Can Europe meet NATO’s defense needs fast enough to close the gap with Russian and Chinese rearmament?

When NATO Secretary General Mark Rutte confirmed in early September that Europe had increased artillery shell production sixfold in just two years, it was a headline moment in the continent’s ongoing defense transformation. The new 2-million-round target for 2025 is a dramatic leap from the peacetime procurement habits that dominated the decades following the Cold War. But the urgency goes beyond munitions. European governments, long criticized for underinvesting in military readiness, are now scrambling to restore sovereign manufacturing capabilities across ammunition, armored vehicles, drone systems, and radar technologies—all while managing fragmented policies, aging infrastructure, and stretched workforces.

Central to this accelerated push is Rheinmetall AG (ETR: RHM), the German defense contractor whose rapid commissioning of Europe’s largest artillery shell plant in Unterlüß—completed in just 15 months—has become a symbolic turning point for the entire sector. Alongside peers like BAE Systems, Leonardo, and Saab, Rheinmetall is now at the core of NATO’s industrial pivot. The question is no longer if Europe will rearm, but whether it can scale fast enough to counter global threats—and maintain momentum beyond the current crisis window.

How are companies like Rheinmetall and BAE Systems expanding their defense industrial capacity across Europe?

Rheinmetall’s new €500 million facility in Lower Saxony is designed to produce 350,000 155mm artillery shells annually by 2027, with the first 25,000 rounds already scheduled for delivery in 2025. It is just one component of a broader expansion strategy. Across Romania, Lithuania, and the United Kingdom, the German defense group is replicating this “Rheinmetall-speed” model, creating modular, NATO-aligned production nodes that reduce logistics strain and build in redundancy. CEO Armin Papperger confirmed that these plants will form part of a decentralized European defense manufacturing ecosystem—designed to insulate the alliance from chokepoints in global supply chains.

BAE Systems is taking a parallel route. The UK-based defense manufacturer recently won a £410 million contract from the British Ministry of Defence to expand its artillery shell manufacturing at its Glascoed and Radway Green sites. BAE has also expanded operations in Sweden and has been instrumental in building the British Army’s Challenger 3 main battle tank, which will see co-development with Rheinmetall.

Meanwhile, Italy’s Leonardo has pushed aggressively into radar, electronics, and missile subsystems, benefiting from joint EU procurement programs and NATO interoperability demands. Saab has responded by expanding its Gripen fighter production, while also investing in R&D for man-portable anti-tank systems and munitions destined for Ukraine and Eastern European states.

Across the board, defense primes are aligning with the EU’s Readiness 2030 initiative—a strategic pivot that seeks to unleash up to €800 billion in public and private defense financing by the end of the decade.

What is the Readiness 2030 initiative and why is it crucial for Europe’s long-term defense autonomy?

Readiness 2030 (formerly referred to in policy circles as “ReArm Europe”) is a sweeping European Union initiative focused on correcting three decades of military-industrial underinvestment. Designed as both a fiscal framework and an industrial acceleration program, Readiness 2030 includes joint procurement loan mechanisms, fiscal waivers for defense spending, and supply chain reshoring incentives to reduce dependency on non-EU vendors. The strategy emerged in response to the Ukraine invasion, which exposed the limitations of Europe’s peacetime military economy.

At its core, Readiness 2030 aims to rebuild Europe’s military production infrastructure at speed and scale—targeting shells, tanks, radar systems, drones, and anti-aircraft munitions. Member states like Poland, Romania, Germany, and the Baltics have emerged as key beneficiaries, with political appetite growing to push funding directly into factory floors. European Commission officials estimate that by 2027, more than 60% of EU-wide defense procurements will be sourced locally, up from just 30% in 2020.

While Readiness 2030 has galvanized private players like Rheinmetall and Saab, it has also attracted major financial institutions and defense-focused ETFs, boosting investor flows into the sector.

What supply chain and capacity challenges still threaten Europe’s ability to deliver on its rearmament goals?

