The German state of Lower Saxony, Israeli defense company Rafael and Israeli investment fund Aurelius Capital have signed an agreement paving the way for Iron Dome components to be produced at Volkswagen’s Osnabrück plant, overcoming months of opposition from Qatar, one of the German automaker’s largest shareholders.
Under the planned structure, Aurelius is expected to take control of the factory as its principal shareholder alongside the Lower Saxony state government, Bloomberg reported. Crucially, the arrangement avoids a direct partnership between Volkswagen and Rafael, effectively sidestepping the objection of Qatar’s sovereign wealth fund, which holds about 17% of Volkswagen’s voting rights and two seats on its supervisory board.
The agreement marks a breakthrough after an earlier attempt to convert the Osnabrück plant to defense production became caught in a shareholder dispute. Volkswagen had sought earlier this year to shift the factory, which employs around 2,300 workers, from vehicle production to manufacturing components for Iron Dome under a direct deal with Rafael.
In July, German newspaper Bild reported that Qatar’s sovereign wealth fund had blocked the proposal because Rafael is an Israeli company. Qatar’s relations with Israel have deteriorated sharply since the outbreak of the Gaza war in October 2023.
The Qatari opposition triggered criticism in Germany, including over Doha’s long-standing financial support for Hamas. The conversion plan also faced opposition from German left-wing activists and peace groups that objected more broadly to turning the Volkswagen factory into a military production site.
A deal designed to bypass the veto
A workaround began taking shape in August. According to Bloomberg and Bild, the Lower Saxony government would invest about 200 million euros and take control of parts of the plant together with Aurelius, rather than leaving Volkswagen itself as Rafael’s industrial partner.
That structure removes the direct Volkswagen-Rafael relationship that had drawn Qatar’s opposition.
The first “anchor project” under the new partnership will focus on the possible development and production of components for air defense systems, particularly equipment supporting Rafael’s Iron Dome system. Production could include heavy trucks used to transport missiles, launch equipment and generators.
Volkswagen CEO Oliver Blume called the development “an important step toward opening up a new industrial future for the site.”
The move comes as Volkswagen struggles with one of the most severe crises in its history, facing growing competition from Chinese automakers and pressure to restructure parts of its European manufacturing network. The Osnabrück plant had faced closure by the summer of 2027.
‘Manufactured entirely in Germany’
In a joint statement Monday, the parties said the partnership brings together Rafael’s defense technology and industrial expertise with Aurelius Capital’s investment capabilities and international investor network.
Lower Saxony Premier Olaf Lies said Europe’s changing security environment had made greater defense production capacity essential.
“Our security reality has changed completely, and Germany and Europe are required to strengthen their capabilities in the defense and security industries,” he said.
From left: Yoav Turgeman, CEO of Rafael Advanced Defense Systems; Lower Saxony Premier Olaf Lies; and Tomer Yaakov, founding partner of Aurelius Capital, during the signing ceremony at Volkswagen’s Osnabrück plant
(Photo: Friso Gentsch)
Rafael CEO Yoav Turgeman said the agreement would establish the basis for a long-term industrial relationship in Germany.
“Today we are laying the foundations for a long-term industrial partnership with our partners in Germany, under which the technology will be manufactured entirely in Germany,” he said.
Aurelius founding partner Tomer Yaakov said the agreement was “only the first step in a strategic cooperation that will continue to grow over time.”
Rafael has maintained a presence in Germany for more than 20 years through local subsidiaries.
The agreement now moves to detailed negotiations and regulatory review, with the Lower Saxony government expected to accompany the process. If completed, it could both deepen Israeli-German defense cooperation and preserve the jobs of the approximately 2,300 workers at the Osnabrück plant.
The timing also reflects growing demand for air defense equipment. The Israel-U.S. war with Iran and Russia’s full-scale invasion of Ukraine have significantly depleted global air defense inventories, increasing demand for systems such as Iron Dome and the equipment needed to support them.