Volkswagen to Convert Osnabrück Factory into Defense Hub with Rafael Partnership

German auto giant Volkswagen has agreed on plans to sell one of its factories and convert the site into a military production hub, with Israeli arms manufacturer Rafael Advanced Defense Systems set to become its first major industrial partner.

Volkswagen announced on Monday that it had reached an agreement with the state of Lower Saxony and Israeli investment company Aurelius Capital on key terms for the sale of its Osnabrück plant. Under the plan, Aurelius would become the majority owner, while Lower Saxony would also take a stake in the facility.

The factory would then be gradually transformed from car manufacturing into what Volkswagen described as a “competence center for security and defense solutions.” Its first anchor project would involve cooperation with Rafael on the manufacture of air-defense systems and components for Germany and other European customers.

Rafael is the Israeli state-owned defense company behind the Iron Dome missile-defense system. The Osnabrück factory is expected to manufacture equipment including military vehicles, launchers and generators used by the system, although its Tamir interceptor missiles themselves will not be produced there, according to Israeli media.

The Osnabrück site has a history of military production dating back to Nazi Germany. The factory originally belonged to coachbuilder Karmann, which produced aircraft components for the German war effort and used forced labor during World War II.

Volkswagen took over the company’s Osnabrück operations following Karmann’s insolvency in 2009 and decided in 2024 to end vehicle production by the summer of 2027. The new arrangement is expected to provide a future for more than 1,200 workers, while Volkswagen Group CEO Oliver Blume said the agreement would open up a “new industrial future” for the site.

Lower Saxony Minister-President Olaf Lies meanwhile linked the shift to Germany’s broader military buildup, saying there had been a “fundamental change in our security situation and our need for protection.”

The deal had reportedly faced resistance from Qatar’s sovereign wealth fund, one of Volkswagen’s largest shareholders. The eventual structure keeps Rafael out of the ownership of the plant, with Aurelius and Lower Saxony taking it over instead.

The conversion comes as Volkswagen undertakes one of the biggest restructurings in its history. Last week, the company confirmed plans to eliminate as many as 100,000 jobs worldwide by 2030 as it struggles with weak European demand, high energy costs following the loss of cheap Russian supplies, US tariffs and growing competition from Chinese manufacturers.

Other European carmakers, including Mercedes-Benz, have also been looking increasingly toward the defense sector. The conversion comes amid a broader military buildup across the EU that Moscow sees as preparation for a direct conflict with Russia.

Russian Foreign Minister Sergey Lavrov said that modern Germany and the rest of the EU are “transforming into a Fourth Reich,” pointing to Berlin’s drive to build the strongest conventional army in Europe.

President Vladimir Putin said in June that NATO countries were no longer concealing their intentions, and had moved beyond supporting Kiev to now “openly saying that they are preparing for war with us.”