Rheinmetall Makes a Clean Break from Civilian Production and Pushes into Space at ILA, but Investors Are Still Waiting for Growth to Materialise

Rheinmetall sells Power Systems to AEQUITA for €350M, shedding civilian business to focus solely on defence. At ILA Berlin, it will unveil MQ-28 Ghost Bat drone, but stock down 25% YTD.

The Düsseldorf-based defence contractor has signed a deal to offload its Power Systems division to Munich’s AEQUITA for €350 million, stripping away the last significant civilian leg from its business. At the same time, the company is preparing its biggest ever presence at next week’s ILA Berlin air show, where it will unveil the MQ-28 Ghost Bat drone and showcase a new satellite-based surveillance capability. The twin moves amount to a clear strategic statement: Rheinmetall wants to be a pure-play defence group with a growing footprint in space and unmanned systems. Yet the stock, down more than a quarter since the start of the year, suggests the market is not yet convinced.

The sale of Power Systems, subject to regulatory approvals and expected to close in the fourth quarter of 2026, will transfer roughly 6,200 employees to AEQUITA. The industrial group has committed to taking on all staff, and IG Metall has secured a three-year employment guarantee. A further non-cash impairment charge of around €200 million accompanies the transaction, following a €350 million write-down already booked in the 2025 annual results. Since the fourth quarter of last year, the division has been classified as a discontinued operation.

Power Systems generated revenue of approximately €2 billion in 2025, a fraction of the €9.9 billion produced by the defence arm. The group’s overall operating margin came in at 18.5 per cent, almost entirely driven by booming military orders. The profitability gap between the two sides had become too wide to ignore, prompting the decisive cut. Around 34,000 employees will remain in the core group.

Not all civilian-connected assets are included in the sale. The KS Huayu AluTech joint venture, with sites in Neckarsulm, Walldürn and Langenhagen, stays with Rheinmetall, as does Dermalog SensorTec and the Spanish plant in Abadiano. That facility is earmarked for a full conversion to military production over time.

While the divestment clears the decks for a sharper defence focus, Rheinmetall is simultaneously pressing ahead with a high-profile marketing push at the ILA in Schönefeld from 10 to 14 June. Covering 840 square metres of exhibition space, the company is presenting itself as a full-spectrum systems provider for Germany, NATO and allied nations under the banner “Strong and clear. Across all domains.”

The centrepiece is the MQ-28 Ghost Bat, an unmanned combat aircraft for which Rheinmetall is positioning itself as the prime contractor for a potential Bundeswehr acquisition, targeted for 2029. Another highlight is the Rheinmetall ICEYE Space Solutions joint venture, which recently secured a billion-euro contract with the German military for satellite-based reconnaissance using synthetic aperture radar. The deal underscores the group’s push into space as a core defence domain.

Other exhibits include the FV-014 loitering munition, with a range of up to 100 kilometres, the Skyranger 30 air-defence system mounted on the Boxer vehicle, and the Caracal airborne vehicle. A model of the F-35 Lightning II will also be shown, reflecting the 400 centre fuselages Rheinmetall produces at its Weeze plant under contract from Northrop Grumman.

The contrast between the operational momentum and the share price performance is stark. On Wednesday, the stock closed at €1,190.20, down 7.82 per cent over the week and 25.68 per cent year to date. The gap from the 12-month high stands at 40.34 per cent, while the distance from the low is just 8.22 per cent. The 30-day annualised volatility has reached 53.40 per cent, underscoring the heightened uncertainty.

Technically, the picture remains frail. The stock is trading 26.80 per cent below its 200-day moving average, and the relative strength index sits at 39.5, pointing to weak but not yet oversold momentum.

A chunk of the selling pressure can be traced back to the first-quarter results. Rheinmetall reported revenue of €1.94 billion, missing the analyst consensus of roughly €2.3 billion. Management attributed the shortfall to shipment deferrals that have been pushed into the second quarter, and the full-year guidance of €14 billion to €14.5 billion remains intact. The order backlog of €73 billion provides a solid foundation, but execution risk, margin pressure and cash-flow conversion are now under the microscope.

The analyst community is largely constructive, though the tone has become more cautious. Citi initially began coverage with a Neutral rating, citing the risk that a large portion of future ammunition demand was already priced in, but later upgraded to Buy amid the recent pullback. UBS analyst Sven Weier maintained his Buy recommendation but slashed the price target to €1,600 from €2,200, citing concerns over short-term margin trends. The consensus target stands at €1,889, with 18 analysts recommending a buy and none issuing a sell.

Next week’s ILA gives Rheinmetall the opportunity to back its long-term narrative with tangible projects and visible order momentum. New procurement details or contract announcements could help narrow the gap between a record order book and a struggling share price. Without such signals, the stock remains vulnerable to further valuation adjustments as the market waits for the promises to turn into delivered earnings.