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Enormous investments in factory equipment and artificial intelligence are giving China an edge in car manufacturing and other industries.

China’s secret weapon in the trade war is an army of factory robots, powered by artificial intelligence, that have revolutionized manufacturing.

Factories are being automated across China at a breakneck pace. With engineers and electricians tending to fleets of robots, these operations are bringing down the cost of manufacturing while improving quality.

As a result, China’s factories will be able to keep the price of many of its exports lower, giving it an advantage in fighting the trade war and President Trump’s high tariffs. China is also facing new trade barriers by the European Union and developing countries ranging from Brazil and India to Turkey and Thailand.

Factories are now more automated in China than in the United States, Germany or Japan. China has more factory robots for every 10,000 manufacturing workers than any other country except South Korea or Singapore, according to the International Federation of Robotics.

China’s automation drive has been guided by government directives and backed with huge investment. And as robots replace workers, automation positions China to continue to dominate mass production even as its labor force ages and becomes less willing to take industrial jobs.

He Liang, founder and chief executive of Yunmu Intelligent Manufacturing, one of China’s top producers of humanoid robots, said China was striving next to turn robotics into an entire new sector of business.

“The expectation for humanoid robots is to create another electric car industry,” he said. “So from this perspective, it is a national strategy.”

Robots are replacing workers not just in car factories but even in China’s many thousands of back-alley workshops.

Elon Li’s curbside workshop in Guangzhou, the commercial hub of southeastern China, has 11 workers who cut and weld metal to make inexpensive ovens and barbecue equipment. He is now preparing to pay $40,000 to a Chinese company for a robotic arm with a camera. The device uses artificial intelligence to observe how a worker welds the sides of an oven, and then duplicates the action with minimal human intervention.

Only four years ago, the same system was available only from foreign robot companies and cost nearly $140,000. “Before, I never would have imagined investing in automation,” Mr. Li said, adding that a human employee “can only work for eight hours a day, but a machine can work 24 hours.”

Bigger companies bet far more on automation.

In Ningbo, a huge factory for Zeekr, a Chinese electric carmaker, had 500 robots when it opened four years ago. Now there are 820, and many more are planned.

Cheerfully trilling Kenny G tunes to warn any people of their approach, robot carts haul aluminum ingots to an automated elevator, which lifts the blocks of metal to a furnace at the top of a 40-foot-tall Chinese-made machine. Once molten, the aluminum is cast into the shapes of various car body panels and other components. More robot carts, and the occasional human driving a forklift, take the components to a warehouse.

Yet more robots take the panels to the assembly line, where hundreds of robotic arms, working in teams of up to 16, do a complex dance to weld them together into car bodies. The welding area is a so-called dark factory, meaning that the robots can operate without workers and with the lights off.

China’s factories still employ legions of workers. Even with the automation, they are needed to check quality and install some parts that require manual dexterity, like wiring harnesses. There are things cameras and computers cannot do on their own. Before cars are painted, workers still run gloved hands over them and sand smooth any tiny imperfections.

Yet some of the later steps of quality control are also being automated with the help of artificial intelligence.

Near the end of Zeekr’s assembly line, a dozen high-resolution cameras take photos of each car. Computers compare the images to an extensive database of correctly assembled cars and alert factory staff if a discrepancy is found. The task takes seconds to complete.

“Most of our colleagues’ jobs involve sitting in front of a computer monitor,” said Pinky Wu, a Zeekr worker.

Zeekr and other Chinese automakers are also using artificial intelligence to design cars and their features more efficiently.

Carrie Li, a designer who works at Zeekr’s new office building in Shanghai, uses A.I. to analyze how different interior surfaces will intersect in a car.

“I have more spare time to open my mind and explore for myself which kinds of fashion trends to include in the cars’ interior,” Ms. Li said.

Car factories in the United States also use automation, but much of the equipment comes from China. Most of the world’s car assembly plants built in the past 20 years were in China, and an automation industry grew up around them.

