Volkswagen plans to repurpose one of its German factories for defense manufacturing, with the Osnabrueck facility set to produce equipment for Israeli defense company Rafael after vehicle production ends next year.

The German automaker said Monday that it intends to sell the Osnabrueck plant to Tel Aviv-based Aurelius Capital, together with the German state of Lower Saxony, a major Volkswagen shareholder. The initial agreement calls for the facility to manufacture components for an air defense project involving Rafael Advanced Defense Systems.

“These plans involve the potential manufacture of systems and components for air defense systems for Germany and Europe,” Volkswagen said, adding the cooperation could pave the way for further such deals.

“With today’s agreement, we are taking an important step towards opening up a new industrial future for the site,” Volkswagen CEO Oliver Blume said. “Volkswagen stands by its responsibility for Osnabrueck.”

Volkswagen, which has been dealing with weak demand and mounting competitive pressures, announced in 2024 that it would end vehicle production at the northwestern German facility by 2027.

The agreement is expected to safeguard at least 1,200 jobs at the plant, according to Volkswagen’s works council.

The future of four additional Volkswagen factories in Germany remains uncertain as the automaker confronts intense competition from Chinese manufacturers and the costly transition toward electric vehicles.

Volkswagen operates 10 brands, including Audi, Porsche and Seat. Management and labor representatives reached an agreement last week to eliminate another 50,000 positions across the group, bringing the number of jobs expected to disappear in the coming years to approximately 100,000.

Under the proposed arrangement, Aurelius would acquire a majority stake in the Osnabrueck facility in partnership with Lower Saxony.

“Osnabrueck brings with it something that cannot be built from scratch: many years of experience with demanding products, precise manufacturing processes and high-quality, well-coordinated teams and a strong tradition,” Aurelius Capital’s Tomer Jacob said.

Aurelius identifies cybersecurity, drone technology and satellite systems among the areas in which it invests.

The Osnabrueck deal could provide a model for other Volkswagen facilities facing an uncertain future as the company undertakes its largest restructuring to date. Volkswagen has warned that as many as four German plants could ultimately be closed or converted to other uses if alternative operations cannot be established amid weak demand, elevated production costs and increasing competition from China.

Repurposing automotive facilities for defense manufacturing is gaining momentum across Europe. Other companies, including Rheinmetall and Continental, are also pursuing plans to adapt industrial capacity for defense-related production.