Auto Rivals Circle as Rheinmetall Stock Sheds 30% This Year

Rheinmetall shares tumble 30% YTD as Mercedes and VW eye defense contracts; Q1 revenue misses forecasts, but €73B order backlog offers long-term support.

The German defence champion is confronting headwinds from an unexpected direction. As Rheinmetall’s share price continues its protracted slide — down almost a third since January — Europe’s embattled automotive sector is quietly positioning itself as a future rival in the arms market.

Mercedes-Benz chief Ola Källenius said over the weekend his company would consider military production if the economics stacked up, describing the sector as a “growing niche”. Behind the scenes at Volkswagen, the thinking has gone further. Reports from mid-May point to potential conversion of the Osnabrück plant for components linked to Israel’s Iron Dome missile defence system, possibly via a joint venture with Rafael.

The prospect of carmakers pivoting towards defence comes against a grim industrial backdrop for the auto industry. Sinking demand and intensifying competition from Chinese manufacturers have left factories underutilised, making military contracts an increasingly tempting outlet for spare capacity.

Rheinmetall’s stock closed Friday at €1,123.80, shedding 2.01% on the day and 6.91% over the week. That leaves the shares barely 0.52% above their year low. The sell-off mirrors a broader pattern across European defence heavyweights, where profit-taking has followed a period of extraordinary gains. Rheinmetall itself had seen its valuation multiply roughly sixteenfold over five years.

The first-quarter numbers tell a mixed story. Revenue came in at €1.94 billion, missing consensus expectations of €2.3 billion — a gap that has unsettled investors despite strong underlying demand. On profitability the picture was brighter: operating profit rose 17% to €224 million. Yet the market is focused squarely on how swiftly orders can be translated into revenue and margin.

Analysts have trimmed their sights accordingly. Berenberg retains a “Buy” rating but has lowered its price target to €1,750. JPMorgan rates the stock “Neutral” with a €1,500 target. UBS and Deutsche Bank have maintained positive recommendations, while Tikehau Capital argues European defence groups could see earnings growth three times that of their US peers by 2027.

The order book provides a robust counterweight to the near-term doubts. Rheinmetall’s contract backlog stands at €73 billion and could balloon to roughly €135 billion by year-end. That pipeline covers everything from ammunition to air defence systems, including a €300 million Bundeswehr contract for the FV-014 kamikaze drone now entering series production at Neuss.

Rheinmetall is also scouting former auto supply sites in Neuss and Berlin to expand its own manufacturing footprint. The bottleneck across the sector is not demand but industrial capacity — a constraint that could turn new entrants from competitors into partners, the company argues.

For now, technical levels dominate trader attention. The support around €1,118 — the low struck on 13 May — is the line in the sand. A decisive break below that floor would open the door to further losses. Stabilisation above it would allow the focus to shift back to the fundamentals: a €73 billion order machine, new production capacity coming online, and the race to turn Europe’s rearmament drive into real earnings.