Chinese companies also bought overseas suppliers of advanced robotics, like Kuka of Germany, and moved much of their operations to China. When Volkswagen opened an electric car factory a year ago in Hefei, it had only one robot from Germany and 1,074 robots made in Shanghai.

China’s rapid advance in factory robotics has been propelled from the top down. Beijing’s “Made in China 2025” initiative, which began a decade ago, set out 10 industries in which China sought to be globally competitive. Robotics was one of them.

To force the car industry to think about how to use humanoid robots with two arms and two legs, for example, government officials in Beijing told major automakers last year to rent robots and submit videos of them performing tasks in their assembly plants.

The videos required many takes to get them right. The robots did only basic tasks, like sorting auto parts in a warehouse. But the initiative has helped push the carmakers along.

In a show of the automation push, the Beijing municipal government held a half-marathon on Saturday for 12,000 runners and 20 humanoid robots. Only six robots finished the race, and the fastest of them took nearly three times as long as the fastest runners. But the event helped draw attention to robots.

Last month, Premier Li Qiang, China’s second-highest official, said in his annual report to the legislature that the country’s plans this year would include an effort to “vigorously develop” intelligent robots. The country’s top economic planning agency announced a $137 billion national venture capital fund for robotics, artificial intelligence and other advanced technologies.

China’s government-controlled banks have increased lending to industrial borrowers over the past four years by a staggering $1.9 trillion. That has paid for the construction of factories as well as the replacement of equipment at existing ones.

China’s universities produce about 350,000 mechanical engineering graduates per year, as well as electricians, welders and other trained technicians.

By comparison, American universities graduate about 45,000 mechanical engineers each year.

Jonathan Hurst, the chief robot officer and a co-founder of Agility Robotics, a leading American robot manufacturer, said finding skilled employees had been one of his biggest challenges. As a graduate student in the Robotics Institute at Carnegie Mellon University in Pittsburgh, Mr. Hurst said, he was one of two mechanical engineers.

China’s rapid embrace of automation worries some Chinese workers.

Geng Yuanjie, 27, drives a forklift at the Zeekr factory, where he has worked for the past two years. He said there were considerably fewer robots at the Volkswagen factory where he previously worked. Surrounded now by robots, he has few co-workers to talk to during his 12-hour shifts.

“I can feel the trend towards automation,” Mr. Geng said as he watched a robot cart pull a rack of car parts past his forklift. He said that his high school education might not be enough for him to qualify for classes in programming robots, and that he worried he might lose his job someday to a robot.

“It is not just my concern — everyone worries about it,” Mr. Geng said.

Automation has threatened and even eliminated jobs around the world for more than a century, often slowing automation’s growth. In China, there are fewer obstacles than practically anywhere else. China has no independent labor unions, and Communist Party control leaves almost no room for dissent.

Another factor behind China’s automation drive is the country’s demographic crisis.

The number of babies born each year has dropped by almost two-thirds since 1987. At the same time, two-thirds of people turning 18 now enroll at a university or college, an educational trajectory that has allowed a new generation to aspire to careers outside factory labor.

“China’s demographic dividend is over,” said Stephen Dyer, head of the Asia industrial practice at AlixPartners, a consulting firm. “They’re now in a demographic deficit, and the only way out of that is productivity.”

CEO says he will spend significantly less time on DOGE starting in May; electric-vehicle maker’s net income falls 71%

Tesla’s TSLA 4.60%increase; green up pointing triangle net income slid 71% in the first quarter, as the company struggled to overcome competitive pressure overseas and a reputational hit from Chief Executive Elon Musk’s polarizing role in the Trump administration.

Musk said he would be devoting significantly less time to his federal cost-cutting work at the Department of Government Efficiency starting next month, but struck a defiant tone against critics. “I believe the right thing to do is to fight the waste and fraud and try to get the country back on the right track,” Musk said on a call with analysts after the quarterly earnings report Tuesday.

