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European countries are ramping up their defence activities to develop technologies that can be used on the battlefield.
Germany this week earmarked almost €400bn in extra funding through to 2029, while the UK government has published its Strategic Defence Review to allow more small and medium business to contribute. France and its electronics champions such as Thales, Dassault and Safran are also ramping up activities.
With increasing defence budgets, there is increasing focus on dual use technologies that can be used on the battlefield but also benefit from cost savings and economies of scale with civilian use. Drone technology is a key example, with air and ground-based autonomous systems providing logistics support.
“The future of Europe is being written not only at the frontline in Ukraine but also in our factories,” said Ursula von der Leyen, president of the European Commission yesterday. “In record time, you have managed to open new lines and step up production, adapting to the new reality of a full-scale war right here, on European soil. This is a once-in-a-generation tectonic shift.”
In recent months, Europe has taken action that seemed unthinkable until just last year. The ReArm Europe Plan mobilises €650bn in defence investment as part of the €800bn Readiness 2030 programme over the next four years to speed up technology development and procurement.
This recognises that defence systems are becoming increasingly reliant on sophisticated electronics. Electronics is set to account for 25% of the value of defence equipment by 2035, up from 17% currently. This means a surge in demand for a wide range of electronic components and systems, including sensors and radars, secure communication systems and Electronic Warfare (EW) Systems for jamming, spoofing, and countering enemy electronics. This is a particularly fast-growing area.
The phenomenal growth of Berlin-based Helsing highlights the increasing emphasis on defence technology and manufacturing in Europe. Only founded in 2021, the company last week announced $600m of funding in its Series D round. This follows the Series C funding of €450m this time last year, marking over €1bn raised in less than a year to build out a series of drone production factories across the continent.
“As Europe rapidly strengthens its defence capabilities in response to evolving geopolitical challenges, there is an urgent need for investments in advanced technologies that ensure its strategic autonomy and security readiness,” said Daniel Ek, chairman of Helsing who is also the billionaire founder and CEO of Spotify and founder of venture fund Prima Materia.
“Helsing is uniquely positioned with its AI leadership to deliver these critical capabilities in all-domain defence innovation. By doubling down on our investment, Prima Materia reaffirms its commitment to empowering Europe’s technological sovereignty—an ambition Helsing perfectly embodies.”
This comes alongside a strong political will to reduce reliance on non-European suppliers for critical defence components. This “build, buy, and back European” strategy aims to strengthen the continent’s strategic autonomy and will prioritize European companies, creating a significant competitive advantage
The higher defence budgets are funnelling more money into research and development (R&D) in defence technologies. This includes dedicated funds such as the European Defence Fund (EDF), which is prioritizing areas like air and missile defence, cyber systems, and electronic warfare. This presents opportunities for European electronics companies to innovate, develop cutting-edge solutions, and potentially see spillover effects into civilian applications (dual-use technologies).
Drones
The Paris Air Show 2025 featured a significant focus on drones, particularly in light of recent global conflicts and the accelerating pace of technological development.
Just as drones can be used for low cost warfare, they can also be developed and produced by smaller companies. French drone manufacturer Parrot unveiled a new microdrone series, which is a sub-1kg class quadcopter based on the ANAFI USA model with expanded sensory, navigation, and communication capabilities. The military version features the MARS radio link designed for jamming resistance and signal security.
Turkish company Baykar showcased the Akinci and TB3 drones for the first time, with the TB3 capable of landing on small aircraft carriers. Czech startup FlyinDiamonds showed Mandrake, which weighs under 500g for delivering medical supplies in emergencies.
Larger drones were also on show in Paris. The Airbus Eurodrone has 30-meter wingspan, a 13-ton maximum takeoff weight, and 40 hours of autonomy. The first prototype flight is now slated for mid-2027. California-based Anduril also showcased a model of its Fury drone, planned for production by 2027. Anduril is working with Germany’s Rheinmetall to explore developing European versions of the Fury.
The significant increase in defence spending across Europe is poised to have a profound impact on European electronics companies, creating both substantial opportunities and some challenges.
The drive for faster innovation and more agile procurement processes, as seen in the UK’s SDR 2025, is explicitly designed to increase access for SMEs. New funding mechanisms and initiatives for defence technologies will help promising smaller companies, especially those in Central and Eastern Europe, gain access to capital and enter the defence supply chain.
While there is increased demand, there’s also a recognition that Europe’s defence industry has historically been fragmented. The increased spending and focus on common projects may encourage consolidation and cross-border collaboration among European electronics companies to achieve economies of scale and better compete globally.
SME opportunities
The UK defence review signals a fundamental shift in procurement processes, aiming for faster innovation cycles and dramatically cutting timelines. This includes a reduction in contracting time for major equipment from an average of six years to two years, accelerating upgrades and software buys to one year or even three-month cycles.
A new hub is being established to provide clear guidance and assistance to small businesses seeking to access the defence supply chain, This aims to dramatically increase the amount of the 4% of the UK defence budget that is spent with SMEs each year. A £400 million Defence Innovation Fund has been allocated specifically to support UK businesses, particularly in cutting-edge technologies.
The review also calls for a new relationship between the MOD, commercial companies, start-ups, and SMEs. This new partnership model encourages early and ongoing collaboration across the supply chain, with a focus on AI, drones and semiconductors,
However there are significant challenges, not least the experience of the industry in working with defence departments across Europe.
Despite the growing demand from the defence sector, Europe’s overall electronics manufacturing base has shrunk significantly (down over 35% in two decades). Key segments like Printed Circuit Boards (PCBs), chip substrates, and advanced packaging have a very low share of global defence-related production within Europe. This means that while demand is high, the existing manufacturing capacity might not be sufficient, leading to potential supply chain vulnerabilities.
The defence sector is highly regulated, with stringent quality standards, security requirements, and complex procurement procedures that can be a significant barrier to entry for companies, especially smaller ones. This can drive more partnerships and consolidation.
While there’s a push for European sourcing, European electronics companies will still face competition from established players in the US, as well as emerging players in Israel, South Korea, and Turkey. The specialized nature of defence electronics is also presenting challenges in finding and retaining skilled engineers and technicians, particularly in AI.
The overall challenge is how to ensure that Europe takes the opportunity to re-build a sustainable electronics industry, but there is little time to do this.
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