INVESTIGATION: Rheinmetall, KNDS and the Broken Mirror of European Rearmament — Behind the Billions, the Flaws

Introduction: when stock market heroes disappoint the markets

The euphoria of 2022 and the reality check of 2026

After February 24, 2022, there was a conviction shared across financial markets and European chancelleries: the continent's defence industries were about to experience their best years since the Cold War. Rheinmetall, KNDS, Leonardo, Thales, BAE Systems — all were set to benefit from a flood of orders as governments, under American pressure and in shock from the Russian invasion of Ukraine, would finally honour their promises to increase defence budgets. Investors had bet big. Governments had promised grand.

By June 2026, the awakening is brutal. First-quarter 2026 figures published by the major European defence players sowed disappointment among investors. The Stoxx Europe Targeted Defense index has fallen by more than 15% since the beginning of the year. Order books are filling, yes — but revenues and profits are not keeping pace. There is a gaping chasm between political promises and industrial reality. That chasm is the subject of this investigation.

The central question: why do the billions not translate into capabilities?

The question is simple to formulate and difficult to resolve: Europe is spending hundreds of billions on defence, yet its industries are struggling to convert those expenditures into real production and profits. The 29 European NATO members together spent $559 billion (approximately €487 billion) on defence over the past year, according to DW. Germany alone spent $114 billion, a rise of 24% from the previous year. These figures are historic. And yet the companies supposedly benefiting from these expenditures are seeing their share prices fall.

The analysis from Bloomberg Opinion, published on June 25, 2026, delivers the diagnosis with rare candour: European arms manufacturers face "a battalion of problems." These are not problems of demand — demand is there, guaranteed by government budgets. They are structural, institutional, and industrial problems that call into question Europe's ability to truly rearm itself, quickly and effectively.

Rheinmetall: Germany's champion with feet of clay

Orders piling up, profits nowhere in sight

Rheinmetall, the German defence giant based in Düsseldorf, has become the symbol of European rearmament. Its order book has exploded since 2022, notably for its Lynx infantry fighting vehicles, its Skyranger anti-aircraft gun systems, and its artillery ammunition. The company has announced ambitious expansion plans in Germany, Ukraine, Romania, and several other countries. Its chief executive, Armin Papperger, has become a near-media figure of European rearmament.

But the first-quarter 2026 financial results dampened the enthusiasm. Margins disappointed, delivery timelines are stretching, and investors are beginning to doubt Rheinmetall's ability to convert its colossal orders into real revenues within the announced deadlines. The problem is not a lack of orders: it is the capacity to fulfil them. Hiring thousands of specialized workers, building new factories, securing supply chains in critical raw materials — all of that takes years, not months.

Supply bottlenecks: propellant, special steel, and electronic components

At the heart of the difficulties facing Rheinmetall and its competitors are structural supply bottlenecks that cannot be resolved by political decree. The production of artillery shells, for example, requires propellant powder made through precise chemical processes, high-resistance special steel, and detonation fuzes containing precision electronic components. Each of these inputs has its own production constraints, its own lead times, and its own suppliers — often few in number and with no redundancy.

Europe significantly deindustrialized a portion of its arms production capabilities between the end of the Cold War and 2022. Rebuilding these capabilities within a few years is a titanic task. And even once the factories are built, qualified personnel must be trained — technicians capable of handling explosives, calibrating artillery systems, assembling sensitive electronic components. This workforce cannot be improvised overnight.

KNDS: the Franco-German challenge of industrial integration

The group carrying the promise of European cooperation

KNDS — Krauss-Maffei Wegmann/Nexter Defence Systems — was born from the merger between the German KMW and the French Nexter, finalized in 2015. This Franco-German group is the symbol of industrial defence cooperation in Europe: it produces the German Leopard 2 tanks and the French Leclerc tanks, as well as the self-propelled artillery system Caesar that has distinguished itself in Ukraine. In theory, KNDS should be one of the major beneficiaries of European rearmament.

