German automakers weigh Chinese partnerships and defense conversions for idle plants

Germany's embattled automakers are exploring partnerships with Chinese manufacturers and sales to defense companies as underused factories face an uncertain future amid weak demand, Chinese competition and a rocky transition to electric vehicles.

Volkswagen, Europe's biggest automaker, said in April it is open to "partnering" with Chinese manufacturers at its plants. The company is slashing thousands of jobs and seeking to reduce global production capacities by around 1 million vehicles — half in China and half elsewhere, particularly Europe. Chinese brands, including BYD, MG and Chery, now account for around 9% of Europe's overall sales, according to consulting firm Dataforce.

Dirk Panter, economy minister of the state of Saxony, whose Volkswagen plant in Zwickau faces an uncertain future, said: "To secure the future of the automotive industry in Saxony and in Germany, it is essential not to ignore this reality." The Handelsblatt financial daily reported that Volkswagen held talks in 2024 with Chinese carmakers, but they ended with no result. A Volkswagen spokesperson told AFP that "there are currently no plans or discussions regarding the production of Chinese vehicles in the German plants of the Volkswagen Group."

Frank Schwope, an auto industry consultant and lecturer at FHM Berlin university, told AFP: "I think that the hesitation on the part of the Chinese manufacturers is very great. The offer would have to be very attractive." Stellantis, which owns Jeep and Fiat, has already taken a step in this direction, opening factories for Chinese manufacturers to produce cars in Europe as they seek to get around EU tariffs on EVs, though its announcements have mainly focused on Spain and France, where costs are lower.

German manufacturers are also considering opening up or even selling plants to defense companies, which are expanding rapidly as Germany and other European countries rearm. Der Spiegel reported that French-German tank and weapons maker KNDS is in talks to take over a Mercedes-Benz plant at Ludwigsfelde, south of Berlin, that produces vans and convert it to make armoured personnel carriers. A KNDS spokesperson told AFP it was "seeking suitable partner companies for the planned ramp-up in the defense sector." Mercedes told AFP that "our goal is to develop a future-ready solution for Ludwigsfelde."

Volkswagen has confirmed it is in talks with defense companies about its plant in Osnabrueck, where production is due to end as part of its cost-cutting drive. Reports say the group has held talks with Israel's Rafael Advanced Defence Systems about making components there for the Iron Dome air defense system, including heavy-duty trucks and electricity generators, but not the projectiles themselves. Discussions have also reportedly taken place with KNDS about the factory.

Entering the defense sector could prove controversial for Volkswagen, which was founded when the Nazis were in power, produced military equipment for Germany during World War II, and used forced labor. "In historical terms, it's not an easy issue for Volkswagen to share locations with defense companies," Stefan Bratzel, an auto industry expert at the Center of Automotive Management in Germany, told AFP.