Abstract:
Volkswagen has signed an agreement with an Israeli investment group. The struggling German car company will shift the production operations of its Osnabrück plant from vehicle manufacturing to the production of parts for the Israeli "Iron Dome" air defense system manufacturer. According to the plan announced on Monday, Aurelius Capital will jointly acquire a majority stake in the 125-year-old factory with the state of Lower Saxony, where Volkswagen is headquartered (the state is Volkswagen's second largest shareholder).
In order to save the existence of the Osnabrück plant, the two parties reached the deal after several months of negotiations. The factory currently employs 1,800 people and originally planned to stop vehicle production next year.
Volkswagen said that Aurelius Capital and the state of Lower Saxony will build the factory into a defense equipment manufacturing center; the two parties have finalized the first benchmark cooperation project, and the partner is Rafael Advanced Defense Systems, a company that develops the Iron Dome system. The agreement includes plans for the potential production of air defense systems and supporting components for Germany and Europe.
The media reported in March that Volkswagen was expected to produce parts for Rafael after negotiating with the Israeli state-owned defense group.
This transformation of Volkswagen is the most high-profile case to date in this field seeking cooperation with the booming defense industry.
Europe's largest car company is under pressure to streamline operations and reduce costs. Last week, Volkswagen's supervisory board approved a sweeping reform plan that plans to lay off 50,000 people and allow four factories in Germany to stop the production of new cars.
According to the cost reduction plan finalized at the end of 2024, the Osnabrück plant will terminate vehicle manufacturing next year. Volkswagen has been looking for a way out for the plant.
VW CEO Oliver Blum said in a statement on Monday: "We have taken a crucial step to open up new industrial development prospects for this site."
German officials do not expect the military industry to make up for the loss of tens of thousands of jobs in the automotive industry, but they still encourage car companies to cooperate with defense companies when conditions permit.
At present, many international defense companies hope to use Germany as a springboard to enter the European market, and Rafael is the latest example. In view of the conflict between Russia and Ukraine and the weakening of US support for European security, Germany plans to invest approximately 700 billion euros in defense spending in the next five years.
Raphael also hopes to reach a purchase agreement with the German government for the Iron Dome system. The air defense system has a range of 70 kilometers and Israel mainly uses it to intercept rockets coming from the Gaza Strip.
Rafael President and CEO Yoav Tugman said that this agreement opens up "long-term industrial cooperation with German partners, with the goal of achieving complete production of relevant technologies in Germany to protect the security of Germany and Europe."
Daniela Cavallo, chairperson of the Volkswagen Factory Union Committee, said that the agreement will protect the jobs of more than 1,200 employees at the factory.
Cavalo added: "We will continue to advance the plan and ultimately ensure that all core employees can obtain job opportunities in the factory."
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