In practice, the group faces difficulties that perfectly illustrate the tensions inherent in transnational industrial cooperation. The two national parts of the group — the French and the German — have different industrial cultures, cost structures, and supplier networks. Investment decisions are often slower than they would be in a unified national company, because they require consensus between sometimes divergent interests. And when an order arrives, the question of which part of the group will benefit from the production triggers exhausting negotiations.

The Caesar in Ukraine: operational success, production cadence problems

The Caesar self-propelled artillery system has become one of the most prized systems on the Ukrainian front for its precision and mobility. France and Denmark have delivered dozens to Ukraine, and other countries have placed orders. But the production cadence of KNDS/Nexter has reached its limits. The factory at Roanne, which assembles the Caesar, is running at full capacity but cannot double its production without massive investment in assembly lines and personnel training.

This mismatch between demand and delivery capability is emblematic of the broader problem facing the European defence industry. Customers — European governments and Ukraine — want systems now. Factories need 18 to 36 months to significantly scale up their capacity. In the meantime, orders accumulate in the books, delivery timelines lengthen, and investors grow impatient. The Caesar is a military success — but its production illustrates the structural constraints of the sector.

National fragmentation: Europe's real Achilles heel

29 national industries for a single alliance

One of the deepest structural problems of the European defence industry is its national fragmentation. Each NATO member country tends to protect its own national industrial champions, to favour local suppliers in its public procurement, and to resist the sectoral specialization that would make the alliance as a whole more efficient. The NUPI report cited by DW is scathing: "Europe's Achilles heel is no longer financial, it is institutional."

The consequences are concrete. Germany, France, and Poland have taken separate paths to acquiring long-range artillery systems similar to the American HIMARS. The Future Combat Air System (FCAS), a Franco-German project supposed to develop the next-generation European combat aircraft, was abandoned following disagreements between Dassault Aviation and Airbus Defence and Space. The top ten contractors represent between 67% and 90% of public defence procurement in Germany, Poland, and the United Kingdom, according to a study by the Bruegel institute published in March 2026.

Duplication: the luxury Europe can no longer afford

The duplication of efforts — several countries separately funding the development of similar systems — is massive waste in a context where budgetary resources, even if increased, remain limited. Europe is simultaneously developing several next-generation tank projects, several self-propelled artillery concepts, several missile defence approaches. Each project creates its own national jobs, but the overall result is less efficient than an integrated programme.

The question of a Franco-German next-generation tank to replace the Leclerc and the Leopard has stagnated for years in bilateral discussions without resolution. The Main Ground Combat System initiative (MGCS) is another example of a cooperation project that crawls forward at a snail's pace. These delays are not bureaucratic accidents: they reflect fundamental disagreements about the sharing of industrial work and technologies — disagreements that governments struggle to resolve in the face of their respective national industries.

The question of financial sustainability

Governments spending but beginning to count

European governments have massively increased their defence budgets since 2022, but warning signals are beginning to appear regarding their capacity to sustain these spending levels. Germany lifted constitutional limits on debt to finance its defence — a politically costly decision that sparked intense debate. Other countries like France and Italy face structural budgetary constraints that limit their room for manoeuvre.

The crucial question is whether these spending levels are sustainable over the long term in an environment of low economic growth and pressure on public finances. Bloomberg Opinion raises exactly this concern: if peace returned to Ukraine, would cash-strapped governments honour their spending commitments? Analysts note that some defence stocks fell precisely because investors doubt the durability of European military budgets.

The debate about what to buy: tanks or drones?

The war in Ukraine has reignited a fundamental strategic debate about the composition of modern armed forces. Drones — cheap, available in mass quantities, and increasingly precise — have demonstrated their ability to neutralize expensive tanks and artillery systems. This reality raises an uncomfortable question: do the billions invested in additional Leopard tanks, self-propelled artillery pieces, and precision ballistic missiles truly reflect the lessons of the Ukrainian battlefield?

