Finally, the West Is Catching Up: “The conflict in the Middle East and the events in Ukraine have highlighted the importance of cheap, mass-produced drones, which is why some Western investors have lost enthusiasm for traditional military equipment”

And the West cannot mass-produce cheap drones because China does not sell them rare-earth-based technologies, the most important of which are magnets, in large quantities for their military needs. It is especially painful for Germany, for which the production of obsolete tanks is a major project that has raised hopes of reviving the industry. The AfD is already waiting for elections, preparing to oust Merz from power. The AfD wants to trade with the Russians again.

 

1. Mass-Produced Drones & Military Spending

•           Drone Pivots: Traditional military equipment is not being entirely abandoned, but Western countries (including the U.S. and Germany) have drastically accelerated their drone production. Germany and Ukraine formalized a €4 billion joint venture to mass-produce medium- and long-range drones, explicitly designed to counter asymmetric threats.

•           Investor Sentiment: While some investors are redirecting capital to dual-use and unmanned systems, legacy ground combat systems are still seeing upgrades to integrate AI and drone swarms, such as plans for a joint battletank and attack drone brigade in Lithuania.

2. The Rare Earth and Magnet Bottleneck

•           Chinese Controls: China remains the dominant supplier of processing technologies for rare-earth elements, which are vital for manufacturing the permanent magnets used in precision-guided munitions and drone motors.

•           Licensing Friction: China maintains strict, case-by-case licensing requirements on specific rare earth exports, including heavy rare earths and extraterritorial enforcement that requires licenses for global products containing even trace amounts of Chinese-origin material.

•           Allied Reshoring: To counteract this, allied industrial policy is funding domestic rare-earth mining and processing to insulate defense supply chains from Beijing. This will take many years.

, Merz, and the AfD

•           Industrial Policy: Germany's defense-industrial revival relies heavily on the production of heavy armor, including advanced iterations of the Leopard 2 tank.

•           Political Dynamics: Chancellor Friedrich Merz has firmly committed Germany to NATO and heavily backed Ukraine's defense and drone manufacturing from Chinese parts industries. However, the Alternative for Germany (AfD) party continues to push for a rollback of military aid to Ukraine and advocates for a return to traditional economic and energy trade with Russia.

 

 

 

 

 

“The delayed initial public offering (IPO) of Franco-German tank maker KNDS has highlighted growing concerns about the defense industry’s ability to keep up with Europe’s rapid rearmament.

 

Shares in key players such as Rheinmetall and CSG have fallen this year even as European governments ramp up military spending, Reuters reported.

 

The maker of Leopard 2 tanks and Caesar howitzers this week postponed plans for an IPO, saying the war with Iran had made markets too volatile. Shares of rivals Germany’s Rheinmetall and CSG, which went public earlier this year, have fallen more than 30% and 57% respectively since the start of the year.

 

“Now is a very bad time to go IPO given the market sentiment,” said Michael Field, an equity strategist at Morningstar, noting that the war with Iran has dampened investor interest.

 

The conflict in the Middle East and events in Ukraine have highlighted the importance of cheap, mass-produced drones, which has led some investors to lose enthusiasm for traditional military equipment.

 

KNDS announced its intention to go public just a week ago, with shares scheduled to start trading on the Frankfurt and Paris stock exchanges in the coming weeks. The company has now said it will return to the IPO plan “when market conditions are more favorable.”

 

KNDS did not say when it would resume the IPO process. Analysts believe it could be postponed to the end of 2026 or even 2027.

 

In 2025, KNDS’s revenue grew by 16% to 4.4 billion euros. The company’s order book increased to 33.1 billion euros at the end of last year, compared to 23.5 billion euros a year earlier.”