Israeli defence firms expand German manufacturing footprint

Defence industry companies linked to Israel are steadily expanding their operations in Germany and plan to establish a rapidly growing number of arms factories across the country.

According to an analysis published by German Foreign Policy, these new arms factories contribute, on the one hand, to the swift rearmament of the German Armed Forces (Bundeswehr). On the other hand, should the war in the Near and Middle East escalate further, they allow Israeli companies to manufacture the weapons required by the Israeli armed forces from a safe distance.

This provides a safety net, for instance, in the event of another war of aggression against Iran.

This new form of defence cooperation between Germany and Israel builds on a partnership between arms manufacturers in both countries that has evolved since the mid-1950s.

For Germany, this cooperation offers access, at the very least, to the high-tech capabilities of Israel’s formidable and battle-tested military-industrial complex.

Export dependence of the Israeli defence industry

In the early 2020s, experts estimated the number of companies in Israel producing defence equipment wholly or at least partially at between 600 and 700.

At that time, these companies employed a total of around 100,000 workers; this figure accounted for slightly less than a quarter of all employees in Israeli manufacturing.

The three largest among them were the private firm Elbit, with an annual turnover of approximately $8 billion, alongside the state-owned companies Israel Aerospace Industries (IAI), with a turnover of $7.4 billion, and Rafael, with $6.8 billion (2025 figures).

By way of comparison, Germany’s largest defence industry company, Rheinmetall, recorded revenue of approximately €10 billion in 2025.

In order to generate attractive profits, the Israeli defence industry as a whole remains heavily reliant on exports, despite the sustained attrition suffered by the Israeli armed forces as a result of war.

Indeed, in recent years, exports have consistently accounted for 75% of its revenue; in total, approximately 7.5% of all Israeli exports originate from the defence sector.

According to experts, this state of affairs has expanded Israel’s sector to eight times the global average.

The “allure” of Israeli weapons systems

Industry insiders attribute the success of the Israeli defence sector and its allure for arms purchasers worldwide to several factors.

Israel’s drive to remain continuously better equipped and technologically superior to the region’s Arab states, Iran, and Türkiye is frequently cited.

Moreover, it is widely argued that the intimate ties between defence contractors and the Israeli armed forces contribute directly to the optimisation of Israeli weapons systems.

Reference is frequently made to a highly sophisticated culture of technological innovation. The foremost example of this is “Unit 8200,” which is attached to the military intelligence service and specialises in all forms of electronic reconnaissance and cyber operations.

Soldiers who leave the unit after three to five years of service are regarded as exceptionally qualified; these veterans enter the world of Israeli technology start-ups, which some have even likened to Silicon Valley.

Furthermore, Israeli weapons systems are routinely combat-tested. For instance, in late 2025, government officials from various countries, including Germany, were shown videos at a conference sponsored by the Israeli Ministry of Defence depicting drones striking a building in the Gaza Strip.

The objective was to encourage those nations to procure the drones.

The Bundeswehr’s quest for high-tech weaponry

German defence companies have collaborated with Israeli arms manufacturers for decades.

In addition to the regular bilateral arms trade that gathered momentum from the mid-1950s onwards, dedicated cooperation on high-tech weapons systems has been under way since at least the 1970s.

During that period, the Federal Republic of Germany commissioned Israel to develop a radar jammer for the Tornado fighter jet.

This equipment was tested by the Israeli Air Force during the 1982 invasion of Lebanon and proved exceptionally successful.

According to a study on German-Israeli defence cooperation, “electronic warfare” remained “a sector characterized by exceptionally close ties between Germany and Israel.”

Even in subsequent years, the Bundeswehr repeatedly procured high-tech weaponry from Israeli enterprises.

For example, the Heron 1 systems, the Bundeswehr’s first large unmanned aerial vehicles deployed to Afghanistan, were sourced from IAI. The Israeli enterprise worked in close cooperation with Rheinmetall on both delivery and operations.

The advanced Arrow 3 air defence system, which Germany is currently in the process of procuring, is likewise of Israeli origin.

This system is manufactured by IAI in collaboration with the US company Boeing.

German-Israeli joint defence ventures

Since the 1990s in particular, German and Israeli companies have also collaborated directly in the manufacture of military hardware.

In 1996, for instance, Rheinmetall and Israel Military Industries (a company subsequently acquired by Elbit) established a joint venture to develop ammunition.

Other joint ventures served primarily to market Israeli weapons systems across Europe.

In 1998, for example, EuroSpike, established in Germany by Rheinmetall (40%), Diehl Defence (40%), and Rafael (20%), facilitated the sale of anti-tank weapons produced by Rafael within Europe.

EL/M-2084 radar systems produced by IAI are marketed jointly by the Israeli holding company and Rheinmetall Canada. Sales were concluded with the Canadian armed forces in 2015 and with the Hungarian armed forces in 2020.

Rheinmetall Italia, meanwhile, manufactures Hero loitering munitions in partnership with the Israeli firm UVision.

At the end of 2025, both companies signed a contract worth hundreds of millions of euros to produce a substantial number of Hero drones for a NATO member state.

Eight new Israeli facilities in Germany

Israeli defence companies are currently taking the next step: beyond exporting weapons systems to Germany and conducting joint production with German arms manufacturers, they are expanding their own manufacturing footprints inside Germany.

The background to this development lies in the surging demand for military hardware not only in Israel, but particularly across European nations.

To meet this demand despite limited domestic manufacturing capacity, Israeli defence contractors are now establishing factories, primarily in Germany.

At the former Volkswagen plant in Osnabrück, for instance, Rafael will produce components and assemblies for air defence systems.

To this end, Volkswagen will sell the facility to the investor Aurelius Capital and the federal state of Lower Saxony.

Rafael is renowned for Israel’s Iron Dome air defence system, which it developed and produces in collaboration with IAI.

Elbit, meanwhile, plans to establish “up to eight new facilities” in Germany over the next few years to accommodate “well over 1,000” employees, as confirmed by Marian Rachow, the head of Elbit Germany and a former Airbus executive.

Protests have already begun mounting against one of these planned sites, situated in Sangerhausen, west of Halle.

Bilateral cooperation deepens

When asked why Israeli defence companies are presently prioritising investments in Germany, a former chief financial officer of the Israel Defense Forces was recently quoted as saying:

“Germany is the most important industrial hub in Europe and maintains close ties with Israel. That makes it a partner with whom we can formulate long-term plans.”

Furthermore, the German government is allocating colossal sums to military expansion.

CDU lawmaker Bastian Ernst, a member of the Bundestag Defence Committee who worked first at Rheinmetall and subsequently at Dynamit Nobel Defence, which is now owned by Rafael, before entering parliament in 2025, describes the establishment of factories in Germany by Israeli defence conglomerates as a “two-way safety net”:

“For Israel, this offers the security of having a production site capable of supplying them should they become embroiled in a conflict.”

He believes the Bundeswehr would benefit “if this technology is located in Germany and can be harnessed.”

Consequently, this appears to represent close collaboration designed to enhance the combat capabilities of both parties.