The electric-vehicle maker also reported adjusted earnings per share of 27 cents, which missed analysts’ expectations of 41 cents.

Tesla said that shifting trade policies, exacerbated by the administration’s tariff regime, are stressing supply chains while adding to the automaker’s costs. Tesla imports some of its battery cells from China, but said it was looking to source them from the U.S. instead.

The trade fight and “changing political sentiment” could weigh on demand for its vehicles, the company said, leading it to potentially revisit its sales forecast for the year. Tesla previously said it expected vehicle sales to rise this year, after reporting a rare drop in 2024.

Musk sighed deeply on Tuesday’s call before addressing the Trump administration’s trade war. The CEO said he has advocated for lower tariffs and would continue to do so. “I just want to emphasize that the tariff decision is entirely up to the president of the United States,” Musk said. “Whether he will listen to my advice is up to him.”

Tesla shares were up more than 3% in after-hours trading on Tuesday, after gaining 4.6% ahead of the first-quarter report. Analysts attributed the rise to investors taking comfort in Tesla reaffirming plans to launch more affordable models later this year.

The company’s first-quarter revenue fell after a steep decline in automotive sales, including double-digit percentage drops in crucial markets such as the U.S., China and Germany.

The decline in vehicle sales and weaker selling prices—dented by more-generous sales promotions—hurt revenue and the bottom line, Tesla said. The company also cited several weeks of lost production time across its four factories to prepare for the recent launch of a retooled Model Y, its top seller.

Larger investments in artificial intelligence also weighed down profit. Musk has said that autonomous cars and other AI innovations are central to Tesla’s growth prospects.

Even before Musk’s entrance into partisan politics sapped some of the brand’s goodwill among consumers, Tesla was contending with slowing demand for its vehicles. The company has long touted the potential of its nonautomotive businesses as a way to expand the company beyond the core car business.

The sharp quarterly sales and profit declines masked an otherwise bright spot in Tesla’s energy-storage and software-subscription businesses, which had double-digit growth in the first quarter.

The next step for Tesla is the launch of its fleet of robotaxis, which Musk has compared to a combination of Uber and Airbnb. The company said it was on track to launch its first driverless taxi service in Austin, Texas, in June.

Still, Tesla reported $19.3 billion in revenue for the quarter, down 9% compared with the same period last year. Revenue from the company’s automotive business fell 20%. The energy business grew 67%.

Tesla also reported $595 million in revenue from other automakers that pay Tesla for carbon credits to offset their sale of conventional vehicles, up sharply from a year earlier.

The company reported a 2.1% operating margin for the quarter, compared with 5.5% a year earlier.

Tesla’s global vehicle deliveries fell 13% in the first quarter, partly because of a consumer backlash against the brand in response to Musk’s role as President Trump’s cost-cutting czar. Tesla has faced protests across the U.S. and Europe, and some of its stores and charging stations have been vandalized or even set on fire.

Some analysts also have said that customers likely delayed purchases as they waited for the recent introduction of a refreshed version of Tesla’s Model Y, the company’s top seller.

Tesla also is contending with 25% tariffs imposed on auto imports. While Tesla builds its U.S.-sold cars in Texas and California, it relies on neighboring countries for components, including Mexico, which supplies more than 20% of its parts, according to federal data.

Estimates from third-party research providers show significant sales declines in some of Tesla’s biggest markets, including California and China. The company doesn’t disclose delivery figures by model or region.

In California, the nation’s largest EV market, Tesla’s first-quarter market share fell to 44% of all zero-emission vehicle registrations in the state, from 56% a year earlier, according to the California New Car Dealers Association.

Tesla shipments fell about 22% in the quarter in China, while its deliveries sank 62% in Germany, according to industry trade groups.

To spur sales, Tesla in April released a less-expensive version of the Cybertruck, priced at $69,990, with low-cost features including fabric seats. The company is also developing a lower-cost version of its Model Y.

