Germany is reinventing itself as a weapons factory

As its export model breaks down, Germany is pivoting from cars to cannons—and trying to turn industrial decline into a defense boom.

- Bojan Pancevski

As autos and heavy manufacturing falter, Berlin is steering factories, workers and capital toward rearming Europe.

(AFP)

After decades as Europe’s manufacturing engine, the country is mired in its longest stretch of stagnation since World War II as it wrestles with competition from China and a slump in demand. The response is as stark as the crisis: recasting its industrial base as the West's arsenal.

A mesh of data points reveal how the old model has cracked. Each month, roughly 15,000 jobs are disappearing from German manufacturing, including the once-dominant auto sector, according to government figures, Mercedes-Benz posted a 49% drop in profit for 2025, while Volkswagen, the world’s second-largest carmaker, said its profit dropped 44% in the same period and announced plans to cut 50,000 jobs in Germany by 2030.

Even flagship brands such as Porsche are reporting staggering hits, with operating profit sliding 98% compared with 2024, which was already one of its worst years in modern history. Much of the heavy lifting in the German economy is now being done by the services sector, which comprises around 70% of economic output, though manufacturing still accounts for 20%—and up to a fifth of all services are tied to industrial firms such as carmakers.

Now, as American security guarantees look less certain and Europe races to rearm, Berlin is positioning itself to become the backbone of the continent's defense industry.

“The car industry is going through a crunch because of the global downturn, geopolitical risks and rising competition from China,” said Klaus Rosenfeld, chief executive of Schaeffler, one of the world’s leading auto suppliers making everything from powertrains to bearings—and now an emerging player in the defense sector.