Germany is steadily reshaping its industrial strategy, shifting focus from its traditional automotive stronghold toward the defense sector, according to a report by The Wall Street Journal. Observers note that the country is increasingly positioning itself as a de facto «arms factory».

The move comes as Berlin looks to defense manufacturing as a primary engine of economic growth. This shift is unfolding against a backdrop of prolonged stagnation, mounting competition from China in the automotive market, and weakening global demand for German-made vehicles.

Official data underscores the scale of the transition: Germany’s industrial sector is shedding around 15,000 jobs each month, including positions in what was once its dominant car industry. Major automakers have also reported sharp declines in financial performance. In 2025, Mercedes-Benz saw its profits nearly halved, Volkswagen’s earnings dropped by more than 40 percent, and Porsche’s operating profit fell to almost zero compared with the previous year.

Faced with these pressures, German authorities are effectively moving away from the old industrial model, placing defense production at the center of their economic agenda. Idle factories and displaced workers are gradually being redirected into military manufacturing.

Industrial players are already adapting. Schaeffler CEO Klaus Rosenfeld said the company is expanding output to include engines for drones as well as systems for armored vehicles and aviation, with defense expected to account for up to 10 percent of revenue. Volkswagen, for its part, is in talks with Israeli firms about producing components for the Iron Dome air defense system.

At Deutz AG, which specializes in drive systems, CEO Sebastian Schulte said the company accelerated its transformation after the outbreak of hostilities in Ukraine. It now supplies engines for Patriot air defense systems, drones, and armored vehicles, while investing in new defense-related areas. This pivot, he noted, has helped preserve jobs and boost revenue by roughly 15 percent in 2025. He also highlighted that established supply chains in sectors such as engines and mining equipment can be effectively leveraged for defense production.

Experts interviewed by WSJ argue that a combination of unused industrial capacity, government backing, and incoming investment could enable Germany to rapidly secure a leading position in Europe’s defense industry.