Berlin, Sep 08 (V7N)- A Volkswagen factory in Germany is set to be transformed into a defense equipment production center as Europe steps up efforts to strengthen its military capabilities.

Volkswagen announced Monday (September 7) that it has reached an agreement with the government of Lower Saxony and Tel Aviv-based investment firm Aurelius Capital to sell its plant in Osnabrück. Aurelius will become the majority owner of the facility.

Under the proposed plan, Aurelius and the Lower Saxony government will work with Israeli defense company Rafael Advanced Defense Systems, one of the key developers of Israel's Iron Dome air defense system.

Volkswagen said the facility could potentially produce equipment and components for air defense systems for Germany and other European countries. The partnership could also lead to additional industrial cooperation and new projects.

The Osnabrück plant is scheduled to stop producing vehicles in 2027. According to the Volkswagen works council, the new arrangement could help preserve around 1,400 of the plant's 1,800 jobs.

The development could also serve as a model for other Volkswagen facilities facing possible closure.

Volkswagen has warned that four German plants could shut down by the 2030s amid weak demand, rising production costs and growing competition from Chinese electric vehicle manufacturers.

Volkswagen CEO Oliver Blume described the agreement as an important step toward creating a new industrial future for the Osnabrück facility.

The move comes shortly after Volkswagen announced the largest restructuring program in its history. Under its “Future Plan 2030,” the company plans to significantly reduce the number of vehicle models and cut tens of thousands of jobs as it seeks to respond to market pressures.

Growing Defense Production in Europe

The proposed conversion comes as European countries increase defense spending amid heightened geopolitical tensions, particularly following Russia's war in Ukraine.

Germany is among the countries leading the push to strengthen European defense capabilities. The expansion is also creating new opportunities for the country's industrial sector.

Defense giant Rheinmetall has similarly been involved in converting automotive manufacturing facilities for defense production.

The expansion of defense manufacturing is also being viewed as a potential way to support Germany's struggling industrial sector.

Volkswagen decided in 2024 to end vehicle production at the Osnabrück plant, with production expected to cease completely in the summer of 2027.

The new agreement could therefore allow the industrial site to continue operating under a different production model rather than being closed entirely.

Lower Saxony Premier Olaf Lies said the agreement creates significant industrial potential for Osnabrück, pointing to the plant's highly skilled workforce.

He also said Germany and Europe face a fundamentally changed security environment and must strengthen their defense capabilities while becoming more self-reliant in security matters.

Cooperation With Rafael

Cooperation with Rafael Advanced Defense Systems is a key element of the proposed transformation.

Rafael is one of Israel's leading defense technology companies and has played a major role in developing the country's Iron Dome air defense system.

Under the proposed arrangement, the Osnabrück facility could manufacture various systems and components for air defense applications, potentially expanding defense production capacity in Germany and Europe.

However, the transaction has not yet been finalized. Volkswagen said the deal remains subject to regulatory approvals and agreement on the final organizational structure.

END/SMA/AJ