The Düsseldorf-based defence group Rheinmetall is pressing on with a major capacity build-out in southern Germany even as Beijing slaps new export controls on the company, adding another layer of complexity to its supply chain planning.
China’s Ministry of Commerce announced on Friday that it was immediately banning the supply of dual-use goods — items, software and technologies with both civilian and military applications — to 14 European companies and institutions. Rheinmetall is among those named. The move is a direct response to the European Union’s 21st sanctions package against Russia, which listed 51 entities for tighter export restrictions, 14 of them based in China and four in Hong Kong.
Brussels justified its latest round of measures by arguing that the targeted actors were supporting Russia’s military-industrial complex, with some helping to circumvent existing sanctions. The EU’s list is considerably broader than China’s retaliatory step.
For Rheinmetall, the operational fallout is expected to be manageable. The group has been steadily reducing its reliance on Chinese-sourced components for years, and company insiders say inventories of critical materials such as rare earths are sufficient to cover several years of production. That said, bottlenecks could still emerge in specialist components for ammunition, armoured vehicles and electronics, where alternatives outside China remain scarce.
The European Commission is now assessing the knock-on effects. Spokeswoman Paula Pinho told Reuters that Brussels would coordinate with member states and affected companies, and would seek clarification from Beijing. The situation is not without precedent: in April, China already placed seven European defence and aerospace firms — including sensor specialist Hensoldt — on a similar control list, citing arms sales and military cooperation with Taiwan.
Aschau Powder Plant: A €650 Million Bet on Self-Sufficiency
Rheinmetall is not waiting for clarity from Beijing. On 22 July, it broke ground on one of Europe’s largest propellant powder factories in Aschau am Inn, Bavaria. The company is investing €350 million at that site alone, with the broader programme totalling €650 million across the group.
The existing facility currently produces 1,700 tonnes of powder and 300,000 propellant charge modules annually. Over the next 24 months, capacity is set to expand by an additional 2,500 tonnes of powder, more than five million combustible components and over one million modular propellant charge modules. Full expansion is scheduled for 2028, with new production lines coming online from 2027. The workforce at Aschau is expected to grow from 800 to 1,400 employees.
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The investment dovetails with a broader NATO push to bolster European defence capabilities. At the alliance’s summit in Ankara in early July, ten financial institutions — including Deutsche Bank — committed $210 billion to defence industry investment. A dedicated initiative called “Drone Edge” is targeting $40 billion over five years specifically for counter-drone systems.
Laser Weapons and a Political Tussle
Separately, the German government is planning to award Rheinmetall a contract — without a competitive tender — to develop a laser weapon system for drone defence. The initial order covers three demonstration units for the navy, to be delivered by the end of the decade, with a volume in the mid-triple-digit million range.
The no-bid approach has drawn criticism. Sebastian Schäfer, a budget expert from the Greens, argues that Australian supplier EOS offers more powerful systems at significantly lower cost. Rheinmetall CEO Armin Papperger pushed back bluntly: “We can deliver.”
Stock: Still Nursing Deep Wounds
Rheinmetall’s shares closed Friday at €1,032.60, up 1.29% on the day. That modest gain does little to change the broader picture: the stock remains 48.55% below its 52-week high of €2,007, set in October 2025. Year-to-date, the loss stands at 33.49%.
The long-term trajectory, however, tells a different story. Since the outbreak of the war in Ukraine, the share price has multiplied nearly twentyfold — a fact that puts the recent pullback into perspective. The sharp contrast between that multi-year surge and the current valuation gap underscores just how heavily the stock now depends on future growth expectations.
Some tailwind came from German industrial orders for May, released on Monday, which surprised to the upside — driven, as it happens, by defence contracts. That helped push the DAX to a fresh record high on the same day.
For now, investors are watching whether Rheinmetall can execute its expansion plans without significant disruption from Beijing’s export curbs. The company’s message is clear: it will keep building, regardless of the geopolitical headwinds. Whether the supply chain can hold up — particularly for niche components with no easy substitutes outside China — is a question that will take weeks, not days, to answer.
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