Amid 'EV chasm,' carmakers seek survival in defense sector

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Amid 'EV chasm,' carmakers seek survival in defense sector

Published: 12 Jun. 2025, 11:18 Updated: 12 Jun. 2025, 20:07

Audio report: written by reporters, read by AI

Volkswagen employees work on the assembly of an ID.3 automobile on the electric cars production line at the Volkswagen Transparent Factory in Dresden, Germany, on May 14. [EPA/YONHAP]

As the global auto industry stumbles through a slower-than-expected shift to EVs and intensifying international competition, several major carmakers are finding a potential lifeline in an unlikely place: the arms sector.

This shift is driven in part by expanding military budgets across the globe, particularly in Europe, as the war in Ukraine drags on. Analysts say the changing nature of warfare — most notably the rise of drone-based combat — is also accelerating the potential for synergy between the auto and defense sectors.

Automakers such as Volkswagen, Nissan and Volvo are downsizing as they grapple with slowing EV demand and economic headwinds. Swedish carmaker Volvo recently announced plans to cut about 3,000 jobs. Volkswagen has already laid off more than 7,000 employees and plans to reduce its German work force by 35,000 by 2030. Japan's Nissan will begin accepting early retirement applications in July to shed up to 20,000 workers.

The Chinese market, once a reliable growth engine, has become increasingly inhospitable for foreign car brands. The so-called “EV chasm” — a temporary stagnation in electric vehicle demand — is eroding investor confidence in the pace of future mobility. On top of that, U.S. President Donald Trump’s auto tariffs has raised the risk of declining sales in the American market as well.

Facing stagnant growth and shrinking margins, automakers are now pivoting toward defense-related projects.

In March, Volkswagen Group CEO Oliver Blume said the company is “open to” entering the defense industry. German defense firm Rheinmetall is reportedly considering converting a Volkswagen plant into a facility for armored vehicle production.

Sensor maker Hensoldt is also exploring collaborations with automotive parts suppliers Continental and Bosch to retrain and recruit talent.

The alignment of turmoil in the auto market and rapid growth in defense spending is therefore reshaping the structure of both industries.

In this photo provided by Ukraine's 93rd Kholodnyi Yar Separate Mechanized Brigade press service, soldiers use drones to fire on Russian positions from a shelter in Kostyantynivka, Donetsk region, Ukraine, on May 23. [AP/YONHAP]

The growing use of drones on the battlefield is accelerating convergence between the auto and defense industries. Automakers bring to the table advanced autonomous driving technology and the production capacity for rapid, large-scale manufacturing.

Reuters reported Monday that France’s Ministry of Defense asked Renault to collaborate with small and medium-sized defense enterprises to produce drones for Ukraine.

“Autonomous and electric vehicle technologies are closely related to drone systems,” Cho Chuel, a senior research fellow at the Korea Institute for Industrial Economics & Trade, said. “Since the mobility sector is also looking toward the urban air mobility (UAM) market, it’s no surprise that automakers are moving into drone production.”

A fragment of a Russian drone with the writing ″Geran-2″ lies on the ground at a residential area following Russia's missile and drone attack in Kyiv, Ukraine, on June 10. [AP/YONHAP]

Demand for mass-produced, low-cost drones is on the rise, as the Ukraine war showcases the utility of expendable drones in combat.

Nikkei Asia recently highlighted Kawasaki Motors’ partnership with French startup VoltAero to develop a drone capable of flying up to 2,700 kilometers (1,678 miles) at 600 kilometers per hour. The Japanese company aims to produce 5,000 units annually by 2030.

“When it comes to small, efficient engines, no one beats Japanese motorcycle makers,” a Kawasaki official said.

Kia's two-seat version of its Light Tactical Cargo Vehicle, left, and Tasman are displayed at the company’s booth during the 2025 International Defence Exhibition & Conference in Abu Dhabi, United Arab Emirates in February. [KIA]

Electric and hydrogen technologies are also being integrated into military vehicles. Kia is developing a hydrogen-powered light tactical vehicle for military use. These vehicles offer stealth advantages, with reduced noise and heat signatures compared to traditional internal combustion engines.

“Traditional automakers have the technical capabilities to build aircraft engines, as they did in past wars,” said Ann Young-su, a professor of military science at Seokyeong University. “As these companies combine innovation with scalable production, we’ll see civilian and defense industries converge more rapidly.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY LEE SU-JEONG [[email protected]]