Will European automakers make military drones, and how will this affect their stock prices?
The beginning of 2026 marked major changes in the EU's industrial strategy.
Amid a shortage of unmanned systems and the need for accelerated rearmament, the German government has increased pressure on the leaders of the national auto industry – BMW, Volkswagen, and Mercedes-Benz.
The discussion concerns the possible diversification of production and the use of existing capacities for the needs of the defense industry.
What are the German authorities proposing?
As part of its new defense strategy, the German government is calling on automakers to partially reorient production, according to Reuters and Bloomberg.
The main goal is to utilize existing assembly lines for the mass production of military drones and loitering munitions.
Bundeswehr representatives emphasize that automakers' expertise in automation, robotics, and artificial intelligence systems is critical to national security. Factories that previously produced electric vehicles could theoretically be converted to meet the needs of the military-industrial complex in a relatively short time.
Share Price Impact Analysis
If concerns agree to participate in defense projects, the market reaction will depend on several key factors.
- State guarantees and stability (positive factor)
Defense orders are fundamentally different from the cyclical demand for civilian vehicles. These are long-term contracts with guaranteed financing.
For Volkswagen shares, which have faced pressure in recent years due to declining margins and competition in the electric vehicle market, military contracts could become a foundation for financial stability. In the medium term, this could support the stock price and reduce the risk of sharp declines.
- Technological transfer (positive factor)
The development of autonomous control systems for military drones could accelerate progress in the field of driverless civilian vehicles.
In this case, investors may begin to value BMW and Mercedes-Benz not only as automakers but also as technology companies. Such a revaluation typically leads to higher P/E multiples and higher market capitalization.
- ESG investor outflow (negative factor)
Participation in military projects will inevitably impact the ESG agenda. Large funds focused on social responsibility may begin to reduce their exposure to such companies in their portfolios.
This will create additional supply of shares on the market and could cause a short-term decline in prices in the range of 5-10%, especially in the first months after the contracts are officially confirmed.
Current quotes and market context (12.02.2026)
| Company | Price (EUR) | Change | Market context |
|---|---|---|---|
| Volkswagen | 103.70 | -0.19% | Anticipation of government support is keeping stocks from falling |
| BMW | 88.44 | -0.56% | Stocks are stable; the market is waiting for contract details |
| Mercedes-Benz | 56.50 | -5.14% | Sharp drop after financial report release |
European automakers are highly likely to become involved in the production of military drones. Economic pressure and security concerns make this scenario virtually inevitable.
For investors, this means the transformation of traditional automakers into dual-use companies. In the long term, this model could improve business resilience to crises. However, in the short term, the market is likely to face increased volatility due to changing investor structures and revised risk assessments.
