Rheinmetall's €100bn Order Book Hides a Supply-Chain Question Markets Can't Answer

Rheinmetall and TKMS see record order backlogs, but investors worry about rare earth supply as Rheinmetall shares fall 26% YTD.

The arithmetic of Europe's rearmament boom is staggering on paper. Rheinmetall chief executive Armin Papperger puts his company's order backlog at more than €100bn, and when the order books of naval shipbuilder TKMS are added to the equation, the combined figure exceeds €125bn. Yet for all that contracted demand, investors are increasingly asking a more elemental question: where will the raw materials come from?

TKMS contributes more than €25bn to the joint backlog, including €6.3bn earmarked for four MEKO A-200 frigates for the German armed forces. The shipyard's revenue climbed 19 percent to €1.89bn in the first nine months of the year, with operating profit up 13 percent to €110m. The company is also the preferred bidder for a Canadian submarine programme valued at over €15bn, a potential addition to an already crowded pipeline.

The resource question is no academic exercise. Armoured vehicles, frigates and drones all depend heavily on rare earth metals, the supply of which remains overwhelmingly concentrated in China. One potential alternative source cited by analysts is the Araxá project run by Australia's St George Mining, whose rare earth resource has grown 38 percent to nearly 4 million tonnes of TREO. For Rheinmetall and TKMS this is not an immediate commercial concern, but the tightening supply debate underscores how deeply defence production is now intertwined with critical supply chains — a risk factor that investors must weigh against those bulging order books.

A Share Price Caught Between Momentum and Doubt

The market's mood is visibly conflicted. Rheinmetall shares closed Friday at €1,156.40, down 4.0 percent over a seven-day stretch, with retail investors on forums debating whether a double top is forming and whether an impulsive downswing has begun. The stock is wrestling with its 100-day moving average — evidence that even a nine-figure backlog does not immunise the share price from short-term fragility.

The stock has fallen 26 percent since the start of the year, a sharp correction following years of dramatic gains. The trigger was a decision in Berlin: after the cancellation of the F126 frigate programme, the German government's revised expectations shaved €300m off Rheinmetall's revenue forecast for the current year. The company now guides for sales of €13.7bn to €14.2bn, down from the previously projected €14.0bn to €14.5bn. From its 52-week high of €2,007.00, reached in early October last year, the share price sits 42 percent lower.

Analysts Split on What Comes Next

The sell-side has responded with sharply divergent views. RBC initiated coverage on 11 August with an "Outperform" rating and a €1,600 price target — the most bullish figure currently on the street. Jefferies followed on 14 August, lifting its target from €1,300 to €1,350 while keeping a "Buy" recommendation. At the other end of the spectrum, mwb research downgraded the stock from "Hold" to "Sell" on 8 August, cutting its target from €1,150 to €1,050. The gap between roughly €1,050 and €1,600 reflects genuine disagreement over how much the trimmed guidance damages the long-term growth narrative.

New Orders, Same Old Questions

A fresh contract from Denmark, reported in the media on Tuesday and valued in the double-digit millions of euros, has been cited as a short-term catalyst for the shares. It joins a series of European defence awards Rheinmetall has secured in recent months. But a single order of that size will not resolve the debate over the lowered annual forecast. What it does demonstrate is that European demand for military hardware remains intact despite individual programme setbacks such as F126.

The central question for investors remains whether new contracts from countries like Denmark can fill the hole left by the cancelled frigate programme. The wide dispersion in analyst price targets suggests the market has not yet reached a consensus. On 27 August, the DZ Bank Expert Day could provide fresh impetus for the valuation debate. Until then, the stock is likely to remain suspended between a long-term growth story built on billions in defence orders and near-term technical uncertainty — with the raw materials question quietly gaining weight as a potential bottleneck for the entire sector in the quarters ahead.