German Manufacturing Accelerates Transformation to Military Industry, High Participation from Automotive Sector

With changes in the security environment and rising defense expenditures, the defense industry is gradually becoming a new growth driver for German manufacturing. Geopolitical risks are further driving industrial structural adjustments. According to the latest survey report by the German Chambers of Commerce and Industry (DIHK), the defense industry is increasingly becoming a crucial pillar of German industry.

The report indicates that approximately 17% of German manufacturers are currently involved in the defense industry value chain, meaning about one in six companies. The automotive manufacturing sector leads this trend, with about 36% of its companies directly or indirectly participating in military-related fields.

However, companies exclusively producing military equipment remain a minority, accounting for only 2.5% of the overall manufacturing sector. Another 6.9% of companies produce dual-use (military and civilian) products, while 7.6% are suppliers of components or service providers in the supply chain.

Rainer Kambeck, head of economic policy at the German Chambers of Commerce and Industry, noted that the survey results reflect the industrial transformation effect brought by geopolitical conflicts, and the defense industry has promising prospects.

According to the German Federal Ministry of Defense's plans, Germany's defense and security spending will exceed 108 billion euros (approximately 4 trillion New Taiwan Dollars) in 2026, double that of 2024, and is expected to increase to about 152 billion euros by 2029.

Germany amended its constitution last year to relax the 'debt brake,' meaning the defense budget will not be subject to the federal government's annual new debt limit of 0.35% of GDP. German companies can expect long-term and stable government orders, further strengthening their motivation to invest.

Chancellor Friedrich Merz, upon taking office, vowed to build the German Bundeswehr into 'Europe's strongest conventional military force.' According to documents disclosed by the German government late last year, most defense budget projects starting in 2026 with confirmed contractors were awarded to German domestic companies. With the rapid expansion of the defense budget, companies can expect long-term and stable government orders, further strengthening their motivation to invest.

The German government is also actively supporting cooperation between German industry and the international military industry. According to an exclusive report by the Financial Times at the end of March, German automotive giant Volkswagen is negotiating with an Israeli state-owned defense company, planning to convert idle factories from car production to manufacturing equipment related to the 'Iron Dome' missile defense system. (Edited by Wei Shu) 1150407