Crisis in the Automotive Industry - Is the Defense Industry the Lifeline? - German car suppliers pivot to defense amid EV shift and slumping sales

German automotive suppliers are facing growing pressure as car sales decline and the shift to electric vehicles accelerates. Many are now turning to the defense sector to offset losses and repurpose excess capacity. Industry experts suggest this move could help stabilise jobs while leveraging existing technical skills.

The slump in auto sales, combined with the transition to electric mobility, has forced suppliers to cut jobs. At the same time, the defense industry is expanding rapidly due to global conflicts, including Russia's ongoing war in Ukraine. This growth has created new opportunities for firms with transferable expertise.

A 2023 study highlighted that over 40 German companies already supply both the automotive and defense sectors. Skills in bodywork manufacturing, drivetrain components, and vehicle assistance systems are particularly valuable for military applications. For example, the KNDS Group recently converted a former railcar factory in Görlitz to produce armoured vehicle parts. Major automakers are also exploring defense projects to utilise unused production capacity. Volkswagen is examining new uses for its plant in Osnabrück, Lower Saxony. However, industry expert Werner Olle cautions that defense contracts alone won't fully compensate for the auto sector's struggles. Instead, he sees them as part of a broader diversification strategy. The alignment between automotive technology and dual-use products—those with both civilian and military applications—makes this transition smoother. Yet, no precise figures exist on how many German suppliers are currently active in defense, according to Olle's research.

The defense sector offers a potential lifeline for struggling automotive suppliers, allowing them to repurpose skills and facilities. While not a complete solution, this shift could help mitigate job losses and stabilise production lines. Companies will need to balance defense work with their core automotive business as the industry continues to evolve.