Volkswagen strikes deal with Israel investment firm to turn car plant into defense facility

London (CNN) — A Volkswagen car plant in northwestern Germany is to be converted to defense production, the company said Monday, as Europe’s biggest economy ramps up military spending amid a continent-wide push to rearm.

Volkswagen said in a statement that it had agreed to sell its Osnabrück car plant to the State of Lower Saxony and Aurelius Capital, an investment firm headquartered in Tel Aviv. The local government and Aurelius, which would be the majority owner, plan to work with Rafael Advanced Defense Systems, one of the companies behind Israel’s Iron Dome.

“These plans involve the potential manufacture of systems and components for air defense systems for Germany and Europe,” Volkswagen said, adding that the cooperation was intended to “pave the way for further partnerships and projects.”

The deal will also preserve jobs at the site, where vehicle production is due to end next year, offering a blueprint for other Volkswagen factories at risk of closure. The automaker has warned that four German plants may need to shutter in the 2030s as it battles weak demand, rising costs and intense competition from China’s electric vehicle makers.

“With today’s agreement, we are taking an important step towards opening up a new industrial future for the site,” Volkswagen CEO Oliver Blume said.

The announcement comes just days after Volkswagen unveiled the most extensive restructuring in the group’s 89-year history as it fights to secure its future. The carmaker’s “Future Plan 2030” will halve its range of models and slash around 50,000 jobs, on top of the 50,000 workforce cuts previously announced.

At the same time, Europe is racing to rearm, with Germany leading the charge. The budget allocated to the country’s defense ministry is set to rise by a third next year, to €109.7 billion ($127 billion), from €82.7 billion ($96 billion) this year, according to government figures.

Rheinmetall, Europe’s biggest defense group, is among the companies repurposing vehicle factories to make military equipment, which could boost Germany’s manufacturing sector as it struggles to overcome several years of weakness.

Volkswagen decided in 2024 to phase out vehicle production at the Osnabrück site in summer 2027. This latest development could save nearly 1,400 of the site’s 1,800 jobs, according to a separate statement from VW’s works council, which represents employees.

“With this agreement, we are unlocking a genuine industrial opportunity for Osnabrück,” said Olaf Lies, Minister-President of the State of Lower Saxony. “The site boasts a highly-skilled workforce… At the same time, there has been a fundamental change in our security situation and our need for protection. Germany and Europe must strengthen their capabilities and become more independent.”

The transaction remains subject to regulatory approval and final agreement on the new organizational structure, Volkswagen said.

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