 108.2 billion euros for defense, a record since the end of the Cold War.

 

In this context of tension and reinvestment in armaments, automobile manufacturers are called upon to participate in the war effort. The latter are therefore increasing the number of announcements, starting with the Renault group which announced in February 2026 that it could develop in less than a year a production of 600 drones on its Le Mans site (72), in partnership with the company Turgis Gaillard. A contract called Chorus which aims to manufacture drones that explode on impact. The role of the French manufacturer consists above all of manufacturing the structure, without the military device that composes it.

 

 

Across the Rhine, German manufacturers are not left out. During a conference in Frankfurt on March 27, 2026, Oliver Blume, President of Volkswagen, spoke “a significant delay to catch up” in matters of defense. Thus, the Wolfsburg group is in talks with companies from “missile defense” to reconvert its Osnabrück factory.

 

The site located in Lower Saxony is destined to no longer produce vehicles by 2027 as part of a group savings plan. The idea is not to produce “weapon systems“but equipment”military transport“. Volkswagen would also be, according to the Financial Timesin negotiations with Rafael Advanced Defense Systems, the Israeli company which notably designed the Iron Dome. However, nothing is definitive yet.

 

For its part, the Porsche holding company announced an investment of 100 million euros in a fund dedicated to defense by banking on the growth potential of the sector, indicating that it wanted to contribute “to the technological sovereignty of Europe“. Across the Atlantic, the Ministry of Defense has started discussions with American automobile giants Ford and General Motors for the manufacture of drones and munitions. And the list is not exhaustive.

 

Des intérêts réciproques 

 

The rapprochement between the defense and automobile sectors, increasingly intimate, is not trivial. On the one hand, since the end of the Cold War, the production of military equipment has collapsed because Europeans have drastically reduced their investments in defense. Countries indeed favor lower volumes, but with a high level of precision and efficiency. For example, for the production of a missile from the MBDA company, it takes nearly 18 months and a production of 50 units per year.

 

“The defense industry works on long programs – often 10, 20 or even 30 years – like the Scorpion program with extremely high requirements. And above all, the volumes have nothing to do with it: we are talking about a few hundred or thousands of units for a military vehicle, compared to hundreds of thousands in the automobile“, explains the Group of French Land and Air Land Defense and Security Industries (Gicat).

 

Thus, the arms industry is more akin to the luxury or craft industry. “This had the effect of pushing manufacturers in the sector to reduce their industrial capacities. They closed factories and cut jobs while failing to replace retiring employees. Today, manufacturers are therefore struggling to keep up with the pace demanded of them by their customers: the States“, underlines Arnaud Aymé, general director of SIA Partners France and transport consultant.

 

On the other hand, consumption of new cars has fallen and manufacturers are unable to regain their pre-Covid level of registrations, particularly in Europe. In France, for example, road launches are stagnating at around 1.6 million vehicles per year, compared to 2.2 million in 2019, a drop of almost 25%.

 

A drop in sales which tends to leave part of European factories idle. “One of the solutions to this underutilization of sites would be to close these factories, as Volkswagen is doing, which has not happened for 90 years. But manufacturers are not immune to a market recovery. Some, like Stellantis, are managing to compact their factories or are moving towards activities around the circular economy. But on this point, there are questions about the profitability and intensity of the labor employed“, specifies Arnaud Aymé. In recent news, certain manufacturers have also moved closer to their Chinese competitors. For example, BYD is currently in talks to take over factories in Europe.

 

The Ukrainian case pushes defense manufacturers towards volume

 

The war in Ukraine helped illustrate the technological evolution of a conflict between conventional armies. Drones, mainly aerial but also terrestrial, have taken a central place in the conflict. This massive need for small devices has led to a paradigm shift: the need to develop “weapons” in large quantities in a short period of time. We are no longer in the “luxury” industry mentioned above, but in that of new technologies.Â

 

“Engineers from the General Directorate of the Armed Forces (DGA) explained to me that the French requirements are those of an army “in peacetime”. This implies that the tools must be used for 40 years with very low maintenance costsspecifies Xavier Tytelman, aeronautical and defense consultant who regularly travels to Ukraine. As for the Ukrainians, they tell me that a ground robot has a 15% chance of being destroyed on each mission. The average survival time of a drone is six to seven missions. The question of using resistant steels is therefore no longer relevant. They are looking for ultra-simple maintenance for a drone that will be broken in 95% of cases“, he adds.

