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What has the situation actually produced — and what remains a planning target?

The €100 billion special fund is contractually bound, no longer available for reallocation. The defence budget of €108 billion in 2026 is the highest in the Federal Republic's history. Germany met the NATO two-percent target for the first time in 2024.

What has been built: new ammunition production lines, expanded armoured vehicle orders, air defence system contracts, a standalone naval segment at Rheinmetall, initial military satellite production. What remains unsecured: funding continuity after 2027. The regular budget is frozen at approximately €50 billion until then. From 2028, an annual gap of up to €30 billion opens. A long-term investment fund has been announced but not legislated. Factories with three-year build times and development programmes with ten-year horizons cannot be reliably planned on that basis.

Which companies hold which part of the supply chain — and where is there no substitution?

Rheinmetall is the only European company producing tanks, artillery ammunition, air defence systems, loitering munitions, laser weapons and reconnaissance satellites within a single group. The Naval Systems segment — established as a standalone division in 2026 — already carries an order backlog of €5.5 billion. Rheinmetall is decentralising production: new facilities are being built in Ukraine, Lithuania, Hungary and Romania, close to NATO's eastern flank.

Hensoldt cannot be substituted in any current major German weapons programme. Eurofighter, Puma, Tiger, A400M and the forthcoming LVS NNbS all depend on Hensoldt radar, optronics or electronic warfare systems. A capacity shortfall at Hensoldt does not affect one programme — it affects several simultaneously. No national competitor exists.

KNDS Deutschland holds the system integration competence for the Leopard 2 — the most widely deployed Western main battle tank, in service across 19 countries. The KF51 Panther is its successor. In 2025, KNDS acquired part of the former Alstom plant in Görlitz, previously used for railway manufacturing. Armoured vehicle components are now produced there.

Diehl Defence holds the precision-guided air defence capability. IRIS-T SLM has demonstrated its performance under combat conditions in Ukraine. A second production line has been commissioned. Output remains below documented demand.

TKMS is Germany's sole manufacturer of conventional submarines. Classes 212 and 214 are exported across NATO and to Asia. No second domestic supplier exists.

Rohde & Schwarz delivers communications systems, SIGINT and electronic warfare across the full scope of Bundeswehr programmes and to several NATO partners. With seven major Zeitenwende contracts, short-term substitution is not possible.

MBDA Deutschland produces Taurus, Meteor and — in cooperation with Diehl — IRIS-T. In January 2026, Rheinmetall and MBDA established a joint venture for serial production of naval high-energy laser weapons. The operational case: laser systems carry near-zero cost per engagement. Against drone swarms, where kinetic interceptors can become more expensive than the attacking munitions, that cost differential matters.

Where do bottlenecks arise that can stop production lines?

The publicly discussed bottleneck is ammunition. The rarely discussed one is the supply chain beneath it.

Tier-2 and Tier-3 suppliers — manufacturers of specialist optics, special alloys, precision electronics and specific sub-assemblies — are often owner-managed mid-sized companies. Their knowledge is not codified in manuals. It resides with two or three experienced specialists per firm. When one of these companies comes under order pressure or loses a key person, there is no fallback. Building a second source takes three to five years, where it is technically possible at all.

Raw materials are the second bottleneck. Germanium, gallium and rare earth elements — required for semiconductors, high-performance optics and power electronics — are predominantly refined in China. China introduced export restrictions on gallium and germanium in 2023. Diversification agreements with Canada, Australia and several African states are in progress. They do not yet compensate for the dependency.

Skilled labour is the third. Defence-specific manufacturing expertise is not acquired by hiring — it develops through production experience. Until new recruits reach the productivity level of experienced staff, two to four years pass. During that period, rejection rates rise. This is not an edge case; it is every industrial ramp-up under time pressure.

Procurement bureaucracy operates daily. The BAAINBw is regarded within the Bundeswehr as structurally slow. The absence of fast-track paths for dual-use technologies and defence start-ups delays not only the equipping of the armed forces — it delays industrial investment planning, because contract clarity is missing.

What cooperation architecture carries the industry — and where are the weak points?

No German defence company can deliver a major weapons system alone. This applies to every programme in the current procurement portfolio.

The LVS NNbS consortium makes the pattern visible: Rheinmetall Electronics, Diehl Defence and Hensoldt Sensors formed a formal joint working group. All three compete in overlapping segments. For the overall system, they must cooperate. None can replace the others.

Puma shows the same structure: KMW as system integrator, Rheinmetall for the weapon station and drive, Diehl for ammunition, Hensoldt for optronics, Rohde & Schwarz for communications. A supply failure at any of these partners delays not one component — it delays the entire delivery.

Team Gen 6 — Airbus DS, Diehl, Hensoldt, Liebherr, MBDA, MTU, Rohde & Schwarz, Autoflug — is not an active development programme. It is a named industrial coalition for the contingency that FCAS fails or must be restructured. Its existence changes Germany's negotiating position in FCAS: France is aware that Germany has an exit route.

Where is the most capital going — and which programmes carry operational reach?

Ammunition leads the modernisation plan at €70.3 billion. Rheinmetall is building production lines in Unterlüß, Saxony and North Rhine-Westphalia. Production target: 240,000 artillery rounds per month. The pre-2022 baseline was several tens of thousands. Diehl Defence has brought an additional IRIS-T missile production line into operation.

