Rheinmetall's Simulator Passes Factory Test as JPMorgan Flags Margin Risk and Shares Sit 51% Below Peak

Rheinmetall shares closed at EUR 989.30 as Eudex opened in Essen; JPMorgan added the stock to its Negative Catalyst Watch on margin concerns.

Rheinmetall shares came under pressure on the day the Eudex defence trade fair opened its doors in Essen, with the stock giving up 2.2% to close at EUR 989.30. The decline stretched the gap to the 52-week high to 51%, a distance that has become a defining feature of the equity's recent trading history.

The muted reaction to the fair's opening says as much about shifting market sentiment as it does about the company itself. After a prolonged rally, investors are weighing operational progress more cautiously and turning their attention to the upcoming quarterly figures. Even a steady pipeline of European defence programmes has not been enough to restore appetite.

Factory Acceptance Test Cleared in Bremen

On the operational front, Rheinmetall recently confirmed the completion of several key milestones. Its AGSW live-fire and combat simulator for the Schwerer Waffenträger Infanterie passed the Factory Acceptance Test at the Bremen site, with a project manager from the Bundeswehr's procurement office for equipment, information technology and in-service support confirming the successful result.

The training system prepares crews for the infantry heavy weapons carrier, which is built on the Boxer wheeled armoured vehicle fitted with a Lance turret and the MK30-2 ABM automatic cannon. Germany has ordered 123 units in total. Development of the simulator began after the contract was signed in early 2024. Following factory acceptance, the first system is scheduled for handover to the infantry school in the autumn, with five AGSW units to be delivered by mid-2027. Handheld trainers have already reached the Jäger battalions.

UK Test Rig Boosts Challenger 3 Work

Rheinmetall is simultaneously broadening its industrial footprint abroad. A new vibration test facility has gone into operation in Telford, designed to handle large structures weighing up to 40 tonnes and capable of simulating vertical motion as well as tilting. Its primary purpose is further development of the Challenger 3 main battle tank for the British armed forces, though it will also be available for future defence platforms.

The company's second-quarter figures showed clear revenue growth, with sales reaching EUR 3.29 billion against EUR 2.43 billion a year earlier. Earnings per share for the same quarter came in at EUR 2.66, down from EUR 2.90 in the prior-year period. The next official interim results are due on 5 November, when the third-quarter report is published.

JPMorgan Adds Stock to Negative Catalyst Watch

Beneath the headline growth, however, analysts have grown more guarded. JPMorgan placed Rheinmetall on its "Negative Catalyst Watch" list on 10 September while keeping its rating at "Neutral". The analysts pointed to emerging margin pressure stemming from a shift in the product mix. As the group tilts further toward missiles, drones and digital systems, substantial upfront investment is required — spending that could weigh on the operating margin.

That portfolio transition cuts both ways for investors. On one hand, it secures promising market share in modern warfare. On the other, it has been the established ammunition and vehicle divisions that delivered the most dependable and profitable returns. Recasting those revenue streams therefore dampens near-term earnings momentum.

The warning landed in an already strained environment. A decisive factor was the German government's decision to cancel the F126 frigate programme. At the same time, the group guided toward a significantly negative operating free cash flow for the full year. Reports of delivery delays for the wheeled armoured vehicle and the Skyranger air-defence system, along with quality checks on protective plates, added to the downbeat mood.

Those delays lay bare the sheer industrial challenge facing the defence sector. After years of low utilisation, capacity cannot be ramped up without friction. Stringent acceptance procedures and technical requirements mean that even minor defects in supplier parts can throw entire production runs off schedule.

EUR 80.5 Billion Backlog Provides a Floor

Even so, the fundamental base remains substantial. Rheinmetall reported an order backlog of EUR 80.5 billion at the mid-year mark. Continuing ammunition orders guarantee a baseline workload stretching years into the future and demonstrate that demand for conventional defence goods remains unbroken. Working through those volumes, though, demands heavy interim financing for raw materials and manufacturing stages, which temporarily ties up liquidity.

The coming weeks should shed light on the company's financial condition. In pre-market trading, the shares were quoted at EUR 1,015.00.