 

Currently, the arms industry uses rare metals, complex processes that can take days. Assembly is often done by hand…”Today, in view of the evolution of conflicts, we must rebuild factories from scratch, with mass requirements. But the other option is to use factories that are underemployed. An area where we produce large quantities with high quality is obviously the automotive sector. It is therefore a boon for the defense sector that certain factories are under-exploited because they can quickly transform!“, souligne Xavier Tytelman.

 

Beyond partnerships between companies, we also see real synergies of skills between the two worlds. “The automotive sector provides very efficient methods in terms of production, cost management and deadlines, as well as key technologies such as sensors, software or on-board electronics. This can be particularly useful for certain equipment such as vehicles, drones or certain subsystems“, says a Gicat spokesperson.

 

At the same time, defense companies have lost certain industrial skills which are within reach in the automotive sector, particularly in metallurgy trades. “The land defense industry is recruiting strongly today, with around 10% of positions to be filledadds Gicat. It is attracting more and more profiles from other industrial sectors, including the automobile industry. Concretely, it needs several thousand engineers, particularly in cybersecurity, robotics or embedded systems (drones) ; specialized technicians, for example in radar or electronic warfare and many qualified workers: welders, machinists, mechanics, boilermakers…“

 

A diversification strategy for the automobile industry?

 

To compensate for the weaknesses linked to volumes in particular, the automotive sector seems to tick all the boxes. It perfectly meets the concept of Potential industrial defense tool (POID). “All companies that produce machine tools, automobiles and industrial chains are potential suppliers of components, sub-components or sets of finished products in the field of defense. In Ukraine, a company that manufactured a garden detection sensor now produces high-proximity detectors for making explosives. All companies have dual-use potential, which they themselves sometimes ignore“, says Xavier Tytelman.

 

In England, for example, people are responsible for listing industrial tools that could be dedicated to the defense industry. Thus, an industrial 3D printer from an aeronautical producer operating at only 60% could dedicate the remaining 40% to defense, assures the consultant.

 

In this sense, manufacturers are not the only ones to attract defense. Indeed, equipment manufacturers are also on the front line. The automobile having left its “Thirty Glorious Years“, reflections are underway so as not to put all the eggs in one basket. “The thirty years of growth are over. Today we are working on the hypothesis that the world market will no longer increase. We must look for other sources of growth. We are not made to make expensive missiles, but to produce elements in high volumes (1,000 per day, 2,000 per day), explains Christophe Périllat, general director of Valeo, one of the main equipment manufacturers in the world. We know how to do extraordinary things and the arms industry probably needs this know-how, in particular to produce drones. So we signed up to the drone pact and we are talking to all drone operators. Did you know that all drone engines in the world are Chinese? Doesn’t this raise questions about sovereignty?“, he adds.

 

Defense interest in the automotive sector is significant. However, is it reciprocal? As Gicat points out: defense is not an Eldorado for civilian companies. “The margins are relatively contained, around 9% on average, and the constraints are strong: technical requirements, certifications, sovereignty, sometimes long decision times.”details the Gicat spokesperson.

 

For the group, the cooperations that work best are those that remain within a simple logic: everyone brings their know-how. The automobile industry contributes to certain industrial and technological building blocks, and defense maintains control of systems, integration and operational requirements. It is therefore not a switch from one model to another, but a “progressive hybridization”according to the Gicat spokesperson, with more targeted cooperation, more skills bridges, in a context of growing industrial power in Europe.

 

“This rapprochement between the two sectors is not a long-term strategy, but more of a short-term tactic. This is an opportunity to please the public, but also to cover costs. When we have too much industrial capacity in relation to what we sell and produce, defense is an alternative to not closing sites while waiting for the day when the Commission and the European Parliament come to their senses to promote industry on the Old Continent. Calling on the automotive sector must not replace the rise of the defense industry“, says Arnaud Aymé.

 

Allowing defense manufacturers to operate factories dedicated to automobiles is an opportunity to keep sites in operation the day the market recovers.