Volkswagen has reached a preliminary agreement to transfer its Osnabrueck factory in Germany to new ownership, marking a significant shift as Europe’s largest automaker restructures to address intensifying competition and shrinking demand. The move aims to repurpose the site for defence production, potentially setting a model for other Volkswagen plants facing an uncertain future.
Under the agreement, Israel-based investment firm Aurelius Capital and the German state of Lower Saxony, Volkswagen’s second-largest shareholder, will jointly take over the facility. Labour representatives indicated the deal could safeguard around 1,400 of the site’s 1,800 jobs. The factory is scheduled to cease vehicle production by 2027.
Volkswagen announced the factory's new "anchor project" would involve collaboration with Israel’s Rafael Advanced Defence Systems, known for its work on the Iron Dome, Arrow, and David’s Sling missile defence systems. The partnership envisions manufacturing components and systems for air defence to serve Germany and other European countries. This confirms earlier reports that identified Rafael as a key partner in the transition.
Beyond defence systems, additional initiatives under consideration could include converting Volkswagen Amarok pick-up trucks for military use. A source familiar with the plans also noted that Polish defence company WB Group might undertake similar adaptations for vehicles produced by MAN, a brand owned by Volkswagen’s Traton commercial vehicle division. Both Lower Saxony and WB Group declined to comment on these developments.
The move comes as Volkswagen undertakes its most extensive restructuring yet, prompted by ongoing challenges such as stagnant demand in Europe, high operational costs, and growing pressure from lower-cost Chinese automakers. The company has warned that up to four of its German plants could face closure or repurposing without alternative uses. Rising European defence expenditures appear to offer an opportunity to utilize excess capacity in underused automotive manufacturing facilities.
Aurelius Capital will hold the majority stake in the Osnabrueck plant alongside Lower Saxony. Olaf Lies, Lower Saxony’s premier, compared the state’s involvement to its earlier investment in the Meyer Werft shipyard in 2024, where it acquired a 40% stake for €200 million (approximately US$232.6 million). Tomer Jacob of Aurelius Capital emphasized the value Osnabrueck brings, highlighting its long-standing experience with complex products, precise manufacturing processes, and skilled teams.
Similar initiatives are gaining traction in the automotive sector, with companies like Rheinmetall and Continental exploring defence production to revive underutilized industrial capacity. The Osnabrueck deal could serve as a blueprint for repurposing automotive plants amid the sector’s transformation and shifting market dynamics.