Automakers Eye Defense Contracts to Offset Slowing Sales and Competition

Western automakers are increasingly turning to the booming defense sector for new revenue streams as their core consumer business faces significant headwinds, including slowing demand and intensifying competition from Chinese rivals. Companies are leveraging existing vehicle platforms and offloading surplus manufacturing capacity in a bid to diversify, according to a Reuters report.

New Avenues for Growth

Automakers are pursuing two primary strategies: bidding on military vehicle contracts and selling underutilized factories to defense contractors. The most realistic opportunities lie in adapting existing assets, analysts noted.

• Vehicle Contracts: Ford, General Motors, and Jaguar Land Rover (JLR) are reportedly bidding on a £900 million ($1.2 billion) UK Ministry of Defence contract for an initial 3,000 vehicles. The companies are proposing modified versions of existing models like the Ford Ranger, Chevrolet Silverado, and JLR Defender, betting that their manufacturing scale and established supply chains offer a competitive edge.
• Factory Sales: In a move to address excess capacity, automakers are also selling plants. Stellantis plans to sell an idled Canadian factory to armored-vehicle maker Roshel, while Volkswagen recently agreed to sell its Osnabrueck plant in Germany for a project involving Rafael Advanced Defense Systems.

A Limited Financial Lifeline

Despite the push, executives and analysts told Reuters that defense work is unlikely to compensate for the broader challenges in the automotive market. Jefferies analyst Vanessa Jeffriess described the financial impact of these opportunities as likely being "very little," but noted it shows investors that automakers are attempting to diversify.

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General Motors, for example, expects its defense division to generate $700 million in revenue this year and grow 30% annually. However, even with that growth, its projected revenue of about $1.5 billion by 2029 would represent less than 1% of the company's estimated group revenue of $185 billion in 2025.

Broader Market Context

The pivot comes as Western governments ramp up military spending, creating a rare growth sector. Simultaneously, traditional automakers are losing market share in key regions like China to domestic brands such as BYD and Geely, which are also expanding aggressively into Europe and emerging markets, squeezing profit margins for established players.

While automakers focus on their core competency of vehicle production, auto suppliers may be bigger beneficiaries. Christophe Perillat, CEO of French supplier Valeo, said in July that military contracts offer higher profit margins and drive growth in a way the automotive market currently does not. Similarly, supplier Forvia is exploring military opportunities that require minimal new investment, according to CFO Olivier Durand.