Rheinmetall’s €350M Automotive Exit Marks a Clean Break, but the Market Wants Faster Proof of Defence Deliveries

Rheinmetall's record €63.8B backlog vs Q1 revenue miss. Civilian division sale completes pure-play pivot; German army readiness gaps boost maintenance revenue.

Rheinmetall has never had more orders on its books. The Düsseldorf-based defence group sits on a record backlog of €63.8 billion, yet a sobering German military report published this week found that only half of the army’s Panzerhaubitze 2000 howitzers and Marder and Boxer armoured vehicles are currently operational. The culprit? Spare parts shortages and planning failures at the defence ministry. For Rheinmetall, that gap also spells opportunity: maintenance and service work are precisely the kind of recurring revenue streams that can turn a one-off order into long-term cash flow.

The company is now a pure-play defence contractor after finalising the sale of its civilian Power Systems division to Munich-based Aequita for around €350 million. The deal, expected to close in the fourth quarter of 2026 pending regulatory approvals, covers the former automotive brands Pierburg, Kolbenschmidt and Motorservice, which together generated roughly €2 billion in annual revenue. Around 6,200 employees will transfer to the new owner and are expected to keep their jobs. Three sites plus the Neuss plant remain temporarily with Rheinmetall, with Neuss earmarked for conversion into a satellite production hub. The exit is not without cost: additional write-downs of €200 million will hit the books on top of the €350 million already booked in December.

Chief executive Armin Papperger has pushed the strategic pivot hard. Recent wins underscore the logic: Romania ordered a €5.7 billion package of tanks, ammunition and other equipment, while the Bundeswehr awarded a contract for more than 2,000 military trucks worth over €1 billion. On the technology front, Rheinmetall has teamed up with Boeing to act as system manager for the MQ-28 Ghost Bat drone in Germany, and its RCH 155 wheeled howitzer is in the running for the US Army’s Mobile Tactical Cannon programme alongside American Rheinmetall and KNDS. There is also talk of a space tie-up with OHB SE for tactical reconnaissance, a potential new business line.

The operational numbers, however, have left the market cold. First-quarter revenue came in at €1.94 billion, nearly 15% below analyst expectations, even as the defence segment alone contributed roughly €10 billion in sales last year. The stock closed at €1,200 on Thursday, down 7.1% over seven days and 16.3% over the past month. That leaves the shares more than 39% below their 52-week high. Analysts remain broadly optimistic—the consensus price target sits at €1,890, with UBS the most cautious at €1,600 and Jefferies sticking at €1,890. None of the 18 covering houses recommend selling.

Yet the sell-off reflects more than a single quarterly miss. Investors are weighing the execution costs of the restructuring against the sheer size of the order book. The service readiness issue in the German army could prove a double-edged sword: it highlights delivery bottlenecks but also underpins demand for upgrades and spare parts. Rheinmetall is also being linked to a potential acquisition of Iveco’s defence division, alongside Leonardo and KNDS, as the sector consolidates.

For now, the market is demanding tangible proof that the €63.8 billion backlog can be converted into reliable revenue and rising margins. The next big test comes with the close of the Power Systems sale in the fourth quarter, followed by half-year results in August. If Rheinmetall can show its production lines are catching up with demand—and that service contracts are starting to fill the gaps—the stock’s current discount may look short-lived.