Russia’s war against Ukraine has been good for Rheinmetall, something reflected in its share price.
It’s a marker of a changed world — and a changed Europe — that the market capitalization of the German arms manufacturer Rheinmetall now exceeds that of Volkswagen, still something of a surprise even allowing for VW’s well-publicized difficulties. Rheinmetall is now looking at taking over a VW plant in Osnabrück, which could be retooled to manufacture armored vehicles.
Grim as it is to put it this way, Russia’s war against Ukraine has been good for Rheinmetall, something reflected in its share price. This has now been supercharged by the growing rift between the U.S. and Europe. Rheinmetall’s stock was trading at just over EUR 600 at the beginning of the year, against over EUR 1,400 now. The day of the Russian invasion (February 24, 2022), the share price was EUR 100.
If, as it should, Europe is to assume more responsibility for its own defense it will have to (and will want to) manufacture more of its own equipment. That’s going to take a while, but production of ammunition, being lower tech, is less of a problem.
[T]hree years after Russia invaded Ukraine, Rheinmetall has managed to increase capacity of large caliber shells by around tenfold, which it says makes it the western world’s largest maker of artillery ammunition; the 750,000 rounds of NATO-standard 155 mm shells it’s now capable of producing annually, from factories spread across Germany, Spain, South Africa, Australia and Hungary, is more than the entire US annual output of these munitions.
The company aims to have 1.1 million rounds of annual capacity by 2027, and Jefferies Financial Group Inc. analyst Chloe Lemarie reckons 1.5 million might be achievable, which would account for half of the European total by her estimates. (For context, Ukraine’s wartime needs are around 2.4 million shells a year.)
While Rheinmetall manufactures other defense equipment, including anti-aircraft systems, tanks, and armored vehicles, it is the surge in demand for ammunition that is fueling most of the company’s growth, and that is not going to go away any time soon, so long as European governments are prepared to put up the money that is needed to build up their their countries’ defenses
There’s obviously a risk at some point of overproduction (Rheinmetall does not have the market to itself) and there are some supply-chain issues (to be looked at in a later post), but for now there seems little risk of excess supply in the sector:
Every round of ammunition Rheinmetall currently produces is needed immediately; NATO requirements for member nations to hold sufficient supplies for 30 days of high intensity warfare imply a shortfall of tens of millions of artillery rounds, according to the company.
One indication of the company’s success is that its CEO is now given the same level of security protection as Germany’s chancellor. This was after the discovery of a Russian plot to assassinate him last year.