A growing number of voices in military circles are advocating for a rebalancing toward military drones, loitering munitions, missile defence systems, and electronic warfare capabilities. But this transition is difficult to manage industrially: giants like Rheinmetall and KNDS are specialized in heavy conventional systems. The pivot toward drones benefits newer technology companies more than the traditional industrial champions.

The challenges of industrial scale-up

Training a specialized workforce in an emergency

One of the least covered aspects of European rearmament is the human challenge. Defence industries need highly specialized personnel — weapons systems engineers, explosives technicians, precision machine operators, industrial electronics specialists. This workforce does not train in a few months: specialized curricula take three to five years, and practical experience on complex systems is acquired over a decade.

Europe rationalized a portion of its defence production capabilities in the 1990s and 2000s, laying off hundreds of thousands of specialized workers who have since migrated to other sectors or retired. Rebuilding this human capital takes time and money. Rheinmetall has announced massive hiring programmes, but finding qualified candidates remains difficult in an already tight German labour market. Competition with the automotive and technology industries for the same engineering profiles is intense.

Supply chains: unresolved critical dependencies

The supply chains of the European defence industry contain critical dependencies on third-party suppliers — sometimes located outside Europe — that are points of systemic vulnerability. Precision electronic components often come from Asia. Certain critical raw materials — rare earths, tungsten, titanium — are dominated by China and Russia. Chemical precursors for explosives can have geographically problematic origins.

These dependencies do not resolve easily. Diversifying supply chains is expensive and time-consuming. Building alternative capabilities on European territory — for the production of defence electronic components, for example — requires massive investment and lead times of several years before production can begin. In the meantime, a blockage in one supply chain can halt an entire production line, with cascading effects on delivery timelines.

The American model: a reference but not an exportable blueprint

The scale gap between the American and European industries

A key factor in the difficulties of the European defence industry is the scale gap with the United States. The American military-industrial complex — Lockheed Martin, Raytheon Technologies, Northrop Grumman, General Dynamics — operates on a domestic market of $800 billion annually, allowing economies of scale that fragmented European actors cannot reach. These giants can spread R&D costs across far greater production volumes, reducing the unit cost and improving margins.

Rheinmetall, for all its stature as Europe's largest defence player, is dwarfed by comparison. KNDS, Leonardo, Thales — all are structurally disadvantaged relative to their American counterparts. This asymmetry has long been known, yet it has not prevented European governments from continuing to buy American for the most strategic systems: F-35 combat aircraft, Trident submarine ballistic missiles for the United Kingdom, Patriot missile defence systems.

Defence bureaucracy: the invisible adversary

Another major obstacle to European rearmament is the slowness of defence procurement processes. In Germany, for example, an armament programme can take a decade or more to move from feasibility studies to the delivery of first systems, owing to tendering procedures, parliamentary oversight, and certification requirements. These processes, designed to ensure transparency and combat corruption, have the side effect of considerably slowing the pace of industrial scale-up in times of crisis.

NATO Secretary General Mark Rutte explicitly cited the need to "reduce bureaucracy in Washington" and across Europe to accelerate rearmament — an implicit admission that administrative obstacles are at least as significant as industrial ones. Reforms are underway in several countries, but they face deep institutional resistance and legal constraints that can only be modified slowly.

Investors flee: the market signal

A revealing stock market fall

The fall of more than 15% in the Stoxx Europe Targeted Defense index since the start of 2026 is not a market accident. It reflects a fundamental reassessment of the outlook for European defence players by institutional investors. These investors, having massively acquired defence stocks in 2022 and 2023, are beginning to understand that the distance between orders and deliveries — and therefore between orders and revenues — is far greater than they anticipated.

Financial markets play the role of an information mechanism here: they aggregate thousands of analyses and signal what political rhetoric often conceals. The signal is clear: markets do not believe European defence industries will be able to fulfil their order books at the pace and margins promised. It is a severe judgment, but an informed one.

