Israeli Defense Firms Embed in Europe’s Re-industrialisation Amid Re-armament

Rafael and Volkswagen are negotiating a joint venture that would convert Volkswagen’s Osnabrück plant from cabriolet production to trucks, launchers and platform components for air-defence systems such as Iron Dome and possibly Iron Beam. The partnership follows reports in *WirtschaftsWoche* and *Handelsblatt* that the two firms are “close to establishing” the venture. Parallel efforts include Elbit Systems’ plan to build its EuroPULS rocket system in Germany with KNDS Deutschland and Diehl, a programme the German press *Hartpunkt* links to contracts worth roughly €6 billion.

Israel’s defense groups are becoming Europe’s industrial partners

Europe’s re-armament accelerated after Russia’s invasion of Ukraine. NATO members now aim for defence spending of 5 % of GDP by 2035, and Germany has pledged “hundreds of billions of euros” for military expansion and industrial renewal. Traditional European defence champions—Rheinmetall, Leonardo, Saab and BAE Systems—face years-long order backlogs, creating space for external partners with combat-tested systems.

Israel’s defense groups are becoming Europe’s industrial partners

• Israeli firms: Rafael, Elbit Systems, Israel Aerospace Industries (IAI)

Israel sends record defense delegation to Finland to strengthen security ties

• European partners: Volkswagen, KNDS Deutschland, Diehl, existing incumbents (Rheinmetall, Leonardo, Saab, BAE)

Israel’s defense groups are becoming Europe’s industrial partners

• Investors: Horizon Capital Markets, Barak Finance Group, Tel Aviv Defence Index participants

Israel’s defense groups are becoming Europe’s industrial partners

Volkswagen’s Osnabrück facility, slated for possible closure by 2027, employs roughly 2,300 workers; the automotive sector accounts for about 5 % of Germany’s economic output. The EuroPULS programme could generate €6 billion in contracts. Israeli defence equities surged over the past two years, with the Tel Aviv Defence Index falling more than 40 % from its March peak as markets priced in potential geopolitical stabilization. Some listed Israeli defence firms traded at earnings multiples “well above global defence peers, with some smaller companies reaching triple-digit valuations.”

Israel’s defense groups are becoming Europe’s industrial partners

Local production mitigates logistical vulnerabilities exposed by wartime supply disruptions and assures continuity of deliveries during regional conflict. By embedding chassis, launch systems and support vehicles in Europe while retaining core interceptor technology in Israel or the United States, Israeli firms secure long-term maintenance, upgrade and supply-chain ties without surrendering critical intellectual property. The model offers Europe rapid access to combat-proven air-defence solutions, complementing its slower-moving domestic programmes.

Israel’s defense groups are becoming Europe’s industrial partners

German political opposition could jeopardise parts of the Volkswagen arrangement. Labour unions, citing Volkswagen’s historical role as a civilian manufacturer and its Nazi-era legacy, retain significant influence over strategic decisions. Critics argue that reliance on foreign technology may conflict with Europe’s long-term goal of strategic autonomy, warning that partnerships could be “derailed” by domestic pressure.

Israel’s defense groups are becoming Europe’s industrial partners

Public sources disclose the overall structure of the partnerships but omit precise intellectual-property safeguards and the final terms of the joint venture. Investor commentary highlights valuation risks, yet the durability of the underlying defence demand remains uncertain.

Israel’s defense groups are becoming Europe’s industrial partners

• “As Itai Lipkovich, chief executive of Horizon Capital Markets, notes, the sector’s largest listed companies were trading at earnings multiples well above global defense peers, with some smaller companies reaching triple-digit valuations.” — *Itai Lipkovich*, Chief Executive, Horizon Capital Markets

Israel’s defense groups are becoming Europe’s industrial partners

• “is not necessarily a change in the fundamental story of the industry itself” — *Yossi Barak*, Chairman, Barak Finance Group

Israel’s defense groups are becoming Europe’s industrial partners

If the Rafael-Volkswagen joint venture proceeds, it could serve as a template for further Israeli-European collaborations across missile, UAV and cyber-defence domains. Ongoing monitoring of German political sentiment and EU procurement policies will shape the pace and scope of Israel’s integration into Europe’s emerging defence industrial base.

Israel’s defense groups are becoming Europe’s industrial partners