Military Industries | Arms industry: boom in the second row

Test of a Hypersonica hypersonic missile in Norway in February Photo: dpa/Hypersonica After another profit warning, Rheinmetall shares plummeted last week. Business at Germany's largest defense company is still going well, but not as well as financial investors had hoped.

In any case, the interest of stock market investors is increasingly focused on the second row behind the defense giants Rheinmetall, Airbus and Siemens. A few days ago, the rocket start-up Hypersonica, which is hardly known even among experts, was able to raise 100 million euros from various venture capital firms. The Munich company, founded just three years ago by two doctoral students at the Technical University of Munich, wants to develop “hypersonic gliding vehicles” – rockets that travel on an unpredictable trajectory at ultra-high speeds – within a very short period of time. The company is thereby strengthening European efforts to build up the ability to penetrate deeply into Russian territory, notes the stock market information service “Aktien News”. The fresh capital is intended to accelerate the development of hypersonic missiles “for deep strikes”. Western Europe is trying to be able to fight distant strategic targets in the future without the support of the US military in Washington.

Hypersonica's weapons are part of a flagship project between Germany and the United Kingdom. As part of their so-called Trinity House Agreement of 2024, the governments in Berlin and London agreed to produce “advanced” ground-based missiles with a range of more than 2,000 kilometers.

»The debate about whether Europe needs such deterrent capabilities is over. It is absolutely clear that we need them,” said Philipp Kerth, CEO of Hypersonica, in an interview. “It’s really about who can deliver these systems,” and that’s exactly where the additional capital helps.

Investors from all over the world are now pushing into the European defense industry.

The financing round was led by two venture capital firms, Lightspeed and General Catalyst, both based in the United States. Kerth emphasized that Europeans would still own the majority of his company. The Federal Agency for Leap Innovations in Leipzig, which uses public money to promote technical innovations “that have the potential to have a positive impact on the world,” had already participated in a first round of financing with 23.3 million euros in February. The amounts flowed even though the project is apparently only in the concept phase. The actual development is scheduled to begin in 2027, and Hypersonica wants to be “fully operational” in 2029. According to media reports, support also comes from the European rocket specialist MBDA, which emerged from the Airbus Group.

Investors from all over the world are now pushing into the European defense industry. This has been considered lucrative since governments in the European Union have drastically increased their military spending. In addition to the second series, various suppliers from various civil sectors such as chemistry also benefit from this. "Europe's security is also becoming an increasingly important business area with high growth dynamics for mechanical and plant engineering," revealed a current survey by the VDMA association. At the same time, however, the industry is under pressure to ramp up production quickly and cost-effectively, or to “scale up,” as they say in the industry. Anyone who stumbles, even slightly like Rheinmetall, whose order books are overflowing, will receive a lesson on the stock market. 

In the summer, the Munich-based company Helsing established itself as Europe's largest defense start-up in another round of financing worth $1.8 billion. The company, founded in 2021, specializes in the use of artificial intelligence in tanks, submarines and, above all, drones. The unlisted company's total valuation climbed to $18 billion. The investors included the major US banks JP Morgan Chase and Goldman Sachs. 

The group of young German defense companies that are currently experiencing a rapid rise includes Quantum Systems (drones), Stark Defense (guided weapons) and Tytan (air defense) and ARX Robotics, also from Munich. Founded in 2021 by former Bundeswehr officers, the company does not rely on spectacular financing rounds and billion-dollar valuations, but rather emphasizes that it is already operating profitably. According to the company, ARX's unmanned mini-tanks have been in use in Ukraine since the beginning of the year. There are orders for thousands of machines.

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