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Volkswagen is in talks with Israel’s Rafael Advanced Defence Systems over a deal that would switch production at one of the German group’s factories from cars to missile defence.
The two companies plan to convert the embattled Osnabrück plant to make components for the Israeli state-owned group’s Iron Dome air defence system, according to two people familiar with the plan.
The tie-up would be the highest-profile example yet of the German car industry, where profits have plunged amid rising Chinese competition and a stuttering transition to electric vehicles, seeking partnerships with the booming defence sector.
The two companies hope to save all 2,300 jobs at the plant in the west German state of Lower Saxony, which has been under threat of closure, and hope to sell the systems to European governments.
“The aim is to save everybody, maybe even to grow,” said one of the people familiar with the plans. “The potential is so high. But it’s also an individual decision for the workers if they want to be part of the idea.”
The German government is actively supporting the proposal, according to a second person.
VW already makes military trucks in a joint venture between subsidiary MAN and German arms group Rheinmetall. But the partnership with Rafael would mark a major return to weaponry for VW, which produced military vehicles and the V1 flying bomb for Hitler’s Wehrmacht during the second world war.
Under the plans, the Osnabrück factory would make various Iron Dome parts, including the heavy-duty trucks that carry the system’s missiles as well as launchers and electricity generators. But it would not produce the projectiles themselves.
The concept would require minimal new investment, according to the first person. “There is some money needed to transition to new production but this is pretty easy.”
The idea, he added, was that “proven [defence] tech comes together with German manufacturing” to produce the system.
Production could be up-and-running within 12-18 months, another of the people said, as long as workers agreed to switch to weapons production.
Rafael plans to set up a separate production facility in Germany for the system’s missiles, which must be handled on a specialist site.
The company hopes to sell the Iron Dome system to governments across Europe including Germany, as countries strengthen their air defences as part of a large-scale rearmament in response to Russia’s full-scale invasion of Ukraine. Germany last year took delivery of the first of three batteries of the Israeli Arrow 3 air defence system, made by another Israeli company, Israel Aerospace Industries.
Rafael chose Germany for European production because of its status as one of the strongest supporters of Israel in Europe, according to a third person familiar with the plan.
Another of the people said the company had heeded pleas from senior German officials to harness excess capacity in the country’s struggling industrial sector.
The move comes as the EU’s largest nation plans to spend more than €500bn on defence by the end of the decade, with officials saying that air defence is one of their top spending priorities.
Israel credits its complex web of air defences, which involves several different systems, with intercepting more than 90 per cent of missiles fired at the country by its adversaries.
But some experts have questioned the suitability of the Iron Dome, which has a range of 70km and has primarily been used to stop rockets from Gaza hitting Israel, for defending European nations from longer-range threats.
Rafael already produces Spike missiles for European countries in Germany through a joint venture with Rheinmetall and Diehl Defence. It also produces a system called Trophy that protects tanks and armoured vehicles.
VW has been seeking a solution for the Osnabrück plant, where production of vehicles is set to end next year under a cost-cutting plan agreed in 2024.
About 35,000 workers at VW plants are set to leave the company by 2030, although the redundancies are all on a voluntary basis.
VW did not immediately respond to a request for comment.