Rheinmetall's Record Backlog Fails to Shield Stock as Tank Turmoil and Geopolitical Easing Weigh

Rheinmetall shares slide 5% on MGCS tank programme threat, defence sector rotation, and downgrade; firm counters with missile JV and drone diversification.

Rheinmetall investors are looking past a record €73 billion order book and focusing on a trio of headwinds: the potential collapse of the Franco-German MGCS tank programme, a broad rotation out of defence stocks driven by easing geopolitical tensions, and a downgrade from Morgan Stanley. The Düsseldorf-based defence group saw its shares tumble roughly 5% on Monday to €1,140.60, leaving the stock more than 40% below the peak touched last September.

The immediate catalyst was CEO Armin Papperger's public acknowledgement that France's planned budget cuts could slash the next-generation tank project's value by more than half. Speaking on the sidelines of the Eurosatory defence fair in Paris, Papperger did not rule out a French withdrawal from the MGCS programme. That has forced Rheinmetall to accelerate plans for a national "Leopard 3" bridge solution, aimed at entering service early in the next decade. Industry sources cited in German media put total spending on the joint development at just €25 million over the past ten years.

Against that backdrop, the broader defence sector is also losing its safe-haven appeal. Progress on a framework agreement in the Iran conflict has dampened the immediate demand outlook for military hardware, and Morgan Stanley has downgraded the sector to "neutral", triggering fresh selling pressure.

Yet Rheinmetall is not idle. At Eurosatory, the company announced a joint venture with South Korea's LIG Nex1 (also known as LIG Defense & Aerospace) to develop and market medium- and long-range guided missiles for European and NATO customers. Rheinmetall holds the majority stake in the venture, which aims to boost production capacity and shorten delivery times—a direct response to persistent bottlenecks in Europe's defence supply chain.

The group also unveiled the Skyspotter drone detection system and, separately, is partnering with ERC System to build a heavy-lift drone capable of carrying 250 kg payloads over long distances. These moves underscore Papperger's strategy of diversifying into air defence and unmanned systems, even as the ground-vehicle pillar wobbles.

Financially, the company's first-quarter 2026 results painted a picture of strong demand. The order backlog hit €73 billion, up 31% year on year, and management confirmed its full-year guidance for revenue growth of 40% to 45% and an operating margin around 19%. The second quarter is expected to be significantly stronger than the first, according to the company.

Nevertheless, the stock continues to trade near its year low, just 4% above the May trough. Technicians are watching the €1,100 level as the next tangible support if the selling persists. With the MGCS crisis unresolved and the sector mood souring, the joint venture will need to convert its missile ambitions into tangible orders quickly to restore investor confidence.