Israel’s Aurelius Capital is to take over a Volkswagen factory in Germany, repurposing the site to manufacture military equipment with Rafael Advanced Defence Systems.
The preliminary deal marks a first in efforts by Europe's largest carmaker to restructure plants struggling to compete with lower-cost Chinese rivals. According to labour officials, the agreement would secure about 1,400 of the plant's 1,800 jobs and provide a lifeline for the 125-year-old site.
Volkswagen said an initial “anchor project” for Osnabrueck would be a co-operation with Israel's Rafael, one of the key partners behind its country's Iron Dome, Arrow and David's Sling air and missile defence systems.
“These plans involve the potential manufacture of systems and components for air defence systems for Germany and Europe,” Volkswagen said, adding the co-operation could pave the way for further such deals.
Volkswagen chief executive Oliver Blume has said the carmaker will seek investors, industrial partners and alternative uses for factories where vehicle production is not economically viable.
The deal offers a potential blueprint for other Volkswagen sites facing an uncertain future as the company embarks on its biggest ever restructuring to revive margins and battle chronic overcapacity in its European market.
Under the initial terms of the deal, Volkswagen will sell its factory in Osnabrueck to Aurelius Capital as the majority owner alongside the government of Lower Saxony, Volkswagen's home state.
Structuring the project without a direct Volkswagen-Rafael partnership may have helped end resistance from the Qatar Investment Authority, which holds about 17 per cent of VW’s voting rights and has two seats on the supervisory board.
Qatar’s concerns stemmed from its strained relations with Israel, which have deteriorated further since the war in Gaza began in October 2023.
The US-Israeli war on Iran and Russia’s full-scale invasion of Ukraine have seriously depleted global stocks of air-defence systems, potentially boosting demand for the Iron Dome anti-missile shield.
Revamp
The agreement comes days after Volkswagen unveiled a major revamp to cut jobs and simplify its structure, highlighting how rising defence spending in Europe could absorb some excess manufacturing capacity in the carmaking sector.
Volkswagen has warned that up to four German plants could face closure or repurposing unless alternative uses are found.
Aurelius Capital and Lower Saxony, Volkswagen's second-largest shareholder, signed a statement of intent on Monday to take over the factory, where vehicle production is due to end in 2027.
Defence production is increasingly being seen as a solution for underused carmaking plants, with companies including Rheinmetall and Continental pursuing similar initiatives.
Lower Saxony's premier Olaf Lies said the state's engagement in the Volkswagen deal would be similar to its purchase of a stake in the Meyer Werft shipyard in 2024.
Lower Saxony spent €200 million ($232 million) for a 40 per cent stake in the shipyard.
“Osnabrueck brings with it something that cannot be built from scratch: many years of experience with demanding products, precise manufacturing processes and high-quality, well-co-ordinated teams and a strong tradition,” said Tomer Jacob, Aurelius Capital co-founder and partner.
The investor lists cybersecurity, drone technology and satellite systems among its focus areas.
Mr Blume’s restructuring plan envisages roughly 50,000 additional job reductions and a significantly smaller model line-up as VW seeks to restore profitability.
Completion of the transaction announced Monday is subject to final agreements, approval by the relevant corporate bodies and regulatory reviews, Volkswagen said.
“We are building a long-term industrial relationship with our German partners with the idea that the technology will be fully produced in Germany, to protect Germany and Europe,” Rafael chief executive Yoav Tourgeman said in a separate statement.
