Rheinmetall’s 80-Billion-Euro Order Backlog Collides With Execution Headwinds

Rheinmetall partners with Deutsche Telekom on drone defense, expands ammunition output to 1.5M shells by 2030, and unveils new military systems—while stock drops 30% YTD amid execution bottlenecks.

The defence contractor’s shares are clinging to a 52-week low of around €1,120, but beneath the surface a flurry of strategic moves and a swelling order pipeline tell a markedly different story. Rheinmetall has inked a collaboration with Deutsche Telekom to build a protective shield against drones and sabotage for German cities and critical infrastructure, combining sensor technology and countermeasures with mobile-network expertise. The agreement, struck ahead of the AFCEA security fair in Bonn, aims to merge electronic defence with physical force – including laser systems designed to disable hostile drones. Separately, Telekom is working with the Helmut-Schmidt-University in Hamburg on detecting drones that communicate over mobile networks rather than radio frequencies.

The push into drone defence is just one element of a broader expansion. At the BSDA trade show in Bucharest from 13 to 15 May, Rheinmetall showcased its Lynx KF41 infantry fighting vehicle with a Lance turret, the 35mm Oerlikon Revolver Gun Mk3 in the Skynex air-defence system, and a host of other land and electronic warfare systems. The company is also deepening its maritime presence: the integration of Naval Vessels Lürssen means the “Naval Systems” segment will report fully for the first time, while a planned joint venture addresses cruise missiles and ballistic rocket artillery. Domestic drone production in Neuss is about to start series manufacturing.

At the core of the strategy lies a massive ramp-up in ammunition. Rheinmetall targets an annual output of 1.1 million 155mm artillery shells by 2027, rising to 1.5 million by 2030. Medium-calibre ammunition production is slated to hit four million rounds over the same horizon. Those figures underscore the long-term demand visible on the company’s books – yet the stock has fallen 30% since the start of the year and more than 33% over the past twelve months, leaving it 43.81% below its 52-week high.

Market disappointment stems largely from execution bottlenecks. First-quarter revenue reached €1.94 billion but fell short of analyst expectations, with administrative controls and logistics snags delaying deliveries. A particularly painful example came from the powder business: AlphaValue reported that acceptance checks blocked €100 million worth of sales. Operating margins nevertheless improved to 11.6% in Q1, and the company reaffirmed its full-year guidance of €14 billion to €14.5 billion in revenue with an operating margin of around 19%.

Analysts are divided on the near-term outlook. JPMorgan has downgraded the stock to “Neutral” citing the rising complexity from the expansion. Others see the current share price as an entry opportunity. Warburg Research raised its rating from “Hold” to “Buy”, arguing that the long-term earnings power is significantly undervalued. Berenberg described the price level as attractive and noted that Rheinmetall could secure as much as €80 billion in defence orders by the end of this year. The visibility is high: framework agreements already cover nearly three-quarters of the expected 2027 revenue. Barclays, which rates the stock “Overweight”, expects better earnings momentum in the second half of the year and highlights the company’s strong order backlog, leading position in ammunition and military vehicles, and robust margins.

Händler point to lingering doubts about the pace of operational execution, speculation over a potential cooling of the Ukraine conflict, and a broad revaluation of elevated valuations across the defence sector. For now, every new contract win and capacity milestone will need to narrow the gap between a depressed share price and a business that continues to invest, expand, and accumulate orders at a historic pace.