Rheinmetall’s Defence Pivot Meets a Testing Market as ILA Opens in Berlin

Rheinmetall sells Power Systems to AEQUITA, focuses solely on defence. Despite record €73B backlog, shares drop 25% YTD as market awaits earnings impact.

Rheinmetall is heading into the ILA Berlin 2026 air show with a sharpened identity, a record order book and a share price that still looks wounded. From 10 June, the group will use the stage in Berlin to present itself as a pure defence contractor, just as investors continue to question how quickly that strategic reset can feed through to earnings and the stock.

The transformation became concrete on 3 June, when Rheinmetall signed the sale of its Power Systems division to AEQUITA. The business change hands with around 6.200 employees, protected by a three-year employment guarantee negotiated by IG Metall. Completion is still subject to regulatory approval and is expected in the fourth quarter of 2026. Once it closes, Rheinmetall will no longer be a conglomerate with industrial exposure, but a company focused entirely on defence.

That shift also changes the company’s size and shape. Of roughly 40.000 employees, about 34.000 will remain in the Defence core after Power Systems leaves the group. The deal is valued at around 350 million euros. For management, the appeal is clear: less cyclical automotive supply work and a stronger concentration on military systems with higher margins.

The market, however, is not rewarding the story yet. Rheinmetall’s shares recently changed hands at 1.190,00 euros, around 25 percent lower since the start of the year and 33,28 percent down over 12 months. The stock is only 8,20 percent above its 52-week low, sits 11,48 percent below the 50-day average and has an RSI of 39,6. Earlier in the week, another reading put the price at 1.201,60 euros, still roughly 40 percent below the yearly high and well under the 200-day moving average of 1.617 euros.

Operationally, the picture is much stronger. Rheinmetall’s backlog reached 73 billion euros, a historic peak for the group. A separate year-end figure cited for 2025 puts the order book at 63,8 billion euros, up 36 percent from the previous year. Either way, the message is the same: production is booked out far in advance, giving the manufacturer years of visibility.

That order pipeline is expected to support a full-year sales target of 14,0 billion to 14,5 billion euros. The company has left that guidance unchanged despite a soft first quarter. It also continues to aim for an operating margin of around 19 percent. Management has said that production ramp-ups and contract deliveries are weighted toward the second half of the year.

The Q1 numbers were a disappointment. Consolidated sales came in at 1,94 billion euros, roughly 15 percent below analyst expectations. The Air Defence segment, though, grew 43 percent in the quarter, underscoring where demand is strongest. For the second quarter, Rheinmetall has added another sizeable contract: a firm order for LLM-VarioRay laser light modules for the Bundeswehr worth several hundred million euros net.

The Berlin exhibition will be the first major public appearance after the corporate break-up. On about 840 square metres, Rheinmetall plans to show a broad systems portfolio under the slogan “Strong and clear. Across all domains.” Among the exhibits are the MQ-28 Ghost Bat autonomous combat drone, developed with Boeing and being positioned for a possible Bundeswehr procurement in 2029, the FV-014 loitering munition system with a range of up to 100 kilometres, and the Skyranger 30 air defence system. The company will also showcase Rheinmetall ICEYE Space Solutions, which recently secured a multi-billion-euro Bundeswehr contract for SAR satellite reconnaissance.

One further project underlines how quickly Rheinmetall is moving into more advanced defence technology: its F-35 centre fuselage production site in Weeze on the Lower Rhine. The facility was built in less than 18 months, production has been running since summer 2025, and the eighth centre fuselage is now on the line.

There is also a broader competitive issue hanging over the market. The German government has agreed to take a 40 percent stake in KNDS, the tank maker behind the Leopard 2 and Panzerhaubitze 2000. France also holds 40 percent. The company is valued at 18 billion to 20 billion euros, with an IPO planned for June or July 2026. In the longer term, both state holdings are meant to fall to 30 percent each, creating a state-backed listed rival directly in Rheinmetall’s core market.

That competitive shift helps explain some of the pressure on the share price. At the same time, the industry backdrop remains supportive. SIPRI recently calculated European military spending at 864 billion US dollars, the highest level ever recorded, while Germany is planning defence spending of more than 108 billion euros in 2026.

Rheinmetall will present its half-year figures on 6 August. That update should show whether the weak first quarter was simply a matter of timing — and whether the record order book is translating into the sales and profit momentum the market is waiting for.