Chocolate makers slash price hedges in bet that bull market is over

Soaring cost of protection using futures contracts prompts some groups to gamble on market stabilising

Chocolate makers have slashed their use of hedges against price rises due to the soaring cost of futures contracts, in a bet that the huge bull market in cocoa is finally over.

Manufacturers typically use the futures market to hedge against price fluctuations, securing long-term contracts to lock in a set level. But surging cocoa prices have triggered big rises in the cost of hedging on major exchanges.

As a result, commercial long positions — in effect, hedges by manufacturers against input prices rising even higher — on the cocoa futures market in London have fallen to a 20-year low in recent weeks. There has also been a sharp drop in the total number of outstanding futures contracts in both London and New York.

Instead, some chocolate companies have started purchasing beans on a short-term basis in the hope that prices — which have already come down from more than £10,000 a tonne in December to slightly less than £6,500 — will continue to fall.

Other groups have switched to over-the-counter insurance products offered by banks to protect against price moves. Unlike futures bets, these have fixed costs that can be unappealing in normal times, but are more attractive when futures prices are spiralling to prohibitive levels.

“Ultimately, if you think the price is too high, you might as well wait and see,” said Daniele Ferrero, chief executive of Italian chocolatier Venchi.

Venchi’s cocoa supply is covered as the company hedged against prices rising last September. But “if you were asking me today to buy cocoa, I would buy it month by month,” Ferrero said. 

Cocoa prices rocketed from about £3,500 at the start of last year to more than £10,200 in April of that year, as extreme weather and disease hit harvests in Ivory Coast and Ghana, which together produce nearly two-thirds of the world’s supply. Prices fell back below £5,000 by the autumn, before rallying again into the end of the year.

The price surge has hit consumers. Chocolate in the UK cost 13.6 per cent more this Easter than the same time last year, according to data from the UK’s Office for National Statistics, analysed by the Energy & Climate Intelligence Unit.

As cocoa prices soared throughout 2024, hedging helped shield consumers from much of the price rises, according to Warren Patterson, head of commodities strategy for ING. 

“We saw prices breaking above £10,000 per tonne, yet the demand hit we saw was maybe not as aggressive as many would have thought,” he said. “Part of that is because of hedging.

“If you’re a chocolate manufacturer and you’ve hedged your exposure, you’re somewhat protected from those higher prices. You don’t have to pass those higher prices on to consumers because of those hedges.”

However, some chocolate producers have stopped hedging because of the skyrocketing cost of the upfront capital — the initial margin — needed to enter a futures contract.

These margin rates are now four to five times higher than they were when the markets were more stable and prices were lower, according to Jonathan Parkman, co-head of agriculture at commodity broker Marex.

“Prices went up so much more than most commercial players expected,” he said. “And that put a huge strain on their capability of financing those forward hedges.

“You need an awful lot more money in order to be able to operate in the same sort of fashion that you were operating before.”

The number of outstanding contracts in the cocoa futures market in London has “fallen off a cliff” because of these costs, added ING’s Patterson.

Coffee producers also sharply reduced their hedges in the futures market, although very recently some have started to put them on again.

Prices for higher-quality arabica beans reached a record of about $4.40 a pound in February, having surged due to poor weather in producer countries such as Brazil and Vietnam, which has crimped supplies. Prices have since fallen back but are still well above levels a year ago.

Starbucks slashed its hedging against coffee price fluctuations last year. It held less than $200mn worth of fixed-price contracts for unroasted coffee at the end of last September, according to its annual report, down from $1bn in 2019.

“Everyone in the industry is just covering the short period that you need for the next three months of production,” Antonio Baravalle, chief executive of Italian coffee roaster Lavazza, told the Financial Times. 

“Considering where prices are, coverage on a longer period, it’s a big bet, it’s a big risk,” he said. Sooner or later prices have to fall “because it’s not manageable any more”. 