Concern about the sustainability of budgets

Beyond industrial difficulties, investors worry about a scenario of peace in Ukraine leading to a pullback in defence budgets. If a ceasefire were to take hold — even fragile, even non-durable — some European governments might be tempted to slow their military spending programmes, under pressure from public opinion and budgetary constraints. Long-term political commitments remain, for the markets, less solid than firm commercial contracts.

This concern may be premature — nothing indicates that the war in Ukraine will end in the near future, and the long-term Russian threat will not disappear with a ceasefire. But it illustrates the structural vulnerability of a European rearmament that rests on political decisions subject to electoral uncertainty rather than on a truly long-term, genuinely anchored multi-year industrial strategy.

Solutions: what the experts recommend

Industrial integration as an absolute necessity

The main solution recommended by experts is a far deeper industrial integration at the European level. Rather than maintaining parallel capabilities in every country, Europe should specialize: one region for ammunition, another for armoured vehicles, another for electronic systems. This model of complementary specialization would allow economies of scale while maintaining a diversified and resilient industrial base.

This solution is simple to articulate and difficult to implement, because it implies that some countries accept not having national capabilities in certain areas — a politically delicate decision in countries where the defence industry is perceived as an attribute of national sovereignty. Governments making that choice would be accused of selling off their industrial sovereignty. Yet it is the only realistic path toward an effective and sustainable rearmament.

Common procurement: going beyond national public markets

Another expert recommendation is the development of common European procurement — pooled purchasing that would allow production industry to plan on volumes sufficient to justify investment in capacity expansion. The experience of joint vaccine procurement during the Covid-19 pandemic shows this approach is politically feasible, even if difficult to coordinate. Applied to defence, it would reduce unit costs and accelerate delivery timelines.

Progress has been made in this direction with the creation of instruments such as the European Defence Fund and the European Defence Industry Reinforcement through common Procurement Act (EDIRPA). But these instruments remain modest relative to the needs, and their implementation faces the same national resistance as direct industrial cooperation projects. The political will to go further is real in speeches — but its concrete translations remain insufficient.

What all of this says about collective defence

NATO at 5%: an ambitious promise, an uncertain reality

Ahead of the NATO summit in Ankara on July 7 and 8, 2026, Secretary General Mark Rutte announced that allies were "on track" toward the defence spending objective of 5% of GDP by 2035. That is an ambitious target — the United States itself spends around 3.5% of GDP on defence. But even if that objective is met in budgetary terms, the structural problems of the European defence industry would persist if the institutional reforms do not accompany it.

Spending 5% of GDP by buying American equipment or filling order books that factories cannot honour within the required timelines is not a coherent defence policy. Collective defence requires not only budgets, but a defence industry capable of producing rapidly, resupplying in real time, and adapting to the tactical evolution of a conflict. It is that second dimension that Europe still lacks.

Ukraine as a fire alarm

Ultimately, the war in Ukraine has been the brutal and necessary revealer of the weaknesses of the European defence industry. It showed that a war of attrition consumes ammunition at a pace that no one had planned for. It demonstrated that military supply chains can come under strain within weeks. It proved that the distance between order and delivery can be fatal when an ally needs shells now, not in eighteen months.

If the difficulties facing Rheinmetall and KNDS are worrying, they at least have the merit of being visible. Financial markets, by penalizing actors who do not deliver, are doing the work that politicians are slow to do: forcing a realistic reassessment of actual capabilities and the reforms required. The awakening is painful. It was nonetheless inevitable.

Towards a 21st-century European defence industry

The defence start-up model as a complement

An encouraging development in the European defence landscape is the emergence of an ecosystem of specialized start-ups in disruptive military technologies — drones, targeting software, artificial intelligence applied to defence, offensive and defensive cybersecurity. Companies such as Helsing (Germany), Palantir Europe (present in several countries), or the multiple Ukrainian start-ups born in the heat of the conflict represent an alternative and complementary path to the traditional industrial giants.

