Rheinmetall Ramps Up Production to Meet Soaring European Demand

Rheinmetall targets 400 air defense systems yearly by 2027, signs €40M sensor deal, and reports record €63.76B backlog as shares rise nearly 3%.

Rheinmetall shares gained nearly 3% on Wednesday, closing at €1,569.60, as the German defense giant announced a new strategic partnership while pushing forward with an aggressive plan to double its annual output of key air defense systems. The stock’s year-to-date advance now stands at almost 24 percent.

The company is targeting production of up to 400 Skynex and Skyranger air defense systems per year by 2027, equivalent to roughly eight units every week. This near-doubling of capacity is a direct response to the proven effectiveness of these systems against Iranian-developed Shahed drones used by Russian forces in Ukraine. Their economic argument is compelling: neutralizing a $20,000-$50,000 drone costs about $5,000 in 35mm ammunition, compared to $500,000-$3 million for an interceptor missile.

Strategic Partnerships and Capacity Expansion

To support its broader growth, Rheinmetall is also deepening its supply chain. A new agreement with THEON Sensors, a Greek subsidiary of THEON International, will see the serial production of the advanced “PHYLAX” multisensor system. This technology will be integrated into the sighting system for a new 25mm lightweight turret destined for the Lynx 2 reconnaissance vehicle.

The initial contract is valued at over €40 million. To fulfill the order for several hundred systems, THEON is investing €10 million in a new production facility in Athens, scheduled to be operational by the second quarter of 2027. This move exemplifies Rheinmetall’s strategy of leveraging specialized partners to convert its record order backlog into revenue.

That backlog soared to €63.76 billion in 2025, a 36 percent increase year-over-year. Operational ambitions are high for 2026, with the company targeting revenue between €14 billion and €14.5 billion, a significant jump from €9.94 billion the prior year, and an operating margin of 19 percent. The next quarterly report on May 7 will provide a progress update.

Broad Demand and a Conditional Contract

Demand for Rheinmetall’s systems is widespread across Europe. Germany and the Netherlands have already placed orders for the Skyranger 30, Belgium is evaluating it, and Switzerland plans to acquire the Skynex system. The German Bundeswehr alone has signaled a total requirement for 500 to 600 such units. Production is spread across facilities in Germany, Switzerland, and Italy, though full capacity will only be reached by mid-to-late 2027 due to a manufacturing lead time of nearly one year per system.

Not all news is immediately positive. A major framework contract for attack drones from the German military remains conditional. While competitors Helsing and Stark Defence received orders in late February, Rheinmetall’s contract was postponed after its drone systems reportedly underperformed in tests. The German Defense Ministry is preparing a framework contract worth up to €2.4 billion, but final award is contingent on successful ammunition qualification by April 2027 at the latest.

This minor setback does little to cloud the overarching bullish trend, fueled by sustained European defense spending. France recently announced plans to boost expenditures on rearmament and nuclear deterrence by approximately €36 billion. Such long-term procurement cycles provide a stable tailwind for Rheinmetall as it works to synchronize its expanded production network with rising continental demand.