Rheinmetall’s €350M Divestiture Clears the Way for a Pure Defense Story, but ILA Must Deliver the Proof Investors Demand

Rheinmetall shares down 25.69% YTD as defence contractor sells automotive unit for €350M, faces key test at ILA Berlin air show and new infrastructure security alliance.

Rheinmetall heads into a pivotal week with its stock nursing a 25.69% year-to-date loss, closing Friday at €1,190. The Düsseldorf-based defence contractor is shedding its automotive past in a €350 million sale to AEQUITA, but the market remains unconvinced. Over the past twelve months, the shares have tumbled 36.72%, and the gap to the 52-week high of €1,995 has widened to roughly 40%. With a market capitalisation of €55 billion, the selloff is no mild correction — it reflects deep skepticism about the company’s ability to translate a record order book into reliable earnings.

The planned exit from the Power Systems division marks a strategic break. Rheinmetall has long struggled with the conglomerate discount that came from bundling cyclical, lower-margin automotive operations alongside its booming defence business. By selling that legacy unit, management hopes to simplify the equity story: fewer moving parts, a clearer focus on armoured vehicles, air defence, ammunition, digitalisation, and autonomous systems. The move removes a drag on valuation — but it does not automatically revive the share price.

What might shift sentiment is the stage set for this week. The ILA Berlin air show, running from June 10 to 14, is far more than a product fair for Rheinmetall. It is a live test of whether the company can expand its narrative beyond being a beneficiary of rising defence budgets. The group plans to showcase drones, loitering munition, satellite capabilities, and air defence systems such as the Skyranger 30. Central to the pitch is the partnership with Boeing on the MQ-28 Ghost Bat unmanned combat aircraft, a move that positions Rheinmetall closer to the high-tech, autonomous warfare segment that military planners increasingly prioritise.

A second thematic boost arrives alongside the ILA: a planned alliance with Deutsche Telekom to protect critical infrastructure against drones and sabotage. The joint solution targets airports, ports, energy plants, and entire city networks — blurring the line between classical defence and civilian security. For investors, the signal matters more than the immediate revenue. If Rheinmetall can position itself as a node in Europe’s broader security architecture, the investment case shifts from simple procurement to infrastructure resilience.

Yet the technical picture offers little reason for optimism. The stock trades 11.48% below its 50-day moving average of €1,344 and a daunting 26.56% beneath the 200-day line at €1,620. The relative strength index sits at 39.6 — neither oversold nor showing conviction. Annualised volatility hovers near 52%, underscoring the stock’s sensitivity to political headlines and execution missteps. At €1,190, the shares are a mere 8.20% above the 52-week low, suggesting the market is pricing in more downside risk than upside optionality.

The disconnect with the operational picture is stark. Rheinmetall’s order backlog stands at €73 billion, a figure that would normally command a higher multiple. The Bundeswehr alone is planning to buy 35 additional “Schakal” wheeled armoured vehicles for around €650 million, along with 23 “Büffel” recovery vehicles for approximately €360 million. These programmes underpin the medium-term revenue pipeline, but they have not arrested the stock’s slide. Analysts still publish price targets as high as €2,380 — a chasm between optimistic fundamental forecasts and the market’s current mood.

What the market wants now is evidence that Rheinmetall can scale its output profitably, convert its enormous contract wins into cash flow, and deliver on schedule. The ILA appearance, combined with the Telekom tie-up and the automotive divestiture, gives the company a concentrated window to refresh its story. None of these events alone will reverse the downtrend, but together they provide a concrete reason for investors to reassess the risk-reward calculus. The next few days will show whether the narrative can grow big enough to outrun 25% of lost value.