• Horváth estimates European defense spending at approximately €617 billion by 2030 
• More than 40 percent of companies plan to enter the defense market 
• Potential in space and drone technologies as well as consumable products

Defense spending in Europe is rising sharply. Companies from a wide range of industries want to capture these market opportunities: more than 40 percent of surveyed companies see future potential for their businesses in the defense market. Yet the sector is more constrained than the high level of defense spending initially suggests. Only around one in three new market entrants can achieve their growth targets in the European defense sector by 2030. These are findings from an analytical tool developed by Horváth that combines data from Eurostat and the European Defence Agency with results from Horváth’s own CxO studies and additional market forecasts.

Since the start of the war in Ukraine, Europe’s aerospace and defense industry has grown considerably. According to new Horváth calculations, defense spending in the European Union could rise to approximately €617 billion by 2030. "However, this figure should not be equated with industry revenue. A portion of the funding is allocated to personnel and infrastructure, and defense budgets are not always fully allocated or spent," says Christoph Ketterle, Principal in Horváth’s Aerospace & Defense practice. "The more companies enter the market, the less room there is for everyone else."

Automotive Sector Expects a Seven Percent Revenue Share from Defense

Growth ambitions vary significantly by industry. In the automotive sector, 38 percent of surveyed companies plan to establish or expand activities in the defense and space market. By 2029, these companies expect defense and space activities to account for approximately seven percent of their revenue. Expected revenue shares are even higher among software and professional services providers at 18 percent, banks and financial services firms at 15 percent, and energy companies at 23 percent. “The European defense sector’s growth of approximately 11.4 percent per year in recent years has been exceptional and cannot simply be projected into the future. Companies are already reaching limits in capacity, supplier availability, and their own organizational structures,” says Christoph Ketterle. Using more conservative assumptions, realistic growth rates for the European defense industry are in the range of six to seven percent.

New Market Entrants Need More Than the Right Product

For companies seeking to enter the defense sector, it is not enough to offer an existing product and then look for the right customer. What matters is a clear strategic direction, a solid business case, and a willingness to adapt to the defense industry’s specific requirements over the long term. “Smaller companies in particular should focus on areas where they can contribute specialized capabilities or address existing bottlenecks,” advises defense expert Christoph Ketterle.

According to Horváth, partnerships and networks are becoming increasingly important for larger providers. Ketterle sees favorable conditions particularly for companies from Germany’s high-tech industries, as many of the required capabilities already exist. Nevertheless, compared with major industries such as automotive, chemicals, or metals, the defense sector remains a much smaller market. This makes it all the more important to prepare a market entry carefully rather than relying solely on overall market growth.

Munitions as a Growth Driver

Ketterle sees particularly high growth opportunities in missiles, munitions, and other consumables, as these require recurring procurement. As a result, growth and capacity pressure remain high. The defense expert also sees considerable potential in space and drone technologies. In the space sector in particular, Germany still has considerable ground to make up. Traditional aerospace programs, by contrast, offer less short-term growth potential due to their long development and procurement cycles.

European and NATO-related funding programs such as the European Defence Fund (EDF) and DIANA can provide guidance on relevant technology areas. “Companies entering the market should not ask what they could produce for the defense sector in general,” says Ketterle. “They should focus on where capabilities or capacity are actually lacking. Companies that can address such bottlenecks increase their chances of a successful market entry.”

About the Methodology

The analysis is based on a dashboard developed by Horváth that combines data from Eurostat and the European Defence Agency with results from the firm’s own CxO studies and additional market forecasts. The model compares the expected development of EU defense budgets between 2027 and 2030 with the growth of established defense companies and the growth ambitions of new market entrants. The tool is intended to support strategic analysis and help companies assess growth opportunities in the defense market more realistically.