Rheinmetall shares plunged as much as 17%, the largest intraday drop in more than a year, after the Financial Times reported that Berlin has scrapped a multi-billion-euro program to build six F126 frigates.

The German Ministry of Defense told FT on Wednesday that the decision was due “to significant delays in the project, foreseeable cost increases and the risks that would have been associated with a change of main contractor,” adding that changing the contractor would have added even more costs but also required the government to contractually “waive potential claims for damages against the previous contractor”.

The ministry noted that it now plans to procure eight MEKO-200 frigates from TKMS instead. “Sea-based anti-submarine warfare is of the utmost importance within NATO and is therefore also a national priority,” it said.

TKMS shares in Germany jumped 10% on the news.

Morgan Stanley analyst Marie-Ange Riggio said the report was a surprise, especially because Rheinmetall had been confident it would secure the contract before summer.

Riggio said it raises questions about German defense procurement visibility and Rheinmetall’s near-term naval ambitions, but it should not materially affect current guidance because deliveries were not expected until 2031, leaving a limited impact on 2030 targets.

Here is Citi analyst Charles Armitage’s first take on the news:

It has been widely reported (Bloomberg, 24/6/26, here) that Germany will cancel the F126 frigate program (and buy 8 MEKO frigates from TKMS instead, 4 more than previously). We have been cautious of Rheinmetall’s ability to ramp Naval sales up to Eur5bn by 2030 and forecast Eur2.5bn sales in 2030 (see Figure 38 of our initiation report, which also gave Eur115 of further upside if Eur5bn sales were to be obtained) – following the reported cancellation, this seems more likely (with our existing group forecast of Eur37bn sales in 2030 also looking more valid).

Two points: 1) our valuation of Eur1,000-1,100 per share for the non-ammunition business still stands, plus Eur300-500 per share for the ammunition, giving our Target Price of Eur1,408, which remains valid; 2) that said, the incremental news today would appear to call the Naval targets into question – suggesting an estimated ~Eur115 downside risk to the share price.

Barclays analyst Afonso Osorio says, “This comes as a surprise, weighs on sentiment, and raises questions about how quickly defense spending will evolve.”