Media: Germany cuts planned munitions spending, putting pressure on Rheinmetall

Germany is set to reduce planned spending on munitions next year as Berlin shifts more defence funding towards other military priorities, a move that could add further pressure on defence giant Rheinmetall AG.

A draft 2027 budget seen by Bloomberg shows that Germany plans to allocate around €9.6 billion ($10.9 billion) for munitions spending, down from €11 billion in 2026. Overall defence spending, however, is expected to continue rising sharply through 2030 as Berlin seeks to strengthen its armed forces.

The shift in priorities comes as Rheinmetall, one of Europe’s largest defence contractors and the world’s leading producer of 155mm artillery shells, faces growing investor concerns.

The company’s shares have fallen by more than 30% this year, as markets reassess the outlook for traditional defence suppliers amid the growing importance of drones and advanced technologies in modern warfare.

Rheinmetall’s strong focus on tanks and artillery has become a challenge for investors who increasingly favour companies involved in drone technology, air defence and other emerging military capabilities.

The preliminary budget document indicates that nearly €7.7 billion would be allocated directly for munitions purchases in 2027, with an additional €1.9 billion coming from Germany’s special defence fund.

While the planned spending would represent an increase from 2025, when Germany spent less than €4 billion on munitions purchases, the pace of growth appears slower than previously expected.

A German defence ministry spokeswoman said she could not comment on individual budget items before the federal fiscal plan was finalised, but stressed: “The procurement of ammunition is and will remain a priority.”

The budget changes add to existing challenges for Rheinmetall. The company suffered a major setback after Germany cancelled a naval contract linked to its acquisition of a shipbuilder, causing its shares to plunge 19% in a single day.

Rheinmetall said earlier this month that it would assess the impact of the cancelled contract on its full-year outlook during its second-quarter results announcement on August 6.

The company has also been affected by China’s decision to impose export controls on 14 European companies, including Rheinmetall, in response to European Union sanctions.

“There could be some further guidance cuts on Rheinmetall over the short term,” said Hervé Prettre, head of global investment research at Edmond de Rothschild. He added that the company’s concentration on traditional ammunition and its acquisition of the shipbuilder “have scared investors”.

Despite recent setbacks, analysts remain broadly positive on Rheinmetall, with most broker ratings still recommending buying the stock. However, some analysts warn that a change in German defence priorities could threaten the company’s ambitious production targets.

“Even the German government now treats tanks and artillery as no longer the No. 1 priority,” said Jens-Peter Rieck, an analyst at Mbw Research AG, who this month cut his recommendation on the stock to hold from buy. “We await further evidence on the budget outcome before upgrading.”

By Aghakazim Guliyev