German arms manufacturer in damage control mode after PR disaster and stock slump

By Jules Rimmer

Comments by Rheinmetall CEO attract widespread condemnation

Ukrainian military specialists have been quick to defend the success of its drone warfare strategy, after disparaging remarks from Rheinmetall's CEO.

German arms manufacturer Rheinmetall (XE:RHM) is struggling to contain a public relations disaster that has developed in the wake of an interview conducted with its chief executive officer, Armin Papperger, last week.

The stock has plummeted around 10% since Papperger made derisive remarks about Ukrainian drone technology that has proved so successful in thwarting the Russian army, inflicting heavy losses on its military, both in terms of equipment and manpower. His widely circulated March 27 interview in The Atlantic attracted fierce criticism from many quarters.

Asked about the innovative, low-cost and efficient Ukrainian weaponry, Papperger dismissed it as "the work of housewives" with "3-D printers in their kitchens," and criticized the Ukrainians for lacking real technological breakthroughs. "This is how to play with Legos (sic)" is perhaps the quote to which Ukrainians and other observers took exception.

An adviser to Ukrainian president, Alexander Kamyshin, and Prime Minister Yulia Svyrydenko both separately rebuked Papperger for what they viewed as sexist and disparaging flak, and widespread condemnation forced the German company into a rear-guard action to contain the backlash. On Sunday, before markets opened for a new week of trading, the company issued a tribute to Ukraine and its bravery in fighting off invasion in a post on X.

However, the post fell short of a formal apology, which could mean the controversy won't end swiftly. Several media sources have brought up Rheinmetall's business relationship with the Russian military that was still ongoing until way after the invasion of Ukraine.

Those sources have also noted the company's much longer history dating back to the World War II when Rheinmetall's predecessor, Rheinmetall-Borsig AG, was controlled by the Nazi regime and built weaponry for the German army, often exploiting forced labor, Jewish people or prisoners of war.

Since the so-called "Zeitenwende" (or changing of the times) was announced by then German Chancellor Olaf Scholz in 2022 and the country began a policy of increased military spending and rearmament in response to Russian aggression, Rheinmetall's stock has enjoyed a major boom. It multiplied more than 10 times between 2022 and the first quarter of 2026. Since then, however, and even before this latest brouhaha, the shares have begun to struggle.

Rheinmetall announced earnings earlier in March that were impressive, with a massive order backlog expected to be EUR135 billion ($155 billion) by the end of 2026, but these were already well-telegraphed and well-discounted by the market.

So far in 2026, Rheinmetall shares have declined more than 11%, underperforming the Stoxx Europe 600, which is down 2.5%. Over the past 12 months, shares have returned only 4.5%, despite huge portfolio shifts in favor of European defense stocks.

Valuation may be part of the problem. According to FactSet, Rheinmetall trades on a 35 times price-earnings multiple, a significant premium to the STOXX Europe 600 XX:SXXP benchmark's 13.9 times.

-Jules Rimmer

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