Cutting hedges is “not necessarily a bad thing”, Parkman added. “If prices fall, it’s a good thing.”

Easing leverage limits on banks could backfire

The move would repeat old errors and encourage the buying of Treasury debt over private sector lending

US Treasury Secretary Scott Bessent has said he wants to deregulate the financial system responsibly. He has pointed to relief for community banks and other valid areas for reform.

Unfortunately, he has also floated a big bank priority: loosening limits on “leverage” — the ratio of bank’s debt to equity — and eliminating those restraints entirely for investments in short-term Treasuries. This would repeat regulatory errors that led to past financial crises, while giving banks powerful incentives to buy government debt at the expense of private sector lending.

Regulators have long sought to limit banks’ reckless use of leverage by requiring they maintain minimum levels of their own equity capital. They apply “risk-based” standards which vary capital minimums based on the perceived riskiness of different categories of assets, and a “leverage ratio” which is an overarching constraint on banks’ use of borrowed money.

Under risk-based standards, banks can boost their returns on equity by allocating capital to “safe” assets where regulators require lower levels of capital. Their ability to manipulate risk-based requirements, however, is constrained by the leverage ratio, which is neutral as to capital allocation.

While bank capital rules are supposed to keep the financial system stable, the risk-based rules have, in the past, been a central cause of financial crises. This is because they encouraged banks to pile into activities that regulators (and the bank lobby) viewed as “low risk”, but in fact were anything but.

The 2008 financial crisis was driven by capital rules that treated mortgages, including securities and derivatives tied to mortgages, as low risk. This fuelled a housing bubble in the US that when it collapsed, brought the world economy to its knees. A year later, Europe’s financial system teetered as banks incurred losses on investments in the “safe” debt of struggling EU countries. Again, these investments had been incentivised by risk-based capital rules that treated sovereign debt as having zero risk.

In the US, we were fortunate to have a leverage ratio for commercial banks before the 2008 crisis that contained some of the damage. But leverage ratios did not apply to European banks, where risk-based capital rules enabled extreme levels of leverage. Given the spectacular failure of risk-based capital rules, regulators across the globe adopted leverage ratios as a backstop to risk-based requirements. And in the US, leverage ratios were expanded and enhanced for the largest banks.

Big banks have long complained that the leverage ratio is supposed to be a backstop, but too often requires more equity capital than the risk-based rules, thus becoming a binding constraint. But the point of the leverage ratio is to create a minimum capital base as a check against imperfect risk-based standards. If it is too often binding, that suggests the risk-based ratios should be strengthened, not that the leverage ratio should be weakened. 

Big banks also argue that the leverage ratio requires unnecessary capital against money held in Federal Reserve accounts and investments in Treasury securities which are treated as having zero risk under the risk-based rules. This mischaracterises the leverage ratio, an overarching constraint on a banks’ use of leverage to finance all of its loans and investments. Its 5 per cent minimum equity requirement may seem high for Treasury debt, but far too low, say, for property development loans. In any event, US debt is not “risk free” as recent market conditions have made painfully obvious.

Bessent has stated that eliminating all capital requirements on short-term Treasuries could bring their rates down by 0.3 to 0.7 percentage points. True, it would provide a powerful incentive for banks to buy more government debt, thus lowering yields. But it would also likely redirect capital away from the private sector into public coffers. Far from increasing credit availability to support economic growth, it could serve as a brake as more bank assets would move into T-bills or sit idly in Fed accounts where banks could make easy profits. 

Any measure to reduce interest costs on the US national debt sounds tempting, but it is better to trim deficits than weaken bank capital rules. The Fed, an independent agency that must write the new capital rules, is reportedly reluctant to exempt Treasury debt. If it does, it should at least cap the amount that can be exempted. It should also carefully consider the precedent of using bank capital rules to address fiscal challenges. That might even be more dangerous than the exemption itself.

