Key facts
- Western automakers are pursuing defense contracts to sell more vehicles and utilize idle factories.
- Ford, General Motors, and Jaguar Land Rover are bidding for a £900 million UK Ministry of Defence vehicle contract.
- GM expects its defense division revenue to grow 30% annually, reaching about $1.5 billion in 2029, less than 1% of group revenue.
- Stellantis plans to sell an idled Canadian factory to Roshel, an armored-vehicle maker.
- Volkswagen is selling its Osnabrueck plant to Aurelius Capital and the state of Lower Saxony for a project with Rafael Advanced Defense Systems.
- Suppliers may benefit more from defense spending due to lower investment needs for adapting production lines.
Western automakers are increasingly looking to the defense sector for new revenue streams as car sales slow and competition from Chinese manufacturers intensifies. Companies like Ford, General Motors, and Jaguar Land Rover are bidding for military contracts, adapting their existing pickup trucks and off-road vehicles for defense use. Others are seeking to offload underutilized factories to defense manufacturers.
Despite the push, executives and analysts suggest that defense work will likely have a limited financial impact on overall revenue. General Motors, for instance, anticipates its defense division will generate $700 million in revenue this year, with projected annual growth of 30%, but this would still represent less than 1% of its total group revenue by 2029.
Automakers are motivated by the rising defense spending in Western countries, which presents one of the few growth sectors for the industry. Ford's European head, Jim Baumbick, noted that providing vehicles to the military aligns with the company's existing strengths in producing "tough vehicles with high payloads." Ford is bidding with its Ranger pickup, GM with modified Chevrolet Silverados, and JLR with its Defender model for a significant UK Ministry of Defence contract.
Beyond vehicle sales, automakers are also exploring the sale of surplus manufacturing capacity. Stellantis plans to sell an idled factory in Canada to armored-vehicle maker Roshel, while Volkswagen is selling its Osnabrueck plant for a defense-related project. However, some analysts, like Ian Henry of AutoAnalysis, believe that factory disposals are a more concrete benefit than diversifying production.
Suppliers may see greater opportunities, as their smaller, more flexible production lines can often be adapted to military programs with less investment compared to large vehicle assembly plants. Christophe Perillat, CEO of Valeo, noted that the defense industry offers growth and higher profit margins than the traditional automotive market. Forvia, another supplier, is exploring military opportunities with low industrial investment and has transferred a factory to General Dynamics.
Some companies, like Renault, are planning to produce military drones, but acknowledge the scale is small relative to their automotive operations. JLR, on the other hand, is focusing on its core business of vehicles and avoiding diversification into unfamiliar sectors, citing formidable competition from specialist defense companies.