From automotive to defence: why industrial transition is becoming a business reality

European defence spending now exceeds EUR 300bn annually, driven by geopolitical uncertainty, changing US priorities and the need to rebuild regional resilience. Governments are actively encouraging the mobilisation of civilian industrial capacity to support defence requirements, from vehicle platforms and propulsion systems to electronics, software and advanced manufacturing.

At the same time, the automotive industry has not fully recovered from the sharp production decline triggered by the COVID-19 pandemic. Volumes remain below pre-crisis levels and margins are under pressure from electrification, supply chain disruption and shifting consumer demand. Against this backdrop, defence offers something automotive markets currently struggle to provide: long-term demand visibility, politically supported budgets and rising investment appetite.

Beyond financial considerations, modern conflicts have highlighted that defence capability depends as much on sustained production, maintenance and repair as on frontline equipment. In this context, Europe’s industrial base – and particularly its automotive sector – is no longer peripheral. It is central.

A market and transactional overview during the webinar was provided by Maximilian Group, Partner at CMS in Stuttgart, who examined recent M&A activity at the automotive–defence interface.

High-profile transactions, including acquisitions of defence-related vehicle activities and targeted investments into drone and propulsion technologies, demonstrate that industrial players are positioning themselves early. Notably, these deals are dominated by strategic buyers rather than financial investors or large automotive original equipment manufacturers.

Defence M&A remains relatively small in volume compared with other sectors, reflecting high regulatory barriers, national security sensitivities and complex customer relationships. Transactions are fewer, slower and more heavily scrutinised. For automotive companies accustomed to faster deal cycles and broader investor participation, this alone requires a shift in expectations.

The signal from recent transactions is not that defence is closed to newcomers, but that entry is selective. Companies with clear technological relevance, a long-term commitment and an understanding of regulatory constraints are the ones gaining traction.

The industrial and technological case for automotive involvement in defence was explored from a practitioner’s perspective by Jon Eklöf, Chief Data & Analytics Officer at GKN Aerospace.

Few industries have comparable experience in scaling complex production, integrating supply chains or combining hardware with software at speed. These strengths are increasingly critical in modern defence environments.

One of the most visible areas of convergence is unmanned systems. Autonomous vehicles, sensor fusion, computer vision and artificial intelligence are already core automotive competencies. These same technologies underpin the next generation of defence platforms, from unmanned ground vehicles to aerial systems. In many cases, the technology already exists and is deployed in civilian applications.

Equally important is manufacturing discipline. Defence industries have historically excelled at producing highly sophisticated equipment in limited volumes. Current security dynamics, however, demand the ability to produce, repair and replace equipment at scale and at speed. This is where automotive know-how – refined over decades of mass production – becomes strategically valuable.

The opportunity is therefore not simply for automotive companies to become defence suppliers, but to act as enablers: partners that help defence primes rethink how they design, build and sustain equipment across its lifecycle.

Despite the commercial logic, the move into defence raises cultural and reputational questions for many automotive organisations.

The discussion emphasised a pragmatic framing of defence as deterrence and resilience rather than aggression. The objective is to prevent conflict by ensuring that Europe can defend itself and maintain critical infrastructure. From this perspective, industrial participation is presented as a shared responsibility rather than a departure from corporate values.

For leadership teams, internal communication is critical. Employees need to understand why the transition is happening, what it involves and how it aligns with the organisation’s long-term purpose. Without that alignment, even technically successful transitions risk internal resistance.

Practical experience of industrial transformation was shared by Wojciech Dabrowski, President of the Management Board of Polish Development Holding, who has been directly involved in defence sector restructuring and civilian-to-military transitions.

One recurring mistake is misunderstanding the role of the end user. In defence, the customer is not an abstract specification but a soldier operating under extreme conditions. Designs that look efficient on paper may fail in practice if they do not account for stress, maintenance constraints or battlefield realities. Early and continuous engagement with end users is therefore critical.

Another common pitfall is underestimating sales cycles. Automotive companies are used to rapid commercial timelines. Defence contracts move at a different pace and can take years to progress from initial discussions to signed agreements, with significant cash flow implications.

Lifecycle thinking is equally important. Military equipment is expected to remain in service for decades, with ongoing upgrades, spare parts and support. This long tail can be commercially attractive, but only for companies prepared to commit to sustained engagement long after initial delivery.

Finally, information security is non-negotiable. Inadequate cyber or physical security does not result in a warning or fine; it can lead to permanent exclusion from the market. Automotive entrants must be prepared to invest heavily in compliance, systems and governance.

The regulatory dimension was addressed during the webinar by Stanislaw Michalowski, Senior Associate at CMS in Warsaw, who focused on export controls, product classification and regulatory risk.

Defence markets are defined as much by legal classification as by technology. The distinction between civilian items, dual-use goods and military equipment determines which rules apply, which licences are required and which authorities are involved.

While export control frameworks are broadly harmonised across the EU, their application is not. Member states retain significant discretion in interpreting whether a product is ‘specially designed or modified for military use’. This creates uncertainty, particularly for technologies such as unmanned aerial vehicles, where civilian and military applications overlap.

Misclassification can have serious consequences. A product treated as dual-use in one jurisdiction may be deemed a military item in another, triggering additional licensing requirements or blocking cross-border movement altogether. In some cases, companies may be forced to establish a local presence or partner with domestic entities simply to obtain the necessary authorisations.

The practical implication is clear: regulatory analysis must come early. Waiting until a contract is imminent is too late.

A consistent theme across the discussion was collaboration. Automotive companies need to cooperate to be able to quickly enter the defense sector. Collaboration partners might be prime contractors which act as gatekeepers to government procurement, or existing military or dual-use equipment producers which can accelerate the route to the defense market.

Possible structures are Joint ventures, joint supply projects or co-development models allowing automotive entrants to combine their industrial strengths with defence-specific knowledge. They also help manage risk, share investment and build credibility with public customers.

Regional cooperation within Europe is intensifying, particularly with CEE countries facing heightened security pressure. Shared projects, standardisation efforts and cross-border supply chains are becoming the norm rather than the exception.

Moving into defence should not be seen as a wholesale pivot away from automotive roots. The most successful examples retain their civilian capabilities while selectively adapting them for military use.

Agility, cost discipline and engineering excellence remain valuable – they simply need to be applied within a different framework. This hybrid model allows companies to balance risk, maintain cultural continuity and avoid overdependence on any single market.

The convergence of automotive and defence reflects deeper structural change in how Europe thinks about security, industry and resilience.

For automotive companies, the question is no longer whether this matters, but whether they are prepared. Preparation means understanding the market, respecting its differences and investing in the right capabilities early. It means accepting longer timelines, higher regulatory scrutiny and the need for trusted partners.

At CMS, we work with clients across sectors to help them anticipate these shifts and navigate the legal, regulatory and commercial challenges they bring. If you are considering how defence markets fit into your industrial strategy, now is the time to start the conversation.