A lifeline amid crisis: Europe’s auto giants pivot to drones and defence

European automakers are undergoing a profound transformation, shifting from civilian vehicles toward defence manufacturing, particularly components for drones and air defence systems, according to an analysis by our Slovak partner Eubrief.

This strategic pivot comes as the industry faces its toughest challenges in decades, including collapsing domestic sales, intense competition from China, and new U.S. tariffs. At the same time, European governments are ramping up defence spending in response to geopolitical tensions, creating opportunities that traditional arms producers alone cannot fulfill.

The automotive sector remains a cornerstone of the European economy, employing over 13 million people and contributing around 8% to the EU’s GDP. Yet it is under severe strain. A March survey by the European suppliers association CLEPA revealed that up to a quarter of subcontractors risk falling into net losses this year. Major players are not immune: the Volkswagen Group is preparing deep cuts affecting up to 50,000 employees and has, for the first time, openly discussed closing plants in Germany itself.

Automakers embracing the defence boom

Faced with these pressures, several companies are actively redirecting production lines. In France, Renault has partnered with defence firm Turgis Gaillard to manufacture structural parts and engines for the long-range Chorus attack drones at its Le Mans and Cléon facilities. The French Ministry of Defence is supporting the initiative, signaling strong governmental backing for such collaborations.

In Germany, Volkswagen is in talks with Israel’s Rafael to repurpose its Osnabrück factory. Once civilian model production ends in 2027, the site could shift to building heavy logistics vehicles, launch pads, and generators for the Iron Dome anti-missile system. This move could safeguard the plant’s 2,300 jobs. Across the sector, the CLEPA survey indicates that up to 40% of automotive companies are reallocating capacities toward defence, drawn by more stable demand and better margins.

Subcontractors are adapting particularly quickly. Electronics, battery, and precision engineering lines can often be converted for military use with relatively modest changes. Schaeffler, a traditional supplier of bearings and drives, is pursuing mass production of military drones through a partnership with Munich-based Helsing. Similarly, Trumpf is applying its laser technology, previously used for welding car bodies, to new defence applications.

The European Commission is actively encouraging this transition. President Ursula von der Leyen has emphasized that Europe has entered an era of rearmament, backed by the European Defence Readiness 2030 program, which aims to mobilize hundreds of billions of euros for greater military self-sufficiency. Russian aggression in Ukraine and shifting U.S. foreign policy have accelerated these investments, exposing capacity limits among legacy defence contractors and opening doors for automotive expertise in areas like advanced manufacturing, electronics, and propulsion systems.

In Slovakia, the picture is more mixed. While Western European counterparts commit entire production lines to defence, local carmakers largely remain focused on civilian output, hoping for new models from parent companies. Still, some suppliers are quietly integrating into defense chains. InoBat has developed a NATO-compatible drone battery that charges in under 15 minutes. Engineering firms such as ThyssenKrupp Rothe Erde in Považská Bystrica and Hriňovské strojárne are contributing components for Swedish CV90 infantry fighting vehicles destined for the Slovak army. These steps represent modest but meaningful diversification.

The EU’s pandemic debt dilemma

Parallel to the industrial shifts, European leaders are confronting the repayment of massive debts incurred during the Covid-19 pandemic. The EU borrowed €650 billion to support member states through the crisis, with funds intended primarily for green and digital investments. In practice, governments also tapped these resources to manage subsequent shocks, including the energy crisis triggered by Russia’s invasion of Ukraine.

Repayments are scheduled to begin in 2028, coinciding with the next seven-year EU budget cycle. Without new revenue sources, such as pan-European taxes, the annual burden could reach €24 billion, consuming a portion of the regular budget and squeezing funding for other priorities. Some leaders are advocating for a postponement: replacing maturing bonds with new ones to free up capital for defence and industrial support. However, this requires unanimous agreement among member states, and frugal countries like Germany and the Netherlands remain skeptical, pointing to instances where Recovery Fund money covered day-to-day spending rather than strategic investments.

Environmental and energy policies add further complexity. The Commission plans to release four billion euros worth of free emission allowances early to help energy-intensive industries cope with high prices, with potential extensions for fertilizer producers. Members of the European Parliament are pushing to soften CO₂ targets for passenger cars beyond the already revised 90% reduction by 2035. Proposals include greater credits for renewable fuels and low-carbon steel, potentially bringing the effective target closer to 73% through a compromise involving the European People’s Party and possibly other groups.

Energy security remains a pressing concern. The United States is set to become Europe’s largest natural gas supplier this year, while LNG imports from Russia have paradoxically reached record levels in early 2026 despite phase-out plans targeting the end of 2027. Cyprus, Romania, and Greece are urging greater investment in untapped eastern Mediterranean gas reserves. Meanwhile, the International Energy Agency’s Global Methane Tracker 2026 highlights a striking inefficiency: curbing methane leaks and flaring in global oil fields could unlock 200 billion cubic meters of gas annually, nearly double the volume affected by disruptions in the Strait of Hormuz, with quicker measures potentially adding 15 billion cubic meters to markets in the near term.

This dual reality – automotive giants retooling for defence while EU institutions wrestle with debt, emissions rules, and energy vulnerabilities, illustrates the bloc’s broader struggle to balance economic survival with strategic autonomy. Whether these adaptations will prove sufficient to safeguard jobs, restore competitiveness, and strengthen security remains to be seen.

The original analysis in Slovak by EUalive’s partner Eubrief.sme.sk can be found here.

Caption: Cars for export wait for shipment at the port in Emden, Germany, 23 April 2026. Autoport Emden is the third-largest automobile handling port in Europe, with an annual handling volume of around 1.24 million vehicles, mainly brands from the Volkswagen Group including VW, Audi, Porsche, Bentley and Lamborghini. EPA/CHRISTOPHER NEUNDORF