These companies are more agile, faster to innovate, and less dependent on the bureaucratic processes that paralyze the established majors. But they face their own obstacles: difficulty accessing public defence markets dominated by large contractors, lack of venture capital funding in a sector still perceived as ethically sensitive by some institutional investors, and difficulty scaling rapidly once technologies have been developed.

Procurement reform: the keystone

All investigations converge on the same finding: the reform of public defence procurement processes is the sine qua non of effective European rearmament. Without it, additional budgets will feed projects that deliver late, over budget, and with performance below initial specifications. This reform entails simplifying tender processes for smaller contracts, accelerating procedures for urgent acquisitions, and allowing new companies to access markets without the years of qualification demanded of major contractors.

This is an immense political and administrative undertaking. But it is the undertaking without which all the others — budgets, factories, industrial partnerships — will remain sterile. European rearmament will not only be an industrial challenge. It will first be an institutional challenge. And that is where the future of the continent's collective security will be decided.

The cracks in European industrialists' balance sheets

When stock markets punish unkept promises

The paradox of the European defence industry in 2026 is striking: never have military budgets been so high, never have orders been so promising — and yet the stock markets are spurning these companies. The Stoxx Europe Targeted Defense index has shed more than 15% since January 2026. Rheinmetall and KNDS, presented as champions of European rearmament, have seen their valuations fall despite full order books. Institutional investors are sending a message that defence ministers do not want to hear.

This disconnect can be explained by several factors: the peace risk (if the conflict in Ukraine ended, governments might reduce their orders), the structurally weak profitability of fixed-cost defence contracts, and the excessive delivery timelines that create a gap between order booking and the generation of real revenues. Financial analysts see what politicians do not want to see: the promise of rearmament is real, but its industrial translation is far slower than anticipated.

The gap between orders and deliveries: the reality of industrial tempo

The problem is not only financial — it is industrial. Large orders signed at summits translate into actual deliveries with a lag of three to seven years. A contract for Leopard 2A8 tanks signed today will not produce operational armour before 2029 at the earliest. An order for 155mm self-propelled howitzers takes two to three years to materialize. This industrial inertia is a strategic vulnerability that geopolitical urgency makes visible but cannot eliminate.

Rheinmetall's CEO, Armin Papperger, has acknowledged that the company can multiply its output, but that supply chains — electronic components, explosives, specialty metals — represent bottlenecks that money alone cannot quickly unblock. Europe lacks explosives production capacity, specialized steel foundries, and qualified technicians in sufficient numbers to feed a high-tempo wartime production line.

The Franco-German fracture as a structural obstacle

Two incompatible visions of European rearmament

At the heart of the European defence industry's difficulties lies the Franco-German fracture. France prefers to develop its own sovereign systems and then propose them as the basis for potential joint programmes — an approach that preserves its industry but slows integration. Chancellor Merz's Germany now leans toward purchasing American or South Korean systems already available rather than waiting decades for the development of hypothetical European systems. These two visions are structurally incompatible.

The death of the FCAS programme in June 2026, the gradual shelving of the common tank programme MGCS — these failures illustrate a repeated inability to reconcile national industrial ambitions with operational needs. Each time a joint programme is launched, negotiations over industrial workshares — who produces which component in which country — devour years that should have been devoted to genuine technical development. The result: stillborn programmes and billions of euros invested without operational return.

What Rheinmetall and KNDS are building despite the obstacles

Rheinmetall has opened factories in Romania, Lithuania, and Ukraine — a bold decision that positions it as both a manufacturer and a player in post-conflict reconstruction. KNDS, the merger between Nexter and Krauss-Maffei Wegmann, is working to rationalize its production to reduce duplication. These initiatives are real, but they run up against national bureaucratic structures that slow every decision by several years.

The most effective model paradoxically remains the one that European industrialists were most reluctant to adopt: buying proven American systems (F-35, Patriot, HIMARS) and integrating them into a European defence architecture. This is what Poland, the Baltic states, and part of Germany are doing. It is not glorious for European strategic autonomy — but it is functional. And in a time of crisis, functionality trumps industrial prestige.