Pharma bosses call for higher drug prices in EU to counter tariff threat

Novartis and Sanofi CEOs push for European benchmark against US prices

European pharmaceutical bosses have called on the EU to increase drug prices towards the much higher levels paid by the US, saying it will encourage innovation.

In a letter to the Financial Times, Novartis chief executive Vas Narasimhan and Paul Hudson, his counterpart at Sanofi, say the European Commission should set a spending target for medicines and vaccines to “fairly reward innovation”. 

The US pays nearly three times as much for branded and generic medicines as other comparable countries, according to US government estimates. The commission should create a benchmark for its member states “in the range of US net prices”, the chief executives say in their letter, adding that this could be adjusted though rebates for some countries.

Lower prices in the EU “artificially [cap] biopharma market growth” and creates a “clear disincentive for innovators”, Narasimhan and Hudson add, citing data that 30 per cent of medicines approved in the US are not available in Europe after two years. 

As the threat of tariffs hangs over the industry, the executives highlight major pharma investments in the US since Donald Trump returned to power and say Europe should act “urgently or decline will set in and [the] departure of companies will accelerate”.

The Trump administration has promised to address high drug prices in the US. During his first presidential term, Trump pushed for prices to be pegged to comparable countries.

While an executive order issued last week did not do this, a US official said the government was “very focused on narrowing the delta between what the United States gets for prices versus what other developed nations do”.

That would present a challenge to the pharmaceutical industry, which relies on the US for between 40 and 50 per cent of its sales.

The European chief executives say in their letter: “Against a backdrop of waning European biopharma competitiveness, the uncertainty of tariffs is further reducing incentives to invest in the EU.” 

They add that they face stiff competition from China, the second largest pharmaceutical market after the US, which has “expanded its position by attracting multinationals and created a vibrant biotechnology environment”.

The industry has rushed to announce large US investments to try to see off the threat of tariffs. Pharmaceuticals were excluded from US tariffs announced this month but the administration is pursuing an investigation that could result in their introduction. 

Roche said this week that it would invest $50bn in the US, Novartis has pledged $23bn of spending on manufacturing and R&D and US drugmakers Johnson & Johnson and Eli Lilly have both promised major investments. 

Sanofi has not yet made any large US investment announcement. French President Emmanuel Macron has urged European companies to pause US investment as the commission prepares a response to tariffs. 

An EU official said dialogue with the pharma industry was “ongoing”. Commission president Ursula von der Leyen met chief executives this month to discuss the potential tariffs and the bloc’s response. 

One-third of Lower Thames Crossing budget spent on planning documents

More than £450mn used for obtaining permission for road tunnel scheme

More than one-third of the £1.2bn spent on the proposed Lower Thames Crossing near London has gone towards planning applications, highlighting the costs of getting the long-awaited project off the ground.

The road and tunnel project to connect Kent and Essex has become a totem of the delays and costs that plague British infrastructure projects, which has led to planning documents that run to 359,070 pages.

More than £450mn has been spent on paperwork, including traffic modelling, economic and environmental impact assessments solely to get planning consent, according to figures obtained by the Financial Times through freedom of information requests.

National Highways said £267mn had been spent on gaining development consent orders for the project and a further £161mn on establishing the “commercial and project integration teams”.

In addition, £29mn was also spent on public and stakeholder consultations, it added, which is more than the £21.3mn spent on construction contracts for carrying out preparatory work such as trial trenches and utility removal.

Much of the rest of the £1.2bn spent has been used to purchase the land and for technical surveys required before any construction can begin.

The project, which has been beset by rising costs and delays, is expected to cost £9-£10bn by the time it opens in 2032.

There have been “significant benefits” to the project from the lengthy process — including design improvements such as new woodland, public parks, more trees and a reduced loss of housing — according to one person close to LTC, though they also admitted the figures demonstrated the costs and complexities of the planning system.