Despite the political momentum, Europe’s defense ramp-up is still constrained by multiple structural bottlenecks. Europe’s defense manufacturing resurgence still faces several structural challenges that could slow its momentum. One key issue is the persistent shortage of critical ammunition components. Essential inputs such as propellant chemicals and shell casings are in limited supply, with strategic materials like nitrocellulose and high-grade steel often still imported from outside the European Union—creating vulnerability in an otherwise domestic push.

Labor availability is another limiting factor. For instance, Rheinmetall’s new Unterlüß facility is expected to require up to 500 additional workers at full operational scale, many of whom must possess highly specialized technical skills. However, recruiting and training such a workforce amid a broader industrial labor crunch remains time-consuming and complex.

Procurement fragmentation continues to hamper efficiency across the bloc. Although the Readiness 2030 initiative encourages joint purchasing, EU member states still largely conduct defense acquisitions independently, resulting in duplication of efforts, misaligned timelines, and missed economies of scale.

Lastly, production inflexibility in many legacy manufacturing plants presents a challenge. Older facilities were designed for diversified, small-batch production suitable for peacetime requirements, not the high-volume, standardized outputs now needed for sustained wartime readiness. Retrofitting these plants for mass throughput requires both time and capital, which may delay Europe’s ability to close the capability gap quickly.

Moreover, defense firms still face public opposition in some countries, slowing local approvals or triggering regulatory hurdles, despite urgent NATO timelines.

How are investors responding to Europe’s defense manufacturing resurgence?

Rheinmetall AG’s stock performance illustrates how capital markets are rewarding credible expansion and delivery. As of early September 2025, the stock trades near €1,744.50, up significantly from €832 two years ago. Its market capitalization now stands around €8.03 billion, with a price-to-earnings (P/E) ratio of 89.36—reflecting high growth expectations as output scales and contract backlog expands.

Institutional investors are rotating into European defense names, particularly those with exposure to artillery, ground vehicles, and C4ISR (command, control, communications, computers, intelligence, surveillance, and reconnaissance). Recent fund flows into defense-heavy ETFs like the WisdomTree Europe Defense & Security Fund and Paris-listed sector indices reinforce this shift.

Peer companies such as Leonardo and Saab have also seen gains, though the rally has been more uneven for suppliers dependent on slower-moving aircraft platforms or export-heavy portfolios.

Analysts believe Rheinmetall, due to its modular expansion model and deep ties to both German and NATO procurement pipelines, remains one of the best-positioned players for multi-year upside.

Will NATO’s local production push be enough to rival Russian and Chinese defense output?

This is the trillion-euro question. Russia has reportedly reached monthly artillery shell production of 250,000 rounds, while China continues to expand its military-industrial base at breakneck speed. Europe’s 2-million-round goal is ambitious but still lags behind potential adversaries in absolute terms. However, NATO’s strategic shift isn’t just about raw numbers. It’s about ensuring sustainable, sovereign, and interoperable production across member states.

By localizing manufacturing within NATO borders—from Unterlüß to Kaunas to Radway Green—the alliance reduces exposure to foreign suppliers and speeds up deployment cycles. Rheinmetall’s CEO Armin Papperger emphasized this recently, noting that the German firm could replicate the Unterlüß buildout across NATO countries in under 18 months—creating not just shells, but operational resilience.

The final variable is political will. As U.S. support for European defense fluctuates depending on electoral cycles, NATO countries are increasingly assuming full-spectrum responsibility for their own readiness. Whether that materializes into a sustainable industrial ecosystem—or falls short after the crisis subsides—will determine Europe’s military future.

Is Europe finally building a defense base that can stand on its own?

For the first time in decades, Europe’s rearmament is more than political rhetoric. Rheinmetall’s rapid-fire factory in Germany is proof of concept: that with the right capital, regulatory alignment, and urgency, the continent can indeed scale defense manufacturing at pace. But sustaining this momentum will require more than ribbon-cuttings.

Without reliable multi-year procurement pipelines, harmonized regulations, and deeper industrial coordination, Europe risks falling back into its old habits of fragmentation and delay. For now, though, the message is clear—from Unterlüß to Kaunas to Bucharest: Europe is building. And it’s building fast.