The stakes of reindustrialization for defence subcontractors

The forgotten actors of rearmament: the deep supply chain

In all the debate about Rheinmetall and KNDS, the great forgotten actors are the thousands of subcontractors and SMEs that form the base of the supply chain. These companies produce electronic components, precision mechanical parts, specialty materials — without which no complex weapons system functions. They often operate at the edge of profitability, with fixed-cost contracts, tight margins, and dependence on a handful of large government clients.

The European rearmament has not yet filtered down to them in any significant way. Major contractors absorb budget increases first, and orders to subcontractors arrive with a delay of twelve to eighteen months. In the meantime, these small companies must decide whether to invest in new capacity in anticipation of uncertain orders — an industrial bet that many cannot afford without long-term contractual guarantees.

Why defence reindustrialization demands an entire generation

Defence economists agree on a point often ignored in political discourse: reconstituting a defence industrial base after decades of disinvestment takes a full generation — approximately 20 to 25 years. Engineers must be trained, factories built, reliable supply chains developed, strategic raw material stocks created. Europe in 2026 finds itself in the uncomfortable position of needing those capabilities now, while the generation of industrial reconstitution has not even begun.

The decisions made today — multi-year contracts, volume guarantees, training investments — will determine the European defence industrial capacity of 2035 and 2040. That is why the "defence industrial revolution" that Rutte and the industrialists speak of is real in its ambition, but will play out over the long term — well beyond the horizon of the next elections or the next summits.

Conclusion: the promise of rearmament tested against reality

Full order books, struggling factories

The finding of this investigation is nuanced but troubling. Rheinmetall, KNDS, and their European competitors are not short of orders — their books overflow. What they lack is the capacity to fulfil those orders quickly, efficiently, and at costs compatible with the margins promised to investors. National fragmentation, the shortage of specialized workers, supply chains under strain, and archaic bureaucratic procedures form a set of obstacles that dangerously slow European rearmament.

The hour of difficult political choices

Europe stands at a crossroads. It can continue on the current trajectory — spending billions without reforming the structures that prevent those billions from being effectively converted into military capabilities — and find itself in ten years with an incomplete rearmament and a considerable bill. Or it can choose the hard road: real industrial integration, public procurement reform, accepted national specialization, investment in disruptive technologies. This choice belongs to political leaders. The ball is in their court.

Signed Maxime Marquette, columnist

Columnist's transparency box

Who I am and my stated biases

I am a columnist-analyst specializing in defence and industrial strategy. I do not have privileged access to the internal data of Rheinmetall, KNDS, or other defence companies. My analysis rests on public journalistic and institutional sources. I am fundamentally in favour of a strong and integrated European defence — I consider it a geopolitical necessity, not merely an idealistic aspiration. This bias probably colours my critical eye on the obstacles hindering this integration.

What I do not know and my method

I do not know the details of the specific contracts of Rheinmetall and KNDS, nor the precise figures of their financial difficulties beyond what has been made public. The data on the stock market fall and the industrial difficulties come from specialist journalistic sources. I cross-referenced this information with research from institutes such as NUPI and Bruegel. My method is that of analytical journalism: collect, cross-reference, contextualize, and clearly signal what is established and what remains uncertain.

Sources

Primary sources

Bloomberg Opinion — European arms manufacturers face a battalion of problems, June 25, 2026

DW — Europe is spending billions to rearm, so why the delays? June 23, 2026

Straits Times — Rutte announces billions in contracts at NATO summit, June 25, 2026

Secondary sources

Kyiv Independent — Coverage of European rearmament and the war in Ukraine, 2026

Foreign Policy — Analyses on European defence and NATO, 2026

The Guardian — Ukraine war briefing, June 24, 2026

European Relations — European leaders push for stronger defence unity, June 25, 2026