The person added the process had given a “fixed design that is less likely to overrun or find unexpected costs”, unlike projects such as HS2 high speed line or Crossrail, which has become the Elizabeth Line.

Although formal responsibility for the LTC lies with the government-owned agency National Highways, the project has its own dedicated eight-person management team and 150 full-time staff.

These include an external project manager, the US contractor Jacobs, which works alongside other consultants, including Turner and Townsend, Cowi and Arcadis, which also manage the overall scheme.

Three other project managers — Balfour Beatty, Skanska and a joint venture between Bouygues and J Murphy & Sons — each oversee construction of different sections of the project.

The LTC received planning consent last month, though the government is yet to announce how the road and tunnel will be financed. A decision is expected in June’s spending review.

The Treasury favours the “regulated asset base” model of private finance, which has been used on water projects such as the new Tideway tunnel under the river Thames, according to people with knowledge of its thinking.

This costs at least £200mn more than the cheapest model, which would see the Treasury paying for the project and then collecting future revenues from road tolls on the scheme.

Transport Action Network, a campaign group, said it would not be seeking a judicial review “despite there being good grounds, such as the out-of-date and incomplete traffic modelling justifying the scheme”.

The campaign group argued the cash would be better spent on an estimated £24bn backlog in local roads and bridge maintenance.

The findings come as the government’s national infrastructure and planning bill winds its way through parliament. Although it is seeking to speed planning decisions by reducing opportunities for legal challenges environmental groups are concerned it will erode nature and wildlife protection.

National Highways said the LTC “remains the best option for tackling the chronic congestion at Dartford and unlocking growth through a new connection between the south-east ports, the Midlands and the North”.

From trains to tanks: Germany’s rearmament marks industrial shift

Push to increase defence production is offering a glimmer of hope for workers facing manufacturing job losses

For three generations, the Liebigs have made a living building double-decker railcars in the easternmost German town of Görlitz. But those who come after Carsten Liebig will now build weapons, not trains.

Starting next year, Görlitz’s 176-year-old train factory will start producing components for Leopard II main battle tanks and Puma infantry fighting vehicles after defence contractor KNDS stepped in late last year to take over the site that train maker Alstom had decided to shut down.

Like many manufacturers in Western Europe, Alstom shut down the plant as part of a broader push to cut costs by shifting production to lower-wage countries.

Liebig said that while he hoped the deal would improve the chances of his former colleagues keeping their jobs — KNDS has pledged to retain around 350 of the plant’s 700 employees — he mourned the loss of an industry that had shaped his home town’s identity.

“What’s very sad for me personally, deeply sad, is that we still need arms production,” said Liebig, who retired in 2021 from a lifetime of making trains and trams that carry passengers in countries such as Germany and Israel.

The Liebigs are not unique — across Germany, families have grown accustomed to watching businesses in automotive, mechanical engineering, and chemical industries falter, taking well-paid jobs that have supported generations with them.

Output at Germany’s most energy-intensive sectors has fallen by 20 per cent compared with 2021 — the year before Russia invaded Ukraine and Germany lost access to cheap gas.

For many Germans living in the former communist East, the current malaise marks the second wave of deindustrialisation they have experienced since the reunification of the country in 1990.

That is why Germany’s historic rearmament is now offering a rare glimmer of hope in a country where nearly a quarter of a million manufacturing jobs have disappeared since the onset of the pandemic.

Octavian Ursu, the mayor of Görlitz, said other towns could soon undergo the kind of industrial transition currently taking place in his constituency. “As large investments flow into rearmament, it is likely that these kinds of changes to industrial sites will continue to take place,” he said.

German defence spending has surged by almost 80 per cent since 2020, reaching over €90bn last year, according to Nato estimates, and Berlin’s rearmament push is only set to intensify competition among arms makers for skilled labour.

