German defense corporation Rheinmetall completed construction of Europe’s largest artillery ammunition factory in August 2025 in a record time of 18 months. The new facility in Lower Saxony is set to reach a capacity of 350,000 shells annually by 2027, marking a significant shift toward European defense self-sufficiency. The company plans a total production of 700,000 units of ammunition per year within the next few years.
European Defense Industry Increased Production Sixfold in Two Years
The war in Ukraine exposed critical weaknesses in European defense. While Russia produces 4-5 million shells annually, the European defense sector reached two million units after two years of intensive scaling up. The German corporation supplies more than half of this production.
Berlin has approved an increase in defense spending, which could exceed 150 billion euros annually by the end of the decade. According to NATO data, European ammunition production increased sixfold in two years. The record construction pace of the new Unterlüß facility – just 18 months from groundbreaking – was called “remarkable” by NATO Secretary General Mark Rutte and a model for the entire defense industry.
Multi-Billion Defense Contracts Ensure Long-Term Growth
German corporation Rheinmetall signed framework agreements with Germany, Netherlands, Estonia, and Denmark for ammunition deliveries worth up to 8.5 billion euros. The contract provides the company with long-term security and enables further expansion.
Long-term contracts worth over 40 billion euros ensure revenue stability and create conditions for additional investments in the defense industry.
Expansion Across the Continent Brings Diversification
Unterlüß is part of a broader strategy to build a “European network of factories.” The company is implementing or preparing investments in several countries:
- Romania: gunpowder factory for 535 million euros with capacity for 700 employees
- Bulgaria: project exceeding one billion euros including production of shells and powder
- Lithuania, Latvia, United Kingdom: planned investments to strengthen continental resilience
Company CEO Armin Papperger describes the strategy as a path to reduce dependence on individual suppliers. Distributing production across multiple countries aims to create a robust foundation capable of functioning during extended conflicts.
Rheinmetall shares are benefiting from record demand and long-term contracts.
From an investment perspective, the firm ranks among Europe’s fastest-growing companies. Rheinmetall recorded outstanding revenue and according to analysts may grow by tens of percent annually in coming years. Financial results for the first half of 2025 showed 40% revenue growth compared to the previous year.
The company’s goal is to capture up to a quarter of the European defense market by 2030, which could approach one trillion euros in value. Current market capitalization reaches approximately 25 billion euros.
Rheinmetall shares benefit from long-term contracts worth over 40 billion euros. Average contract length reaches 8-12 years, ensuring stable cash flow and confirming the position of a pan-European leader.
Lockheed Martin Partnership Changes the Entire Game
Rheinmetall is negotiating with American Lockheed Martin about transferring part of ATACMS and Hellfire rocket production to Germany. For the company, this means entering a more profitable business – rocket production has margins around 15%, while conventional shells only 8%.
Even more important is the symbolism. Cooperation with the American giant would make Rheinmetall a strategic US partner in Europe. Such firms traditionally achieve higher market valuations than purely European competitors – investors perceive them as more stable with better prospects.
Three Major Risks That Could Complicate Growth
The biggest challenge? Supply dependence. Europe imported most titanium needed for weapons from Russia – now defense industry companies must seek alternative suppliers in Japan and the USA. The problem is they are more expensive. This could temporarily reduce margins.
The second risk is political. If America decides to reduce Ukraine support after elections, European ammunition demand could decline. Paradoxically, this would force Europe toward even greater independence – and the German corporation would benefit long-term.
The third challenge is competition. British BAE Systems and Italian Leonardo already announced investments worth billions of euros in new manufacturing capacity. The company must maintain pace to avoid losing its lead.
European Defense Spending Will Grow 12% Annually Through 2030
The Unterlüß factory is just the beginning of a larger story. According to Goldman Sachs, European defense budgets are expected to grow significantly faster than the overall economy by 2027 – from approximately 1.8% to 2.4 – 2.7% of GDP. This represents an annual increase in the tens of billions of euros. Rheinmetall as the largest player will benefit most from this trend.
The firm has three main advantages: dominant market position, long-term contracts ensuring stable revenues, and ideal timing – finding itself at the right time and place during European defense policy transformation.
Analysis shows Rheinmetall stands at the beginning of a long-term boom with clearly measurable impacts. The question is no longer whether the European defense industry will grow – but who will capture the largest share of this growth.