The Rheinmetall-MBDA laser joint venture addresses a specific cost problem: kinetic air defence systems become more expensive per engagement than the attacking munitions when facing large drone swarms. High-energy lasers carry near-zero cost per shot. First serial production items are planned for the late 2020s.

Rheinmetall begins satellite production for the Bundeswehr in Neuss in 2026. Airbus DS operates the SARah radar satellite programme. These investments close a capability gap that previously made Germany entirely dependent on US reconnaissance assets.

Hensoldt and Airbus DS are developing sensor architectures in which functions can be reconfigured via software update. A radar performing airspace surveillance today can take on different tasks after an update, without new hardware. This shortens development cycles and reduces dependence on lengthy procurement procedures.

What standing does Germany's defence industry hold for NATO, Europe and the United States?

Germany is now the only continental European country offering the full defence supply chain — from ammunition to combat aircraft — at a volume that gives allies real procurement options. Defence exports reached a record €13.3 billion in 2024, more than 60 percent of which went to Ukraine. Germany has opened 22 national programmes to partner-nation participation.

For eastern NATO members, the critical question is not whether Germany delivers today. It is whether the funding gap from 2028 leads to interruptions in cooperation and delivery programmes they are already planning around.

For the United States, the picture is ambivalent. The F-35 procurement strengthens interoperability and secures US market share. FCAS, MGCS and European ammunition lines are building alternatives to US systems over the medium term. Washington is watching that process. It is not working against it — but it is not actively supporting it either.

Which vulnerabilities remain unresolved?

The funding gap from 2028 is the most critical unresolved problem. A politically announced but not legislated long-term fund is not a planning basis for investments with five to ten year lead times.

FCAS governance remains open. If the programme fails, Europe has no common solution for sixth-generation air combat in the 2040s. Team Gen 6 is a fallback with considerably less industrial depth.

Digital infrastructure dependency receives little public attention. Software architectures, cloud infrastructure and IT base services for defence programmes run through civilian corporations — Microsoft, Amazon, TSMC — that provide no military availability guarantees and whose accessibility under escalation conditions is not assured.

What is the assessment?

Germany has made measurable progress since 2022. Procurement volumes are real, order backlogs are solid, and Rheinmetall stands without comparable precedent in European land defence.

The remaining risks are not in political will. They sit in supply chain depth that cannot be resolved quickly, in a raw material dependency that will take years to reduce, and in a budget structure that has no secured foundation beyond 2027.

Whether Germany can sustain its position as a reliable anchor of European defence capability will not be measured in headline budget figures. It will be measured by whether German defence capacity delivers when needed — and whether it can still do so in three and five years.

Glossary

Zeitenwende — Term used by Chancellor Scholz for the security policy shift following 24 February 2022. Marks the end of German restraint on defence spending.

FCAS — Future Combat Air System — German-French-Spanish programme: sixth-generation manned combat aircraft, autonomous escort drones (Remote Carriers), networked mission management architecture (Combat Cloud). Target date 2040. Industry: Airbus DS, Dassault, Indra.

MGCS — Main Ground Combat System — German-French successor to Leopard 2 and Leclerc. Equal 25% shares: Rheinmetall, KNDS Deutschland, KNDS France, Thales. Target introduction 2035–2040.

LVS NNbS — Short and very short-range air defence system for the Bundeswehr. Consortium: Rheinmetall Electronics, Diehl Defence, Hensoldt Sensors.

Loitering Munition — Unmanned weapon that orbits a target area and detonates on contact. Used at scale in the Ukraine war.

Combat Cloud — Networked mission management architecture within FCAS. Connects manned aircraft and autonomous drones in real time.

Software Defined Defence — Sensors and weapons systems whose functions are reconfigurable via software update. Tactical adaptation without hardware replacement.

Tier-2 / Tier-3 Suppliers — Specialists at the second and third supply chain level. Typically owner-managed mid-sized firms with non-transferable niche knowledge.

References

Rheinmetall AG — Annual Report 2025 / Q1 Report 2026rheinmetall.com/en/media/news-watch/news/2026/03/2026-03-11-rheinmetall-presents-annual-report-for-2025

Federal Ministry of Defence — MGCS Progress Report 2026bmvg.de/de/aktuelles/ruestungsvorhaben-fortschritte-mgcs-projekt-5776198

Germany Trade & Invest — Germany's Defense Industry Makes Turnaroundgtai.de/en/invest/industries/germany-s-defense-industry-makes-turnaround-2002286

Royal United Services Institute — A Zeitenwende for German Defence Finance?rusi.org/explore-our-research/publications/commentary/zeitenwende-german-defence-finance

Armyrecognition.com — Rheinmetall and MBDA Form Joint Venture for Naval Laser Weapons, January 2026armyrecognition.com/news/navy-news/2026/germany-pushes-naval-laser-weapons-toward-production

Atlantik-Brücke — Waiting for the Big Bang: Executing the European Defense Build-Up in Germanyatlantik-bruecke.org/en/waiting-for-the-big-bang

Neue Zürcher Zeitung — Bureaucracy and Dependencies in Germany's Defence Industry, 2025nzz.ch/international/buerokratie-rohstoffe-engpaesse-deutschland

Small Wars Journal — Germany's Military Reawakening and the Future of European Security, March 2026smallwarsjournal.com/2026/03/31/germanys-military-reawakening

Hartpunkt.de — Supply Chains: The Underestimated Bottleneck in Germany's Defence Industryhartpunkt.de/lieferketten-der-unterschaetzte-engpass-der-deutschen-ruestungsindustrie