Rheinmetall, Diehl Defence, Thyssenkrupp Marine Systems and MBDA — four defence contractors with a large presence in Germany — have, over the past three years, together added more than 16,500 employees, an increase of more than 40 per cent. They plan to hire roughly 12,000 more by 2026, they told the Financial Times.

At a ceremony held to mark the handover at the Görlitz plant in February, KNDS’ chief operating officer Florian Hohenwarter said the tank maker had picked the plant as it already had “precisely the highly trained specialists we need to produce the highest-quality components for our vehicles” referring mainly to skilled welders.

“Finding and training the right people” will be a key challenge for defence contractors looking to scale, said Bank of America analyst Benjamin Heelan. An increasing number of companies had started targeting workers from shrinking industries such as automotive, “bringing them in, retraining them and repurposing them”, he said.

Lucrative government contracts have prompted listed arms companies to significantly boost shareholder payouts. Rheinmetall plans to raise its dividend by 42 per cent this year, Hensoldt by 25 per cent, and tank gearbox maker Renk by 40 per cent — moves that are likely to fuel pressure to reinvest in local economies.

“If we’re now using German taxpayers’ money for security, then jobs must also be created in Germany,” Rheinmetall chief executive Armin Papperger said last month, as he revealed the company’s interest in potentially taking over redundant automotive plants.

Last month, Papperger and a delegation from Rheinmetall visited a soon-to-be-idled Volkswagen factory in Osnabrück in north-west Germany, amid talks of a potential takeover. The munitions and tank maker is racing to expand production capacity to meet an order backlog worth €55bn, just as the carmaker plans to halve its manufacturing output.

Rheinmetall, together with radar and sensor maker Hensoldt, has also pledged to take on around three hundred laid-off workers from Continental and Bosch — two of Germany’s largest car suppliers.

The defence groups’ announcements, however, represent a small fraction of the tens of thousands of automotive job cuts, as Europe’s carmakers prepare for terminally lower sales. So far, only one Continental employee has been transferred to a Rheinmetall plant, with the moves dependent on voluntary applications by automotive workers.

Just how enthusiastic Germans are about joining Berlin’s rearmament push, including its military support for Ukraine — whether by enlisting as soldiers or building tanks — remains far from clear.

Görlitz made headlines in 2019 when the town came close to electing Germany’s first Alternative for Germany (AfD) mayor — a move ultimately blocked as other parties urged voters to rally behind the Christian Democrats’ Ursu.

But in last year’s local elections, the vote share of the AfD — an anti-immigrant party that opposes German involvement in the war in Ukraine — surged to 37 per cent, and nearly half of all ballots cast in Görlitz went to parties opposed to Germany’s military support for Ukraine.

Sebastian Wippel, who narrowly missed becoming the AfD’s first mayor in Görlitz in 2019, said Germany’s military needed tanks, but questioned where else the weapons produced in town might end up.

“Are the tanks being built here going to be sold or donated directly to Ukraine? That, of course, would not be good,” he said. The defence industry, he added, “must not become a means of gearing up for war, or of putting politicians in a position where they end up talking themselves into a conflict.”

Nevertheless, Michael Kretschmer, prime minister of the German state of Saxony and a long standing opponent of weapons deliveries to Ukraine, welcomed tank production in Görlitz — where he was born.

“The technologies that will be manufactured in Görlitz in the future will serve to protect Europe. This is an enormous opportunity for the city — and for good, secure jobs,” he said.

KNDS, which did not respond to multiple requests for comment, has made no public commitments about its long-term plans for the plant.

Axel Drescher, an organiser for IG Metall, said the union welcomed the preservation of jobs but questioned how long the defence sector’s expansion could last — unless, he noted, tanks and munitions continued to be consumed in war.

“Will tank manufacturing be a sustainable job? Hopefully not. Hopefully, the wars will end soon,” he said.

Liebig, however, took a more pragmatic view of the changes taking place in his home town. “Unfortunately, that’s just how it is,” he said. “The world moves on — all we can do is hope that as many jobs as possible will stay on.”